As filed with the Securities and Exchange Commission on October 16, 1996
Registration No. 333-______
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM S-3
REGISTRATION STATEMENT
Under
THE SECURITIES ACT OF 1933
MLCC MORTGAGE INVESTORS, INC.
(Exact name of registrant as specified in its governing instruments)
Delaware (State of incorporation)
13-3433607 (I.R.S. Employer Identification No.)
4802 Deer Lake Drive East
Jacksonville, Florida 32246
(Address of principal executive offices)
Robert J. Smith
MLCC Mortgage Investors, Inc.
4802 Deer Lake Drive East
Jacksonville, Florida 32246
(Name and address of agent for service)
With a copy to:
Allan Neil Krinsman
Brown & Wood LLP
One World Trade Center
New York, New York 10048
Approximate date of commencement of proposed sale to the public: From
time to time on or after the effective date of the registration statement, as
determined by market conditions.
If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the
following box. / /
If any of the securities being registered on this Form are to be offered
on a delayed or continuous basis pursuant to Rule 415 under the Securities
Act of 1933, other than securities offered only in connection with dividend
or interest reinvestment plans, check the following box. /x/
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offer. / / _______________.
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / / _______________.
If delivery of the prospectus is expected to be made pursuant to Rule
434, please check the following box. / /
<TABLE>
CALCULATION OF REGISTRATION FEE
<CAPTION>
Proposed Proposed
Amount Maximum Maximum Amount
Title of Each Class of to be Offering Aggregate of
Securities to Be Registered Registered(1) Price Offering Registration
Per Unit(2) Price(2) Fee
<S> <C> <C> <C> <C>
Asset Backed Certificates . . . . . . $1,000,000 100% $1,000,000 $303.04
</TABLE>
(1) This Registration Statement relates to the initial offering from time to
time of $1,000,000 aggregate principal amount of Asset Backed
Certificates and to any resales thereof in market making transactions by
Merrill Lynch, Pierce, Fenner & Smith Incorporated, an affiliate of the
Registrant, to the extent required.
(2) Estimated solely for purposes of calculating the registration fee on the
basis of the proposed maximum aggregate offering price.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THE REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A)
OF THE SECURITIES ACT OF 1933, OR UNTIL THIS REGISTRATION STATEMENT SHALL
BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID
SECTION 8(A), MAY DETERMINE. PURSUANT TO RULE 429 OF THE SECURITIES AND
EXCHANGE COMMISSION'S RULES AND REGULATIONS UNDER THE SECURITIES ACT OF 1933,
AS AMENDED, THE PROSPECTUS AND PROSPECTUS SUPPLEMENT CONTAINED IN THIS
REGISTRATION STATEMENT ALSO RELATE TO THE REGISTRANT'S REGISTRATION STATEMENT
ON FORM S-3 (REGISTRATION NO. 33-84894) AND THIS REGISTRATION STATEMENT
CONSTITUTES A POST-EFFECTIVE AMENDMENT THERETO.
EXPLANATORY NOTE
This Registration Statement includes a basic prospectus and two
illustrative forms of prospectus supplements for use in an offering of Asset
Backed Certificates backed by adjustable rate, one- to four-family mortgage
loans and by home equity revolving credit line mortgage loans, respectively.
The descriptions in the forms of prospectus supplements of credit enhancement
mechanisms or other features are intended merely as illustrations of the
principal features of a possible series of Asset Backed Certificates; the
features applicable to any actual series of Asset Backed Certificates may
include some, all or none of the features so illustrated, and may include any
features specified in the prospectus.
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement
becomes effective. This prospectus shall not constitute an offer to sell or
the solicitation of an offer to buy nor shall there be any sale of these
securities in any State in which such offer, solicitation or sale would be
unlawful prior to registration or qualification under the securities laws of
any such State.
SUBJECT TO COMPLETION, DATED OCTOBER 16, 1996
PROSPECTUS SUPPLEMENT
- ---------------------
(TO PROSPECTUS DATED ________ ___, 1996)
$___________ (APPROXIMATE)
MLCC MORTGAGE INVESTORS, INC., SELLER
MORTGAGE LOAN ASSET BACKED PASS-THROUGH CERTIFICATES, SERIES 199_-_, CLASS A
PRINCIPAL AND INTEREST PAYABLE ON THE 15TH DAY OF EACH MONTH,
BEGINNING IN _________ 199_
MERRILL LYNCH CREDIT CORPORATION, MASTER SERVICER
-------------------
The Series 199_-_ Certificates will consist of Class A, Class B and
Class R Certificates (collectively, the "Certificates"). Only the Class A
Certificates are offered hereby. The Class A Certificates will be senior to
the Class B and Class R Certificates (collectively, the "Subordinated
Certificates"), to the extent described herein. See "Description of the
Certificates -- Subordinated Certificates."
The Certificates will represent beneficial interests in a pool (the
"Mortgage Pool") of high balance, adjustable rate, one- to four-family
mortgage loans (the "Mortgage Loans"), including adjustable rate loans that
may be converted to fixed rate loans or to adjustable rate loans based on a
different Index, which were originated by Merrill Lynch Credit Corporation
("MLCC") under its PrimeFirst(Registered Trademark) mortgage program or
acquired by it in the course of its correspondent lending activities, and
certain related property (collectively, the "Trust Fund") conveyed by MLCC
Mortgage Investors, Inc. (the "Company"). MLCC will serve as Master Servicer
(the "Master Servicer") of the Mortgage Pool. Terms used and not otherwise
defined herein shall have the respective meanings ascribed to such terms in
the Prospectus dated ______ __, 19__ attached hereto (the "Prospectus").
The Class A Certificates will be issued in the initial aggregate
principal amount of approximately $___________, subject to a permitted
variance of plus or minus __%. The remaining beneficial interests in the
Trust Fund will be evidenced by the Class B and Class R Certificates.
(LOGO)
On or before the issuance of the Certificates, the Company will obtain
from (AMBAC Indemnity Corporation) (MBIA Insurance Corporation) (the
"Certificate Insurer") a certificate guaranty insurance policy, relating to
the Class A Certificates (the "Certificate Insurance Policy"), in favor of
the Trustee. The Certificate Insurance Policy will protect holders of the
Class A Certificates against shortfalls in amounts due to be distributed at
the times and to the extent described herein. See "The Certificate Insurance
Policy and the Certificate Insurer."
(Cover continued on following page)
THE CLASS A CERTIFICATES WILL NOT REPRESENT AN INTEREST IN OR OBLIGATION
OF THE COMPANY, THE TRUSTEE, MLCC, MERRILL LYNCH, PIERCE, FENNER & SMITH
INCORPORATED, MERRILL LYNCH & CO., INC. OR ANY OF THEIR AFFILIATES, NOR WILL
THE CLASS A CERTIFICATES BE INSURED OR GUARANTEED BY ANY GOVERNMENTAL AGENCY
OR BY ANY OTHER PERSON OR ENTITY (OTHER THAN, SOLELY IN RESPECT OF THE CLASS
A CERTIFICATES, THE CERTIFICATE INSURER), INCLUDING THE COMPANY, THE TRUSTEE,
MLCC, MERRILL LYNCH, PIERCE, FENNER & SMITH INCORPORATED, MERRILL LYNCH &
CO., INC. OR ANY OF THEIR AFFILIATES. DISTRIBUTIONS ON THE CLASS A
CERTIFICATES WILL BE PAYABLE SOLELY FROM THE ASSETS TRANSFERRED TO THE TRUST
FUND FOR THE BENEFIT OF THE HOLDERS OF THE CLASS A CERTIFICATES.
FOR A DISCUSSION OF CERTAIN FACTORS RELATING TO AN INVESTMENT IN
CERTIFICATES, SEE "SPECIAL CONSIDERATIONS" ON PAGE S-19 HEREIN.
-------------------
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.
-------------------
The Class A Certificates are being offered by the Underwriter from time
to time in negotiated transactions or otherwise at varying prices to be
determined, in each case, at the time of sale.
The aggregate proceeds to the Company from the sale of the Class A
Certificates will be approximately $___________, before deducting expenses
payable by the Company, estimated to be $_______ in the aggregate. The
Underwriter will reimburse the Company for approximately $_______ of such
expenses.
The Class A Certificates are offered subject to prior sale, when, as and
if issued by the Trust Fund and accepted by the Underwriter and subject to
its right to reject orders in whole or in part. It is expected that delivery
of the Class A Certificates will be made in book-entry form only through the
facilities of The Depository Trust Company, Cedel Bank, societe anonyme, and
the Euroclear System on or about _________ __, 199_.
-------------------
MERRILL LYNCH & CO.
-------------------
The date of this Prospectus Supplement is _______ __, 199_.
(Cover continued from previous page)
The Class A Certificates will be adjustable rate Certificates. Each
Mortgage Loan will be an adjustable rate loan with an interest rate that
is adjusted (subject to a lifetime maximum cap) either every month or
every six months as described herein and, in the case of certain of those
Mortgage Loans, subject to the option of the Mortgagor to convert the
Mortgage Loan to a fixed rate loan or to a different Index, as described
below and herein, or, in some cases, only to convert to a new Index.
Payments of interest and, to the extent described herein, principal will
be due on the first day (the "Due Date") of each month and will be
distributed, as and to the extent described herein, to the holders of the
Class A Certificates on the ___th day of that month (or if such day is not
a business day, then on the next succeeding business day) (each, a
"Distribution Date"). The adjustments to the interest rates of the
Mortgage Loans and their scheduled amortization are described herein.
Approximately ____% of the Mortgage Loans (by aggregate principal balance
as of the Cut-off Date) (the "Convertible Mortgage Loans") provide that,
at the option of the related Mortgagors, the adjustable interest rate on
such Mortgage Loans may be converted to a fixed interest rate and that, at
the option of the related Mortgagors, the Index may be converted to a
different Index, provided that certain conditions have been satisfied.
Upon notification from a Mortgagor of such Mortgagor's intent to convert a
Mortgage Loan from an adjustable interest rate to a fixed interest rate,
and prior to such conversion of any such Mortgage Loan (a "Converting
Mortgage Loan"), the initial Master Servicer, so long as it is the Master
Servicer, will be obligated to purchase the Converting Mortgage Loan at a
price equal to the outstanding principal balance thereof plus accrued
interest thereon net of any servicing fees (the "Conversion Price"). If
the Master Servicer does not purchase a Converting Mortgage Loan, the
Mortgage Loans will thereafter include such fixed rate converted Mortgage
Loan. Approximately _____% of the Mortgage Loans (by aggregate principal
balance as of the Cut-off Date) (the "Index Convertible Mortgage Loans")
provide that, at the option of the related Mortgagors, the Index for such
Mortgage Loans may be converted to a different Index, provided that
certain conditions have been satisfied. The Master Servicer will not
purchase a Mortgage Loan (whether it is a Convertible Mortgage Loan or an
Index Convertible Mortgage Loan) upon its conversion to a new Index. See
"Prepayment and Yield Considerations" herein.
The Class A Pass-Through Rate is equal to the lesser of (i) the
applicable one-month LIBOR (as defined herein) plus the applicable margin
described herein and (ii) the applicable Weighted Average Net Mortgage
Rate (defined herein) for the Mortgage Loans, as described under
"Description of the Certificates -- Distributions on the Certificates."
On each Distribution Date, commencing on _________ __, 199_, holders
of the Class A Certificates will be entitled to receive, from and to the
extent of the funds described herein, distributions with respect to
principal of the Mortgage Loans, to the extent described herein, together
with interest on the outstanding principal balance of the Class A
Certificates at the Class A Pass-Through Rate, calculated as described
herein and subject to the limitations described herein. Interest will
begin to accrue on the Class A Certificates from the date of their initial
issuance as described herein.
THE YIELD ON THE CLASS A CERTIFICATES WILL BE SENSITIVE TO, AMONG
OTHER THINGS, THE LEVELS OF THE MORTGAGE RATES, THE TIMING OF THE CHANGES
IN THOSE MORTGAGE RATES, THE LEVEL OF ONE-MONTH LIBOR AND THE RATE AND
TIMING OF PRINCIPAL PAYMENTS (INCLUDING PREPAYMENTS). SEE "PREPAYMENT AND
YIELD CONSIDERATIONS."
The only obligation of the Company with respect to the Certificates
will be to obtain from MLCC, as seller of the Mortgage Loans to the
Company, certain representations and warranties relating to the Mortgage
Loans. MLCC will have the obligation to repurchase any Mortgage Loan as to
which an uncured breach of certain representations or warranties has
occurred that materially adversely affects the Certificateholders or the
Certificate Insurer and will have contractual servicing obligations as
Master Servicer. The Master Servicer is obligated under certain
circumstances to make Advances (defined herein) to the Certificateholders.
See "Description of the Certificates -- Advances" herein and "Description
of the Certificates -- Distributions on the Certificates" in the
Prospectus.
An election will be made to treat the Trust Fund (exclusive of the
rights in respect of any Additional Collateral, as described herein) as a
real estate mortgage investment conduit (a "REMIC") for federal income tax
purposes. See "Certain Federal Income Tax Consequences" in the
Prospectus.
The Class A Certificates and Class B Certificates will represent "regular
interests" in the REMIC.
The Class R Certificate will represent the sole class of "residual
interest" in the REMIC.
The interests of the owners of the Class A Certificates (the
"Certificate Owners") will be represented by book-entries on the records
of The Depository Trust Company and participating members thereof. See
"Description of the Certificates -- Registration of Class A Certificates"
herein.
Merrill Lynch, Pierce, Fenner & Smith Incorporated (the
"Underwriter") intends to make a secondary market in the Class A
Certificates, but has no obligation to do so. There can be no assurance
that a secondary market for the Class A Certificates will develop, or if
it does develop, that it will provide holders of the Class A Certificates
with liquidity of investment at any particular time or for the life of the
Class A Certificates.
THE CLASS A CERTIFICATES ARE BEING OFFERED BY THE COMPANY FROM TIME
TO TIME PURSUANT TO THIS PROSPECTUS SUPPLEMENT AND THE PROSPECTUS
ACCOMPANYING THIS PROSPECTUS SUPPLEMENT. THIS PROSPECTUS SUPPLEMENT DOES
NOT CONTAIN COMPLETE INFORMATION ABOUT THE OFFERING OF THE CLASS A
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 CLASS A CERTIFICATES MAY NOT BE
CONSUMMATED UNLESS THE PURCHASER HAS RECEIVED BOTH THIS PROSPECTUS
SUPPLEMENT AND THE PROSPECTUS.
TO THE EXTENT THAT ANY STATEMENTS IN THIS PROSPECTUS SUPPLEMENT
MODIFY STATEMENTS CONTAINED IN THE PROSPECTUS, THE STATEMENTS IN THIS
PROSPECTUS SUPPLEMENT SHALL CONTROL.
Upon receipt of a request by an investor who has received an
electronic Prospectus Supplement and Prospectus from the Underwriter or a
request by such investor's representative within the period during which
there is an obligation to deliver a Prospectus Supplement and Prospectus,
the Company or the Underwriter will promptly deliver, or cause to be
delivered, without charge, a paper copy of the Prospectus Supplement and
Prospectus.
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 Securities Exchange Act of 1934, as amended, subsequent
to the date of the Prospectus and prior to the termination of the offering
of the Class A Certificates made by this Prospectus Supplement are
incorporated herein by reference. The Company hereby undertakes to provide
without charge to each person to whom this Prospectus Supplement and the
Prospectus are delivered, on request of such person, a copy of any or all
of the documents incorporated herein by reference other than the exhibits
to such documents (unless such exhibits are specifically incorporated by
reference in such documents). Requests should be directed to the Corporate
Secretary of MLCC Mortgage Investors, Inc., in writing at 4802 Deer Lake
Drive East, Jacksonville, Florida 32246, or by telephone at (904)
928-6000.
-------------------
UNTIL 90 DAYS FROM THE DATE OF THIS PROSPECTUS SUPPLEMENT, ALL
DEALERS EFFECTING TRANSACTIONS IN THE CLASS A 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.
SUMMARY OF 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 or elsewhere in this Prospectus Supplement.
Securities Offered. . . . . . . . Mortgage Loan Asset Backed Pass-Through
Certificates, Series 199_-_, Class A (the
"Class A Certificates"). The Class B and
Class R Certificates (the "Subordinated
Certificates") will be subordinated to the
Class A Certificates as described herein.
The Subordinated Certificates are not
offered hereby and may be retained or
sold by the Company or certain affiliates
thereof. The Certificate Insurance Policy
will be available to protect the holders
of the Class A Certificates against
shortfalls in amounts due to be
distributed at the times and to the extent
described herein. See " -- Certificate
Insurance Policy" below and "The
Certificate Insurance Policy and the
Certificate Insurer" herein.
Seller. . . . . . . . . . . . . . MLCC Mortgage Investors, Inc. (the
"Company"), a wholly-owned, limited
purpose subsidiary of Merrill Lynch Credit
Corporation, which is a wholly-owned
indirect subsidiary of Merrill Lynch &
Co., Inc. and an affiliate of Merrill
Lynch, Pierce, Fenner & Smith Incorporated
(the "Underwriter"). Neither Merrill Lynch
& Co., Inc. nor any of its affiliates,
including the Company, has insured or
guaranteed the Certificates.
Master Servicer . . . . . . . . . Merrill Lynch Credit Corporation ("MLCC"),
a wholly-owned indirect subsidiary of
Merrill Lynch & Co., Inc. and an affiliate
of both the Company and the Underwriter.
Each of the following original principal balance amounts is approximate,
subject to a permitted variance of plus or minus 5%:
Original Pool Scheduled
Principal Balance . . . . . . . . $___________
Original Class A Principal
Balance . . . . . . . . . . . . . $___________
Original Class B Principal
Balance . . . . . . . . . . . . . $___________
Class A Pass-Through Rate . . . . On each Distribution Date, the Class A
Pass-Through Rate will equal the lesser of
(i) the London interbank offered rate for
one-month United States dollar deposits
("LIBOR") (calculated as described under
"Description of the Certificates --
Distributions on the Certificates") as of
the second LIBOR business day prior to the
immediately preceding Distribution Date
(but as of ____________ __, 199_ in the
case of the Distribution Date on
__________ __,199_) plus ____%
(which margin is subject to increase as
described below) and (ii) the Weighted
Average Net Mortgage Rate for the Mortgage
Loans as of the Due Date in the preceding
month (determined on the basis of the
Principal Balances of the Mortgage Loans
after giving effect to the Monthly Payments
due on or prior to such Due Date and
unscheduled principal payments received
prior to such Due Date). The "Net Mortgage
Rate" of a Mortgage Loan is its Mortgage
Rate less the sum of (i) the Servicing Fee
Rate of ____% and (ii) the Certificate
Insurance Policy annual premium rate
(which, together with the Servicing Fee
Rate, will not exceed ____%). The "Weighted
Average Net Mortgage Rate" is the weighted
average of the Net Mortgage Rates for the
Mortgage Loans. See also "Prepayment and
Yield Considerations".
Notwithstanding the foregoing, the ____%
margin added to the applicable LIBOR
formula for the calculation of the Class
A Pass-Through Rate will instead be ____%
for each Distribution Date occurring at
least 120 days after the first
Distribution Date in respect of which the
option to purchase the Mortgage Loans,
described under "Description of the
Certificates -- Optional Termination", may
first be exercised by the Master Servicer,
thereby effecting the early retirement of
the Certificates. The Class A Pass-Through
Rate thus calculated will still be subject
to the limitation of the Weighted Average
Net Mortgage Rate as described above in
the preceding paragraph.
Class B Pass-Through Rate . . . . On each Distribution Date, the Class B
Pass-Through Rate will equal the
applicable LIBOR plus ____%, subject to
a maximum rate as described under
"Description of the Certificates --
Distributions on the Certificates".
Denominations . . . . . . . . . . The Class A Certificates will be
issuable in denominations of $__,000
and integral multiples of $1,000 in
excess thereof.
Cut-off Date . . . . . . . . . . ______ 1, 199_ (or the date of
origination, if later).
Agreement . . . . . . . . . . . . The Pooling and Servicing Agreement dated
as of ______ 1, 199_ (the "Agreement"),
among the Company, MLCC, as Master
Servicer, and Bankers Trust Company of
California, N.A., as trustee (the
"Trustee"), relating to the Certificates.
The Mortgage Loans. . . . . . . . High balance, adjustable rate mortgage
loans secured by one-to four-family
residential properties (including shares
issued by cooperative housing units),
having an aggregate unpaid principal
balance as of the Cut-off Date of
approximately $___________ (the
"Mortgage Loans"). Generally, high
balance mortgage loans are loans whose
initial principal balances exceed, and in
certain cases substantially exceed, the
maximum initial principal amount of
mortgage loans eligible to be purchased
by FNMA or FHLMC. Certain of the Mortgage
Loans may have initial principal balances
below such thresholds. The Mortgage Loans
were originated by MLCC in the ordinary
course of its real estate lending
activities or acquired by it in the
course of its correspondent lending
activities. Monthly payments of interest
and, to the extent described herein,
principal on the Mortgage Loans ("Monthly
Payments") will be due on the first
day of each month (each, a "Due Date").
Each Mortgage Loan has an original term
to maturity of __ years and is scheduled
to pay only interest for the first __
years of its term. Commencing in its
_______ year, each Mortgage Loan is
scheduled to amortize on a __-year fully
amortizing basis.
The per annum interest rate (the "Mortgage
Rate") for certain of the Mortgage Loans
is adjusted monthly and the Mortgage Rate
for the remainder of the Mortgage Loans is
adjusted every six months. The adjustment
date is referred to as the "Interest
Adjustment Date". Subject to its Maximum
Mortgage Rate, the Mortgage Rate borne by
a Mortgage Loan may be calculated as
follows:
Prime Index. The Mortgage Rate borne by
____% of the Mortgage Loans (by Cut-off
Date Principal Balance) is adjusted every
six months to equal the highest Prime Rate
listed under "Money Rates" in The Wall
Street Journal most recently available
as of 45 days, in the case of six-month
adjustable Mortgage Loans, and 25 days,
in the case of monthly adjustable Mortgage
Loans, prior to such Interest Adjustment
Date (the "Prime Index") (i) plus a margin
(the "Margin") ranging from ____% to ____%
or (ii) minus a Margin of ____%.
Six-Month LIBOR Index. The Mortgage Rate
borne by _____% of the Mortgage Loans (by
Cut-off Date Principal Balance) is
adjusted every six months to equal the
London interbank offered rate for six-
month U.S. dollar deposits (the "Six-
Month LIBOR Index") as listed under
"Money Rates" in The Wall Street Journal
most recently available as of 45 days
prior to the related Interest Adjustment
Date plus a Margin ranging from _____% to
____%.
One-Month LIBOR Index. The Mortgage Rate
borne by _____% of the Mortgage Loans (by
Cut-off Date Principal Balance) is adjusted
every month to equal the London interbank
offered rate for one-month U.S. dollar
deposits (the "One-Month LIBOR Index") as
listed under "Money Rates" in The
Wall Street Journal most recently
available as of 25 days prior to the
related Interest Adjustment Date plus a
Margin ranging from ____% to _____%.
Treasury Index. The Mortgage Rate borne by
____% of the Mortgage Loans (by Cut-off
Date Principal Balance) is adjusted every
six months, and the Mortgage Rate borne by
____% of the Mortgage Loans (by Cut-off
Date Principal Balance) is adjusted
monthly, to equal the weekly average yield
on the United States Treasury Securities
adjusted to a constant maturity of one
year, as made available by the Federal
Reserve board in Statistical Release H.15
(the "Treasury Index") most recently
available as of 45 days, in the case of
six-month adjustable Mortgage Loans, and
25 days, in the case of monthly adjustable
Mortgage Loans, prior to the related
Interest Adjustment Date plus a Margin
ranging from _____% to ____%.
Notwithstanding the foregoing, all of the
Mortgage Loans will have a maximum
Mortgage Rate (the "Maximum Mortgage
Rate") of between _____% and _____%. None
of the Mortgage Loans are subject to
periodic interest rate caps.
Approximately ____% of the Mortgage Loans
(by Cut-off Date Principal Balance) are
Convertible Mortgage Loans, which provide
that, at the option of the related
Mortgagor, the adjustable interest rate on
such Mortgage Loan may be converted to a
fixed interest rate, and that, at the
option of the related Mortgagor, the
adjustable rate on such Mortgage Loan
may be converted to a different Index
(and may thereafter be converted to a
fixed rate), provided in each case that
certain conditions have been satisfied.
The available Indices to which a six-
month adjustable Convertible Mortgage
Loan may be converted are the Prime Index,
the Six-Month LIBOR Index and the Treasury
Index. The available Indices to which a
monthly adjustable Convertible Mortgage
Loan may be converted are the Prime Index,
the One-Month LIBOR Index and the Treasury
Index. The margins generally applicable to
such Indices are specified under "MLCC and
Its Mortgage Programs". In connection with
the conversion to a new Index, the
frequency of the Interest Adjustment Date
is not changed. Upon notification from a
Mortgagor of such Mortgagor's intent to
convert any Mortgage Loan from an
adjustable interest rate to a fixed
interest rate, and prior to such con-
version, the initial Master Servicer will
be obligated to purchase such Mortgage
Loan (a "Converting Mortgage Loan"),
if such Mortgage Loan is eligible for
such conversion in accordance with the
terms thereof, at a price (the "Conversion
Price") equal to the outstanding principal
balance thereof plus accrued interest
thereon net of any servicing fee. The
Master Servicer will not purchase any
Mortgage Loan upon its conversion to a new
index.
If the Master Servicer does not purchase a
Converting Mortgage Loan that converts to
a fixed rate, the Mortgage Loans will
thereafter include such fixed rate
converted Mortgage Loan as well as
adjustable rate Mortgage Loans, and the
yield on the Class A Certificates might be
lower than it would have been if such
purchase had been made. See "MLCC and Its
Mortgage Programs" and "Prepayment and
Yield Considerations" herein. If the
initial Master Servicer is terminated as
Master Servicer, it will not thereafter be
obligated to purchase any Converting
Mortgage Loan. A successor Master Servicer
(including the Trustee if it becomes the
successor Master Servicer) will become
obligated to purchase Convertible Mortgage
Loans that become Converting Mortgage
Loans only if such successor Master
Servicer elects in its discretion to
obligate itself to make such purchases.
Approximately _____% of the Mortgage Loans
(by aggregate principal balance as of the
Cut-off Date) (the "Index Convertible
Mortgage Loans") provide that, at the
option of the related Mortgagors, the
Index for such Mortgage Loans may be
converted to a different Index, provided
that certain conditions have been
satisfied. The frequency of the Interest
Adjustment Date is not changed in
connection with such a conversion. The
Indices to which an Index Convertible
Mortgage Loan may be converted are the
same as those to which a Convertible
Mortgage Loan may be converted as
described above. The Master Servicer will
not purchase a Convertible Mortgage Loan
or an Index Convertible Mortgage Loan
upon its conversion to another Index.
On each Interest Adjustment Date for a
Mortgage Loan during the first __ years of
its term, its Monthly Payment is adjusted
to equal one month's interest at the
Mortgage Rate determined for such Interest
Adjustment Date. During the last __ years
of its term the Monthly Payment is
adjusted on each Interest Adjustment Date
to equal an amount that will fully
amortize the outstanding principal of the
Mortgage Loan over its remaining term at
the related Mortgage Rate.
With the exception of ____% of the
Mortgage Loans (by Cut-off Date
Principal Balance), the Mortgage
Loans, including Mortgage Loans
having a Loan-to-Value Ratio
greater than 80%, are not insured
under any Primary Mortgage
Insurance Policy (as
defined in the Prospectus) or other
credit insurance policy. Mortgage
Loans having a Loan-to-Value Ratio at
origination greater than 80% are
generally Mortgage 100SM or Parent
Power(Registered Trademark) loans, which,
in addition to being secured by real
property, are secured by a security
interest in a limited amount of
additional collateral owned by the
borrower or are supported by a third-party
guarantee (the "Additional Collateral
Loans"). Such additional collateral
and guarantee are no longer required
when the Loan-to-Value Ratio for such
Additional Collateral Loan is reduced
to MLCC's applicable Loan-to-Value Ratio
limit for such Mortgage Loan by virtue
of a reduction in the related Mortgage
Loan principal balance or an increase in
the appraised value of the Mortgaged
Property as determined by MLCC. The
pledge agreement or guaranty agreement,
as applicable, and the security interest
in such additional collateral (the
"Additional Collateral") will be
assigned to the Trustee, but will not be
part of the REMIC created by the
Agreement. (AMBAC Indemnity Corporation)
(MBIA Insurance Corporation) (the "Surety
Bond Provider") has previously issued a
limited purpose surety bond (the "Limited
Purpose Surety Bond"), which is limited
in amount and separate from the
Certificate Insurance Policy, and will
guarantee receipt by the Trust Fund of
certain shortfalls in the net proceeds
realized from the liquidation of any
required Additional Collateral (such
amount not to exceed 30% of the original
principal amount of the related Additional
Collateral Loan) to the extent any such
shortfall results in a loss of principal
on the related Additional Collateral Loan
that becomes a Liquidated Mortgage Loan.
The Limited Purpose Surety Bond will not
cover any payments on the Class A
Certificates that are recoverable or
sought to be recovered as a voidable
preference under applicable law. For
information concerning the Surety Bond
Provider and the Certificate Insurance
Policy, see "The Certificate Insurance
Policy and the Certificate Insurer".
See "MLCC and Its Mortgage Programs" and
"The Mortgage Pool" herein.
SUMMARY OF MORTGAGE LOANS
CHARACTERISTICS AS OF THE CUT-OFF DATE
(APPROXIMATE)
Aggregate Outstanding Principal $___________
Number of Mortgage Loans ___
Weighted Average Mortgage Rate _____%
Range of Mortgage Rates _____% to ____%
Percent of Mortgage Loans Using the following Index in
determining the Mortgage Rate:
Prime Index ____%
One-Month LIBOR Index _____%
Six-Month LIBOR Index _____%
Treasury Index ____%
Weighted Average Margins:
Prime Index Mortgage Loans _____%
One-Month LIBOR Index _____%
Six-Month LIBOR Index Mortgage Loans _____%
Treasury Index Mortgage Loans _____%
Frequency of Interest Adjustment Dates:
Monthly _____%
Six-Month _____%
Range of Maximum Mortgage Rates ______% to ______%
Weighted Average of Maximum Mortgage Rates ______%
Weighted Average Remaining Term to Stated Maturity ___ months
Range of Remaining Terms to Stated Maturity ___ months to ___ months
Range of Outstanding Principal Balances of Mortgage Loans
$______ to $_________
Average Outstanding Principal Balance of Mortgage Loans $_______
Latest Maturity Date _________ ____
Weighted Average Loan-to-Value Ratio at Origination _____%
Percent of Mortgage Loans with Loan-to-Value Ratios:
Less Than or Equal to 70% _____%
Greater Than 70% and Less Than or Equal to 80% _____%
Greater Than 80% _____%
Percent of Mortgage Loans which are Additional Collateral Loans _____%
Weighted Average Constructive Loan-to-Value Ratio at Origination(1) _____%
Percent of Mortgage Loans which are convertible to both a fixed
rate and a new Index ____%
Percent of Mortgage Loans which are convertible to a new Index _____%
- ---------
(1) The "Constructive Loan-to-Value Ratio" is calculated as (i) the
original loan amount less the required amount of any required Additional
Collateral, divided by (ii) the lesser of the appraised value of the
Mortgaged Property at origination and, if the Mortgage Loan is a purchase
money loan, the sales price of the Mortgaged Property. See "MLCC and Its
Mortgage Programs" herein for a description of the program requirements
for Additional Collateral Mortgage Loans and the releasing of Additional
Collateral during the term of a Mortgage Loan.
Description of the
Certificates. . . . . . . . . . . The Class A Certificates will evidence
beneficial interests 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"). Exclusive of the
interest of the Class R Certificate, the
Class A Certificates will evidence in the
aggregate a beneficial interest of
approximately _____% in the Mortgage Loans
and the Class B Certificates will evidence
the remaining approximately ____%. The
Class B and Class R Certificates are
subordinated in certain respects to the
Class A Certificates. See "Description of
the Certificates" herein.
Record Date . . . . . . . . . . . As to any Distribution Date, the last
business day preceding the immediately
preceding Distribution Date (or the date
of initial issuance of the Certificates
in the case of the first Distribution
Date).
Distributions on the. . . . . . . Distributions of interest and principal
Certificates to each holder of a Class A Certificate
will be made on the 15th day of each month
(or if such 15th day is not a business
day, then on the next succeeding business
day) (each, a "Distribution Date"),
commencing in _________ 199_, in an amount
equal to each such holder's respective
Percentage Interest multiplied by the
amount distributed in respect of the Class
A Certificates. The undivided percentage
interest (the "Percentage Interest")
evidenced by any Class A Certificate will
be equal to the percentage obtained by
dividing the initial principal balance of
such Certificate by the aggregate initial
principal balance of all Class A
Certificates. Distributions on the Class A
Certificates will be applied first to
interest and then to principal. All
calculations of interest on the
Certificates will be made on the basis of
the actual number of days in the Accrual
Period divided by 360. Interest will
accrue with respect to each Distribution
Date in respect of the Class A and Class B
Certificates during the one-month period
beginning on the __th day of the month
preceding the month of such Distribution
Date and ending on the 14th day of the
month of such Distribution Date (or, in
the case of the first Distribution Date,
the period beginning on the date on which
the Certificates are initially issued (the
"Closing Date") and ending on _________
__, 199_) (each, an "Accrual Period").
Certain collections on deposit in the
Certificate Account (the "Available
Distribution Amount"), as described in
detail under "Description of the
Certificates" herein, on the Determination
Date for the related Distribution Date
will be distributed in the following
amounts and order of priority:
(i) to the Class A Certificateholders,
interest for the related Accrual
Period at the Class A Pass-
Through Rate on the Class A Principal
Balance, together with any previously
undistributed shortfalls in distributions
of interest due on the Class A
Certificates (the "Class A Unpaid Interest
Shortfall"). Interest distributions are
subject to reduction on account of Net
Interest Shortfalls as described below;
(ii) to the Class A Certificateholders,
on account of principal, the Class A
Formula Principal Distribution Amount
until the Class A Principal Balance is
reduced to zero;
(iii) to the Certificate Insurer, the
monthly premium due on the Certificate
Insurance Policy;
(iv) to the Certificate Insurer, an
amount equal to any previously
unreimbursed payments made under the
Certificate Insurance Policy and any fees
and expenses owed to it under the related
insurance agreement, together with
interest thereon (collectively, the
"Unreimbursed Insurer Amounts");
(v) to the Reserve Fund, the amount (but
not in excess of the Formula Excess
Interest Amount) required to be
deposited in the
Reserve Fund as described under
"Description of the Certificates --
Distributions on the Certificates" and
" -- Reserve Fund" herein;
(vi) to the Class B Certificateholders,
interest for the related Accrual Period at
the Class B Pass-Through Rate on the Class
B Principal Balance, together with any
previously undistributed shortfalls in
required distributions of interest on the
Class B Certificates. Interest
distributions are subject to reduction on
account of Net Interest Shortfalls as
described below;
(vii) to the Class A Certificateholders
on account of principal, the Unrecovered
Principal Amounts, if any, for the
Mortgage Loans for such Distribution Date
and all prior Distribution Dates that have
not previously been distributed pursuant
to this clause until the Class A Principal
Balance is reduced to zero;
(viii) to the Class B Certificateholders,
on account of principal, the Class B
Formula Principal Distribution Amount
until the Class B Principal Balance is
reduced to zero;
(ix) to the Class B Certificateholders,
the Class B Loss Amounts not previously
distributed to them pursuant to this
clause; and
(x) to the Class R Certificateholders,
any remaining balance.
Notwithstanding the foregoing, until the
Class A Principal Balance is reduced to
zero, distributions on account of
principal otherwise allocable to the
Class B Certificateholders in accordance
with the above priorities will instead be
made to the Class A Certificateholders to
the extent, if any, that such distribution
would, if made to the Class B
Certificateholders, reduce the Class B
Principal Balance to less than ____% of
the Original Pool Scheduled Principal
Balance or if the Class B Principal
Balance is less than that amount.
The Class A Principal Balance as of any
Distribution Date is the Original Class A
Principal Balance less all prior
distributions to Class A Certificateholders
on account of principal.
The interest entitlement above for the
Class A and Class B Certificates with
respect to each Distribution Date will be
reduced by the amount of the Net Interest
Shortfall allocable to each such Class.
The Net Interest Shortfall on any
Distribution Date will be allocated pro
rata among the Class A and Class B
Certificates based on the amount of
interest each such class of Certificates
would otherwise be entitled to receive on
such Distribution Date.
The Class A Formula Principal Distribution
Amount will comprise a percentage of the
scheduled payments of principal on the
Mortgage Loans and a percentage of certain
unscheduled payments of principal of the
Mortgage Loans. Such percentages will be a
function of the ratio of the Class A
Principal Balance to the Pool Scheduled
Principal Balance and the level of
subordination, if any, provided to the
Class A Certificates by the Class B
Certificates and are fully described under
"Description of the Certificates --
Distributions on the Certificates". The
Class B Formula Principal Distribution
Amount will comprise a percentage of the
scheduled principal payments and a
percentage of certain unscheduled
principal payments of the Mortgage Loans
equal, in each case, to ___% less the
respective percentage allocable to the
Class A Certificates. See "Description of
the Certificates -- Distributions on the
Certificates".
The "Pool Scheduled Principal Balance" as
of any Distribution Date is equal to the
aggregate Principal Balance of the Mortgage
Loans as of the Cut-off Date less the sum
of (i) the aggregate of the Formula Prin-
cipal Distribution Amounts for all prior
Distribution Dates and (ii) the aggregate
of the Unrecovered Principal Amounts for
all prior Distribution Dates. See
"Description of the Certificates --
Distributions on the Certificates".
In no event will the aggregate
distributions of principal to the holders
of the Class A Certificates (whether out
of Available Distribution Amounts,
Reserve Fund draws, payments under the
Certificate Insurance Policy or payments
under the Limited Purpose Surety Bond)
exceed the Original Class A Principal
Balance. See "Description of the
Certificates -- Distributions on the
Certificates".
Priority Sequence of
Distributions of Principal
on Certificates . . . . . . . . . The Formula Principal Distribution Amount
for a Distribution Date, which includes
prepayments on the Mortgage Loans, will be
distributed on the Class A and Class B
Certificates on the shifting-interest
basis as described under "Description of
the Certificates -- Distributions on the
Certificates". Unless offset by cash flow
insufficiencies, this prioritization of
distributions should have the effect of
accelerating, at least in the early
years of the life of the Class A
Certificates, the amortization of the
Class A Certificates from what it would
otherwise be if such distributions were
made on a pro rata basis. The rate of
principal payments on the Class A
Certificates is directly related to
the rate of payments of principal on the
Mortgage Loans and the level of
subordination, if any, provided by the
Class B Certificates and will affect
the yield on the Class A Certificates.
See "Prepayment and Yield Considerations"
herein and "Yield and Prepayment
Considerations" in the Prospectus.
Reserve Fund. . . . . . . . . . . At the time of the initial issuance of the
Certificates, a Reserve Fund will be
established as part of the Trust Fund and
will be funded up to $_______ (the
"Initial Amount") from the application of
the Available Distribution Amount pursuant
to clause (v) under " -- Distributions on
the Certificates" above.
On each Distribution Date, funds, if any,
in the Reserve Fund will be applied to
make any required Advance not made by the
Master Servicer.
Subordinated Certificates . . . . The rights of the Class B
Certificateholders and the Class R
Certificateholders to receive
distributions with respect to the
Mortgage Loans will be subordinated to
the rights of the holders of Class A
Certificates to the extent described
herein.
This subordination is intended to enhance
the likelihood of regular receipt by the
respective holders of Class A
Certificates of the full amount of monthly
distributions due them and to protect the
holders of Class A Certificates and the
Certificate Insurer against losses, but no
assurance can be given that the holders of
Class A Certificates will not experience
losses.
The protection afforded to the holders of
the Class A Certificates by means of the
subordination, to the extent provided
herein, of the Class B and Class R
Certificates as described above will be
accomplished (i) by the application of the
Available Distribution Amount in the order
specified under "Distributions on the
Certificates" above and (ii) if the
Available Distribution Amount for a
Distribution Date is not sufficient to
permit the distribution of the entire
Class A Formula Principal Distribution
Amount and all previously undistributed
Unrecovered Principal Amounts, by the
right of the holders of the Class A
Certificates to receive any such shortfall
out of future distributions of Available
Distribution Amounts that would otherwise
have been payable to the holders of the
Class B Certificates and the Class R
Certificate. This subordination feature is
effected for the Class A Certificates by
allocating principal among the
Certificates on a shifting-interest
payment basis as described herein.
If the Available Distribution Amount for
any Distribution Date is not sufficient
to cover, in addition to interest
distributable to the Class A and Class B
Certificateholders, the entire Class A
Formula Principal Distribution Amount and
all previously undistributed Unrecovered
Principal Amounts distributable to the
Class A Certificateholders on such
Distribution Date, then the amount of the
Pool Scheduled Principal Balance available
to the Class B Certificates (i.e., such
Pool Scheduled Principal Balance less the
Class A Principal Balance) on future
Distribution Dates will be reduced. See
"Description of the Certificates --
Distributions on the Certificates" herein.
If, because of liquidation losses, the
Pool Scheduled Principal Balance were to
decrease disproportionately faster than
distributions to the Class A
Certificateholders reducing the Class A
Principal Balance, the level of protection
afforded to the Class A Certificateholders
by the subordination of the Class B
Certificates (i.e., the percentage of the
Pool Scheduled Principal Balance available
to the Class B Certificates) would be
reduced. If the Certificate Insurer were
to fail to perform its obligations under
the Certificate Insurance Policy and the
Pool Scheduled Principal Balance were to
become equal to or less than the Class A
Principal Balance, the Class A
Certificateholders would bear all losses
and delinquencies on the Mortgage Loans
and could incur a loss on their
investment.
See "Description of the Certificates --
Subordinated Certificates" herein.
Certificate Insurance Policy. . . The Company will obtain the Certificate
Insurance Policy, which is noncancelable,
in favor of the Trustee, which will
provide for payment of Insured Amounts
solely to the holders of the Class A
Certificates in accordance with the terms
of the Certificate Insurance Policy.
Payment of an Insured Amount, if
applicable, is intended to provide the
Trustee with sufficient funds to make
distributions to the holders of the Class
A Certificates of the full amount of
interest, together with the related Class
A Formula Principal Distribution Amount,
due on the Class A Certificates on each
Distribution Date and, on the third
Distribution Date following the month in
which the latest original scheduled
maturity date of any then outstanding
Mortgage Loan occurs, the outstanding
Principal Balance, if any, of the Class A
Certificates. The Certificate Insurance
Policy does not guarantee to holders of
the Class A Certificates, and does not
protect against any adverse consequences
caused by, any specified rate of
prepayments of the Mortgage Loans and does
not protect such Certificateholders
against any adverse consequences caused by
any Net Interest Shortfalls. See "The
Certificate Insurance Policy and the
Certificate Insurer" herein.
Certificate Insurer . . . . . . . (AMBAC Indemnity Corporation) (MBIA
Insurance Corporation).
Advances. . . . . . . . . . . . . The Master Servicer is obligated to make
advances of cash, which will be part of
the Available Distribution Amount, in an
amount equal to the delinquent Monthly
Payments due on the immediately preceding
Due Date (the "Advances"). The Master
Servicer is under no obligation to make
Advances to the extent it determines such
Advances are not recoverable from future
payments or collections on the related
Mortgage Loans. Advances, however, will
be reimbursed to the Master Servicer and
are not intended to guarantee or insure
against losses. See "Description of the
Certificates -- Advances" herein.
Optional Termination. . . . . . . The Master Servicer may, at its option,
and, in the absence of the exercise
thereof by the Master Servicer, the
Certificate Insurer may, at its option,
repurchase from the Trust Fund all
Mortgage Loans remaining outstanding
on any Distribution Date when the Pool
Scheduled Principal Balance is less than
10% of the aggregate unpaid principal
balance of the Mortgage Loans on the
Cut-off Date. The repurchase price will
equal the greatest of (i) the aggregate
Principal Balances of the Mortgage Loans
plus accrued interest thereon at the
related Net Mortgage Rate, plus the
appraised value of any property acquired
in respect of a Mortgage Loan, less, if
the Master Servicer is the purchaser,
any unreimbursed advances made by the
Master Servicer with respect to an
acquired property, (ii) the fair market
value of the Mortgage Loans and any
property acquired in respect of a
Mortgage Loan, as determined by the
Master Servicer, less, if the Master
Servicer is the purchaser, any
unreimbursed advances made by the Master
Servicer with respect to an acquired
property and (iii) the sum of (a) the
aggregate of the Class A Principal Balance
together with one month's interest at the
Class A Pass- Through Rate and any Class
A Unpaid Interest Shortfall and (b) the
sum of the Class B Principal Balance
together with one month's interest at the
Class B Pass-Through Rate and any
previously undistributed shortfall in
interest due on the Class B Certificates
on prior Distribution Dates. See
"Description of the Certificates --
Optional Termination" herein.
Certain Federal Income Tax
Considerations. . . . . . . . . . An election will be made to treat the
assets of the Trust Fund (exclusive of
the rights in the Additional Collateral)
as a REMIC for federal income tax
purposes. The Class A Certificates and
Class B Certificates will constitute
regular interests in the Trust Fund and
generally will be treated, for federal
income tax purposes, as debt instruments
issued by the Trust Fund. The Class R
Certificate will be the residual interest
in the Trust Fund. The Class A
Certificates will be treated as (i)
qualifying real property loans within the
meaning of section 593(d) 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 in the
Prospectus.
See "Certain Federal Income Tax
Consequences" herein and 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,
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" herein and in the
Prospectus.
Legal Investment
Considerations. . . . . . . . . . So long as the Class A Certificates are
rated in one of the two highest rating
categories by at least one nationally
recognized statistical rating agency, the
Class A Certificates will constitute
"mortgage related securities" under
the Secondary Mortgage Market
Enhancement Act of 1984 and, as such, will
be "legal investments" for certain types
of institutional investors to the extent
provided in such Act. See "Legal
Investment Considerations" in the
Prospectus.
Use of Proceeds . . . . . . . . . Substantially all of the net proceeds from
the sale of the Class A Certificates will
be applied by the Company to the purchase
price of the Mortgage Loans and to pay
expenses connected with pooling the
Mortgage Loans and issuing the
Certificates. See "Use of Proceeds"
herein.
Certificate Ratings . . . . . . . It is a condition to the issuance of the
Class A Certificates that the Class A
Certificates be rated ___________ by
_________________________ and
_____________ by ____________________.
______________ assigns the additional
symbol of ___to highlight classes of
securities that ________________________
believes may experience high volatility
or high variability in expected returns
due to non-credit risks; however, the
absence of an __ symbol should not be
taken as an indication that a class will
exhibit no volatility or variability in
total return. The ratings of ___________
and ____________ for the Class A
Certificates will not represent any
assessment of the Master Servicer's
ability to purchase Converting Mortgage
Loans. If the Master Servicer does not
purchase a Converting Mortgage Loan that
it is obligated to purchase as described
herein, the holders of the applicable
Class A Certificates might experience a
lower than anticipated yield on their
Certificates. 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. A security rating does not
address the frequency of prepayments on
the Mortgage Loans or the corresponding
effect on yield to investors. See
"Certificate Rating" herein.
Registration of Class A . . . . . The Class A Certificates initially will
Certificates be represented by certificates registered
in the name of Cede & Co. ("Cede") as the
nominee of The Depository Trust Company
("DTC"), and will only be available in
the form of book-entries on the records
of DTC and participating members thereof.
Certificates representing the Class A
Certificates will be issued in definitive
form only under the limited circumstances
described herein. All references herein to
"holders" or "Certificateholders" shall
reflect the rights of owners of Class A
Certificates ("Certificate Owners") as
they may indirectly exercise such rights
through DTC and participating members
thereof, except as otherwise specified
herein. See "Description of the
Certificates -- Registration of Class A
Certificates" herein.
SPECIAL CONSIDERATIONS
Prospective investors should consider, among other things discussed
in this Prospectus Supplement and the Prospectus, the following factors,
which are discussed as noted in greater detail elsewhere in this
Prospectus Supplement or the Prospectus.
Limited Liquidity. There is currently no market for the Class A
Certificates. While the Underwriter currently intends to make a market in
the Class A Certificates, it is under no obligation to do so. There can be
no assurance that a secondary market will develop or, if a secondary
market does develop, that it will provide holders of the Class A
Certificates with liquidity of investment or that it will continue for the
lives of the Class A Certificates.
Local Real Estate Markets. An overall decline in the residential real
estate markets in the states in which the Mortgaged Properties are located
could adversely affect the values of the Mortgaged Properties such that
the outstanding Mortgage Loan balances equal or exceed the value of the
affected Mortgaged Properties. Such declines would adversely affect the
position of the Trust Fund as the holder of the Mortgage Loans.
Residential real estate markets in some states have declined in recent
years. See "The Mortgage Pool" and "MLCC and Its Mortgage Programs --
Delinquency and Loan Loss Experience" herein.
Maturity, Prepayment and Yield Considerations. The Mortgage Loans may
be prepaid in whole or in part at any time without penalty. The Trust
Fund's prepayment experience may be affected by a wide variety of factors,
including general economic conditions, the level of prevailing interest
rates, the availability of alternative financing and homeowner mobility.
The weighted average lives of the Class A Certificates will be sensitive
to the rate and timing of principal payments (including prepayments) on
the Mortgage Loans, which may fluctuate significantly from time to time.
No assurance can be given as to the level of prepayments that the Trust
Fund will experience.
No prediction can be made as to future levels of LIBOR, the One-Month
LIBOR Index, the Six-Month LIBOR Index, the Prime Index or the Treasury
Index or as to the timing of any changes therein or as to the conversion
of Mortgage Loans to fixed rates or other Indexes, each of which will
directly affect the yields of the Class A Certificates. The holders of the
Class A Certificates will absorb the yield risk associated with a possible
narrowing or inversion of the spread between the Class A Pass-Through Rate
calculated on the basis of the LIBOR formula and the Weighted Average Net
Mortgage Rate. The Mortgage Rates reset at different times and are subject
to lifetime interest rate caps.
See "Prepayment and Yield Considerations" herein.
Certificate Insurance Policy. Credit enhancement with respect to the
Class A Certificates will be provided by the Certificate Insurance Policy.
See "The Certificate Insurance Policy and the Certificate Insurer" herein.
If the Certificate Insurer fails to perform its obligations under the
Certificate Insurance Policy, the Class A Certificateholders will be
directly affected by losses on the Mortgage Loans. See "Description of the
Certificates -- Subordinated Certificates".
Certain Legal Considerations. Applicable state laws generally
regulate interest rates and other charges and require certain disclosures.
In addition, state and federal consumer protection laws, unfair and
deceptive practices acts and debt collection practices acts may apply to
the origination or collection of the Mortgage Loans. Depending on the
provisions of the applicable law, violations of these laws may limit the
ability of the Master Servicer to collect all or part of the principal of
or interest on the Mortgage Loans, may entitle the borrower to a refund of
amounts previously paid and, in addition, could subject the Master
Servicer to damages and administrative enforcement. See "Certain Legal
Aspects of the Mortgage Loans" in the Prospectus.
CERTAIN LEGAL CONSIDERATIONS
MLCC and the Company will treat as sales the transfers of the
Mortgage Loans from MLCC to the Company and from the Company to the Trust
Fund. As a sale of the Mortgage Loans to the Trust Fund, the Mortgage
Loans would not be part of MLCC's or the Company's bankruptcy estate and
would not be available to MLCC's or the Company's creditors. However, in
the event of the insolvency of MLCC or the Company, it is possible that
the bankruptcy trustee or a creditor of MLCC or the Company or MLCC or the
Company as debtor in possession may attempt to argue that the transactions
between MLCC, the Company and the Trust Fund were a pledge of the Mortgage
Loans rather than a true sale or that, in an insolvency of MLCC, the
transactions between the Company and the Trust Fund were a pledge of the
Mortgage Loans and other assets of the Trust Fund rather than a sale and
that the assets of the Company should be substantively consolidated with
those of MLCC. Either such position, if argued before or accepted by a
court, could prevent timely payments of amounts due on each Class of
Certificates and/or result in payment of reduced amounts distributed on
each Class of Certificates.
THE MORTGAGE POOL
The mortgage pool with respect to the Certificates (the "Mortgage
Pool") will consist of approximately ___ conventional mortgage loans
evidenced by high balance, adjustable interest rate promissory notes
(each, a "Mortgage Note") having an aggregate principal balance as of the
Cut-off Date of approximately $___________. The Mortgage Notes are secured
by mortgages or deeds of trust or other similar security instruments
creating first liens on one- to four-family residential properties and
shares ("Co-op Shares") issued by private non-profit housing corporations
("Cooperatives") and related proprietary leases or occupancy agreements
granting exclusive rights to occupy specified units in such Cooperatives'
buildings (the "Mortgaged Properties"). The Mortgage Loans were originated
by MLCC in the ordinary course of its real estate lending activities,
except for ____% (by Cut-off Date Principal Balance) of the Mortgage
Loans, which were acquired by MLCC in the course of its correspondent
lending activities. With respect to approximately _____% of the Mortgage
Loans (by Cut-off Date Principal Balance), the borrowers were initially
solicited by, and the documentation for the Mortgage Loans was provided
by, mortgage brokers that are not affiliated with MLCC under MLCC's Third
Party Originator program. Personnel of MLCC reviewed the documentation for
each such Mortgage Loan and underwrote such loans in accordance with
MLCC's underwriting standards. See "MLCC and its Mortgage Programs" herein
for a description of MLCC's Third Party Originator and Correspondent
Lending activities.
The Mortgaged Properties will consist of detached individual dwelling
units, individual condominiums, townhouses, duplexes, cooperative
apartments, individual units in planned unit developments and other
attached dwelling units. Based upon representations obtained from the
mortgagors at the time of origination of the Mortgage Loans, approximately
_____% (by Cut-off Date Principal Balance) of the related Mortgaged
Properties are owner-occupied. As of the Cut-off Date, none of the
Mortgage Loans will be delinquent one month or more. The Trust Fund will
include, 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 Master Servicer, as the Master Servicer for
the Trustee, pursuant to the Pooling and Servicing Agreement dated as of
______ 1, 199_ (the "Agreement"), by and among the Company, MLCC, as
master servicer (the "Master Servicer"), and
_________________________________________, as trustee (the "Trustee"),
(ii) the amounts held from time to time in the Distribution Account (the
"Distribution Account") maintained in the name of the Trustee pursuant to
the Agreement, (iii) any property which initially secured a Mortgage Loan
and which is acquired by foreclosure or deed in lieu of foreclosure, (iv)
all insurance policies and the proceeds thereof described below, (v) any
right to require MLCC to repurchase or substitute for the Mortgage Loans
on account of certain breaches of representations and warranties as set
forth in the Agreement, (vi) the pledge agreements or guaranty agreements,
as applicable, in respect of the Additional Collateral Loans, (vii) the
Reserve Fund, (viii) the Certificate Insurance Policy and the proceeds
thereof and (ix) the Limited Purpose Surety Bond and the proceeds thereof.
The agreements and rights in respect of the Additional Collateral will not
be part of the REMIC.
The Company will purchase the Mortgage Loans from MLCC and will cause
such 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 (the "Sub-servicers"), pursuant to the
Agreement. With respect to any 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.
MLCC will make certain representations and warranties for the benefit
of the Company, the Certificate Insurer and the Trustee with respect to
the Mortgage Loans as described in the Prospectus under "Mortgage Loan
Program -- Representations by Sellers; Repurchases" and will have a
responsibility to repurchase a Mortgage Loan as to which there is a breach
of such representations and warranties that materially and adversely
affects the value of that Mortgage Loan and is not timely cured. The only
remedy available to Certificateholders for a breach of these
representations and warranties will be the repurchase obligation of MLCC
provided in the Agreement as described in the sections of the Prospectus
referred to above. The Trustee will enforce MLCC's repurchase obligation
and the Company will not be obligated to repurchase any Mortgage Loan for
such a breach of any representation or warranty. In lieu of such
repurchase obligation, MLCC may, within two years after the date of
initial delivery of the Certificates, substitute for the affected Mortgage
Loan a substitute Mortgage Loan, as described under "Mortgage Loan Program
- -- Representations by Sellers; Repurchases" in the Prospectus and as
provided by the Agreement.
Certain data with respect to the Mortgage Loans is set forth below.
References herein to percentages of Mortgage Loans refer in each case to
the percentage of the aggregate principal balance of the Mortgage Loans as
of the Cut-off Date, based on the outstanding balances of the Mortgage
Loans as of the Cut-off Date, giving effect to scheduled Monthly Payments
due on or prior to the Cut-off Date.
Approximately _____% of the Mortgage Loans are One-Month LIBOR Index
based Mortgage Loans, approximately _____% are Six-Month LIBOR Index based
Mortgage Loans, approximately ____% are Prime Index based Mortgage Loans
that adjust every six months, approximately ____% are Treasury Index based
Mortgage Loans that adjust monthly and approximately ____% are Treasury
Index based Mortgage Loans that adjust every six months. Approximately
____% of the Mortgage Loans are Convertible Mortgage Loans and
approximately _____% of the Mortgage Loans are Index Convertible Mortgage
Loans.
The Mortgage Loans were originated from ________ 199_ through ______
199_. No more than ____% of the Mortgaged Properties securing the Mortgage
Loans are located in any one zip code area. At origination, all of the
Mortgage Loans had terms to stated maturity of __ years. The latest month
and year in which any Mortgage Loan matures is ____________ 20__. The
Mortgage Loans had remaining terms to stated maturity, calculated as of
the Cut-off Date, of between approximately ___ and ___ months and a
weighted average remaining term to stated maturity as of the Cut-off Date
of approximately ___ months. The interest rates (the "Mortgage Rates")
borne by the Mortgage Loans as of the Cut-off Date ranged from _____% per
annum to _____% per annum and the weighted average Mortgage Rate as of the
Cut-off Date was approximately _____% per annum. Employees of Merrill
Lynch & Co., Inc. and its affiliates are the borrowers under ____% of the
Mortgage Loans.
Except for ____% of the Mortgage Loans, no Mortgage Loan is insured
under a Primary Mortgage Insurance Policy or any other credit insurance
policy. Mortgage Loans having a Loan-to-Value Ratio at origination greater
than 80% are generally Additional Collateral Loans. MLCC will attempt to
realize on the security interest in the Additional Collateral of a
defaulted Mortgage Loan in liquidation for the benefit of the Trust Fund.
See "MLCC and Its Mortgage Programs" herein.
Each Mortgage Loan had an original principal balance of not less than
$______ nor more than $_________. The average outstanding principal
balance of the Mortgage Loans as of the Cut-off Date was approximately
$_______.
The sum of the percentages in each table below may not equal the
total because of rounding.
Set forth below is a description of certain additional
characteristics of the Mortgage Loans.
Geographical Distribution of Mortgaged Properties
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------
Number of
State or Mortgage Cut-off Date Percent by Cut-off Date
Territory Loans Principal Balance Principal Balance
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
California . . . . . . . . . . . $ %
Colorado . . . . . . . . . . . .
Connecticut . . . . . . . . . .
Florida . . . . . . . . . . . .
Georgia . . . . . . . . . . . .
New Jersey . . . . . . . . . . .
New York . . . . . . . . . . . .
Texas . . . . . . . . . . . . .
Other(1) . . . . . . . . . . . .
-------- -------- ------
Total . . . . . . . . . . . . 100.00%
======== $======== ======
</TABLE>
- -------------------
(1) "Other" includes __ other States and the Virgin Islands with under 3%
concentrations individually.
RANGE OF CUT-OFF DATE PRINCIPAL BALANCES(1)
<TABLE>
<CAPTION>
======================================================================================================
Range of Number of Cut-off Date Percent by Cut-off
Cut-off Date Mortgage Principal Date Principal
Principal Balances Loans Balance Balances
======================================================================================================
<S> <C> <C> <C>
$ 0.01 -- $ 25,000.00 $ %
$ 25,000.01 -- $ 50,000.00
$ 50,000.01 -- $ 75,000.00
$ 75,000.01 -- $ 100,000.00
$ 100,000.01 -- $ 200,000.00
$ 200,000.01 -- $ 300,000.00
$ 300,000.01 -- $ 400,000.00
$ 400,000.01 -- $ 500,000.00
$ 500,000.01 -- $ 600,000.00
$ 600,000.01 -- $ 700,000.00
$ 700,000.01 -- $ 800,000.00
$ 800,000.01 -- $ 900,000.00
$ 900,000.01 -- $1,000,000.00
$1,000,000.01 -- $1,500,000.00
$1,500,000.01 -- $2,000,000.00
$2,000,000.01 -- $2,500,000.00
$2,500,000.01 -- $3,000,000.00
$3,000,000.01 -- $3,500,000.00
$3,500,000.01 -- $4,000,000.00
-------- -------- --------
Total........... $ 100.00%
======== ======== ========
</TABLE>
_________________
(1) As of the Cut-off Date, the average outstanding principal balance of
the Mortgage Loans was approximately $___________.
Range of Original Constructive Loan-to-Value Ratios(1)(2)
<TABLE>
<CAPTION>
===================================================================================
Range of Original Loan- Number of Cut-off Date Percent by Cut-off Date
to-Value Ratios Mortgage Principal Date Principal
Loans Balance Balance
===================================================================================
<S> <C> <C> <C>
0.01% -- 10.00% $ %
10.01% -- 20.00%
20.01% -- 30.00%
30.01% -- 40.00%
40.01% -- 50.00%
50.01% -- 60.00%
60.01% -- 70.00%
70.01% -- 75.00%
75.01% -- 80.00%
80.01% -- 85.00%
85.01% -- 90.00%
90.01% -- 95.00%
95.01% -- 100.00%
-------- -------- --------
Total $ 100.00%
======== ======== ========
</TABLE>
_________________
(1) The "Constructive Loan-to-Value Ratio" is calculated as (i) the
original loan amount less the required amount of any required Additional
Collateral, divided by (ii) the lesser of the appraised value of the
Mortgaged Property at origination and, if the Mortgage Loan is a purchase
money loan, the sales price of the Mortgaged Property. See "MLCC and Its
Mortgage Programs" herein for a description of the program requirements
for Additional Collateral Mortgage Loans and the releasing of Additional
Collateral during the term of a Mortgage Loan.
(2) As of the Cut-off Date, the weighted average Constructive
Loan-to-Value Ratio at origination was approximately _____%.
Range of Original Loan-to-Value Ratios(1)
<TABLE>
<CAPTION>
==========================================================================================
Range of Original Loan- Number of Cut-off Date Percent by Cut-
to-Value Ratios Mortgage Principal Balance off Date
Loans Principal Balance
==========================================================================================
<S> <C> <C> <C>
0.01% -- 10.00% $ %
10.01% -- 20.00%
20.01% -- 30.00%
30.01% -- 40.00%
40.01% -- 50.00%
50.01% -- 60.00%
60.01% -- 70.00%
70.01% -- 75.00%
75.01% -- 80.00%
80.01% -- 85.00%
85.01% -- 90.00%
90.01% -- 95.00%
95.01% -- 100.00%
100.01% -- 125.00%
-------- -------- --------
Total $ 100.0%
======== ======== ========
</TABLE>
- -------------------
(1) As of the Cut-off Date, the weighted average Loan-to-Value Ratio at
origination was approximately _____%.
Occupancy Status
<TABLE>
<CAPTION>
======================================================================================================
Number of Cut-off Date Percent by Cut-off Date
Status Mortgage Loans Principal Balance Principal Balance
======================================================================================================
<S> <C> <C> <C>
Owner-Occupied . . . . . . . $ %
Second Home . . . . . . . . .
Investment Property . . . . .
-------- -------- -------
Total . . . . . . . . . . $ 100.0%
======== ======== =======
</TABLE>
Loan Purpose
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------
Number of Cut-off Date Percent by Cut-off Date
Loan Purpose Mortgage Loans Principal Balance Principal Balance
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Purchase . . . . . . . . . . $ %
Cash-out Refinance(1) . . . .
Rate and term refinance . . .
-------- -------- --------
Total . . . . . . . . . . $ 100.0%
======== ======== ========
</TABLE>
- -------------------
(1) MLCC categorizes as cash-out refinance mortgage loans those loans in
respect of which the cash taken out by the mortgagor exceeded the sum of
(i) closing costs and points, (ii) funds applied to pay off a subordinate
loan that was outstanding at least one year and (iii) an amount equal
to 1% of the principal amount of such new loan.
Mortgaged Properties
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------
Number of Cut-off Date Percent by Cut-off Date
Property Type Mortgage Loans Principal Balance Principal Balance
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Single family . . . . . . . . $ %
De minimis Planned Unit
Development . . . . . .
Condominium . . . . . . . . .
Cooperative . . . . . . . . .
2-4 Family Residence . . . .
Planned Unit Development
Project . . . . . . . .
-------- -------- --------
Total . . . . . . . . . . $ 100.0%
======== ======== ========
</TABLE>
Maximum Mortgage Rates(1)
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------
Cut-off Date Percent by Cut-off Date
Number of Mortgage Principal Principal
Maximum Mortgage Rates Loans Balance Balance
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
12.000% -- 12.249% . . . . . $ %
12.250% -- 12.499% . . . . .
12.500% -- 12.749% . . . . .
12.750% -- 12.999% . . . . .
13.000% -- 13.249% . . . . .
13.250% -- 13.499% . . . . .
13.500% -- 13.749% . . . . .
13.750% -- 13.999% . . . . .
14.000% -- 14.249% . . . . . -------- -------- --------
Total . . . . . . . . . . $ 100.00%
======== ======== ========
</TABLE>
- -------------------
(1) As of the Cut-off Date, the weighted average Maximum Mortgage Rate
was ______%.
Range of Current Mortgage Rates(1)
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------
Percent by Cut-off
Range of Current Mortgage Number of Mortgage Cut-off Date Principal Date
Rates Loans Balance Principal Balance
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
5.750% -- 5.999% $ %
6.000% -- 6.249%
6.250% -- 6.499%
6.500% -- 6.749%
6.750% -- 6.999%
7.000% -- 7.249%
7.250% -- 7.499%
7.500% -- 7.749%
7.750% -- 7.999%
8.000% -- 8.249%
8.250% -- 8.499%
8.500% -- 8.749%
8.750% -- 8.999%
9.000% -- 9.249% -------- -------- --------
Total $ 100.00%
======== ======== ========
</TABLE>
- -------------------
(1) As of the Cut-off Date, the weighted average current Mortgage Rate
was ______%.
Remaining Terms to Stated Maturity(1)
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------
Remaining Terms to Stated Percent by Cut-off Date
Maturity in Number of Mortgage Cut-off Date Principal Principal
Months Loans Balance Balance
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
295 . . . . . . . . . . . . . $ %
296 . . . . . . . . . . . . .
297 . . . . . . . . . . . . .
298 . . . . . . . . . . . . .
299 . . . . . . . . . . . . .
300 . . . . . . . . . . . . . -------- -------- --------
Total . . . . . . . . . . . $ 100.00%
======== ======== ========
</TABLE>
- -------------------
(1) As of the Cut-off Date, the weighted average remaining term to stated
maturity was _____ months.
Next Interest Rate Adjustment Date(1)
for All Mortgage Loans
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------
Percent by Cut-off Date
Number of Mortgage Cut-off Date Principal Principal
Month of Next Adjustment Date Loans Balance Balance
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
September 1, 199_ . . . . . . $ %
October 1, 199_ . . . . . . .
November 1, 199_ . . . . . .
December 1, 199_ . . . . . .
January 1, 199_ . . . . . . .
February 1, 199_ . . . . . .
March 1, 199_ . . . . . . . . -------- -------- --------
Total . . . . . . . . . . . $ 100.00%
======== ======== ========
</TABLE>
- -------------------
(1) As of the Cut-off Date, the weighted average number of months to the
next Interest Adjustment Date was ____ months.
Next Interest Rate Adjustment Date(1)
for Prime Index Mortgage Loans
That Adjust Every Six Months
<TABLE>
<CAPTION> Percent by Cut-off Date
Number of Mortgage Cut-off Date Principal Principal
Month of Next Adjustment Date Loans Balance Balance
<S> <C> <C> <C>
January 1, 199_ . . . . . . . $ %
February 1, 199_ . . . . . .
Total . . . . . . . . . . . $ 100.00%
</TABLE>
- -------------------
(1) As of the Cut-off Date, the weighted average number of months to the
next Interest Adjustment Date was ____ months.
Next Interest Rate Adjustment Date(1)
for One-Year Treasury Index Mortgage Loans
That Adjust Every Six Months
<TABLE>
<CAPTION> Percent by Cut-off Date
Number of Mortgage Cut-off Date Principal Principal
Month of Next Adjustment Date Loans Balance Balance
<S> <C> <C> <C>
October 1, 199_ . . . . . . . $ %
November 1, 199_ . . . . . .
December 1, 199_ . . . . . .
January 1, 199_ . . . . . . .
February 1, 199_ . . . . . .
Total . . . . . . . . . . . $ 100.0%
</TABLE>
- -------------------
(1) As of the Cut-off Date, the weighted average number of months to the
next Interest Adjustment Date was ____ months.
Next Interest Rate Adjustment Date(1)
for Six-Month LIBOR Index Mortgage Loans
<TABLE>
<CAPTION> Percent by Cut-off Date
Number of Mortgage Cut-off Date Principal Principal
Month of Next Adjustment Date Loans Balance Balance
<S> <C> <C> <C>
September 1, 199_ . . . . . . $ %
October 1, 199_ . . . . . . .
November 1, 199_ . . . . . .
December 1, 199_ . . . . . .
January 1, 199_ . . . . . . .
February 1, 199_ . . . . . .
March 1, 199_ . . . . . . . .
Total . . . . . . . . . . . $ 100.00%
</TABLE>
- -------------------
(1) As of the Cut-off Date, the weighted average number of months to the
next Interest Adjustment Date was _____ months.
Prime Index Mortgage Loan Margins(1)
<TABLE>
<CAPTION> Percent of Such
Mortgage Loans
by Cut-off Date
Number of Mortgage Cut-off Date Principal Principal
Margin(1) Loans Balance Balance
<S> <C> <C> <C>
- -0.250% . . . . . . . . . . . $ %
0.250% . . . . . . . . . . .
0.750% . . . . . . . . . . .
Total . . . . . . . . . . . $ 100.00%
</TABLE>
- -------------------
(1) As of the Cut-off Date, the weighted average current Margin was
_____%.
One-Month LIBOR Index Mortgage Loan Margins(1)
<TABLE>
<CAPTION> Percent of Such
Mortgage Loans
by Cut-off Date
Number of Mortgage Cut-off Date Principal Principal
Margin(1) Loans Balance Balance
<S> <C> <C> <C>
0.750% . . . . . . . . . . . $ %
1.125% . . . . . . . . . . .
1.250% . . . . . . . . . . .
1.375% . . . . . . . . . . .
1.500% . . . . . . . . . . .
1.625% . . . . . . . . . . .
1.750% . . . . . . . . . . .
1.875% . . . . . . . . . . .
2.000% . . . . . . . . . . .
2.125% . . . . . . . . . . .
2.250% . . . . . . . . . . .
2.375% . . . . . . . . . . .
2.500% . . . . . . . . . . .
2.625% . . . . . . . . . . .
Total . . . . . . . . . . . $ 100.00%
</TABLE>
- -------------------
(1) As of the Cut-off Date, the weighted average current Margin was
_____%.
Six-Month LIBOR Index Mortgage Loan Margins(1)
<TABLE>
<CAPTION> Percent of Such
Mortgage Loans
by Cut-off Date
Number of Mortgage Cut-off Date Principal Principal
Margin(1) Loans Balance Balance
<S> <C> <C> <C>
0.875% . . . . . . . . . . . $ %
1.000% . . . . . . . . . . .
1.125% . . . . . . . . . . .
1.250% . . . . . . . . . . .
1.375% . . . . . . . . . . .
1.500% . . . . . . . . . . .
1.625% . . . . . . . . . . .
1.750% . . . . . . . . . . .
1.875% . . . . . . . . . . .
2.000% . . . . . . . . . . .
2.125% . . . . . . . . . . .
2.250% . . . . . . . . . . .
2.375% . . . . . . . . . . .
2.500% . . . . . . . . . . .
2.625% . . . . . . . . . . .
2.750% . . . . . . . . . . .
3.000% . . . . . . . . . . .
Total . . . . . . . . . . . $ 100.00%
</TABLE>
- -------------------
(1) As of the Cut-off Date, the weighted average current Margin was
_____%.
One-Year Treasury Index Mortgage Loan Margins(1)
<TABLE>
<CAPTION> Percent of Such
Mortgage Loans
by Cut-off Date
Number of Mortgage Cut-off Date Principal Principal
Margin Loans Balance Balance
<S> <C> <C> <C>
1.750% . . . . . . . . . . . $ %
1.875% . . . . . . . . . . .
2.375% . . . . . . . . . . .
2.500% . . . . . . . . . . .
2.625% . . . . . . . . . . .
2.750% . . . . . . . . . . .
3.000% . . . . . . . . . . .
Total . . . . . . . . . . . $ 100.00%
</TABLE>
- -------------------
(1) As of the Cut-off Date, the weighted average current Margin was
____%.
MLCC AND ITS MORTGAGE PROGRAMS
MLCC, a wholly-owned indirect subsidiary of Merrill Lynch & Co., Inc.
("ML & Co.") and the parent of the Company and an affiliate of the
Underwriter, is a Delaware corporation qualified to do business in each
state where its mortgage program is offered and such qualification is
required. It maintains licenses in various states as a real estate or
mortgage broker, and/or as a mortgage banker, and/or as a first or second
mortgage lender. It also has the following approvals: HUD nonsupervised
one- to four-family mortgagee; FHA approved mortgagee; FNMA first and
second mortgage one- to four-family seller/servicer; FHLMC first and
second mortgage one- to four-family seller/servicer; GNMA mortgage backed
securities issuer under the GNMA I and GNMA II single family programs; and
supervised VA lender.
MLCC's offices are located in Jacksonville, Florida. MLCC generally
does not establish local offices in the states where its loans are
offered, but has, in the past, and where required, appointed employees of
other Merrill Lynch companies which do have local offices as officers or
agents of MLCC, and has used the other Merrill Lynch companies' local
offices as MLCC's local offices for licensing purposes. MLCC also
maintains an office in San Juan, Puerto Rico. On July 16, 1991, MLCC
changed its name from Merrill Lynch Equity Management, Inc. to Merrill
Lynch Credit Corporation.
MLCC is in the business of originating, purchasing and servicing real
estate secured by conforming and non-conforming fixed and adjustable rate
mortgage loans (including its PrimeFirst(Registered Trademark) mortgages).
MLCC also originates revolving lines of credit to individuals. These lines
of credit are called "Equity Access(Registered Trademark) credit accounts"
or "Equity Access(Registered Trademark) loans". MLCC currently originates
and services loans in fifty states, the District of Columbia, Puerto Rico
and the U.S. Virgin Islands. PrimeFirst(Registered Trademark) loans are
secured by first liens on one- to four-family residences, condominiums and
cooperative apartments (New York State only), most of which are
owner-occupied. Substantially all of the Mortgage Loans were originated
under MLCC's PrimeFirst(Registered Trademark) mortgage program.
MLCC's mortgage programs are marketed primarily through financial
consultants employed by Merrill Lynch, Pierce, Fenner & Smith Incorporated
and mortgage and credit specialists employed by MLCC, as well as through
newspaper and other print advertising and direct mail campaigns.
From time to time, MLCC may offer new loans to its borrowers, which
may result in the refinancing of loans originated by it (including the
Mortgage Loans). Any such refinancing of a Mortgage Loan would have the
effect of a prepayment in full of the Mortgage Loan.
MLCC underwriting guidelines are applied to evaluate an applicant's
credit standing and repayment ability, and the value and adequacy of the
mortgaged property as collateral. Initially, an applicant is typically
required to complete an application providing pertinent credit information
and to pay an application fee (unless prohibited by applicable state law)
to MLCC. As part of the description of the applicant's financial
condition, the applicant is required to provide information concerning his
or her assets, liabilities, income and expenses, as well as an
authorization permitting MLCC to apply for a credit report summarizing the
applicant's credit history.
Upon receipt of the application package, which typically requires
submission of the last two years' personal income tax returns and business
tax returns for self-employed applicants, MLCC conducts its own review of
the application package and obtains additional information concerning the
prospective borrower prior to approving the loan. Along with obtaining a
credit report, MLCC may solicit a written verification of the applicant's
existing first mortgage balance, if any, and payment history from the
first mortgage lender, if appropriate. If such lender does not respond in
writing and the mortgage payment history is not reported on the borrower's
credit report, verbal verification is attempted and the applicant
generally is required to submit the prior year's mortgage statements which
generally reflect a monthly payment history. In addition, a written
employment verification may be requested from the applicant's employer or,
in lieu thereof, verbal verification is obtained if the applicant has
supplied a copy of a current pay stub along with signed personal tax
returns. In certain limited circumstances, MLCC may utilize other methods
to verify an applicant's income.
In determining the adequacy of the property as collateral for the
loan, a FNMA/FHLMC conforming appraisal of the property is performed by an
independent appraiser selected by MLCC. The appraiser is required to
inspect the property and verify that it is in good condition and that
construction or renovation, if new, has been completed. The appraisal
report indicates a value for the property and provides information
concerning marketability, the neighborhood, the property site, interior
and exterior improvements, and the condition of the property.
The applicant has the option of directly obtaining a title report or
may choose to have MLCC obtain the report. Generally, all liens must be
satisfied and removed prior to or upon the closing of any of the Mortgage
Loans. Title insurance is required to be obtained for all Mortgage Loans.
Where applicable, in addition to providing proof of standard hazard
insurance on the property, the applicant is required to obtain, to the
extent available, flood insurance when the subject property is identified
as being in a federally designated flood hazard area.
Once sufficient employment, credit and property information is
obtained, the decision as to whether to approve the loan is based upon the
applicant's income and credit history, the status of title to the
mortgaged property, and the appraised value of the mortgaged property.
MLCC may also consider the level of an applicant's liquid assets as an
indication of creditworthiness. The approval process generally requires
that the applicant have a good credit history and a total debt
service-to-income ratio (DTI) that generally does not exceed 50% (this
ratio may be limited to 38% if certain disposable income thresholds are
not met), and that the proposed loan have a Loan-to-Value (LTV) ratio that
generally does not exceed 80%, but under certain circumstances may be up
to or slightly in excess of 100%. The DTI ratio is calculated as the ratio
of the borrower's total monthly debt obligations (including the
interest-only payment on the proposed loan at an interest rate that is 2%
to 2.50% higher than the original rate), divided by the borrower's total
verified monthly income. MLCC's practice is to continuously review LTV
limits and to adjust such limits where economic conditions dictate that
such adjustments are appropriate. Any negative comments concerning the
quality, condition and current market conditions as noted in the appraisal
report may result in a reduction of the maximum LTV permitted for the
loan. In the case of a loan which is a purchase money mortgage, MLCC
computes the loan's LTV as the original loan balance divided by the
appraised value of the property or the contract sales price, whichever is
lower. In certain limited cases, MLCC may accept verification of borrower
assets and/or status of credit history in addition to or in lieu of income
verification, provided that the borrower meets certain standards with
regard to the ratio of liquid assets to the loan amount and other
compensating factors are present.
Loans that have a LTV in excess of 80% are, in general, also either
(i) secured by a security interest in additional collateral (normally
securities) owned by the borrower (such loans being referred to as
"Mortgage 100SM Loans") or (ii) supported by a third party guarantee
(usually a parent of the borrower), which in turn is secured by a security
interest in collateral (usually securities) or by a lien on residential
real estate of the guarantor and/or supported by the right to draw on a
home equity line of credit extended by MLCC to the guarantor (such loans
being referred to as "Parent Power(Registered Trademark) Loans"). Such
loans are also collectively referred to herein as "Additional Collateral
Loans", and the collateral referred to in clauses (i) and (ii) is herein
referred to as "Additional Collateral". The amount of such Additional
Collateral generally does not exceed 30% of the loan amount, although the
amount of the Additional Collateral may exceed 30% of the loan amount if
the original principal amount of the loan exceeds $1,000,000. In limited
cases, MLCC may require Additional Collateral in excess of 30% of the loan
amount as part of the underwriting decision. The requirement to maintain
Additional Collateral generally terminates when the LTV for such
Additional Collateral Loan is reduced to MLCC's applicable loan-to-value
ratio limit for such loan by virtue of a reduction in the principal
balance of such loan or an increase in the appraised value of the
mortgaged property securing such loan as determined by MLCC. The pledge
agreement and the guaranty agreement, as applicable, and the security
interest in such Additional Collateral, if any, provided in the case of an
Additional Collateral Loan will be assigned to the Trustee but will not be
part of the REMIC. To the extent the Mortgage Loans include any Additional
Collateral Loans that are supported by a guarantee that is secured by a
lien on residential real estate, such lien will not be transferred to the
Trustee. MLCC will, in accordance with its normal servicing procedures,
attempt to realize on any such security interest if the related Mortgage
Loan is liquidated upon default. No assurance can be given as to the
amount of proceeds, if any, that might be realized from such Additional
Collateral. The Limited Purpose Surety Bond is intended to guarantee the
receipt by the Trust Fund of certain shortfalls in the net proceeds
realized from the liquidation of any required Additional Collateral (such
amount not to exceed 30% of the original principal amount of the related
Additional Collateral Loan) to the extent any such shortfall results in a
loss of principal on such Additional Collateral Loan that becomes a
Liquidated Mortgage Loan. The Limited Purpose Surety Bond will not cover
any payments on the Class A Certificates that are recoverable or sought to
be recovered as a voidable preference under applicable law.
The Mortgage Loans may include loans made to corporations,
partnerships, and trustees of certain trusts in connection with
applications which have been received from individuals. Such loans are
generally structured as follows: (i) the loan is to the individual and the
entity which owns the real property, and is secured by a mortgage or deed
of trust executed solely by the entity; or (ii) the loan is to the entity,
secured by a mortgage from the entity and guaranteed by the individual
applicant. In such cases, MLCC applies its standard underwriting criteria
to the property and the individual applicant. Such loans are categorized
as owner-occupied in this Prospectus Supplement if the individual
applicant states in the application that, as of the closing of the related
loan, he or she will occupy the property as his or her primary residence.
Approximately ___% (by Cut-off Date Principal Balance) of the
Mortgage Loans have been originated under the MLCC Non-Resident Alien
Program (the "Non-Resident Alien Loans"). All of the Non-Resident Alien
Loans represent loans to borrowers who are non-resident aliens in the
United States and/or to foreign personal holding companies. In general,
MLCC applies the same underwriting guidelines under its Non-Resident Alien
Program as under its standard mortgage programs. MLCC may limit the LTV on
Non-Resident Alien Loans if adequate income and credit information is not
available. With respect to Non-Resident Alien Loans representing
approximately ___% of the Mortgage Loans (by Cut-off Date Principal
Balance), MLCC did not obtain verification of borrower income.
The above described underwriting guidelines may be varied in certain
cases, on the basis of compensating factors, as deemed appropriate by
MLCC's underwriting personnel.
In 1992, MLCC began originating loans through mortgage brokers that
are not affiliated with MLCC, under its Third Party Originator program.
The mortgage brokers solicit the prospective borrower and process the
documentation described above for such borrower's loan. Personnel of MLCC
review such documentation and underwrite the loan in accordance with the
above described underwriting standards. In that regard, the related
appraisals are either conducted or reviewed by appraisers who are approved
by MLCC. Such loans are closed in the name of, and funded by, MLCC.
In 1995, MLCC began purchasing loans from mortgage banking related
entities under its Correspondent Lending program. Under this program,
MLCC-approved mortgage bankers process, close, and fund the mortgage
loans. Personnel of MLCC underwrite the loans in accordance with MLCC's
standard underwriting guidelines. Additionally, MLCC conducts a
post-closing review on each loan prior to purchasing it from a
correspondent lender.
In 1995, MLCC began originating mortgage loans under its construction
to permanent financing program. Such loans have the same terms as other
loans under the PrimeFirst(Registered Trademark) mortgage program but
include certain requirements for the completion of construction, at which
time such loans become permanent loans. The Mortgage Loans may include
such loans, all of which are permanent loans as to which construction is
complete, as evidenced by a certificate of occupancy and/or appraiser's
certification of completion.
Upon the approval of a loan, the borrower obtains the loan by paying
an origination fee (employees of ML & Co. and its affiliates generally pay
a lower origination fee) and reimbursing MLCC for all out-of-pocket
closing costs incurred by MLCC, all or part of which fees or costs may be
waived by MLCC from time to time as part of MLCC's marketing efforts.
DESCRIPTION OF MLCC'S PRIMEFIRST(REGISTERED TRADEMARK) MORTGAGE PROGRAM
During the first ten years of a PrimeFirst(Registered Trademark)
loan, only interest on the outstanding loan balance is payable monthly
along with any other fees that are due, including late charges. During the
11th through the 25th year, a PrimeFirst(Registered Trademark) loan is
fully amortizing and, as a result, the borrower must pay a larger monthly
payment than the interest only monthly payment. The borrower receives a
monthly statement that reflects any change in the monthly payment. The
borrower may prepay the principal balance of the PrimeFirst(Registered
Trademark) loan at any time without penalty during the term of the loan.
Approximately _____% of the Mortgage Loans were originated under
MLCC's PrimeFirst(Registered Trademark) Self-DirectedSM mortgage program.
Upon origination, borrowers under this program may choose from one of
several different indices upon which to base their interest rate and have
the option to purchase a 1% periodic rate cap through a higher margin on
the loan. Borrowers under the PrimeFirst(Registered Trademark)
Self-DirectedSM mortgage program also choose whether the interest rate on
the loan will adjust monthly or every six months. A loan with a one-month
adjustment frequency generally carries a lower interest rate and margin
than a comparable loan with a six-month adjustment frequency. Loans
originated under the PrimeFirst(Registered Trademark) Self-DirectedSM
mortgage program are convertible to a different Index and the related
Margin for a specified period during the life of the loan. Additionally,
borrowers may choose to purchase a fixed rate conversion option by adding
0.25% to the applicable margin on the loan.
Pricing For Six-Month Adjustment Frequency. The interest rate on a
six-month adjustable PrimeFirst(Registered Trademark) loan is equal to
either the Prime Index, the London interbank offered rate for six-month
U.S. dollar deposits (the "Six-Month LIBOR Index") or the weekly average
yield on the United States Treasury Securities adjusted to a constant
maturity of one year as made available by the Federal Reserve Board in
Statistical Release H.15 (the "Treasury Index") (each, an "Index"), plus
or minus the appropriate margin. The interest rate is adjusted every six
months based upon the applicable index rate as of 45 days prior to the
Interest Adjustment Date. The following margins are generally used in
calculating the interest rate on a PrimeFirst(Registered Trademark) loan
with a semi-annual adjustment period. The margins set forth below may be
higher for borrowers who elect not to pay origination fees and/or closing
costs. Conversely, the margins may be lower for borrowers who opt to pay
additional points to buy down their margin.
<TABLE>
<CAPTION> Index
Loan Amount Prime 6-Month LIBOR Treasury
<S> <C> <C> <C>
Less than $199,999 . . . . . . . . . . 0.250% +2.250% +2.500%
$200,000 to $299,999 . . . . . . . . . 0.000 +2.000 +2.375
$300,000 to $599,999 . . . . . . . . . -0.250 +1.750 +2.125
$600,000 to $999,999 . . . . . . . . . -0.375 +1.625 +2.000
$1,000,000 or more . . . . . . . . . . -0.500 +1.500 +1.875
</TABLE>
Pricing For One-Month Adjustment Frequency. The interest rate on a
one-month adjustable PrimeFirst(Registered Trademark) loan is equal to
either the Prime Index, the London interbank offered rate for one-month
U.S. dollar deposits (the "One-Month LIBOR Index") or the Treasury Index,
plus or minus the appropriate margin. The interest rate is adjusted every
month based upon the applicable index rate as of 25 days prior to the
Interest Adjustment Date. The following margins are generally used in
calculating the interest rate on a PrimeFirst(Registered Trademark) loan
with a monthly adjustment period. These margins may be higher or lower as
described in the last two sentences of the preceding paragraph.
<TABLE>
<CAPTION> Index
Loan Amount Prime 6-Month LIBOR Treasury
<S> <C> <C>
Less than $199,999 . . . . . . . . . . 0.000 +2.125 +2.250
$200,000 to $299,999 . . . . . . . . . -0.250 +1.875 +2.125
$300,000 to $599,999 . . . . . . . . . -0.500 +1.625 +1.875
$600,000 to $999,999 . . . . . . . . . -0.625 +1.500 +1.750
$1,000,000 or more . . . . . . . . . . -0.750 +1.375 +1.625
</TABLE>
Loans purchased by MLCC in the Correspondent Lending program may have
slightly higher margins than those shown above.
Periodic and Lifetime Rate Caps. PrimeFirst(Registered Trademark)
loans may be originated with a periodic rate cap of 1% (i.e., the interest
rate cannot be increased by more than 1% from one interest period to the
next). The Margin for such a loan is generally 0.50% greater than it would
be without this feature. The periodic cap is only available with six-month
adjustable loans. Each loan originated under the PrimeFirst(Registered
Trademark) Self-DirectedSM program has a lifetime rate cap equal to the
greater of (i) its initial interest rate plus 5% or (ii) 12%. None of the
Mortgage Loans carry a periodic rate cap.
Fixed Rate Conversion Option and Index Conversion Option. Borrowers
under the PrimeFirst(Registered Trademark) Self-DirectedSM mortgage
program may purchase a fixed rate conversion option by adding 0.25% to the
margin on the loan. The fixed rate conversion option gives the borrower
the option to convert the interest rate on the loan from an adjustable
rate to a fixed rate. The exercise period for such option begins in the
month in which the 12th scheduled monthly payment is due and ends on the
fifth day of the month in which the 60th scheduled monthly payment is due.
The fixed rate becomes effective on the first day of the month after the
conversion notice is given. The new fixed rate is equal to the Federal
National Mortgage Association net required yield for 30-year fixed rate
mortgages subject to a 60-day mandatory delivery requirement (as published
in The Wall Street Journal) plus 0.875%, rounded to the nearest 0.125%.
Upon a fixed rate conversion, the new scheduled monthly payment is
adjusted to the amount that is sufficient to fully amortize the loan in
substantially equal installments on the original maturity date.
Generally, all loans originated under the PrimeFirst(Registered
Trademark) Self-DirectedSM mortgage program allow the borrower to convert
the loan to a new Index and Margin, provided that such Index has the same
frequency of adjustment. The option is exercisable in respect of a
six-month adjustable PrimeFirst(Registered Trademark) loan from its second
change date to its tenth change date, and in respect of a one-month
adjustable PrimeFirst(Registered Trademark) loan, from its twelfth change
date to its sixtieth change date, within a certain 21-day period
commencing on the 45th day prior to each such change date. If the loan
also carries the fixed rate conversion option, such option may be
exercised whether or not an Index conversion has occurred. A borrower may
not convert the frequency with which the interest rate adjusts on a
PrimeFirst(Registered Trademark) loan and may not add a periodic rate cap
to a loan that did not carry such periodic rate cap upon origination. The
Indices and Margins to which a borrower may convert a
PrimeFirst(Registered Trademark) loan are the same as those described
above for PrimeFirst(Registered Trademark) loans for the applicable
adjustment frequency.
The exercise of either option is subject to the satisfaction of the
following conditions: (i) the borrower must be the owner and occupant of
the mortgaged property, (ii) the borrower has not been late on any of the
12 scheduled monthly payments immediately preceding the date on which the
conversion notice is given, (iii) the borrower has not been more than 30
days late on any scheduled monthly payment, (iv) the borrower is not in
default under the mortgage note and (v) the borrower must pay a $500
conversion fee.
DELINQUENCY AND LOAN LOSS EXPERIENCE
The next two tables set forth information relating to the delinquency
and loan loss experience on the loans originated in MLCC's
PrimeFirst(Registered Trademark) mortgage program as of and for each of
the five years in the period ended December 31, 1995, respectively, and
the six-month period ending June 30, 1996. The delinquency and loan loss
experience represents the historical experience of MLCC, and there can be
no assurance that the future experience on the Mortgage Loans in the Trust
Fund will be the same as, or more favorable than, that of the
PrimeFirst(Registered Trademark) loans originated by MLCC, which loans,
because they were first originated in the first quarter of 1990, have not
yet exhibited a loss and delinquency experience that is representative of
the losses and delinquencies that may be experienced over a longer period
of time.
<PAGE>
Prime First Registered Trademark Loan Delinquency Experience
<TABLE>
<CAPTION>
1991 1992 1993
Number of Amount Number of PrimeFirst Number of Principal
PrimeFirst Principal Copyright Loans Amount
Loans Loans Amount
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Prime First
Copyright
Loans
Outstanding 921 $522,425 3,265 $1,504,940 4,959 $2,264,421
Delinquency
Period
30-59 days 6 4,261 23 15,446 69 48,509
60-89 days 0 0 2 6,300 6 3,361
90 days or more* 2 1,350 2 1,635 13 8,565
Total Delinquency 8 5,611 27 23,381 88 460,435
Delinquencies
as a percent of
number of
PrimeFirst
Copyright loans
and principal amount
outstanding 0.87% 1.07% 0.83% 1.55% 1.77% 2.67%
Foreclosures 4 $12,902 7 13,592 9 7,899
Foreclosures as a
percent of number of
PrimeFirst loans
and principal
outstanding 0.43% 2.47% 0.21% 0.90% 0.18% 0.35%
</TABLE>
Prime First Registered Trademark Delinquency Experience
<TABLE>
<CAPTION>
1994 1995 As of June 30, 1996
Number of Principal Number of Principal Number of Principal
PrimeFirst Amount PrimeFirst Amount PrimeFirst Amount
Copyright Copyright Copyright
Loans Loans Loans
<S> <C> <C> <C> <C> <C> <C>
Prime First
Copyright
Loans
Outstanding 7,615 $3,351,328 8,272 $3,536,761 9,273 $3,852,739
Delinquency
Period
30-59 days 121 86,279 127 56,370 159 76,487
60-89 days 20 18,152 13 7,917 22 19,095
90 days or more* 17 19,257 44 45,749 31 27,530
Total Delinquency 158 $123,688 184 $110,036 212 123,112
Delinquencies
as a percent of
number of
PrimeFirst
Copyright loans
and principal amount
outstanding 2.07% 3.69% 2.22% 3.11% 2.29% 3.20%
Foreclosures 18 $15,637 28 $38,209 30 $33,527
Foreclosures as a
percent of number of
PrimeFirst loans
and principal
outstanding 0.24% 0.47% 0.34% 1.11% 0.32% 0.87%
</TABLE>
- ---------
* Does not include loans subject to bankruptcy proceedings and real
estate owned.
PrimeFirst(Registered Trademark) Loan Loss Experience
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, SIX MONTHS
ENDED
1991 1992 1993 1994 1995 JUNE 30, 1996
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Average principal balance of $351,651 $1,008,493 $1,851,696 $2,807,875 $3,444,045 $3,694,750
PrimeFirst(Copyright) loan
portfolio . . . . . . . . .
Average number of 569 2,036 4,091 6,287 7,944 8,773
PrimeFirst(Copyright) loans
outstanding during the
period . . . . . . . . . .
Gross charge-offs . . . . . $ 0 $ 0 $ 2,285 $ 457 $ 1,840 $ 2,775
Recoveries . . . . . . . . $ 0 $ 0 $ 171 $ 0 $ 0 $ 0
Net charge-offs . . . . . $ 0 $ 0 $ 2,114 $ 457 $ 1,840 $ 2,775
Net charge-offs as a percent 0.00% 0.00% 0.11% 0.02% 0.05% 0.08%(1)
of average principal balance
outstanding . . . . . . . .
</TABLE>
- ---------
(1) Not annualized.
Because of the short time during which the PrimeFirst(Registered
Trademark) loans have been outstanding and the resulting lack of
experience as to delinquencies and losses on PrimeFirst(Registered
Trademark) loans, the following two tables, which relate to the
delinquency and loan loss experience on home equity revolving credit line
loans originated and serviced by MLCC, are presented instead. MLCC
believes that the underwriting standards used by it in originating the
revolving credit line loans are similar, but by no means identical, to its
PrimeFirst(Registered Trademark) underwriting standards. The delinquency
and loan loss experience represents the historical experience of MLCC on
the revolving credit line loans, and there can be no assurance that the
future experience on the Mortgage Loans in the Trust Fund will be the same
as, or more favorable than, that of the revolving credit line mortgage
loans in MLCC's servicing portfolio, which mortgage loans are not fully
seasoned and the terms of which do not require the payment of principal
until final maturity.
Revolving Credit Line Loan Delinquency Experience
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, SIX MONTHS
ENDED
1991 1992 1993 1994 1995 JUNE 30, 1996
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Number of revolving credit $15,913 15,084 13,839 15,598 25,056 27,081
line loans serviced
Aggregate loan balance of $1,073,492 $1,062,930 $1,037,427 $1,079,693 $1,293,483 $1,318,904
revolving credit line loans
serviced
Loan balance of revolving $2,250 $3,717 $5,161 $5,358 $8,447 $5,364
credit line loans 2 months
delinquent
Loan balance of revolving $22,361 $18,751 $17,508 $22,989 $33,763 $43,610
credit line loans 3 months
or more delinquent
Total of 2 months or more 2.29% 2.11% 2.19% 2.63% 3.26% 3.71%
delinquent as a percentage
of aggregate loan balance
of revolving credit line
line loans
</TABLE>
Revolving Credit Line Loan Loss Experience
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, SIX MONTHS
ENDED
1991 1992 1993 1994 1995 JUNE 30, 1996
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Number of revolving credit $15,913 15,084 13,839 15,598 25,056 27,081
line loans serviced
Aggregate loan balance of $1,073,492 $1,062,930 $1,037,427 $1,079,693 $1,293,483 $1,318,904
revolving credit line loans
serviced
For the period:
Gross charge-off dollars $ 936 $ 1,447 $ 3,153 $ 1,118 $ 3,700 $ 1,040
Percentages(1) . . . . . 0.09% 0.14% 0.30% 0.10% 0.29% 0.08%(2)
</TABLE>
- ---------
(1) As a percentage of aggregate balance of revolving credit line loans
serviced.
(2) Not annualized.
No assurance can be given that values of the Mortgaged Properties as
of the dates of origination of the related Mortgage Loans have remained or
will remain constant. In certain regions of the country, including regions
in which Mortgaged Properties are located, real estate values have
recently declined. See "The Mortgage Pool" for a listing of the geographic
distribution of the Mortgaged Properties as of the Cut-off Date. If the
residential real estate market should experience an overall decline in
property values such that the outstanding balances of the Mortgage Loans
equal or exceed the value of the Mortgaged Properties, the actual rates of
delinquencies, foreclosures and losses could be higher than those
currently experienced in the mortgage lending industry in general. In
addition, adverse economic conditions (which may or may not affect real
property values) may affect the timely payment by borrowers of scheduled
payments of principal and interest on the Mortgage Loans and, accordingly,
the actual rates of delinquencies, foreclosures and losses with respect to
the Mortgage Pool. To the extent that such losses are not covered by the
subordination feature described under "Description of the Certificates --
Subordinated Certificates", subject to the effect of the Certificate
Insurance Policy as described under "Description of the Certificates --
Distributions on the Certificates", they will be borne by holders of the
related Class A Certificates.
PREPAYMENT AND YIELD CONSIDERATIONS
The rate of principal payments on the Class A Certificates, the
aggregate amount of each interest payment on such Certificates and the
yields to maturity of such Certificates are related to and affected by the
rate and timing of payments of principal on the underlying Mortgage Loans.
The principal payments on the Mortgage Loans may be in the form of
scheduled principal payments or prepayments or liquidation proceeds due to
default, casualty, condemnation and the like. Any such payments will
result in distributions to the Certificateholders of amounts attributable
to principal which would otherwise be distributed over the remaining term
of the Mortgage Loans. In addition, because the Class A Certificates will
be entitled to receive, at least during the early years of their life, all
or a disproportionate percentage of unscheduled principal payments on the
Mortgage Loans (including liquidations due to default) on each
Distribution Date until the Class A Principal Balance is reduced to zero,
rather than the portion thereof proportionate to their interest in the
Mortgage Loans, the rate of principal payments on the Mortgage Loans will,
unless offset by cash flow insufficiencies due to delinquencies and
liquidation losses, have a greater effect on the rate of principal
payments and the amount of interest payments on, and the yields to
maturity of, the Class A Certificates than if the Class A Certificates
were entitled only to their proportionate interest in the Formula
Principal Distribution Amounts for the Mortgage Loans. See "Description of
the Certificates -- Distributions on the Certificates". In general, the
prepayment rate may be influenced by a number of factors, including
general economic conditions, homeowner mobility and the level of mortgage
market interest rates. Mortgagors are permitted to prepay the Mortgage
Loans, in whole or in part, at any time without penalty. If a Mortgagor
makes a partial prepayment of a Mortgage Loan, MLCC will adjust the
monthly payment of such Mortgage Loan in the following month to reflect
the reduced loan amount. The rate of payment of principal may also be
affected by any repurchase of the Mortgage Loans by the Master Servicer or
the Certificate Insurer as described herein. See "The Mortgage Pool" and
"Description of the Certificates -- Optional Termination". In such event,
the repurchase price will be passed through to the Class A
Certificateholders as a prepayment of principal in the month following the
month of such repurchase.
All of the Mortgage Loans are adjustable rate loans for which only
interest is due during the first ten years of their terms. Approximately
_____% of the Mortgage Loans (by Cut-off Date Principal Balance) are
Convertible Mortgage Loans, in respect of which the Mortgagor, during the
related conversion period, may convert the adjustable rate to a fixed rate
and may convert to a different Index (and may thereafter convert to a
fixed rate). Approximately _____% of the Mortgage Loans (by Cut-off Date
Principal Balance) are Index Convertible Mortgage Loans, in respect of
which the Mortgagor, during the related conversion period, may convert to
a different Index. The Company is not aware of any publicly available
statistics that set forth principal prepayment or conversion experience or
prepayment or conversion forecasts of adjustable rate mortgage loans over
an extended period of time, and the experience of MLCC is insufficient to
draw any conclusions with respect to the expected prepayment or conversion
rates on the Mortgage Loans. The rate of principal prepayments and
conversions with respect to adjustable rate mortgage loans has fluctuated
in recent years. As is the case with conventional fixed rate mortgage
loans, adjustable rate mortgage loans may be subject to a greater rate of
principal prepayments and conversions in a declining interest rate
environment. For example, if prevailing interest rates fall significantly,
adjustable rate mortgage loans could be subject to higher prepayment rates
than if prevailing interest rates remain constant because the availability
of fixed rate or other adjustable rate mortgage loans at competitive
interest rates may encourage mortgagors to refinance their adjustable rate
loans, or convert them to a fixed rate or other adjustable rate, to "lock
in" a lower adjustable or fixed interest rate. The fixed rate conversion
option may also be exercised in a rising interest rate environment as
Mortgagors avoid the risk of higher rates. No prediction can be made as to
the rate of prepayments or conversions on the Mortgage Loans in stable or
changing interest rate environments. If a substantial number of Mortgagors
exercise their conversion option with respect to the Convertible Mortgage
Loans to convert to a fixed rate, and the Master Servicer purchases such
Converting Mortgage Loans, the Mortgage Loans will, in effect, experience
substantial prepayments of principal. If the Master Servicer fails to
purchase Converting Mortgage Loans that are converting to a fixed rate,
then the Mortgage Loans will include fixed rate Mortgage Loans, which will
have the effect of limiting the extent to which the related Net Mortgage
Rates can increase (or decrease) in accordance with changes in the Indices
and accordingly may limit the Class A Pass-Through Rate on the Class A
Certificates to the related Weighted Average Net Mortgage Rate rather than
the applicable Class A Pass-Through Rate calculated on the basis of the
LIBOR formula. The Master Servicer will not purchase Convertible Mortgage
Loans or Index Convertible Mortgage Loans upon their conversion to a
different Index. Consequently, the Mortgage Loans will include any such
Mortgage Loans with the different Index, which may have an adverse effect
on the level of the Class A Pass-Through Rate. See "Yield and Prepayment
Considerations" in the Prospectus.
To the extent that amounts paid to the holders of the Class A
Certificates on any Distribution Date are less than the amount due to the
holders of the Class A Certificates on such date, the weighted average
life of the Class A Certificates will be longer than if shortfalls had not
occurred.
In the case of any Class A Certificates purchased at a discount to
their original principal amounts, a slower than anticipated rate of
principal payments is likely to result in a lower than anticipated yield.
In the case of Class A Certificates purchased at a premium to their
original principal amounts, a faster than anticipated rate of principal
payments is likely to result in a lower than anticipated yield.
In the event of the acceleration of Mortgage Loans as a result of
enforcement of "due-on-sale" provisions in connection with transfers of
the related Mortgaged Properties or the occurrence of certain other events
resulting in acceleration as described under "Description of the
Certificates -- Servicing and Insurance", the level of prepayments on the
Mortgage Loans will be affected, thereby shortening the weighted average
life of the Class A Certificates. The Master Servicer is not obligated to
exercise a due-on-sale clause. See "Yield and Prepayment Considerations"
in the Prospectus.
If a Mortgage Loan is prepaid in full, interest thereon will cease to
accrue on the date of the prepayment. Consequently, the timing of
prepayments in full on Mortgage Loans will affect the amount of the
Available Distribution Amount available to make distributions of interest
on the Certificates and will therefore affect the ability of the Trust
Fund to make a full distribution of interest on the Class A Certificates
and the Class A Formula Principal Distribution Amount. The Master
Servicer's Servicing Fee in respect of the month of prepayment will be
applied to make up for any reduced amount of interest collections on
account of the timing of the receipt of principal prepayments, but no
assurance can be given that the amount of the Servicing Fee will be
sufficient for such purpose. Net Interest Shortfalls will be borne by the
Class A Certificateholders as described under "Description of the
Certificates -- Distributions on the Certificates" and will result in a
lower than anticipated yield.
No prediction can be made as to future levels of LIBOR, the One-Month
LIBOR Index, the Six-Month LIBOR Index, the Prime Index or the Treasury
Index or as to the timing of any changes therein, each of which will
directly affect the yields of the Class A Certificates. In addition, the
holders of the Class A Certificates will absorb the yield risk associated
with a possible narrowing of the spread between the Class A Pass-Through
Rate (which rate, except as otherwise provided, is based on LIBOR) and the
Weighted Average Net Mortgage Rate. The Mortgage Rates reset at different
times and are subject to lifetime interest rate caps. The conversions of
Convertible Mortgage Loans to a fixed rate may, if the Master Servicer
fails to purchase such Converting Mortgage Loans, have the effect of
narrowing the spread between the Class A Pass-Through Rate calculated on
the basis of LIBOR and the Weighted Average Net Mortgage Rate. If such
spread disappears (i.e., if LIBOR plus 0.38% exceeds the related Weighted
Average Net Mortgage Rate), then the Class A Pass-Through Rate for such
Distribution Date will be limited to such lower Weighted Average Net
Mortgage Rate. In addition, interest accrues on the Class A and Class B
Certificates on the basis of the actual number of days in the related
Accrual Period (which could be more than 30) divided by 360. Consequently,
if the Pass-Through Rates equaled the related Weighted Average Net
Mortgage Rate, the amount of such accrued interest might, in certain
circumstances, be greater than the amount of interest that would be due on
the Mortgage Loans, on which interest accrues on the basis of a year
consisting of twelve 30-day months. See "Description of the Certificates
- -- Servicing Compensation and Payment of Expenses". Any such differential
in accrued interest would be covered, as to the Class A Certificates, by
the Certificate Insurance Policy to the extent such differential results
in a Distribution Account Shortfall.
The Maximum Mortgage Rates range from _____% to _____% per annum and
the weighted average Maximum Mortgage Rate for the Mortgage Loans (by
Cut-off Date Principal Balance) is equal to _____%.
None of the Mortgage Loans are subject to periodic interest rate caps.
WEIGHTED AVERAGE LIFE OF THE CLASS A CERTIFICATES
The following information is given solely to illustrate the effect of
prepayments of the Mortgage Loans on the weighted average life of the
Class A Certificates under the stated assumptions and is not a prediction
of the prepayment rate that might actually be experienced by the Mortgage
Loans.
Weighted average life refers to the average amount of time from the
date of issuance of a security until each dollar of principal of such
security will be repaid to the investor. The weighted average lives of the
Class A Certificates will be affected by the rate at which principal on
the Mortgage Loans is paid. Principal payments on Mortgage Loans may be in
the form of scheduled amortization or prepayments (for this purpose, the
term "prepayment" includes prepayments and liquidations due to default or
other dispositions of Mortgage Loans). Prepayments on mortgage loans may
be measured by a prepayment standard or model. The model used in this
Prospectus Supplement is a Constant Prepayment Rate ("CPR"). The CPR
represents an assumed constant rate of prepayment each month, expressed as
a per annum percentage of the scheduled principal balance of the pool of
mortgage loans for that month. As used in the following table, the column
headed "0%" assumes that none of the Mortgage Loans is prepaid before
maturity. The columns headed "__%", "__%", "__%" and "__%" assume that
prepayments on the Mortgage Loans are made at CPRs of "__%", "__%", "__%"
and "__%", respectively. THE CPR DOES NOT PURPORT TO BE A HISTORICAL
DESCRIPTION OF PREPAYMENT EXPERIENCE OR A PREDICTION OF THE ANTICIPATED
RATE OF PREPAYMENT OF ANY POOL OF MORTGAGE LOANS, INCLUDING THE MORTGAGE
LOANS.
There is no assurance, however, that prepayments of the Mortgage
Loans will conform to any level of CPR, and no representation is made that
the Mortgage Loans will prepay at the CPRs shown or any other prepayment
rate. The rate of principal payments on pools of mortgage loans is
influenced by a variety of economic, geographic, social and other factors,
including the level of interest rates and the rate at which homeowners
sell their homes or default on their mortgage loans. Other factors
affecting prepayment of mortgage loans include changes in borrowers'
housing needs, job transfers, unemployment and obligors' net equity in
their homes.
The percentages and weighted average lives in the following table
were determined assuming that (i) scheduled interest and principal
payments on the Mortgage Loans are received in a timely manner and
prepayments are made at the indicated CPRs; (ii) principal prepayments on
the Mortgage Loans will be received on the last day of each month
commencing in __________ 199__ at the respective constant percentages of
CPR set forth in such table and there are no Prepayment Interest
Shortfalls; (iii) except as indicated with respect to the weighted average
lives, neither the Master Servicer nor the Certificate Insurer exercises
its right of optional termination described above; (iv) each Mortgage Loan
will pay interest only for the first ten years from origination and will
fully amortize during the following fifteen years; (v) each Mortgage Loan
will, as of the Cut-off Date, have the applicable original term to
maturity and the applicable remaining term to maturity specified below;
(vi) each Mortgage Loan bears interest at the applicable current Mortgage
Rate specified in the table below until the next applicable Interest
Adjustment Date and thereafter bears interest at the sum of the applicable
Index and Margin specified in the table below; (vii) there are no losses
or delinquencies on the Mortgage Loans and no Index Convertible Mortgage
Loan is converted into a new Index; (viii) the Class A Certificates are
issued on ___________, 199_; (ix) the Distribution Date is the 15th day of
each month commencing in ______________ 199_; and (x) no Convertible
Mortgage Loans are converted to fixed rate Mortgage Loans or to different
Indices. No representation is made that the actual losses and
delinquencies on the Mortgage Loans will be experienced at the assumed
rate or at any other rate. In addition, the Mortgage Loans are assumed to
have the following characteristics:
<TABLE>
<CAPTION>
Remaining Term
Index and Cut-off Date Current Months to Level of Margin (Months) Orig. Term
Frequency of Principal Mortgage Next Index
Adjustment Balance Rate Interest After
Adjustment Current
Date Mortgage
Rate
<S> <C> <C> <C> <C> <C> <C> <C>
Six-Month
LIBOR --
Six Months $______ _____% _____% _____%
Prime -- Six
Months $______ _____% _____% _____%
Treasury --
Six Months $______ _____% _____% _____%
One-Month
LIBOR --
Monthly $______ _____% _____% _____%
Treasury --
Monthly $______ _____% _____% _____%
</TABLE>
Since the table was prepared on the basis of the assumptions in the
preceding paragraph, there are discrepancies between the characteristics
of the actual Mortgage Loans and the characteristics of the Mortgage Loans
assumed in preparing the table. Any such discrepancy may have an effect
upon the percentages of the Original Class A Principal Balance outstanding
and the weighted average lives of the Class A Certificates set forth in
the tables. In particular, the Mortgage Rates are adjustable and will most
likely vary from the assumed interest rates, which may have a significant
effect on the percentages of the Original Class A Principal Balance
outstanding and the weighted average life. In addition, since the actual
Mortgage Loans in the Trust Fund have characteristics which differ from
those assumed in preparing the table set forth below, the distributions of
principal on the Class A Certificates may be made earlier or later than as
indicated in the table.
It is not likely that the Mortgage Loans will prepay at any constant
CPR to maturity or that all Mortgage Loans will prepay at the same rate.
In addition, the diverse remaining terms to maturity of the Mortgage Loans
could produce slower distributions of principal than as indicated in the
related tables at the various CPRs specified even if the weighted average
remaining term to maturity of the Mortgage Loans is as assumed above.
Investors are urged to make their investment decisions on a basis
that includes their determination as to anticipated prepayment rates under
a variety of the assumptions discussed herein.
Based on the foregoing assumptions, the following table indicates the
resulting weighted average lives of the Class A Certificates and sets
forth the percentage of the Original Class A Principal Balance that would
be outstanding after each of the dates shown at the indicated CPR.
PERCENT OF THE ORIGINAL PRINCIPAL BALANCE OF THE CLASS A CERTIFICATES
OUTSTANDING FOR:
<TABLE>
<CAPTION>
Class A Certificate at the
Following Percentages of CPR
<S> <C> <C> <C> <C> <C>
Distribution Date 0% 10% 15% 20% 30%
Initial Percentage . . . . . . . . . 100% 100% 100% 100% 100%
_______ 15, 199_ . . . . . . . . . .
_______ 15, 199_ . . . . . . . . . .
_______ 15, 199_ . . . . . . . . . .
_______ 15, 20__ . . . . . . . . . .
_______ 15, 20__ . . . . . . . . . .
_______ 15, 20__ . . . . . . . . . .
_______ 15, 20__ . . . . . . . . . .
_______ 15, 20__ . . . . . . . . . .
_______ 15, 20__ . . . . . . . . . .
_______ 15, 20__ . . . . . . . . . .
_______ 15, 20__ . . . . . . . . . .
_______ 15, 20__ . . . . . . . . . .
_______ 15, 20__ . . . . . . . . . .
_______ 15, 20__ . . . . . . . . . .
_______ 15, 20__ . . . . . . . . . .
_______ 15, 20__ . . . . . . . . . .
_______ 15, 20__ . . . . . . . . . .
_______ 15, 20__ . . . . . . . . . .
_______ 15, 20__ . . . . . . . . . .
_______ 15, 20__ . . . . . . . . . .
_______ 15, 20__ . . . . . . . . . .
_______ 15, 20__ . . . . . . . . . .
_______ 15, 20__ . . . . . . . . . .
_______ 15, 20__ . . . . . . . . . .
_______ 15, 20__ . . . . . . . . . .
Weighted Average Life without exercise
of optional termination (years)(1) . .
Weighted Average Life with exercise of
optional termination (years) (1)(2) .
</TABLE>
- ---------
(1) The weighted average life of a Class A Certificate is determined by
(i) multiplying the amount of each principal distribution by the number of
years from the date of the issuance of such Certificate to the related
Distribution Date, (ii) adding the results and (iii) dividing the sum by the
original principal balance of such Certificate.
(2) The right of the Master Servicer and the Certificate Insurer to
purchase the Mortgage Loans when the Pool Scheduled Principal Balance is less
than 10% of the original Pool Scheduled Principal Balance is
described under "Description of the Certificates -- Optional Termination".
The weighted average lives that assume the exercise of such option assume
that the option is exercised when it first becomes exercisable.
DESCRIPTION OF THE CERTIFICATES
The Certificates will be issued pursuant to the Agreement among the
Company, the Master Servicer and the Trustee. A copy of the Agreement
(exclusive of the list of Mortgage Loans) will be attached as an exhibit
to the Current Report on Form 8-K to be filed with the Securities and
Exchange Commission after the date of delivery of the Certificates.
Reference is made to the Prospectus for additional information regarding
the terms and conditions of the Agreement to the extent not revised by the
following description. To the extent that the statements in this
Prospectus Supplement modify statements in the Prospectus, the statements
in this Prospectus Supplement control.
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
Exclusive of the interest of the Class R Certificate, the Class A
Certificates will initially evidence in the aggregate a beneficial
interest of approximately _____% in the pool of Mortgage Loans, and the
Class B Certificates will initially evidence the remaining approximate
_____%. The Class R Certificate does not have a principal balance.
The Class A Certificates will be issued in fully registered form
only, in denominations of $___,000 and integral multiples of $1,000 in
excess thereof. The Percentage Interest of a Class A Certificate is the
percentage obtained from dividing its denomination by the Original Class A
Principal Balance. Definitive Class A Certificates, if issued, will be
transferable and exchangeable at the corporate trust office of the Trustee
at its Corporate Trust Department in California or, if it so elects, at
the office of an agent in New York City. No service charge will be made
for any registration of exchange or transfer, but the Trustee may require
payment of a sum sufficient to cover any tax or other governmental charge.
Distributions of principal and interest on the Class A Certificates
will be made on the ___th day of each month, or, if such day is not a
business day, the next succeeding business day (each, a "Distribution
Date") beginning in ____________ 199_, to the persons in whose names the
Class A Certificates are registered at the close of business on the last
business day preceding the immediately preceding Distribution Date or on
the date of the initial issuance of the Certificates in the case of the
first Distribution Date (the "Record Date"). The Class A Certificates will
initially be represented by certificates registered in the name of Cede &
Co. ("Cede") as the nominee of The Depository Trust Company ("DTC"). See
"Registration of Class A Certificates" below. If definitive Class A
Certificates are issued, distributions will be made by check mailed to the
address of the person entitled thereto as it appears on the Certificate
Register, except that a Certificateholder who holds Class A Certificates
with original denominations aggregating at least $____ million may request
payment by wire transfer of funds pursuant to written instructions
delivered to the Trustee at least ten business days prior to the Record
Date. The final distribution in retirement of Class A Certificates will be
made only upon presentation and surrender of the Class A Certificates at
the office or agency of the Trustee specified in the final distribution
notice to Class A Certificateholders.
The Certificate Account will be established in the name of the Master
Servicer as Master Servicer for the Trustee.
DISTRIBUTIONS ON THE CERTIFICATES
Distributions of interest and principal to each holder of a Class A
Certificate will be made on each Distribution Date, commencing in
___________ 199_, in an amount equal to each such holder's respective
Percentage Interest multiplied by the amount distributed in respect of
Class A Certificates. Certain calculations with respect to the
Certificates will be made by the Master Servicer as of the _____ day of
the month (or if such fifth day is not a business day, then on the next
preceding business day) (the "Determination Date"). Distributions on the
Class A Certificates will be applied first to interest and then to
principal. All calculations of interest on the Certificates will be made
on the basis of the actual number of days in the Accrual Period divided by
360. Interest will accrue with respect to each Distribution Date during
the one-month period beginning on the 15th day of the month preceding the
month of such Distribution Date and ending on the 14th day of the month of
such Distribution Date (or, in the case of the first Distribution Date,
the period beginning on the Closing Date and ending on ___________ __,
199_) (each, an "Accrual Period").
With respect to each Distribution Date, the Available Distribution
Amount will be the amount received in respect of the Mortgage Loans that
is on deposit in the Certificate Account as of the close of business on
the related Determination Date plus the Advances deposited in the
Distribution Account (described below) for such Distribution Date, less
the following amounts:
(a) amounts received on the Mortgage Loans as late payments or
other recoveries of interest or principal (including Liquidation Proceeds,
Insurance Proceeds and condemnation awards) and respecting which the Master
Servicer previously made an unreimbursed Advance of such amounts;
(b) amounts representing the reimbursement for Nonrecoverable
Advances and other amounts (including the Servicing Fee) permitted to be
withdrawn by the Master Servicer from, or not required to be deposited in,
the Certificate Account;
(c) amounts representing all or part of a Monthly Payment due
after the immediately preceding Due Date;
(d) all Repurchase Proceeds, Principal Prepayments, Liquidation
Proceeds, Insurance Proceeds and condemnation awards with respect to
Mortgage Loans received after the related Principal Prepayment Period, and
all related payments of interest representing interest for any period of time
after the related Due Date; and
(e) all income from Eligible Investments held in the
Certificate Account for the account of the Master Servicer.
On the business day prior to each Distribution Date the Available
Distribution Amount will be deposited into the Distribution Account. In
addition, on or before each Distribution Date, the Trustee will deposit
into the Distribution Account (i) the payments, if any, it has received
under the Certificate Insurance Policy and the Limited Purpose Surety Bond
and (ii) any Reserve Fund draw amounts, in each case for distribution on
such Distribution Date.
On each Distribution Date the Available Distribution Amount will be
distributed in the following amounts and order of priority:
(i) to the Class A Certificateholders, interest for the related
Accrual Period at the Class A Pass-Through Rate on the Class A Principal
Balance, together with any previously undistributed shortfalls in required
distributions of interest on the Class A Certificates (the "Class A Unpaid
Interest Shortfall"). Interest distributions are subject to reduction on
account of Net Interest Shortfalls as described below;
(ii) to the Class A Certificateholders, on account of principal,
the Class A Formula Principal Distribution Amount until the Class A
Principal Balance is reduced to zero;
(iii) to the Certificate Insurer, the monthly premium due on
the Certificate Insurance Policy;
(iv) to the Certificate Insurer, an amount equal to any
previously unreimbursed payments made under the Certificate Insurance
Policy and any fees and expenses owed to it under the related insurance
agreement, together with interest thereon (collectively, the "Unreimbursed
Insurer Amounts");
(v) to the Reserve Fund, the amount (but not in excess of the
Formula Excess Interest Amount) required to be deposited in the Reserve Fund;
(vi) to the Class B Certificateholders, interest for the related
Accrual Period at the Class B Pass-Through Rate on the Class B Principal
Balance, together with any previously undistributed shortfalls in required
distributions of interest on the Class B Certificates. Interest distributions
are subject to reduction on account of Net Interest Shortfalls as described
below;
(vii) to the Class A Certificateholders, on account of
principal, the Unrecovered Principal Amounts, if any, for the Mortgage Loans
for such Distribution Date and all prior Distribution Dates that have not
previously been distributed pursuant to this clause until the Class A
Principal Balance is reduced to zero;
(viii) to the Class B Certificateholders, on account of
principal, the Class B Formula Principal Distribution Amount until the Class
B Principal Balance is reduced to zero;
(ix) to the Class B Certificateholders, the Class B Loss Amounts
not previously distributed to them pursuant to this clause; and
(x) to the Class R Certificateholders, any remaining balance.
Notwithstanding the foregoing, until the Class A Principal Balance is
reduced to zero, distributions on account of principal otherwise allocable
to the Class B Certificateholders in accordance with the above priorities
will instead be made to the Class A Certificateholders to the extent, if
any, that such distribution would, if made to the Class B
Certificateholders, reduce the Class B Principal Balance to less than
_____% of the Original Pool Scheduled Principal Balance or if the Class B
Principal Balance is less than that amount.
As to any Distribution Date, the "Formula Principal Distribution
Amount" is the sum of:
(a) the principal portion of all Monthly Payments, whether or
not received, which were due on the related Due Date on Outstanding
Mortgage Loans as of the related Due Date;
(b) with respect to each Mortgage Loan, all Principal
Prepayments made by the Mortgagor during the month (the "Principal
Prepayment Period") preceding the month of such Distribution Date;
(c) with respect to each Mortgage Loan not described in (e)
below, 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 pursuant to the Agreement, which are
allocable to principal and were received during the related Principal
Prepayment Period, net of related unreimbursed Servicing Advances and net of
any portion thereof that, as to such Mortgage Loan, constitutes late
collections with respect thereto;
(d) with respect to each Mortgage Loan that has been
repurchased pursuant to Section 11.01 of the Agreement during the related
Principal Prepayment Period, an amount equal to the Principal Balance of the
Mortgage Loan as of the date of repurchase;
(e) with respect to each Mortgage Loan that became a Liquidated
Mortgage Loan during the related Principal Prepayment Period, the amount
allocable to the principal of such Liquidated Mortgage Loan that was
recovered out of the net liquidation proceeds in respect of such Liquidated
Mortgage Loan in such Principal Prepayment Period; and
(f) with respect to each Mortgage Loan repurchased during the
related Principal Prepayment Period by the Master Servicer on account of a
breach of a representation or warranty that materially adversely affects the
interests of the Certificateholders or the Certificate Insurer or the Surety
Bond Provider, or on account of its conversion to a fixed rate Mortgage Loan
or otherwise, an amount equal to the principal portion of the Purchase Price,
as defined in the Agreement (exclusive of any portion thereof included in
clause (a) above).
The "Scheduled Formula Principal Distribution Amount" for a
Distribution Date is the amount specified in clause (a) of this paragraph
for such Distribution Date. The "Unscheduled Formula Principal
Distribution Amount" for a Distribution Date is the sum of the amounts in
clauses (b), (c), (d), (e) and (f) of this paragraph for such Distribution
Date.
The "Unrecovered Principal Amount" in respect of a Liquidated
Mortgage Loan is the portion, if any, of the principal of such Liquidated
Mortgage Loan that was not recovered upon its liquidation. An Unrecovered
Principal Amount in respect of a Distribution Date is one that was
incurred in the immediately preceding Principal Prepayment Period.
An "Outstanding Mortgage Loan" in respect of a Due Date is a Mortgage
Loan which was not the subject of a Principal Prepayment in full prior to
such Due Date, which did not become a Liquidated Mortgage Loan prior to
such Due Date and which was not repurchased pursuant to the Agreement on
account of certain breaches of a representation or warranty or conversion
or otherwise prior to such Due Date.
A "Liquidated Mortgage Loan" is, generally, a defaulted Mortgage Loan
as to which all amounts that the Master Servicer believes can be recovered
with respect to such Mortgage Loan or the property acquired in respect
thereof have been recovered.
The "Principal Balance" of a Mortgage Loan is its principal balance
remaining to be paid at the close of business on the Cut-off Date (after
deduction of all principal payments due on or before the Cut-off Date
whether or not paid, but without deducting Monthly Payments due after the
Cut-off Date and received on or before the Cut-off Date) reduced by all
amounts (including Advances, if any) distributed to Certificateholders
relating to principal of such Mortgage Loan.
The interest entitlement above for the Class A and Class B
Certificates with respect to each Distribution Date will be reduced by the
amount of Net Interest Shortfall allocable to each such Class. The Net
Interest Shortfall on any Distribution Date will be allocated pro rata
among the Class A and Class B Certificates based on the amount of interest
each such Class of Certificates would otherwise be entitled to receive on
such Distribution Date.
The "Net Interest Shortfall" in respect of a Distribution Date is
equal to the sum of (i) the amount of interest which would otherwise have
been received with respect to any Mortgage Loan that was the subject of a
Relief Act Reduction and (ii) any Net Prepayment Interest Shortfall. The
"Net Prepayment Interest Shortfall" in respect of a Distribution Date is
the aggregate of the Prepayment Interest Shortfalls incurred on the
Mortgage Loans in the preceding Principal Prepayment Period that were not
made up by the application of the Servicing Fees collected by the Master
Servicer in respect of such Principal Prepayment Period. A "Relief Act
Reduction" is a reduction in the amount of monthly interest on a Mortgage
Loan pursuant to the Soldiers' and Sailors' Civil Relief Act of 1940, as
amended.
In no event will the aggregate distributions of principal to the
holders of the Class A or Class B Certificates (whether out of Available
Distribution Amounts, Reserve Fund draw amounts, payments under the
Certificate Insurance Policy or payments under the Limited Purpose Surety
Bond) exceed the Original Principal Balance of such Class.
The "Formula Excess Interest Amount" in respect of a Distribution
Date is the amount, if any, by which (i) one month's interest at the
Weighted Average Net Mortgage Rate on the aggregate Principal Balance of
the Mortgage Loans as of the Due Date in the preceding month (after giving
effect to the scheduled principal payments due on such Due Date and
unscheduled principal payments received prior to such Due Date) exceeds
(ii) interest for the related Accrual Period at the weighted average of
the Class A and Class B Pass-Through Rates for such Distribution Date on
the aggregate Principal Balance of such Certificates.
The Class A Principal Balance is the Original Class A Principal
Balance less all prior distributions to Class A Certificateholders on
account of principal.
The Class B Principal Balance, which shall not be less than zero, is
the Original Class B Principal Balance less the sum of (i) all prior
distributions to the Class B Certificateholders on account of principal
and (ii) the sum of all Class B Loss Amounts for prior Distribution Dates.
A "Class B Loss Amount" for a Distribution Date is the amount, if any, by
which (a) the sum of (x) the Formula Principal Distribution Amount and (y)
the aggregate of the Unrecovered Principal Amounts, if any, for such
Distribution Date exceeds (b) the amount distributed on account of
principal to the holders of the Certificates on such Distribution Date.
Class B Loss Amounts will not bear interest.
The term "Principal Balance", when used in respect of a Class or
Classes of Certificates, refers to the principal balance thereof as
calculated in the preceding two paragraphs.
The "Class A Formula Principal Distribution Amount" for a
Distribution Date is equal to the sum of (i) the Class A Percentage of the
Scheduled Formula Principal Distribution Amount and (ii) the Class A
Prepayment Percentage of the Unscheduled Formula Principal Distribution
Amount.
The "Class A Percentage" for a Distribution Date is equal to the
percentage (which shall in no event be greater than 100%) derived from
dividing the Class A Principal Balance by the Pool Scheduled Principal
Balance (before giving effect to the Formula Principal Distribution Amount
for such Distribution Date). The "Class A Prepayment Percentage" for a
Distribution Date on or before the Distribution Date in ________ 20__ will
be 100%. The "Class A Prepayment Percentage" for a Distribution Date after
the Distribution Date in ________ 20__ will be as follows: for any
Distribution Date subsequent to ________ 20__ to and including the
Distribution Date in ________ 20__, the Class A Percentage for such
Distribution Date plus 70% of the Subordinated Percentage for such
Distribution Date; for any Distribution Date subsequent to ________ 20__
to and including the Distribution Date in ________ 20__, the Class A
Percentage for such Distribution Date plus 60% of the Subordinated
Percentage for such Distribution Date; for any Distribution Date
subsequent to ________ 20__ to and including the Distribution Date in
________ 20__, the Class A Percentage for such Distribution Date plus 40%
of the Subordinated Percentage for such Distribution Date; for any
Distribution Date subsequent to ________ 20__ to and including the
Distribution Date in ________ 20__, the Class A Percentage for such
Distribution Date plus 20% of the Subordinated Percentage for such
Distribution Date; and for any Distribution Date thereafter, the Class A
Percentage for such Distribution Date (unless on any of the foregoing
Distribution Dates the Class A Percentage exceeds the initial Class A
Percentage, in which case the Class A Prepayment Percentage for such
Distribution Date will once again be 100%). Reduction of the Class A
Prepayment Percentage in accordance with the preceding sentence is subject
to the satisfaction of certain criteria (including the criteria set forth
in clause (ii) of the next paragraph (applied, for purposes of this
paragraph, by starting the application of clause (a) thereof with any
Distribution Date after ________ 20__ to and including the Distribution
Date in ________ 20__ and similarly moving back the application of clauses
(b), (c) and (d) thereof) and the criteria set forth in clause (iii) of
the next paragraph) regarding delinquency and loss experience of the
Mortgage Loans.
Notwithstanding the foregoing, if on any Distribution Date (i) the
Current Subordination Level equals at least twice the Original
Subordination Level, (ii) cumulative Unrecovered Principal Amounts with
respect to the Mortgage Loans have not exceeded (a) if such Distribution
Date is on or before the fifth anniversary of the first Distribution Date,
35% of the initial Class B Principal Balance, (b) if such Distribution
Date is after the fifth but on or before the sixth anniversary of the
first Distribution Date, 40% of the initial Class B Principal Balance, (c)
if such Distribution Date is after the sixth but on or before the seventh
anniversary date of the first Distribution Date, 45% of the initial Class
B Principal Balance and (d) if such Distribution Date is after the seventh
anniversary date of the first Distribution Date, 50% of the initial Class
B Principal Balance, and (iii) over the prior three months, the average
aggregate outstanding principal balance of the Mortgage Loans delinquent
60 days or more (including for this purpose any Mortgage Loans in
foreclosure and Mortgage Loans with respect to which the related Mortgage
Property has been acquired by the Trust Fund) has not exceeded 3.00% of
the average aggregate outstanding principal balance of all Mortgage Loans
for such period, then the Class A Prepayment Percentage for such
Distribution Date will be as follows: (A) as to any Distribution Date
prior to the third anniversary of the first Distribution Date, the Class A
Percentage for such Distribution Date plus 50% of the Subordinated
Percentage for such Distribution Date; and (B) as to any Distribution Date
thereafter, the Class A Percentage for such Distribution Date.
The "Current Subordination Level" in respect of a Distribution Date
is the percentage derived from dividing (i) the Class B Principal Balance
(before giving effect to the distributions and the allocation of the
Unrecovered Principal Amounts for such Distribution Date) by (ii) the Pool
Scheduled Principal Balance (before giving effect to the Formula Principal
Distribution Amount for such Distribution Date). The "Original
Subordination Level" is the percentage derived from dividing (i) the
Original Class B Principal Balance by (ii) the Original Pool Scheduled
Principal Balance, which percentage is _____%.
The "Class B Formula Principal Distribution Amount" for a
Distribution Date is the sum of (i) the Subordinated Percentage of the
Scheduled Formula Principal Distribution Amount and (ii) the Subordinated
Prepayment Percentage of the Unscheduled Formula Principal Distribution
Amount. The Subordinated Percentage is equal to 100% less the Class A
Percentage. The Subordinated Prepayment Percentage is equal to 100% less
the Class A Prepayment Percentage.
With respect to any Distribution Date, a "Distribution Account
Shortfall" is the sum of (a) the amount, if any, by which (x) the
aggregate of the full amounts due to be distributed to the Class A
Certificateholders pursuant to clauses (i) and (ii) in the fourth
paragraph under "Distributions on the Certificates" above exceeds (y) the
amount of funds (exclusive of funds representing the Insured Payment in
respect of such Distribution Date) that will be on deposit in the
Distribution Account in respect of such Distribution Date and available to
be distributed on the Class A Certificates, after taking into account all
deposits to be made to the Distribution Account on or prior to such
Distribution Date, including without limitation all Advances, all funds to
be transferred from the Reserve Fund and payments under the Limited
Purpose Surety Bond and (b) on the third Distribution Date that follows
the month in which there occurs the latest original scheduled maturity
date of any Mortgage Loan that was an Outstanding Mortgage Loan at any
time during such month, the amount necessary to reduce the Class A
Principal Balance to zero (after giving effect to all other distributions
of principal to be made on such Distribution Date in respect of the Class
A Certificates).
Subject to the terms and conditions of the Certificate Insurance
Policy, the Insured Amount for a Distribution Date will include the
Distribution Account Shortfall, if any, for such Distribution Date.
Insured Payments, if any, will be distributed to the Class A
Certificateholders on the related Distribution Date. See "The Certificate
Insurance Policy and the Certificate Insurer" herein.
The Class A Pass-Through Rate for a Distribution Date will be equal
to the lesser of (i) LIBOR (as described below) plus _____% and (ii) the
Weighted Average Net Mortgage Rate for the Mortgage Loans as of the Due
Date in the preceding month (determined on the basis of the Principal
Balances of the Mortgage Loans after giving effect to the Monthly Payments
due on or prior to such Due Date and unscheduled principal payments
received prior to such Due Date). The Class B Pass-Through Rate will be
similarly calculated, except that the rate corresponding to clause (i) of
the preceding sentence will equal LIBOR plus _____%. The "Net Mortgage
Rate" of a Mortgage Loan is its Mortgage Rate less the sum of (i) the
Servicing Fee Rate of _____% and (ii) the Certificate Insurance Policy
annual premium rate (which, together with the Servicing Fee Rate, will not
exceed _____%). The "Weighted Average Net Mortgage Rate" is the weighted
average of the Net Mortgage Rates for the Mortgage Loans. Notwithstanding
the foregoing, the _____% margin added to the applicable LIBOR formula for
the calculation of the Class A Pass-Through Rate will instead be _____%
for each Distribution Date occurring at least 120 days after the first
Distribution Date in respect of which the option to purchase the Mortgage
Loans, described under "Description of the Certificates -- Optional
Termination", may first be exercised by the Master Servicer. The Class A
Pass-Through Rate thus calculated will still be subject to the limitation
of the Weighted Average Net Mortgage Rate as described above in this
paragraph. See also "Servicing Compensation and Payment of Expenses".
Calculation of LIBOR. LIBOR with respect to any Distribution Date
shall be established by the Trustee and shall equal the arithmetic mean
(rounded, if necessary, to the nearest one-sixteenth of a percent, with a
one thirty-second being rounded upwards) of the offered rates for United
States dollar deposits for one month which appear on the Reuters Screen
LIBO Page (as defined below) as of 11:00 a.m., London time, on the second
LIBOR Business Day prior to the immediately preceding Distribution Date
(but as of ________ __, 199_ in the case of the Distribution Date on
________ __, 199_), provided that at least two such offered rates appear
on the Reuters Screen LIBO Page on such date. If fewer than two offered
rates appear, LIBOR will be determined on such date as described in the
paragraph below. "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 rates of major banks). "LIBOR Business
Day", for purposes of the Agreement, is a day which is both a Business Day
(as defined in the Agreement) and a day on which banking institutions in
the City of London, England are not required or authorized by law to be
closed.
If on such date fewer than two offered rates appear on the Reuters
Screen LIBO Page, the Trustee will request the principal London office of
each of the Reference Banks (which shall be major banks specified in, or
determined by the Master Servicer under, the Agreement that are engaged in
transactions in the London interbank market) to provide the Trustee with
its offered quotation for United States dollar deposits for one month to
prime banks in the London interbank market as of 11:00 a.m., London time,
on such date. If at least two Reference Banks provide the Trustee with
such offered quotations, LIBOR on such date will be the arithmetic mean
(rounded, if necessary, to the nearest one-sixteenth of a percent, with a
one thirty-second being rounded upwards) of all such quotations. If on
such date fewer than two of the Reference Banks provide the Trustee with
such an offered quotation, LIBOR on such date will be the arithmetic mean
(rounded, if necessary, to the nearest one-sixteenth of a percent, with a
one thirty-second being rounded upwards) of the offered per annum rates
which one or more leading banks in The City of New York specified in or
determined by the Agreement are quoting as of 11:00 a.m., New York City
time, on such date to leading European banks for United States dollar
deposits for one month; provided, however, that if such banks are not
quoting as described above, LIBOR will be the LIBOR applicable to the
immediately preceding Distribution Date.
RESERVE FUND
The Reserve Fund will be an account established with the Trustee and
will initially be funded up to $________ (the "Initial Amount") from the
application in the aggregate of the Available Distribution Amount pursuant
to clause (v) in the fourth paragraph under " -- Distributions on the
Certificates" above. On each Distribution Date, funds, if any, in the
Reserve Fund will be applied to make any required Advance that the Master
Servicer fails to make. Collections of late Monthly Payments covered by
any Advance from the Reserve Fund will be applied to reinstate the amount
in the Reserve Fund up to the Initial Amount. Similarly, the application
of the Available Distribution Amount pursuant to clause (v) in the fourth
paragraph under " -- Distributions on the Certificates" above may
reinstate the amount in the Reserve Fund up to the Initial Amount.
SUBORDINATED CERTIFICATES
The rights of the Class B Certificateholders and the Class R
Certificateholders to receive distributions with respect to the Mortgage
Loans will be subordinated to the rights of the holders of Class A
Certificates to the extent described herein. This subordination is
intended to enhance the likelihood of regular receipt by the holders of
Class A Certificates of the full amount of monthly distributions due them
and to protect the holders of Class A Certificates against losses.
The protection afforded to the holders of the Class A Certificates by
means of the subordination, to the extent provided herein, of the Class B
and Class R Certificates as described above will be accomplished (i) by
the application of the Available Distribution Amount in the order
specified under "Distributions on the Certificates" above and (ii) if the
Available Distribution Amount on such Distribution Date is not sufficient
to permit the distribution of the entire Class A Formula Principal
Distribution Amount and all previously undistributed Unrecovered Principal
Amounts to the holders of Class A Certificates, by the right of the
holders of such Class A Certificates to receive any such shortfall out of
future distributions of Available Distribution Amounts that would
otherwise have been payable to the holders of the related Class B
Certificates and the Class R Certificate, as applicable. This
subordination feature is effected for the Class A Certificates by
allocating principal among the Certificates on a shifting-interest payment
basis as described herein.
As described above, the distribution of principal to the holders of
Class A Certificates is intended to include the Principal Balance of each
Mortgage Loan that became a Liquidated Mortgage Loan during the related
Principal Prepayment Period. A "Liquidated Mortgage Loan" is, generally, a
defaulted Mortgage Loan as to which all amounts that the Master Servicer
believes can be recovered with respect to such Mortgage Loan or the
property acquired in respect thereof have been recovered. If the
Liquidation Proceeds, net of related Liquidation Expenses and any Advances
in respect thereof, allocable to principal from such Liquidated Mortgage
Loan are less than the principal balance of such Liquidated Mortgage Loan,
the deficiency may, in effect, be absorbed by the holders of the Class B
Certificates since a portion of future Available Distribution Amounts
funded by future principal collections on the Mortgage Loans, up to the
aggregate amount of such deficiencies, that would otherwise have been
distributable to them may be paid to the holders of the Class A
Certificates or to the Certificate Insurer or the Surety Bond Provider. No
assurance can be given that the Class A Certificates will not experience
any losses.
If, due to losses and delinquencies, the Available Distribution
Amount for any Distribution Date is not sufficient to cover, in addition
to interest distributable to the holders of the Class A and Class B
Certificates, the entire Formula Principal Distribution Amount and any
Unrecovered Principal Amounts distributable to the holders of such Class A
Certificates on such Distribution Date, then the aggregate of the Pool
Scheduled Principal Balance will have become less than the outstanding
Principal Balance of the Certificates. Such disproportionate reduction of
the Pool Scheduled Principal Balance reduces the protection afforded by
the subordination of the Class B Certificates. But for the effect of the
Certificate Insurance Policy, the holders of Class A Certificates will
bear all losses and delinquencies on the Mortgage Loans, and could incur
losses on their investment, if the Pool Scheduled Principal Balance
becomes equal to or less than the aggregate outstanding Principal Balance
of such Class A Certificates.
CERTIFICATE INSURANCE POLICY
The Company will obtain the Certificate Insurance Policy, which will
be issued by the Certificate Insurer in favor of the Trustee and will
provide for payment of Insured Amounts (as defined herein) in accordance
with the terms of the Certificate Insurance Policy solely for the benefit
of the holders of the Class A Certificates. The Certificate Insurance
Policy is non-cancelable. See "The Certificate Insurance Policy and the
Certificate Insurer" herein.
The Certificate Insurer is required to pay Insured Amounts to the
Trustee as paying agent on the later of the applicable Distribution Date
or the Business Day next following the Business Day on which the
Certificate Insurer receives a notice of Nonpayment (as defined herein) in
accordance with and subject to the terms of the Certificate Insurance
Policy. The Certificate Insurer is not responsible for the application of
any Insured Amount subsequent to the receipt thereof by the Trustee.
The Certificate Insurance Policy does not cover shortfalls, if any,
attributable to the liability of the Trust Fund, the REMIC or the Trustee
for withholding taxes, if any (including interest and penalties in respect
of any such liability). In addition, the Certificate Insurance Policy does
not protect against the adverse consequences of, and does not guarantee,
any specified rate of prepayments and does not protect against any risk
other than Nonpayment, including failure of the Trustee to make any
Insured Payment (as defined herein) due to holders of the Class A
Certificates. In addition, the Certificate Insurance Policy does not cover
any Net Interest Shortfalls in respect of the Class A Certificates. The
Certificate Insurer has the right to terminate the Trust Fund, causing the
transfer of amounts in certain accounts and the acceleration of the Class
A Certificates, under certain circumstances if the Pool Scheduled
Principal Balance becomes less than 10% of the Pool Scheduled Principal
Balance as of the Cut-off Date.
ASSIGNMENT OF MORTGAGE LOANS
The Company will cause the Mortgage Loans to be assigned to the
Trustee, together with all principal and interest collected on or with
respect to the Mortgage Loans due after 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 specifies, among other things, with respect to
each Mortgage Loan, the original principal amount and the unpaid principal
balance as of the Cut-off Date; the Monthly Payment as of the Cut-off
Date; the months remaining to maturity of the Mortgage Loan; the Margin;
and the Mortgage Rate as of the Cut-off Date.
The Mortgage Notes and Mortgages and certain other documents (the
"Mortgage Files") will be delivered by the Master Servicer to the Trustee
or a custodian of the Trustee within _____ days after the date of the
initial issuance of the Certificates, and at least _____% of the Mortgage
Notes will have been delivered by such issuance date. The Trustee, or its
custodian, will review each Mortgage File (or copies thereof) and if any
document required to be included in any Mortgage File is found to be
defective in any material respect and such defect is not cured within 60
days (or such longer period as may be agreed to by the Trustee or its
custodian) following notification thereof to the Master Servicer by the
Trustee, the Master Servicer will repurchase or substitute for such
Mortgage Loan in the manner set forth under "The Pooling and Servicing
Agreement -- Assignment of Mortgage Assets -- Assignment of the Mortgage
Loans" in the Prospectus and as set forth in the Agreement.
The assignments of the Mortgages to the Trustee will not be recorded.
However, if ML & Co.'s long-term unsecured debt is rated below A - by
_____________________ or A3 by ______________________, the Master Servicer
will be obligated to cause the assignments of the Mortgages to be recorded
in the appropriate public records unless there shall have been delivered
an opinion of counsel satisfactory to the Company, the Certificate Insurer
and the Trustee that such recording is not required to protect the
Trustee's interest in the Mortgage Loans. Any Mortgage Loans for which
assignments are required to be recorded but are not recorded within the
time required under the Agreement shall be repurchased as described under
"The Pooling and Servicing Agreement -- Assignment of Mortgage Assets --
Assignment of the Mortgage Loans" in the Prospectus and as set forth in
the Agreement.
AMENDMENTS TO MORTGAGE LOAN DOCUMENTS
In connection with the servicing of the Mortgage Loans, the Master
Servicer may at the request of a borrower or at its own initiative agree
to modify the Mortgage Note or Mortgage relating to a Mortgage Loan or
waive compliance by the borrower with any provision of the Mortgage Note
or Mortgage, provided that any such modification or waiver (i) does not
extend the scheduled maturity date of, modify the interest rate payable
under (except as required by law or as contemplated by the Mortgage Note),
or constitute a cancellation or discharge of the outstanding principal
balance under such Mortgage Loan, (ii) is not inconsistent with the Master
Servicer's then current practice respecting comparable mortgage loans held
in its own portfolio, or (iii) does not materially and adversely affect
the security afforded by the Mortgaged Property; provided, however, that
the Master Servicer may agree to changes to the terms of a Mortgage Note
or Mortgage which would otherwise be violative of clauses (i) and (iii)
above if (a) the Master Servicer has determined that such changes are
necessary to avoid prepayment of the related Mortgage Loan or to
accommodate the request of a borrower to extend the scheduled maturity
date of the related Mortgage Loan and such changes are consistent with
prudent business practice, (b) the Master Servicer repurchases the related
Mortgage Loan for the Purchase Price on the business day preceding the
Distribution Date immediately following the Principal Prepayment Period
during which such changes were made and (c) such changes and subsequent
repurchase will not affect the status of the Trust Fund as a REMIC as
evidenced by an opinion of counsel. Any such repurchase will be
accomplished in the manner described under "Description of the
Certificates -- Assignment of Mortgage Loans" herein.
SERVICING AND INSURANCE
The Mortgage Loans will be serviced in accordance with procedures as
described generally in the Prospectus under "The Pooling and Servicing
Agreement" and as set forth in the Agreement.
Except as described below, when any Mortgaged Property is conveyed by
the Mortgagor, the Master Servicer may, but is not obligated 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 life of the Class A Certificates.
See "Yield and Prepayment Considerations" in the Prospectus and
"Prepayment and Yield Considerations" herein. If the Master Servicer
elects not to enforce any due-on-sale clause or is prevented from
enforcing such due-on-sale clause under applicable law, the Master
Servicer is authorized to enter into an assumption and modification
agreement with the person to whom such Mortgaged Property has been or is
about to be conveyed, pursuant to which such person becomes liable under
the Mortgage Loan.
The Master Servicer will be obligated to maintain a Standard Hazard
Insurance Policy with respect to each Mortgage Loan in an amount equal to
the replacement cost of the improvements securing such Mortgage Loan or
the outstanding principal balance of such Mortgage Loan, whichever is
less. See "The Pooling and Servicing Agreement -- Hazard Insurance" 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 included in the Mortgage
Pool be subject to FHA Insurance or VA Guaranty or, except for _____% of
the Mortgage Loans (by Cut-off Date Principal Balance), be covered by a
Primary Mortgage Insurance Policy.
SERVICING COMPENSATION AND PAYMENT OF EXPENSES
The Master Servicer will be paid a monthly Servicing Fee (including
any sub-servicing compensation) with respect to each Mortgage Loan in an
amount equal to approximately one-twelfth of _____% of the principal
balance of each Mortgage Loan (the "Servicing Fee Rate"). The Master
Servicer will not receive excess interest or excess proceeds as additional
servicing compensation. See "Certain Federal Income Tax Consequences"
herein and in the Prospectus. The Master Servicer will receive any net
investment earnings on the Certificate Account.
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 "The Pooling
and Servicing Agreement -- Servicing and Other 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.
The Servicing Fee in respect of a month will be applied to make up
any Prepayment Interest Shortfall experienced on any prepayment of a
Mortgage Loan in such month in respect of which less than one month's
interest is collected in respect of such month. A "Prepayment Interest
Shortfall" in respect of a Mortgage Loan is the amount by which interest
paid by the Mortgagor in connection with a principal prepayment of such
Mortgage Loan is less than one month's interest at the related Mortgage
Rate on the amount prepaid. See "Prepayment and Yield Considerations". No
assurance can be given that the amount of the Servicing Fee will be
sufficient for such purpose.
In addition, after giving effect to the preceding paragraph, the
balance of the Servicing Fee in respect of a month will be applied to make
up the amount, if any, by which (i) the interest accrued on the
Certificates (calculated on the assumption that the sum of the Class A
Principal Balance and the Class B Principal Balance is equal to the Pool
Scheduled Principal Balance) at the weighted-average of the applicable
Class A Pass-Through Rate and the Class B Pass-Through Rate for the
related Accrual Period exceeds (ii) the interest due on the Mortgage Loans
on the Due Date in such Accrual Period (calculated on the assumption that
there were no prepayments of the Mortgage Loans during the month preceding
such Due Date). If the Class A and Class B Pass-Through Rates for an
Accrual Period are equal to the related Weighted Average Net Mortgage
Rate, the amount in clause (i) could in certain circumstances be greater
than the amount in clause (ii) because interest will accrue on the
Mortgage Loans on the basis of a year consisting of twelve 30-day months
and interest on the Class A and Class B Certificates will accrue on the
basis of the actual number of days in the Accrual Period (which could be
more than 30) divided by 360. No assurance can be given that the Servicing
Fee will be sufficient to cover any such differential. However, the
Certificate Insurance Policy would, in effect, cover such differential to
the extent, if any, that it causes a Distribution Account Shortfall after
giving effect to the application of the Servicing Fee as described in this
paragraph. See "The Certificate Insurance Policy and the Certificate
Insurer".
OPTIONAL PURCHASE OF DEFAULTED MORTGAGE LOANS
The Master Servicer may, in its sole discretion, purchase from the
Trust Fund any Mortgage Loan as to which a Monthly Payment is 90 or more
days delinquent. Any such purchase will be at a price equal to 100% of the
Principal Balance of such Mortgage Loan, plus any unreimbursed Advances in
respect thereof, together with accrued interest thereon at the Mortgage
Rate from the date through which interest was last paid by the related
borrower or advanced by the Master Servicer to the end of the Principal
Prepayment Period preceding the Distribution Date on which the proceeds of
such purchase are required to be distributed.
ADVANCES
The Master Servicer is obligated to make Advances of cash each month,
which will be part of the Available Distribution Amount and therefore also
available to the Class B Certificateholders, equal to the amount of the
delinquent Monthly Payments due on the immediately preceding Due Date and
not paid. 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 on such Mortgage Loans based upon its general
experience in servicing mortgage loans, its assessment of the likelihood
of ultimate payment by the related Mortgagors and its estimate of
Liquidation Proceeds. The Master Servicer will be reimbursed for Advances
out of the related late collections and Liquidation Proceeds. The Master
Servicer will be reimbursed for Advances that it determines will not be
recoverable out of related late collections and Liquidation Proceeds
("Nonrecoverable Advances") from funds in the Certificate Account.
Advances are intended to maintain a regular flow of scheduled interest
payments to the Class A Certificateholders, not to guarantee or insure
against losses. Accordingly, any funds so advanced are recoverable by the
Master Servicer out of amounts received on Mortgage Loans. Advances are
required to be deposited in the Certificate Account by the second Business
Day prior to the related Distribution Date. The Master Servicer may make
an Advance (i) out of its own funds, (ii) out of funds in the Certificate
Account that are not part of the Available Distribution Amount for the
related Distribution Date or (iii) by any combination of clauses (i) and
(ii). Advances made pursuant to clause (ii) must be restored from the
Master Servicer's funds when such amounts are required to be distributed
as part of an Available Distribution Amount.
OPTIONAL TERMINATION
The Master Servicer may, at its option, and, in the absence of the
exercise thereof by the Master Servicer, the Certificate Insurer may, at
its option, repurchase from the Mortgage Pool all Mortgage Loans remaining
outstanding on any Distribution Date when the Pool Scheduled Principal
Balance is less than 10% of the Pool Scheduled Principal Balance as of the
Cut-off Date. The repurchase price to be distributed to Certificateholders
will equal the greatest of (i) the aggregate Principal Balances of the
Mortgage Loans plus accrued interest thereon at the related Net Mortgage
Rate, plus the appraised value of any property acquired in respect of a
Mortgage Loan, less, if the Master Servicer is the purchaser, any
unreimbursed advances previously made by the Master Servicer with respect
to an acquired property, (ii) the fair market value of the Mortgage Loans
and any property acquired in respect of a Mortgage Loan (as determined by
the Master Servicer) less, if the Master Servicer is the purchaser, any
unreimbursed advances previously made by the Master Servicer with respect
to an acquired property and (iii) the sum of (a) the aggregate of the
Class A Principal Balance together with one month's interest at the Class
A Pass-Through Rate and any Class A Unpaid Interest Shortfall and (b) the
sum of the Class B Principal Balance together with one month's interest at
the Class B Pass-Through Rate and any previously undistributed shortfall
in interest due on the Class B Certificates on prior Distribution Dates.
The repurchase price will be distributed to Certificateholders in the
month following the month of repurchase, first to the Class A
Certificateholders to the extent of the amount in clause (iii)(a) and then
in accordance with the Agreement.
MISCELLANEOUS
In determining the percentage of the Trust Fund evidenced by a
Certificate for purposes of determining the consent of Certificateholders
or other action by Certificateholders as discussed under "The Pooling and
Servicing Agreement -- Amendment" in the Prospectus, such percentage shall
be based upon the relative outstanding Principal Balances of the
Certificates. Amendments to the Agreement requiring the consent of
Certificateholders shall require only the consent of the holders of
Certificates of each Class affected thereby, evidencing, as to such Class,
Percentage Interests aggregating at least 66%. Amendments to the Agreement
may be made only with the prior written consent of the Certificate Insurer
and the Surety Bond Provider. Certain other actions under the Agreement
also require the prior written consent of the Certificate Insurer and the
Surety Bond Provider. The Certificate Insurer and the Surety Bond Provider
may direct the Trustee to waive any default by the Master Servicer under
the Agreement, except that a default in making any required distribution
on any Certificate may only be waived by the affected Certificateholder.
Upon an Event of Default, the Trustee may terminate the rights of the
Master Servicer only with the consent of the Certificate Insurer and the
Surety Bond Provider, and shall terminate the Master Servicer at the
direction of the Certificate Insurer and the Surety Bond Provider.
A successor Master Servicer, if any, will become obligated to
purchase Convertible Mortgage Loans that convert to a fixed rate after
such successor becomes the Master Servicer only if such successor Master
Servicer, at its discretion, elects to obligate itself to make such
purchases. A terminated Master Servicer (including the initial Master
Servicer) will not be obligated to make such purchases after its
termination as Master Servicer.
REGISTRATION OF CLASS A CERTIFICATES
The Class A Certificates will initially be registered in the name of
Cede, the nominee of DTC. Certificateholders may hold their Certificates
through DTC (in the United States) or CEDEL or Euroclear (each as defined
below) (in Europe) if they are participants of such systems, or indirectly
through organizations that are participants in such systems.
Cede, as nominee for DTC, will hold the global Class A Certificates.
CEDEL and Euroclear will hold omnibus positions on behalf of the CEDEL
Participants and the Euroclear Participants (each as defined below),
respectively, through customers' securities accounts in CEDEL's and
Euroclear's names on the books of their respective depositaries
(collectively, the "Depositaries") which in turn will hold such positions
in customers' securities accounts in the Depositaries' names on the books
of DTC.
DTC is a limited-purpose trust company organized under the laws of
the State of New York, a member of the Federal Reserve System, a "clearing
corporation" within the meaning of the New York Uniform Commercial Code,
and a "clearing agency" registered pursuant to the provisions of Section
17A of the 1934 Act. DTC accepts securities for deposit from its
participating organizations ("Participants") and facilitates the clearance
and settlement of securities transactions between Participants in such
securities through electronic book-entry changes in accounts of
Participants, thereby eliminating the need for physical movement of
certificates. Participants include securities brokers and dealers, banks
and trust companies and clearing corporations and may include certain
other organizations. Indirect access to the DTC system is also 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.
Transfers between Participants will occur in accordance with DTC
rules. Transfers between CEDEL Participants and Euroclear Participants
will occur in the ordinary way in accordance with their applicable rules
and operating procedures.
Cross-market transfers between persons holding directly or indirectly
through DTC, on the one hand, and directly or indirectly through CEDEL
Participants or Euroclear Participants, on the other, will be effected in
DTC in accordance with DTC rules on behalf of the relevant European
international clearing system by its Depositary; however, such
cross-market transactions will require delivery of instructions to the
relevant European international clearing system by the counterparty in
such system in accordance with its rules and procedures and within its
established deadlines (European time). The relevant European international
clearing system will, if the transaction meets its settlement
requirements, deliver instructions to its Depositary to take action to
effect final settlement on its behalf by delivering or receiving
securities in DTC, and making or receiving payment in accordance with
normal procedures for same-day funds settlement applicable to DTC. Cedel
Participants and Euroclear Participants may not deliver instructions
directly to the Depositaries.
Because of time-zone differences, credits of securities in CEDEL or
Euroclear as a result of a transaction with a Participant will be made
during the subsequent securities settlement processing, dated the business
day following the DTC settlement date, and such credits or any
transactions in such securities settled during such processing will be
reported to the relevant CEDEL Participant or Euroclear Participant on
such business day. Cash received in CEDEL or Euroclear as a result of
sales of securities by or through a CEDEL Participant or a Euroclear
Participant to a Participant will be received with value on the DTC
settlement date but will be available in the relevant CEDEL or Euroclear
cash account only as of the business day following settlement in DTC.
Certificate Owners who are not Participants but desire to purchase,
sell or otherwise transfer ownership of Class A Certificates may do so
only through Participants (unless and until Definitive Class A
Certificates, as defined below, are issued). In addition, Certificate
Owners will receive all distributions of principal of and interest on the
Class A Certificates from the Trustee through DTC and Participants.
Certificate Owners will not receive or be entitled to receive certificates
representing their respective interests in the Class A Certificates,
except under the limited circumstances described below.
Unless and until Definitive Class A Certificates (as defined below)
are issued, it is anticipated that the only "Certificateholder" of the
Class A Certificates will be Cede, as nominee of DTC. Certificate Owners
will not be Certificateholders as that term is used in the Agreement.
Certificate Owners are only permitted to exercise the rights of
Certificateholders indirectly through Participants and DTC.
While the Class A Certificates are outstanding (except under the
circumstances described below), under the rules, regulations and
procedures creating and affecting DTC and its operations, DTC is required
to make book-entry transfers among Participants on whose behalf it acts
with respect to the Class A Certificates and is required to receive and
transmit distributions of principal of, and interest on, the Class A
Certificates. Unless and until Definitive Class A Certificates are issued,
Certificate Owners who are not Participants may transfer ownership of
Class A Certificates only through Participants by instructing such
Participants to transfer Class A Certificates, by book-entry transfer,
through DTC for the account of the purchasers of such Certificates, which
account is maintained with their respective Participants. Under the Rules
and in accordance with DTC's normal procedures, transfers of ownership of
Class A Certificates will be executed through DTC and the accounts of the
respective Participants at DTC will be debited and credited.
Class A Certificates will be issued in registered form to Certificate
Owners, or their nominees, rather than to DTC (such Certificates being
referred to herein as "Definitive Class A Certificates"), only if (i) DTC
or the Company advises the Trustee in writing that DTC is no longer
willing or able to discharge properly its responsibilities as nominee and
depository with respect to the Class A Certificates and the Company or the
Trustee is unable to locate a qualified successor, (ii) the Company, at
its sole option and with the consent of the Trustee, elects to terminate
the book-entry system through DTC or (iii) after the occurrence of an
Event of Default, DTC, at the direction of Certificate Owners having a
majority in Percentage Interests of the Class A Certificates together,
advises the Trustee in writing that the continuation of a book-entry
system through DTC (or a successor thereto) to the exclusion of any
physical certificates being issued to Certificate Owners is no longer in
the best interest of Certificate Owners. Upon issuance of Definitive Class
A Certificates to Certificate Owners, such Certificates will be
transferable directly (and not exclusively on a book-entry basis) and
registered holders will deal directly with the Trustee with respect to
transfers, notices and distributions.
DTC has advised the Company and the Trustee that, unless and until
Definitive Class A Certificates are issued, DTC will take any action
permitted to be taken by a holder of Class A Certificates under the
Agreement only at the direction of one or more Participants to whose DTC
account the Class A Certificates are credited. DTC has advised the Company
that DTC will take such action with respect to any Percentage Interests of
the Class A Certificates only at the direction of and on behalf of such
Participants with respect to such Percentage Interests of the Class A
Certificates. DTC may take actions, at the direction of the related
Participants, with respect to some Class A Certificates which conflict
with actions taken with respect to other Class A Certificates.
Cedel Bank, societe anonyme ("CEDEL") is incorporated under the laws
of Luxembourg as a professional depository. CEDEL holds securities for its
participating organizations ("CEDEL Participants") and facilitates the
clearance and settlement of securities transactions between CEDEL
Participants through electronic book-entry changes in accounts of CEDEL
Participants, thereby eliminating the need for physical movement of
certificates. Transactions may be settled in CEDEL in any of 28
currencies, including United States dollars. CEDEL provides to its CEDEL
Participants, among other things, services for safekeeping,
administration, clearance and settlement of internationally traded
securities and securities lending and borrowing. CEDEL interfaces with
domestic markets in several countries. As a professional depository, CEDEL
is subject to regulation by the Luxembourg Monetary Institute. CEDEL
Participants are recognized financial institutions around the world,
including underwriters, securities brokers and dealers, banks, trust
companies, clearing corporations and certain other organizations and may
include the underwriters of any class of Certificates. Indirect access to
CEDEL is also available to others, such as banks, brokers, dealers and
trust companies that clear through or maintain a custodial relationship
with a CEDEL Participant, either directly or indirectly.
The Euroclear System was created in 1968 to hold securities for
participants of the Euroclear System ("Euroclear Participants") and to
clear and settle transactions between Euroclear Participants through
simultaneous electronic book-entry delivery against payment, thereby
eliminating the need for physical movement of certificates and any risk
from lack of simultaneous transfers of securities and cash. Transactions
may now be settled in any of 32 currencies, including United States
dollars. The Euroclear System includes various other services, including
securities lending and borrowing and interfaces with domestic markets in
several countries generally similar to the arrangements for cross-market
transfers with DTC described above. The Euroclear System is operated by
Morgan Guaranty Trust Company of New York, Brussels, Belgium office (the
"Euroclear Operator" or "Euroclear"), under contract with Euroclear
Clearance System, S.C., a Belgian cooperative corporation (the "Euroclear
Cooperative"). All operations are conducted by the Euroclear Operator, and
all Euroclear securities clearance accounts and Euroclear cash accounts
are accounts with the Euroclear Operator, not the Euroclear Cooperative.
The Euroclear Cooperative establishes policy for the Euroclear System on
behalf of Euroclear Participants. Euroclear Participants include banks
(including central banks), securities brokers and dealers and other
professional financial intermediaries. Indirect access to the Euroclear
System is also available to other firms that clear through or maintain a
custodial relationship with a Euroclear Participant, either directly or
indirectly.
The Euroclear Operator is the Belgian branch of a New York banking
corporation which is a member bank of the Federal Reserve System. As such,
it is regulated and examined by the Board of Governors of the Federal
Reserve System and the New York State Banking Department, as well as the
Belgian Banking Commission.
Securities clearance accounts and cash accounts with the Euroclear
Operator are governed by the Terms and Conditions Governing Use of
Euroclear and the related Operating Procedures of the Euroclear System and
applicable Belgian law (collectively, the "Terms and Conditions"). The
Terms and Conditions govern transfers of securities and cash within the
Euroclear System, withdrawal of securities and cash from the Euroclear
System, and receipts of payments with respect to securities in the
Euroclear System. All securities in the Euroclear System are held on a
fungible basis without attribution of specific certificates to specific
securities clearance accounts. The Euroclear Operator acts under the Terms
and Conditions only on behalf of Euroclear Participants and has no record
of or relationship with persons holding through Euroclear Participants.
Distributions with respect to Certificates held through CEDEL or
Euroclear will be credited to the cash accounts of CEDEL Participants or
Euroclear Participants in accordance with the relevant system's rules and
procedures, to the extent received by its Depositary. Such distributions
will be subject to tax reporting in accordance with relevant United States
tax laws and regulations. See "Certain Federal Income Tax Consequences".
CEDEL or the Euroclear Operator, as the case may be, will take any other
action permitted to be taken by a Certificate Owner under the Agreement on
behalf of a CEDEL Participant or Euroclear Participant only in accordance
with its relevant rules and procedures and subject to its Depositary's
ability to effect such actions on its behalf through DTC.
Although DTC, CEDEL and Euroclear have agreed to the foregoing
procedures in order to facilitate transfers of Class A Certificates among
participants of DTC, CEDEL and Euroclear, they are under no obligation to
perform or continue to perform such procedures and such procedures may be
discontinued at any time.
In the event that any of DTC, Cedel or Euroclear should discontinue
its services, the Company would seek an alternative depositary (if
available) or cause the issuance of Definitive Class A Certificates to
Certificate Owners or their nominees in the manner described above.
Issuance of the Class A Certificates in book-entry form rather than
as physical certificates may adversely affect the liquidity of the Class A
Certificates in the secondary market and the ability of Certificate Owners
to pledge them. In addition, since distributions on the Class A
Certificates will be made by the Trustee to DTC and DTC will credit such
distributions to the accounts of its Participants, which will further
credit them to the accounts of indirect participants of Certificate
Owners, Certificate Owners may experience delays in the receipt of such
distributions.
THE TRUSTEE
______________________________________, a national banking
association, will act as Trustee of the Trust Fund. The mailing address of
the Trustee's corporate trust office is _______________________,
_________________________ and its telephone number is (_____) ____-_______.
The Trustee may resign at any time, in which event the Master
Servicer will be obligated to appoint a successor Trustee. The Master
Servicer 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. Upon becoming aware of such circumstances, the Master Servicer
will be obligated to appoint a successor Trustee. If a downgrading in the
credit rating of the Trustee would materially adversely affect the rating
of the Class A Certificates, the Master Servicer, under certain
circumstances, may remove the Trustee and appoint a successor Trustee. Any
resignation or removal of the Trustee and appointment of a successor
Trustee will not become effective until acceptance of the appointment of
the successor Trustee.
THE CERTIFICATE INSURANCE POLICY AND THE CERTIFICATE INSURER
(The following information has been supplied by the AMBAC Indemnity
Corporation ("AMBAC") for inclusion in this Prospectus Supplement.
The Certificate Insurer, in consideration of the payment of the
premium and subject to the terms of the Certificate Insurance Policy,
unconditionally and irrevocably guarantees that an amount equal to each
full and complete Insured Amount will be received by the Trustee for
distribution to holders of the Class A Certificates in accordance with the
terms of the Agreement (as defined below). The Certificate Insurer's
obligations under the Certificate Insurance Policy with respect to a
particular Insured Amount shall be finally and completely discharged to
the extent funds equal to the applicable Insured Amount are received from
the Certificate Insurer by the Trustee. The Certificate Insurer is not
responsible for the application of any Insured Amount subsequent to the
receipt thereof by the Trustee. Insured Amounts shall be paid only at the
time set forth in the Certificate Insurance Policy.
Notwithstanding the foregoing paragraph, the Certificate Insurance
Policy does not cover shortfalls, if any, attributable to the liability of
the Trust Fund or the Trustee for withholding taxes, if any (including
interest and penalties in respect of any such liability). The Certificate
Insurance Policy does not protect against the adverse consequences of, and
does not guarantee, any specified rate of prepayments nor protect against
any risk other than Nonpayment, including failure of the Trustee to make
any Insured Payment due to holders of the Class A Certificates. In
addition, the Certificate Insurance Policy does not cover any Net Interest
Shortfalls in respect of the Class A Certificates.
In the event the Trustee has notice that any payment of principal or
interest which has been made to a holder of the Class A Certificates by or
on behalf of the Trustee has been deemed a preferential transfer and
theretofore recovered from its registered owner pursuant to the United
States Bankruptcy Code in accordance with a final, nonappealable order of
a court of competent jurisdiction, the Certificate Insurer will make
payment to the Trustee in respect thereof.
The Certificate Insurer will pay any amount payable under the
Certificate Insurance Policy from its own funds on the later of (a) the
Business Day next following the Business Day on which the Certificate
Insurer receives a notice of Nonpayment or (b) the applicable Distribution
Date. Such payments shall be made only upon presentation of an instrument
in form and substance satisfactory to the Certificate Insurer who shall be
subrogated to all rights of the holders of the Class A Certificates to
payment on the Class A Certificates to the extent of the Insured Payments
so made. Once payments of the Insured Amounts have been made to the
Trustee, the Certificate Insurer shall have no further obligation in
respect of such Insured Amounts.
As used in the Certificate Insurance Policy, the following terms have
the following meanings:
"Agreement" means the Pooling and Servicing Agreement dated as
of __________ 1, 199_, by and among the Company, the Master Servicer and the
Trustee without regard to any amendment or supplement thereto without the
prior consent of the Certificate Insurer.
"Business Day" means any day other than a Saturday, Sunday or
any day on which national banks in the States of New York, California or
Florida are authorized or obligated by law or executive order to close.
"Insured Amount" and "Nonpayment" mean with respect to any
Distribution Date the sum of (i) the Distribution Account Shortfall for such
Distribution Date and (ii) any Preference Amount.
"Insured Payment" means with respect to any Distribution Date
the Insured Amount for such Distribution Date paid to the Trustee by the
Certificate Insurer.
"Preference Amount" means any payment of principal or interest
which has been made to a holder of the Class A Certificates by or on
behalf of the Trustee which has been deemed a preferential transfer and
theretofore recovered from its registered owner pursuant to the United States
Bankruptcy Code in accordance with a final, nonappealable order of a court of
competent jurisdiction.
The Certificate Insurance Policy is being issued under and pursuant
to, and shall be construed under, the laws of the State of California,
without giving effect to the conflict of laws principles thereof.
In the event that AMBAC Indemnity Corporation were to become
insolvent, any claims arising under the policy would be excluded from
coverage by the California Insurance Guaranty Association established
pursuant to the laws of the State of California.
The insurance provided by the Certificate Insurance Policy is not
covered by the Property/Casualty Insurance Security Fund specified in
Article 76 of the New York Insurance Law.
The Certificate Insurance Policy is not cancelable for any reason.
The premiums on the Certificate Insurance Policy are not refundable for
any reason including payment, or provision being made for payment, prior
to the maturity of the Class A Certificates.
AMBAC is a Wisconsin-domiciled stock insurance corporation regulated
by the Office of the Commissioner of Insurance of the State of Wisconsin
and licensed to do business in 50 states, the District of Columbia, the
Commonwealth of Puerto Rico, and Guam. AMBAC primarily insures newly
issued municipal bonds. AMBAC is a wholly owned subsidiary of AMBAC Inc.,
a 100% publicly held company. Moody's, Standard & Poor's and Fitch
Investors Service, L.P. have each assigned a triple-A claims-paying
ability rating to AMBAC.
AMBAC has entered into pro rata reinsurance agreements under which a
percentage of the insurance underwritten pursuant to certain of AMBAC's
municipal bond insurance programs has been and will be assumed by a number
of foreign and domestic unaffiliated reinsurers.
The following table sets forth AMBAC's capitalization as of December
31, 1993, December 31, 1994, December 31, 1995 and June 30, 1996,
respectively, on the basis of generally accepted accounting principles.
AMBAC INDEMNITY CORPORATION
CAPITALIZATION TABLE
<TABLE>
<CAPTION>
December 31, 1993 December 31, 1994 December 31, 1995 June 30, 1996
(Unaudited)
(Dollars in millions)
<S> <C> <C> <C> <C>
Unearned premiums . . . $ 785 $ 840 $ 906 $ 937
Other liabilities . . . 192 136 295 286
Stockholder's equity:
Common stock . . . $ 82 $ 82 $ 82 $ 82
Additional paid-in
capital . . . 444 444 481 514
Unrealized gain (loss)
on bonds; net of tax 68 (46) 87 34
Retained earnings 668 782 907 912
Total stockholder's
equity . . . . . . $1,262 $1,262 $1,557 $1,542
Total liabilities and
stockholder's equity . $2,239 $2,238 $2,758 $2,765
</TABLE>
* The financial information presented has been adjusted to reflect the
effects of Statement of Financial Accounting Standards No. 113 "Accounting
and Reporting for Reinsurance of Short Duration and Long Duration Contracts"
which AMBAC adopted during 1993.
-------------------
For additional financial information concerning AMBAC, see the
audited financial statements of AMBAC included as Appendix A of this
Prospectus Supplement and the unaudited financial statements of AMBAC
included as Appendix B of this Prospectus Supplement.
Effective December 31, 1993, AMBAC adopted Statement of Financial
Accounting Standards No. 115, "Accounting for Certain Debt and Equity
Securities" ("Statement 115") with all investments designated as
available-for-sale. As required under Statement 115, prior years'
financial statements have not been restated. The cumulative effect of
adopting Statement 115 as of December 31, 1993 was to increase AMBAC's
stockholder's equity $63.6 million, net of tax. The adoption of Statement
115 had no effect on earnings.
The Certificate Insurer does not accept any responsibility for the
accuracy or completeness of this Prospectus Supplement or the Prospectus
or any information or disclosure contained herein, or omitted herefrom,
other than with respect to the accuracy of the information regarding the
Certificate Insurance Policy and Certificate Insurer set forth under this
heading "The Certificate Insurance Policy and the Certificate Insurer"
and, the information provided in Appendix A and Appendix B.)
(The following information has been supplied by MBIA Insurance
Corporation (the "Certificate Insurer") for inclusion in this Prospectus
Supplement.
The Certificate Insurer, in consideration of the payment of the
premium and subject to the terms of the Certificate Guaranty Insurance
Policy (the "Certificate Insurance Policy"), hereby unconditionally and
irrevocably guarantees to any Owner that an amount equal to each full and
complete Insured Payment will be received by the Trustee, or its
successor, as trustee for the Owners, on behalf of the Owners from the
Certificate Insurer, for distribution by the Trustee to each Owner of each
Owner's proportionate share of the Insured Payment. The Certificate
Insurer's obligations under the Certificate Insurance Policy with respect
to a particular Insured Payment shall be discharged to the extent funds
equal to the applicable Insured Payment are received by the Trustee,
whether or not such funds are properly applied by the Trustee. Insured
Payments shall be made only at the time set forth in the Certificate
Insurance Policy and no accelerated Insured Payments shall be made
regardless of any acceleration of the Certificates, unless such
acceleration is at the sole option of the Certificate Insurer.
Notwithstanding the foregoing paragraph, the Certificate Insurance
Policy does not cover shortfalls, if any, attributable to the liability of
the Trust or the Trustee for withholding taxes, if any (including interest
and penalties in respect of any such liability). The Certificate
Insurance Policy does not cover Net Interest Shortfalls.
The Certificate Insurer will pay any Insured Payment that is a
Preference Amount on the Business Day following receipt on a Business Day
by the Fiscal Agent (as described below) of (i) a certified copy of the
order requiring the return of a preference payment, (ii) an opinion of
counsel satisfactory to the Certificate Insurer that such order is final
and not subject to appeal, (iii) an assignment in such form as is
reasonably required by the Certificate Insurer, irrevocably assigning to
the Certificate Insurer all rights and claims of the Owner relating to or
arising under the Certificates against the debtor which made such
preference payment or otherwise with respect to such preference payment
and (iv) appropriate instruments to effect the appointment of the
Certificate Insurer as agent for such Owner in any legal proceeding
related to such preference payment, such instruments being in a form
satisfactory to the Certificate Insurer, provided that if such documents
are received after 12:00 noon New York City time on such Business Day,
they will be deemed to be received on the following Business Day. Such
payments shall be disbursed to the receiver or trustee in bankruptcy named
in the final order of the court exercising jurisdiction on behalf of the
Owner and not to any Owner directly unless such Owner has returned
principal or interest paid on the Certificates to such receiver or trustee
in bankruptcy, in which case such payment shall be disbursed to such
Owner.
The Certificate Insurer will pay any other amount payable under the
Certificate Insurance Policy no later than 12:00 noon New York City time
on the later of the Remittance Date on which the related Deficiency Amount
is due or the Business Day following receipt in New York, New York on a
Business Day by State Street Bank and Trust Company, N.A., as Fiscal Agent
for the Certificate Insurer or any successor fiscal agent appointed by the
Certificate Insurer (the "Fiscal Agent") of a Notice (as described below);
provided that if such Notice is received after 12:00 noon New York City
time on such Business Day, it will be deemed to be received on the
following Business Day. If any such Notice received by the Fiscal Agent
is not in proper form or is otherwise insufficient for the purpose of
making claim under the Certificate Insurance Policy it shall be deemed not
to have been received by the Fiscal Agent for purposes of this paragraph,
and the Certificate Insurer or the Fiscal Agent, as the case may be, shall
promptly so advise the Trustee and the Trustee may submit an amended
Notice.
Insured Payments due under the Certificate Insurance Policy unless
otherwise stated therein will be disbursed by the Fiscal Agent to the
Trustee on behalf of the Owners by wire transfer of immediately available
funds in the amount of the Insured Payment less, in respect of Insured
Payments related to Preference Amounts, any amount held by the Trustee for
the payment of such Insured Payment and legally available therefor.
The Fiscal Agent is the agent of the Certificate Insurer only and the
Fiscal Agent shall in no event be liable to Owners for any acts of the
Fiscal Agent or any failure of the Certificate Insurer to deposit or cause
to be deposited, sufficient funds to make payments due under the
Certificate Insurance Policy.
As used in the Certificate Insurance Policy, the following terms
shall have the following meanings:
"Agreement" means the Pooling and Servicing Agreement dated as of
, 19 among the Seller, the Servicer and the Trustee without
regard to any amendment or supplement thereto.
"Business Day" means any day other than a Saturday, a Sunday or a day
on which the Certificate Insurer and banking institutions in New York City
or in the city in which the corporate trust office of the Trustee under
the Agreement is located are authorized or obligated by law or executive
order to close.
"Deficiency Amount" means, with respect to any Remittance Date, the
Distribution Account Shortfall for such Remittance Date.
"Insured Payment" means (i) with respect to any Remittance Date, the
Deficiency Amount and (ii) any Preference Amount.
"Notice" means the telephonic or telegraphic notice, promptly
confirmed in writing by telecopy substantially in the form of Exhibit A
attached to the Certificate Insurance Policy, the original of which is
subsequently delivered by registered or certified mail, from the Trustee
specifying the Insured Payment which shall be due and owing on the
applicable Remittance Date.
"Owner" means each holder (as defined in the Agreement) who, on the
applicable Remittance Date, is entitled under the terms of the applicable
Certificates to payment thereunder.
"Preference Amount" means any amount previously distributed to an
Owner on the Certificates that is recoverable and sought to be recovered
as a voidable preference by a trustee in bankruptcy pursuant to the United
States Bankruptcy Code (11 U.S.C.), as amended from time to time in
accordance with a final nonappealable order of a court having competent
jurisdiction.
Capitalized terms used in the Certificate Insurance Policy and not
otherwise defined in the Certificate Insurance Policy shall have the
respective meanings set forth in the Agreement as of the date of execution
of the Certificate Insurance Policy, without giving effect to any
subsequent amendment or modification to the Agreement unless such
amendment or modification has been approved in writing by the Certificate
Insurer.
Any notice under the Certificate Insurance Policy or service of
process on the Fiscal Agent of the Certificate Insurer may be made at the
address listed below for the Fiscal Agent of the Certificate Insurer or
such other address as the Certificate Insurer shall specify in writing to
the Trustee.
The notice address of the Fiscal Agent is 15th Floor, 61 Broadway,
New York, New York 10006 Attention: Municipal Registrar and Paying Agency,
or such other address as the Fiscal Agent shall specify to the Trustee in
writing.
The Certificate Insurance Policy is being issued under and pursuant
to, and shall be construed under, the laws of the State of New York,
without giving effect to the conflict of laws principles thereof.
The insurance provided by the Certificate Insurance Policy is not
covered by the Property/Casualty Insurance Security Fund specified in
Article 76 of the New York Insurance Law.
The Certificate Insurance Policy is not cancelable for any reason.
The premium on the Certificate Insurance Policy is not refundable for any
reason including payment, or provision being made for payment, prior to
maturity of the Certificates.
The Certificate Insurer is the principal operating subsidiary of MBIA
Inc., a New York Stock Exchange listed company. MBIA Inc. is not
obligated to pay the debts of or claims against the Certificate Insurer.
The Certificate Insurer is domiciled in the State of New York and licensed
to do business in and is subject to regulation under the laws of all 50
states, the District of Columbia, the Commonwealth of Puerto Rico, the
Commonwealth of the Northern Mariana Islands, the Virgin Islands of the
United States and the Territory of Guam. The Certificate Insurer has two
European branches, one in the Republic of France and the other in the
Kingdom of Spain. New York has laws prescribing minimum capital
requirements, limiting classes and concentrations of investments and
requiring the approval of policy rates and forms. State laws also
regulate the amount of both the aggregate and individual risks that may be
insured, the payment of dividends by the Insurer, changes in control and
transactions among affiliates. Additionally, the Certificate Insurer is
required to maintain contingency reserves on its liabilities in certain
amounts and for certain periods of time.
The consolidated financial statements of the Certificate Insurer, a
wholly owned subsidiary of MBIA Inc., and its subsidiaries as of
December 31, 1995 and December 31, 1994 and for the three years ended
December 31, 1995, prepared in accordance with generally accepted
accounting principles, included in the Annual Report on Form 10-K of MBIA
Inc. for the year ended December 31, 1995 and the consolidated financial
statements of the Insurer and its subsidiaries for the six months ended
June 30, 1996 and for the periods ending June 30, 1996 and June 30, 1995
included in the Quarterly Report on Form 10-Q of MBIA, Inc. for the period
ending June 30, 1996, are hereby incorporated by reference into this
Prospectus and shall be deemed to be a part hereof. Any statement
contained in a document incorporated by reference herein shall be modified
or superseded for purposes of this Prospectus to the extent that a
statement contained herein or in any other subsequently filed document
which also is incorporated by reference herein modifies or supersedes such
statement. Any statement so modified or superseded shall not be deemed,
except as so modified or superseded, to constitute a part of this
Prospectus.
The tables below present selected financial information of the
Certificate Insurer determined in accordance with statutory accounting
practices prescribed or permitted by insurance regulatory authorities
("SAP") and generally accepted accounting principles ("GAAP"):
<TABLE>
<CAPTION>
SAP
December 31, 1995 June 30, 1996
(Audited) (Unaudited)
(In millions)
<S> <C> <C>
Admitted Assets . . . . . . . . . . . . . . . . . $3,814 $4,179
Liabilities . . . . . . . . . . . . . . . . . . . 2,540 2,804
Capital and Surplus . . . . . . . . . . . . . . . 1,274 1,375
</TABLE>
<TABLE>
<CAPTION>
GAAP
December 31, 1995 June 30, 1996
(Audited) (Unaudited)
(In millions)
<S> <C> <C>
Assets . . . . . . . . . . . . . . . . . . . . . $4,463 $4,691
Liabilities . . . . . . . . . . . . . . . . . . . 1,937 2,088
Shareholder's Equity . . . . . . . . . . . . . . 2,526 2,602
</TABLE>
Copies of the financial statements of the Certificate Insurer
incorporated by reference herein and copies of the Certificate Insurer's
1995 year-end audited financial statements prepared in accordance with
statutory accounting practices are available, without charge, from the
Certificate Insurer. The address of the Certificate Insurer is 113 King
Street, Armonk, New York 10504. The telephone number of the Certificate
Insurer is (914) 273-4545.
The Certificate Insurer does not accept any responsibility for the
accuracy or completeness of this Prospectus or any information or
disclosure contained herein, or omitted herefrom, other than with respect
to the accuracy of the information regarding the Certificate Insurance
Policy and the Certificate Insurer set forth under the heading "THE
CERTIFICATE INSURANCE POLICY AND THE CERTIFICATE INSURER."
Moody's Investors Service, Inc. rates the claims paying ability of
the Certificate Insurer "Aaa."
Standard & Poor's Ratings Services, a division of The McGraw-Hill
Companies, Inc. rates the claims paying ability of the Certificate Insurer
"AAA."
Fitch Investors Service, L.P. rates the claims paying ability of the
Certificate Insurer "AAA."
Each rating of the Certificate Insurer should be evaluated
independently. The ratings reflect the respective rating agency's current
assessment of the creditworthiness of the Certificate Insurer and its
ability to pay claims on its policies of insurance. Any further
explanation as to the significance of the above ratings may be obtained
only from the applicable rating agency.
The above ratings are not recommendations to buy, sell or hold the
Certificates, and such ratings may be subject to revision or withdrawal at
any time by the rating agencies. Any downward revision or withdrawal of
any of the above ratings may have an adverse effect on the market price of
the Certificates. The Certificate Insurer does not guaranty the market
price of the Certificates nor does it guaranty that the ratings on the
Certificates will not be revised or withdrawn.)
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
An election will be made to treat the assets of the Trust Fund
(exclusive of the rights in respect of the Additional Collateral) as a
REMIC for federal income tax purposes. The Class A Certificates and the
Class B Certificates will be regular interests in the Trust Fund
(exclusive of the rights in respect of the Additional Collateral) and the
Class R Certificate will be the residual interest in the Trust Fund
(exclusive of the rights in respect of the Additional Collateral).
The Class A Certificates may be treated as having been issued with
original issue discount. The prepayment assumption that will be used for
purposes of computing original issue discount, if any, for federal income
tax purposes is a CPR of 15%. No representation is made that the Mortgage
Loans will, in fact, prepay at this or any other rate.
See "Certain Federal Income Tax Consequences" in the Prospectus.
ERISA CONSIDERATIONS
The Employee Retirement Income Security Act of 1974, as amended
("ERISA"), imposes certain restrictions on employee benefit plans that are
subject to ERISA ("Plans") and on persons who are fiduciaries with respect
to such Plans. See "ERISA Considerations" in the Prospectus.
The U.S. Department of Labor has granted to Merrill Lynch, Pierce,
Fenner & Smith Incorporated (the "Underwriter") an administrative
exemption (Prohibited Transaction Exemption 90-29, Exemption Application
No. D-8012, Fed. Reg. 21459 (1990)) (the "Exemption") from certain of the
prohibited transaction rules of ERISA with respect to the initial
purchase, the holding and the subsequent resale by Plans of certificates
representing interests in asset-backed pass-through trusts that consist of
certain receivables, loans and other obligations that meet the conditions
and requirements of the Exemption. The receivables covered by the
Exemption apply to mortgage loans such as the Mortgage Loans in the Trust
Fund. The Exemption will apply to the acquisition, holding and resale of
the Class A Certificates by a Plan, provided that certain conditions
(certain of which are described below) are met.
Among the conditions which must be satisfied for the Exemption to
apply to the Class A Certificates are the following:
(1) The acquisition of the Class A Certificates by a Plan is on
terms (including the price for the Class A Certificates) that are at least
as favorable to the Plan as they would be in an arm's-length transaction with
an unrelated party;
(2) The rights and interests evidenced by the Class A
Certificates acquired by the Plan are not subordinate to the rights and
interests evidenced by other certificates of the Trust Fund;
(3) The Class A Certificates acquired by the Plan have received
a rating at the time of such acquisition that is in one of the three
highest generic rating categories from either Standard & Poor's Ratings
Services, Moody's Investors Service, Inc., Duff & Phelps Inc. or Fitch
Investors Service, Inc.;
(4) The Trustee is not an affiliate of any member of the
Restricted Group (as defined below);
(5) The sum of all payments made to the Underwriter in
connection with the distribution of the Class A Certificates represents not
more than reasonable compensation for underwriting the Class A Certificates.
The sum of all payments made to and retained by the Company pursuant to the
sale of the Class A Certificates to the Trust Fund represents not more than
the fair market value of such Mortgage Loans. 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; and
(6) The Plan investing in the Class A Certificates is an
"accredited investor" as defined in Rule 501(a)(1) of Regulation D of the
Securities and Exchange Commission under the Securities Act of 1933, as
amended.
Moreover, the Exemption would provide relief from certain
self-dealing/conflict of interest prohibited transactions only if, among
other requirements, (i) in the case of the acquisition of Class A
Certificates in connection with the initial issuance, at least fifty (50)
percent of the Class A Certificates are acquired by persons independent of
the Restricted Group (as defined below), (ii) the Plan's investment in
Class A Certificates does not exceed twenty-five (25) percent of all of
the Class A Certificates outstanding at the time of the acquisition and
(iii) immediately after the acquisition, no more than twenty-five (25)
percent of the assets of the Plan are invested in certificates
representing an interest in one or more trusts containing assets sold or
serviced by the same entity. The Exemption does not apply to Plans
sponsored by the Company, the Underwriter, the Trustee, the Master
Servicer, any obligor with respect to Mortgage Loans included in the Trust
Fund constituting more than five percent of the aggregate unamortized
principal balance of the assets in the Trust Fund, or any affiliate of
such parties (the "Restricted Group").
The Company believes that the Exemption will apply to the acquisition
and holding by Plans of the Class A Certificates sold by the Underwriter
and that all conditions of the Exemption other than those within the
control of the investors have been met. In addition, as of the date
hereof, no obligor with respect to Mortgage Loans included in the Trust
Fund constitutes more than five percent of the aggregate unamortized
principal balance of the assets of the Trust Fund.
Employee benefit plans that are governmental plans (as defined in
section 3(32) of ERISA) and certain church plans (as defined in section
3(33) of ERISA) are not subject to ERISA requirements. Accordingly, assets
of such plans may be invested in the Class A Certificates without regard
to the ERISA restrictions described above, subject to applicable
provisions of other federal and state laws.
Any Plan fiduciary who proposes to cause a Plan to purchase Class A
Certificates should consult with its own counsel with respect to the
potential consequences under ERISA and the Code, of the Plan's acquisition
and ownership of Class A Certificates. Assets of a Plan or individual
retirement account should not be invested in the Class A Certificates
unless it is clear that the assets of the Trust Fund will not be plan
assets or unless it is clear that the Exemption or a prohibited
transaction class exemption will apply and exempt all potential prohibited
transactions.
USE OF PROCEEDS
Substantially all of the net proceeds to be received from the sale of
the Class A 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
Merrill Lynch, Pierce, Fenner & Smith Incorporated, the sole
underwriter, has agreed, on the terms and conditions of the Underwriting
Agreement and a Terms Agreement (together, the "Underwriting Agreement")
relating to the Class A Certificates, to purchase the entire principal
amount of the Class A Certificates offered hereby.
In the Underwriting Agreement, the Underwriter has agreed, subject to
the terms and conditions set forth therein, to purchase all the Class A
Certificates offered hereby if any Class A Certificates are purchased.
The distribution of the Class A Certificates by the Underwriter may
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 Underwriter may effect such transactions by selling the Class
A Certificates to or through dealers, and such dealers may receive
compensation in the form of underwriting discounts, concessions or
commissions from the Underwriter. In connection with the sale of the Class
A Certificates, the Underwriter may be deemed to have received
compensation from the Company in the form of underwriting compensation.
The Underwriter and any dealers that participate with the Underwriter in
the distribution of the Class A Certificates may be deemed to be
underwriters and any commissions received by them and any profit on the
resale of the Class A Certificates positioned by them may be deemed to be
underwriting discounts and commissions under the Securities Act of 1933.
The Underwriting Agreement provides that the Company will indemnify
the Underwriter against certain liabilities, including liabilities under
the Securities Act of 1933, or contribute to payments the Underwriter may
be required to make in respect thereof.
All of the Mortgage Loans evidenced by the Certificates will have
been acquired by the Company in a privately negotiated transaction with
MLCC.
The Underwriter has represented and agreed that (i) it has not
offered or sold and, prior to the expiration of the period of six months
from the Closing Date, will not offer or sell any Class A Certificates to
persons in the United Kingdom, except to persons whose ordinary activities
involve them in acquiring, holding, managing or disposing of investments
(as principal or agent) for the purposes of their businesses or otherwise
in circumstances which have not resulted and will not result in an offer
to the public in the United Kingdom within the meaning of the Public
Offers of Securities Regulation 1995; (ii) it has complied and will comply
with all applicable provisions of the Financial Services Act 1986 with
respect to anything done by it in relation to the Class A Certificates in,
from or otherwise involving the United Kingdom; and (iii) it has only
issued or passed on and will only issue or pass on in the United Kingdom
any document received by it in connection with the issue of the Class A
Certificates to a person who is of a kind described in Article 11(3) of
the Financial Services Act 1986 (Investment Advertisements) (Exemptions)
Order 1995, or is a person to whom such document may otherwise lawfully be
issued or passed on.
EXPERTS
(The consolidated balance sheets of AMBAC Indemnity Corporation, at
December 31, 1994 and 1995 and the consolidated statements of operations,
stockholder's equity and cash flows of AMBAC Indemnity Corporation for
each of the years in the three year period ended December 31, 1995,
appearing in Appendix A and Appendix B of this Prospectus Supplement have
been included herein in reliance upon the report of KPMG Peat Marwick LLP,
independent certified public accountants, appearing elsewhere herein and
upon the authority of said firm as experts in accounting and auditing.
The report of KPMG Peat Marwick LLP covering the consolidated
financial statements referred to above of AMBAC Indemnity Corporation
refers to the adoption of the Financial Accounting Standards Board's
Statements of Financial Accounting Standards No. 109, "Accounting for
Income Taxes," No. 115, "Accounting for Certain Investments in Debt and
Equity Securities," No. 106, "Employers' Accounting for Postretirement
Benefits Other Than Pensions," and No. 112, "Employers' Accounting for
Postemployment Benefits," in 1993.)
(The consolidated financial statements of the Certificate Insurer,
MBIA Insurance Corporation, as of December 31, 1995 and 1994 and for each
of the three years in the period ended December 31, 1995, incorporated by
reference in this Prospectus Supplement have been audited by Coopers &
Lybrand, independent accountants, as set forth in their report thereon
appearing elsewhere herein. Such consolidated financial statements are
included in reliance upon such report and upon the authority of such firm
as experts in accounting and auditing.)
LEGAL MATTERS
Certain legal matters will be passed upon for the Company and the
Underwriter by Brown & Wood LLP, New York, New York. The material federal
income tax consequences of the Certificates will be passed upon for the
Company by Brown & Wood LLP.
CERTIFICATE RATING
It is a condition to the issuance of the Certificates that the Class
A Certificates be rated _____ by ________________________ and _____ by
____________________. (Standard & Poor's assigns the additional symbol
of ____ to highlight classes of securities that Standard & Poor's believes
may experience high volatility or high variability in expected returns due
to non-credit risks; however, the absence of an ___ symbol should not be
taken as an indication that a class will exhibit no volatility or
variability in total return.)
The ratings of ________________________ and __________________ do not
represent any assessment of the ability of the Master Servicer to purchase
any Converting Mortgage Loan. If the Master Servicer fails to purchase a
Converting Mortgage Loan that it is obligated to purchase, investors in
the Class A Certificates might experience a lower than anticipated yield.
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 rating
agency. The ratings assigned to the Class A Certificates address the
likelihood of the receipt of distributions due on the Class A Certificates
according to their terms. The ratings take into consideration, among other
things, the credit quality of the Mortgage Loans, the structural and legal
aspects associated with the Class A Certificates, and the claims-paying
ability of the Certificate Insurer. An adverse change in any of such
factors or in other factors may be a basis for the downward revision or
withdrawal of the rating of the Class A Certificates. The ratings assigned
to the Class A Certificates do not represent any assessment of the
likelihood that principal prepayments might differ from those originally
anticipated. The rating does not address the possibility that the holders
of the Class A Certificates might suffer a lower than anticipated yield.
There can be no assurance as to whether any other rating agency will rate
the Class A Certificates, or if it does, what rating it will assign to the
Class A Certificates.
INDEX OF PRINCIPAL TERMS
Page
Accrual Period . . . . . . . . . . . . . . . . . . . . . . . . . S-11, S-48
Additional Collateral . . . . . . . . . . . . . . . . . . . . . . . S-9, S-35
Additional Collateral Loans . . . . . . . . . . . . . . . . . . . . S-9, S-35
Advances . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-16
Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-5, S-20
AMBAC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-62
Available Distribution Amount . . . . . . . . . . . . . . . . . . . . . S-11
Business Day . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-62
Cede . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-18, S-47
CEDEL . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-59
CEDEL Participants . . . . . . . . . . . . . . . . . . . . . . . . . . S-59
Certificate Account . . . . . . . . . . . . . . . . . . . . . . . . . . S-20
Certificate Insurance Policy . . . . . . . . . . . . . . . . . . . . . Cover
Certificate Insurer . . . . . . . . . . . . . . . . . . . . . . . . . . Cover
Certificate Owners . . . . . . . . . . . . . . . . . . . . . . . . S-3, S-18
Certificates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Cover
Class A Certificates . . . . . . . . . . . . . . . . . . . . . . . . . . S-4
Class A Formula Principal Distribution Amount . . . . . . . . . . . . . S-51
Class A Percentage . . . . . . . . . . . . . . . . . . . . . . . . . . S-51
Class A Prepayment Percentage . . . . . . . . . . . . . . . . . . . . . S-51
Class A Unpaid Interest Shortfall . . . . . . . . . . . . . . . . S-12, S-48
Class B Formula Principal Distribution Amount . . . . . . . . . . . . . S-52
Class B Loss Amount . . . . . . . . . . . . . . . . . . . . . . . . . . S-51
Closing Date . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-11
Co-op Shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-20
Code . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-17
Company . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Cover, S-4
Constructive Loan-to-Value Ratio . . . . . . . . . . . . . . . . . . . S-10
Conversion Price . . . . . . . . . . . . . . . . . . . . . . . . . S-2, S-8
Convertible Mortgage Loans . . . . . . . . . . . . . . . . . . . . . . . S-2
Converting Mortgage Loan . . . . . . . . . . . . . . . . . . . . . S-2, S-7
Cooperatives . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-20
CPR . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-44
Current Subordination Level . . . . . . . . . . . . . . . . . . . . . . S-52
Definitive Class A Certificates . . . . . . . . . . . . . . . . . . . . S-59
Depositaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-58
Determination Date . . . . . . . . . . . . . . . . . . . . . . . . . . S-47
Distribution Account . . . . . . . . . . . . . . . . . . . . . . . . . S-20
Distribution Account Shortfall . . . . . . . . . . . . . . . . . . . . S-52
Distribution Date . . . . . . . . . . . . . . . . . . . . . . S-2, S-11, S-47
DTC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-18, S-47
Due Date . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-2, S-6
Equity Access(Registered Trademark) credit accounts . . . . . . . . . . S-34
Equity Access(Registered Trademark) loans . . . . . . . . . . . . . . . S-34
ERISA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-17, S-65
Euroclear . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-60
Euroclear Cooperative . . . . . . . . . . . . . . . . . . . . . . . . . S-60
Euroclear Operator . . . . . . . . . . . . . . . . . . . . . . . . . . S-60
Euroclear Participants . . . . . . . . . . . . . . . . . . . . . . . . S-60
Exemption . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-65
Formula Excess Interest Amount . . . . . . . . . . . . . . . . . . . . S-50
Formula Principal Distribution Amount . . . . . . . . . . . . . . . . . S-49
GAAP . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-64
Global Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . I-1
Index . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-37
Index Convertible Mortgage Loans . . . . . . . . . . . . . . . . . S-2, S-8
Initial Amount . . . . . . . . . . . . . . . . . . . . . . . . . S-14, S-53
Insured Amount . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-62
Insured Payment . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-62
Interest Adjustment Date . . . . . . . . . . . . . . . . . . . . . . . . S-6
LIBOR . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-4
LIBOR Business Day . . . . . . . . . . . . . . . . . . . . . . . . . . S-53
Limited Purpose Surety Bond . . . . . . . . . . . . . . . . . . . . . . . S-9
Liquidated Mortgage Loan . . . . . . . . . . . . . . . . . . . . . . . S-50
LTV . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-35
Margin . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-6
Master Servicer . . . . . . . . . . . . . . . . . . . . . . . . . Cover, S-20
Maximum Mortgage Rate . . . . . . . . . . . . . . . . . . . . . . . . . . S-7
MBIA Insurance Corporation . . . . . . . . . . . . . . . . . . . . . . S-63
ML & Co. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-34
MLCC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Cover, S-4
Monthly Payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-6
Moody's . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-62
Mortgage Files . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-55
Mortgage Loan Schedule . . . . . . . . . . . . . . . . . . . . . . . . S-54
Mortgage Loans . . . . . . . . . . . . . . . . . . . . . . . . . Cover, S-5
Mortgage Pool . . . . . . . . . . . . . . . . . . . . . . . Cover, S-11, S-20
Mortgage Rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-6
Mortgage Rates . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-21
Mortgaged Properties . . . . . . . . . . . . . . . . . . . . . . . . . S-20
Net Interest Shortfall . . . . . . . . . . . . . . . . . . . . . . . . S-50
Net Mortgage Rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-5
Non-Resident Alien Loans . . . . . . . . . . . . . . . . . . . . . . . S-36
Nonpayment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-62
Nonrecoverable Advances . . . . . . . . . . . . . . . . . . . . . . . . S-57
One-Month LIBOR Index . . . . . . . . . . . . . . . . . . . . . . . S-6, S-37
Original Subordination Level . . . . . . . . . . . . . . . . . . . . . S-52
Outstanding Mortgage Loan . . . . . . . . . . . . . . . . . . . . . . . S-50
Parent Power(Registered Trademark) Loans . . . . . . . . . . . . . . . S-35
Participants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-58
Percentage Interest . . . . . . . . . . . . . . . . . . . . . . . . . . S-11
Plans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-65
Pool Scheduled Principal Balance . . . . . . . . . . . . . . . . . . . S-13
Preference Amount . . . . . . . . . . . . . . . . . . . . . . . . . . . S-62
Prepayment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-44
Prepayment Interest Shortfall . . . . . . . . . . . . . . . . . . . . . S-56
Prime Index . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-6
Principal Balance . . . . . . . . . . . . . . . . . . . . . . . . . . . S-50
Principal Prepayment Period . . . . . . . . . . . . . . . . . . . . . . S-49
Prospectus . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Cover
Record Date . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-47
Relief Act Reduction . . . . . . . . . . . . . . . . . . . . . . . . . S-50
REMIC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-3
Restricted Group . . . . . . . . . . . . . . . . . . . . . . . . . . . S-66
Reuters Screen LIBO Page . . . . . . . . . . . . . . . . . . . . . . . S-52
SAP . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-64
Scheduled Formula Principal Distribution Amount . . . . . . . . . . . . S-50
Servicing Fee Rate . . . . . . . . . . . . . . . . . . . . . . . . . . S-56
Six-Month LIBOR Index . . . . . . . . . . . . . . . . . . . . . . . S-6, S-37
Standard & Poor's . . . . . . . . . . . . . . . . . . . . . . . . . . . S-62
Statement 115 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-63
Sub-servicers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-20
Subordinated Certificates . . . . . . . . . . . . . . . . . . . . Cover, S-4
Subordinated Percentage . . . . . . . . . . . . . . . . . . . . . . . . S-51
Subordinated Prepayment Percentage . . . . . . . . . . . . . . . . . . S-52
Surety Bond Provider . . . . . . . . . . . . . . . . . . . . . . . . . . S-9
Terms and Conditions . . . . . . . . . . . . . . . . . . . . . . . . . S-60
Treasury Index . . . . . . . . . . . . . . . . . . . . . . . . . . S-7, S-37
Trust Fund . . . . . . . . . . . . . . . . . . . . . . . . . . . Cover, S-11
Trustee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-5, S-20
U.S. Person . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . I-3
Underwriter . . . . . . . . . . . . . . . . . . . . . . . . . S-3, S-4, S-65
Underwriting Agreement . . . . . . . . . . . . . . . . . . . . . . . . S-66
Unrecovered Principal Amount . . . . . . . . . . . . . . . . . . . . . S-50
Unreimbursed Insurer Amounts . . . . . . . . . . . . . . . . . . S-12, S-48
Unscheduled Formula Principal Distribution Amount . . . . . . . . . . . S-50
Weighted Average Net Mortgage Rate . . . . . . . . . . . . . . . . . . . S-5
ANNEX I
GLOBAL CLEARANCE, SETTLEMENT AND TAX DOCUMENTATION PROCEDURES
Except in certain limited circumstances, the globally offered MLCC
Mortgage Investors, Inc. Mortgage Loan Asset Backed Pass-Through
Certificates, Series 199_-, Class A (the "Global Securities") will be
available only in book-entry form. Investors in the Global Securities may
hold such Global Securities through any of DTC, CEDEL or Euroclear. The
Global Securities will be tradeable as home market instruments in both the
European and U.S. domestic markets. Initial settlement and all secondary
trades will settle in same-day funds. Capitalized terms used but not
defined in this Annex I have the meanings assigned to them in the
Prospectus Supplement and the Prospectus.
Secondary market trading between investors holding Global Securities
through CEDEL and Euroclear will be conducted in the ordinary way in
accordance with their normal rules and operating procedures and in
accordance with conventional eurobond practice (i.e., seven calendar day
settlement).
Secondary market trading between investors holding Global Securities
through DTC will be conducted according to the rules and procedures
applicable to U.S. corporate debt obligations.
Secondary cross-market trading between CEDEL or Euroclear and DTC
Participants holding Global Securities will be effected on a
delivery-against-payment basis through the respective Depositaries of
CEDEL and Euroclear (in such capacity) and as DTC Participants.
Non-U.S. holders (as described below) of Global Securities will be
subject to U.S. withholding taxes unless such holders meet certain
requirements and deliver appropriate U.S. tax documents to the securities
clearing organizations or their participants.
INITIAL SETTLEMENT
All Global Securities will be held in book-entry form by DTC in the
name of Cede & Co. as nominee of DTC. Investors' interests in the Global
Securities will be represented through financial institutions acting on
their behalf as direct and indirect Participants in DTC. As a result,
CEDEL and Euroclear will hold positions on behalf of their participants
through their respective Depositaries, which in turn will hold such
positions in accounts as DTC Participants.
Investors electing to hold their Global Securities through DTC will
follow the settlement practices applicable to similar issues of
pass-through certificates. Investors' securities custody accounts will be
credited with their holdings against payment in same-day funds on the
settlement date.
Investors electing to hold their Global Securities through CEDEL or
Euroclear accounts will follow the settlement procedures applicable to
conventional eurobonds, except that there will be no temporary global
security and no "lock-up" or restricted period. Global Securities will be
credited to the securities custody accounts on the settlement date against
payments in same-day funds.
SECONDARY MARKET TRADING
Since the purchaser determines the place of delivery, it is important
to establish at the time of the trade where both the purchaser's and
seller's accounts are located to ensure that settlement can be made on the
desired value date.
Trading between DTC Participants. Secondary market trading between
DTC Participants will be settled using the procedures applicable to
similar issues of pass-through certificates in same-day funds.
Trading between CEDEL and/or Euroclear Participants. Secondary market
trading between CEDEL Participants or Euroclear Participants will be
settled using the procedures applicable to conventional eurobonds in
same-day funds.
Trading between DTC seller and CEDEL or Euroclear purchaser. When
Global Securities are to be transferred from the account of a DTC
Participant to the account of a CEDEL Participant or a Euroclear
Participant, the purchaser will send instructions to CEDEL or Euroclear
through a CEDEL Participant or Euroclear Participant at least one business
day prior to settlement. CEDEL or Euroclear will instruct the respective
Depositary, as the case may be, to receive the Global Securities against
payment. Payment will include interest accrued on the Global Securities
from and including the last coupon payment date to and excluding the
settlement date. Payment will then be made by the respective Depositary to
the DTC Participant's account against delivery of the Global Securities.
After settlement has been completed, the Global Securities will be
credited to the respective clearing system and by the clearing system, in
accordance with its usual procedures, to the CEDEL Participant's or
Euroclear Participant's account. The Global Securities credit will appear
the next day (European time) and the cash debit will be back-valued to,
and the interest on the Global Securities will accrue from, the value date
(which would be the preceding day when settlement occurred in New York).
If settlement is not completed on the intended value date (i.e., the trade
fails), the CEDEL or Euroclear cash debit will be valued instead as of the
actual settlement date.
CEDEL Participants and Euroclear Participants will need to make
available to the respective clearing systems the funds necessary to
process same-day funds settlement. The most direct means of doing so is to
pre-position funds for settlement, either from cash on hand or existing
lines of credit, as they would for any settlement occurring within CEDEL
or Euroclear. Under this approach, they may take on credit exposure to
CEDEL or Euroclear until the Global Securities are credited to their
accounts one day later.
As an alternative, if CEDEL or Euroclear has extended a line of
credit to them, CEDEL Participants or Euroclear Participants can elect not
to pre-position funds and allow that credit line to be drawn upon the
finance settlement. Under this procedure, CEDEL Participants or Euroclear
Participants purchasing Global Securities would incur overdraft charges
for one day, assuming they cleared the overdraft when the Global
Securities were credited to their accounts. However, interest on the
Global Securities would accrue from the value date. Therefore, in many
cases the investment income on the Global Securities earned during that
one-day period may substantially reduce or offset the amount of such
overdraft charges, although this result will depend on each CEDEL
Participant's or Euroclear Participant's particular cost of funds.
Since the settlement is taking place during New York business hours,
DTC Participants can employ their usual procedures for sending Global
Securities to the respective Depositary for the benefit of CEDEL
Participants or Euroclear Participants. The sale proceeds will be
available to the DTC seller on the settlement date. Thus, to the DTC
Participant a cross-market transaction will settle no differently than a
trade between two DTC Participants.
Trading between CEDEL or Euroclear seller and DTC purchaser. Due to
time zone differences in their favor, CEDEL Participants and Euroclear
Participants may employ their customary procedures for transactions in
which Global Securities are to be transferred by the respective clearing
system, through the respective Depositary, to a DTC Participant. The
seller will send instructions to CEDEL or Euroclear through a CEDEL
Participant or Euroclear Participant at least one business day prior to
settlement. In these cases, CEDEL or Euroclear will instruct the
respective Depositary, as appropriate, to deliver the bonds to the DTC
Participant's account against payment. Payment will include interest
accrued on the Global Securities from and including the last coupon
payment date to and excluding the settlement date. The payment will then
be reflected in the account of the CEDEL Participant or Euroclear
Participant the following day, and receipt of the cash proceeds in the
CEDEL Participant's or Euroclear Participant's account would be
back-valued to the value date (which would be the preceding day, when
settlement occurred in New York). Should the CEDEL Participant or
Euroclear Participant have a line of credit with its respective clearing
system and elect to be in debit in anticipation of receipt of the sale
proceeds in its account, the back-valuation will extinguish any overdraft
charges incurred over that one-day period. If settlement is not completed
on the intended value date (i.e., the trade fails), receipt of the cash
proceeds in the CEDEL Participant's or Euroclear Participant's account
would instead be valued as of the actual settlement date. Finally, day
traders that use CEDEL or Euroclear and that purchase Global Securities
from DTC Participants for delivery to CEDEL Participants or Euroclear
Participants should note that these trades would automatically fail on the
sale side unless affirmative action were taken. At least three techniques
should be readily available to eliminate this potential problem:
(a) borrowing through CEDEL or Euroclear for one day (until the
purchase side of the day trade is reflected in their CEDEL or Euroclear
accounts) in accordance with the clearing system's customary procedures;
(b) borrowing the Global Securities in the U.S. from a DTC
Participant no later than one day prior to settlement, which would give the
Global Securities sufficient time to be reflected in their CEDEL or Euroclear
account in order to settle the sale side of the trade; or
(c) staggering the value dates for the buy and sell sides of the
trade so that the value date for the purchase from the DTC Participant is at
least one day prior to the value date for the sale to the CEDEL Participant
or Euroclear Participant.
CERTAIN U.S. FEDERAL INCOME TAX DOCUMENTATION REQUIREMENTS
A beneficial owner of Global Securities holding securities through
CEDEL or Euroclear (or through DTC if the holder has an address outside
the U.S.) will be subject to the 30% U.S. withholding tax that generally
applies to payments of interest (including original issue discount) on
registered debt issued by U.S. Persons, unless (i) each clearing system,
bank or other financial institution that holds customers' securities in
the ordinary course of its trade or business in the chain of
intermediaries between such beneficial owner and the U.S. entity required
to withhold tax complies with applicable certification requirements and
(ii) such beneficial owner takes one of the following steps to obtain an
exemption or reduced tax rate:
Exemption for non-U.S. Persons (Form W-8). Beneficial owners of
Global Securities that are non-U.S. Persons can obtain a complete
exemption from the withholding tax by filing a signed Form W-8
(Certificate of Foreign Status). If the information shown on Form W-8
changes, a new Form W-8 must be filed within 30 days of such change.
Exemption for non-U.S. Persons with effectively connected income
(Form 4224). A non-U.S. Person, including a non-U.S. corporation or bank
with a U.S. branch, for which the interest income is effectively connected
with its conduct of a trade or business in the United States, can obtain
an exemption from the withholding tax by filing Form 4224 (Exemption from
Withholding of Tax on Income Effectively Connected with the Conduct of a
Trade or Business in the United States).
Exemption or reduced rate for non-U.S. Persons resident in treaty
countries (Form 1001). Non-U.S. Persons that are Certificate Owners
residing in a country that has a tax treaty with the United States can
obtain an exemption or reduced tax rate (depending on the treaty terms) by
filing Form 1001 (Ownership, Exemption or Reduced Rate Certificate). If
the treaty provides only for a reduced rate, withholding tax will be
imposed at that rate unless the filer alternatively files Form W-8. Form
1001 may be filed by the Certificate Owner or his agent.
Exemption for U.S. Persons (Form W-9). U.S. Persons can obtain a
complete exemption from the withholding tax by filing Form W-9 (Payer's
Request for Taxpayer Identification Number and Certification).
U.S. Federal Income Tax Reporting Procedure. The Certificate Owner of
a Global Security or, in the case of a Form 1001 or a Form 4224 filer, his
agent, files by submitting the appropriate form to the person through whom
it holds (the clearing agency, in the case of persons holding directly on
the books of the clearing agency). Form W-8 and Form 1001 are effective
for three calendar years and Form 4224 is effective for one calendar year.
The term "U.S. Person" means (i) a citizen or resident of the United
States, (ii) a corporation 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. This summary does
not deal with all aspects of U.S. Federal income tax withholding that may
be relevant to foreign holders of the Global Securities. Investors are
advised to consult their own tax advisors for specific tax advice
concerning their holding and disposing of the Global Securities.
<PAGE>
AMBAC INDEMNITY CORPORATION AND SUBSIDIARIES
(a wholly owned subsidiary of AMBAC Inc.)
Consolidated Financial Statements
December 31, 1995 and 1994
(With Independent Auditors' Report Thereon)
Independent Auditors' Report
The Board of Directors
AMBAC Indemnity Corporation:
We have audited the accompanying consolidated balance sheets of AMBAC
Indemnity Corporation and subsidiaries (a wholly owned subsidiary of AMBAC
Inc.) as of December 31, 1995 and 1994, and the related consolidated
statements of operations, stockholder's equity and cash flows for each of
the years in the three-year period ended December 31, 1995. These
consolidated financial statements are the responsibility of AMBAC Indemnity
Corporation's management. Our responsibility is to express an opinion on
these consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of AMBAC
Indemnity Corporation and subsidiaries as of December 31, 1995 and 1994, and
the results of their operations and their cash flows for each of the years
in the three-year period ended December 31, 1995 in conformity with generally
accepted accounting principles.
As discussed in Note 2 to the consolidated financial statements, AMBAC
Indemnity Corporation has adopted the provisions of the Financial Accounting
Standards Board's Statements of Financial Accounting Standards No. 109,
"Accounting for Income Taxes," No. 115, "Accounting for Certain Investments
in Debt and Equity Securities," No. 106, "Employers' Accounting for
Postretirement Benefits Other Than Pensions" and No. 112, "Employers'
Accounting for Postemployment Benefits," in 1993.
KPMG Peat Marwick LLP
New York, New York
January 31, 1996
<TABLE>
AMBAC Indemnity Corporation and Subsidiaries
Consolidated Balance Sheets
(Dollars In Thousands Except Share Data)
<CAPTION>
December 31,
-------------------------
1995 1994
---------- ----------
<S> <C> <C>
Assets
Investments:
Bonds held in available-for-sale account, at fair value
(amortized cost of $2,090,101 in 1995 and $1,865,350
in 1994).............................................. $2,224,528 $1,795,958
Short-term investments, at cost (approximates fair
value)................................................ 163,953 85,202
---------- ----------
Total investments..................................... 2,388,481 1,881,160
Cash....................................................... 6,912 2,117
Securities purchased under agreements to resell............ 4,120 8,011
Receivable for securities.................................. 8,136 21,508
Investment income due and accrued.......................... 38,319 34,902
Investment in affiliate.................................... 25,827 24,976
Deferred acquisition costs................................. 82,620 71,774
Deferred income taxes...................................... -- 1,778
Current income taxes....................................... 2,171 10,544
Prepaid reinsurance........................................ 153,372 139,855
Other assets............................................... 48,472 41,677
-------- ---------
Total assets.......................................... $2,758,430 $2,238,302
========== ==========
Liabilities and Stockholder's Equity
Liabilities:
Unearned premiums........................................ $ 906,136 $ 839,775
Losses and loss adjustment expenses...................... 65,996 65,662
Ceded reinsurance balances payable....................... 14,654 908
Deferred income taxes.................................... 85,008 --
Accounts payable and other liabilities................... 43,625 43,519
Payable for securities................................... 86,304 26,696
---------- ----------
Total liabilities..................................... 1,201,723 976,560
---------- ----------
Stockholder's equity:
Preferred stock, par value $1,000.00 per share.
Authorized shares -- 285,000; issued and outstanding
shares -- none........................................ -- --
Common stock, par value $2.50 per share. Authorized
shares -- 40,000,000; issued and outstanding
shares -- 32,800,000 at December 31, 1995 and 1994.... 82,000 82,000
Additional paid-in capital............................... 481,059 444,258
Unrealized gains (losses) on investments, net of tax..... 87,112 (46,087)
Retained earnings........................................ 906,536 781,571
---------- ----------
Total stockholder's equity............................ 1,556,707 1,261,742
---------- ----------
Total liabilities and stockholder's equity............ $2,758,430 $2,238,302
========== ==========
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
AMBAC Indemnity Corporation and Subsidiaries
Consolidated Statements of Operations
(Dollars In Thousands)
<TABLE>
Years Ended December 31,
------------------------------
<CAPTION>
1995 1994 1993
-------- -------- --------
<S> <C> <C> <C>
Revenues:
Gross premiums written........................... $195,033 $192,598 $321,490
Ceded premiums written........................... (28,606) 2,815 (35,810)
-------- -------- --------
Net premiums written.......................... 166,427 195,413 285,680
Increase in unearned premiums, net............... (52,844) (76,077) (132,862)
-------- -------- --------
Net premiums earned........................... 113,583 119,336 152,818
Net investment income............................ 131,496 119,737 104,609
Net realized gains (losses)...................... 177 (13,386) 30,145
Other income..................................... 6,777 6,887 1,516
-------- -------- --------
Total revenues................................ 252,033 232,574 289,088
-------- -------- --------
Expenses:
Losses and loss adjustment expenses.............. 3,377 2,593 (1,849)
Underwriting and operating expenses.............. 38,722 35,946 34,746
Interest expense................................. 1,590 1,428 163
-------- -------- --------
Total expenses................................ 43,689 39,967 33,060
-------- -------- --------
Income before income taxes.................... 208,344 192,607 256,028
-------- -------- --------
Income tax expense:
Current taxes.................................... 29,085 26,286 66,386
Deferred taxes................................... 14,461 16,277 4,090
-------- -------- --------
Total income taxes............................ 43,546 42,563 70,476
-------- -------- --------
Income before cumulative effect of changes in
accounting principles......................... 164,798 150,044 185,552
Cumulative effect of changes in accounting
principles.................................... -- -- (98)
-------- -------- --------
Net income.................................... $164,798 $150,044 $185,454
========= ========= =========
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
AMBAC Indemnity Corporation and Subsidiaries
Consolidated Statements of Stockholder's Equity
(Dollars In Thousands)
<TABLE>
<CAPTION> Years Ended December 31,
---------------------------------
1995 1994 1993
--------- --------- --------
<S> <C> <C> <C>
Preferred Stock:
Balance at January 1 and December 31........... $ -- $ -- $ --
========== ========== =========
Common Stock:
Balance at January 1 and December 31........... $ 82,000 $ 82,000 $ 82,000
========== ========== =========
Additional Paid-in Capital:
Balance at January 1........................... $ 444,258 $ 444,143 $397,570
Capital contributions.......................... 35,000 -- 40,000
Cumulative effect of changes in accounting
principles.................................. -- -- 4,708
Other paid-in capital.......................... 1,801 115 1,865
--------- --------- --------
Balance at December 31......................... $ 481,059 $ 444,258 $444,143
========== ========== =========
Unrealized Gains (Losses) on Investments, Net of
Tax:
Balance at January 1........................... $ (46,087) $ 68,091 $ 5,285
Unrealized gain from change in accounting
principle................................... -- -- 63,568
Change in unrealized gain (loss)............... 133,199 (114,178) (762)
--------- --------- --------
Balance at December 31......................... $ 87,112 ($ 46,087) $ 68,091
========== ========== =========
Retained Earnings:
Balance at January 1........................... $ 781,571 $ 667,527 $515,073
Net income..................................... 164,798 150,044 185,454
Dividends declared-common stock................ (40,000) (36,000) (33,000)
Other.......................................... 167 -- --
--------- --------- --------
Balance at December 31......................... $ 906,536 $ 781,571 $667,527
========== ========== =========
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
AMBAC Indemnity Corporation and Subsidiaries
Consolidated Statements of Cash Flows
(Dollars In Thousands)
<TABLE>
<CAPTION> Years Ended December 31,
-------------------------------------------
1995 1994 1993
----------- ----------- -----------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income............................... $ 164,798 $ 150,044 $ 185,454
Adjustments to reconcile net income to
net cash provided by operating
activities:
Depreciation and amortization............ 1,605 1,106 1,080
Amortization of bond premium and
discount.............................. (831) (1,097) (507)
Current income taxes payable............. 8,373 (6,069) (20,844)
Deferred income taxes payable............ 14,462 16,277 (2,463)
Deferred acquisition costs............... (10,846) (20,757) (7,059)
Unearned premiums........................ 52,844 76,077 132,862
Losses and loss adjustment expenses...... 334 1,625 (718)
Ceded reinsurance balances payable....... 13,746 (2,963) (5,147)
(Gain) loss on sales of investments...... (177) 13,386 (30,145)
Proceeds from sales of bonds in trading
account............................... -- -- 2,091,143
Proceeds from maturities of bonds in
trading account....................... -- -- 34,409
Purchases of bonds for trading account... -- -- (2,181,198)
Accounts payable and other liabilities... 106 20,497 9,591
Other, net............................... (11,273) 7,179 (1,622)
----------- ----------- -----------
Net cash provided by operating
activities......................... 233,141 255,305 204,836
----------- ----------- -----------
Cash flows from investing activities:
Proceeds from sales of bonds at amortized
cost.................................. 1,882,485 1,305,011 18,912
Proceeds from maturities of bonds at
amortized cost........................ 163,031 39,126 60,131
Purchases of bonds at amortized cost..... (2,192,824) (1,559,982) (258,832)
Investment in preferred stock of
affiliate............................. -- -- (3,000)
Change in short-term investments......... (78,751) 9,005 (25,252)
Securities purchased under agreements to
resell................................ 3,891 (8,011) --
Other, net............................... (1,178) (3,786) (2,370)
----------- ----------- -----------
Net cash used in investing
activities......................... (223,346) (218,637) (210,411)
----------- ----------- -----------
Cash flows from financing activities:
Dividends paid........................... (40,000) (36,000) (33,000)
Capital contribution..................... 35,000 -- 40,000
----------- ----------- -----------
Net cash (used in) provided by
financing activities............... (5,000) (36,000) 7,000
----------- ----------- -----------
Net cash flow......................... 4,795 668 1,425
Cash at beginning of year.................. 2,117 1,449 24
----------- ----------- -----------
Cash at December 31........................ $ 6,912 $ 2,117 $ 1,449
=========== =========== ===========
Supplemental disclosure of cash flow
information:
Cash paid during the year for:
Income taxes.......................... $ 19,500 $ 32,153 $ 86,781
=========== =========== ===========
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
AMBAC Indemnity Corporation and Subsidiaries
Notes to Consolidated Financial Statements
(Dollar Amounts in Thousands)
1 BACKGROUND
AMBAC Indemnity Corporation ("AMBAC Indemnity") is a leading insurer of
municipal and structured finance obligations. Financial guarantee insurance
underwritten by AMBAC Indemnity guarantees payment when due of the principal
of and interest on the obligation insured. In the case of a default on the
insured bond, payments under the insurance policy may not be accelerated by
the policyholder without AMBAC Indemnity's consent. As of December 31, 1995,
AMBAC Indemnity's net insurance in force (principal and interest) was
$199,078,000. AMBAC Indemnity is a wholly owned subsidiary of AMBAC Inc.
(NYSE: ABK), a holding company that provides financial guarantee insurance
and financial services to both public and private clients through its
subsidiaries.
As of December 31, 1995, AMBAC Indemnity owned approximately 26.5% of
the outstanding common stock of an affiliate, HCIA Inc. (NASDAQ: HCIA)
("HCIA"), a leading health care information content company. AMBAC Inc. owns
approximately 19.9% of the outstanding common stock of HCIA. Prior to 1995,
AMBAC Inc. and AMBAC Indemnity combined owned approximately 96% of HCIA.
During 1995, HCIA offered approximately 3.5 million shares of its common
stock for sale in two separate public offerings. In addition, in conjunction
with the second public offering by HCIA, AMBAC Inc. sold approximately 1.1
million shares of HCIA common stock. As a result of these public offerings,
as of December 31, 1995, AMBAC Indemnity and AMBAC Inc. combined owned 46.4%
of the common stock of HCIA.
AMBAC Indemnity, as the sole limited partner, owns a limited partnership
interest representing 90% of the total partnership interests of AMBAC
Financial Services, Limited Partnership ("AFS"), a limited partnership which
provides interest rate swaps primarily to states, municipalities and municipal
authorities. The sole general partner of AFS, AMBAC Financial Services
Holdings, Inc., a wholly owned subsidiary of AMBAC Inc., owns a general
partnership interest representing 10% of the total partnership interest in
AFS.
AMBAC Indemnity has one wholly owned subsidiary, American Municipal Bond
Holding Company ("AMBH"), which is a holding company for certain real estate
interests.
2 SIGNIFICANT ACCOUNTING POLICIES
The accompanying consolidated financial statements have been prepared
on the basis of generally accepted accounting principles ("GAAP"). The
preparation of financial statements in conformity with GAAP requires
management to make estimates and assumptions that affect the reported amounts
of assets and liabilities and disclosures of contingent assets and liabilities
at the date of the financial statements and the reported revenues and expenses
during the reporting period. Actual results could differ from those estimates.
The significant accounting policies of AMBAC Indemnity and its subsidiaries
are as described below:
CONSOLIDATION:
The consolidated financial statements include the accounts of AMBAC
Indemnity, AFS and AMBH (sometimes collectively referred to as "AMBAC
Indemnity"). All significant intercompany balances have been eliminated.
AMBAC Indemnity Corporation and Subsidiaries
Notes to Consolidated Financial Statements -- (Continued)
(Dollar Amounts in Thousands)
INVESTMENTS:
AMBAC Indemnity's investment portfolio is accounted for on a trade-date
basis and consists entirely of investments in debt securities which are
considered available-for-sale and are carried at fair value. Fair value is
based on quotes obtained by AMBAC Indemnity from independent market sources.
Short-term investments are carried at cost, which approximates their fair
value. Unrealized gains and losses, net of deferred income taxes, are
included as a separate component of stockholder's equity and are computed
using amortized cost as the basis. For purposes of computing amortized
cost, premiums and discounts are accounted for using the interest method.
For bonds purchased at a price below par value, discounts are accreted over
the remaining term of the securities. For bonds purchased at a price above
par value which have call features, premiums are amortized to the most
likely call dates as determined by management. For premium bonds which
do not have call features, such premiums are amortized over the remaining
term of the securities. Premiums and discounts on mortgage-backed securities
are adjusted for the effects of actual and anticipated prepayments.
Realized gains and losses on the sale of investments are determined on the
basis of specific identification.
Effective December 31, 1993, AMBAC Indemnity adopted Statement of
Financial Accounting Standards No. 115, "Accounting for Certain Investments
in Debt and Equity Securities" ("Statement 115"). Pursuant to Statement 115,
AMBAC Indemnity has designated all investments as "available-for-sale" and
reports them at fair value. Unrealized gains and losses are excluded from
earnings and reported as a separate component of stockholder's equity, net
of tax. The cumulative effect of adopting Statement 115 as of December 31,
1993 was to increase AMBAC Indemnity's stockholder's equity by $63,568, net
of tax. The adoption of Statement 115 had no effect on earnings.
SECURITIES PURCHASED UNDER AGREEMENTS TO RESELL:
Securities purchased under agreements to resell are collateralized
financing transactions, and are recorded at their contracted resale amounts,
plus accrued interest. AMBAC Indemnity takes possession of the collateral
underlying those agreements and monitors its market value on a daily basis
and, when necessary, requires prompt transfer of additional collateral to
reflect current market value.
PREMIUM REVENUE RECOGNITION:
Premiums for municipal new issue and secondary market policies are: (i)
generally computed as a percentage of principal and interest insured; (ii)
typically collected in a single payment at policy inception date; and (iii)
are earned pro rata over the period of risk. Premiums for structured finance
policies can be computed as a percentage of either principal or principal and
interest insured. The timing of the collection of structured finance premiums
varies among individual transactions. For policies where premiums are
collected in a single payment at policy inception date, premiums are earned
pro rata over the period of risk. For policies with premiums that are
collected periodically (i.e., monthly, quarterly or annually), premiums are
reflected in income pro rata over the period covered by the premium payment.
When an AMBAC Indemnity-insured new or secondary market issue has been
refunded or called, the remaining unearned premium is generally earned at
that time, as the risk to AMBAC Indemnity is considered to have been
eliminated.
AMBAC Indemnity Corporation and Subsidiaries
Notes to Consolidated Financial Statements -- (Continued)
(Dollar Amounts in Thousands)
LOSSES AND LOSS ADJUSTMENT EXPENSES:
The liability for losses and loss adjustment expenses consists of the
Active Credit Reserve ("ACR") and case basis loss reserves. The development
of the ACR is based upon estimates of the ultimate aggregate losses inherent
in the obligations insured and reflects the net result of contributions
related to the portion of earnings required to cover those losses, less
reductions of ACR no longer deemed necessary by management. When losses occur
(actual monetary defaults or defaults which are imminent on insured
obligations), case basis loss reserves are established in an amount that
is sufficient to cover the present value of the anticipated defaulted debt
service payments over the expected period of default and estimated expenses
associated with settling the claims, less estimated recoveries under salvage
or subrogation rights. All or part of case basis loss reserves are allocated
from any ACR available for such insured obligation.
AMBAC Indemnity's management believes that the reserves for losses and
loss adjustment expenses are adequate to cover the ultimate net cost of
claims, but the reserves are necessarily based on estimates and there can
be no assurance that the ultimate liability will not exceed such estimates.
DEFERRED ACQUISITION COSTS:
Certain costs incurred which vary with, and are primarily related to,
the production of business have been deferred. These costs include direct and
indirect expenses related to underwriting, marketing and policy issuance,
rating agency fees and premium taxes, net of reinsurance ceding commissions.
The deferred acquisition costs are being amortized over the periods in which
the related premiums are earned, and such amortization amounted to $10,183,
$9,348 and $12,120 for 1995, 1994 and 1993, respectively. Deferred acquisition
costs, net of such amortization, amounted to $10,845, $20,757 and $7,059 for
1995, 1994 and 1993, respectively.
DEPRECIATION AND AMORTIZATION:
Depreciation of furniture and fixtures and electronic data processing
equipment is provided over the estimated useful lives of the respective
assets using the straight-line method. Amortization of leasehold improvements
and intangibles, including certain computer software licenses, is provided
over the estimated useful lives of the respective assets using the straight-
line method.
INTEREST RATE CONTRACTS:
Interest Rate Contracts Held for Purposes Other Than Trading:
AMBAC Indemnity uses interest rate contracts for hedging purposes as
part of its overall interest rate risk management. Gains and losses on
interest rate futures and options contracts that qualify as accounting hedges
of existing assets or liabilities are included in the carrying amounts and
amortized over the remaining lives of the assets and liabilities as an
adjustment to interest income. When the hedged asset is sold, the unamortized
gain or loss on the related hedge is recognized in income. Gains and losses on
interest rate contracts that do not qualify as accounting hedges are recognized
in current period income.
AMBAC Indemnity accounts for its interest rate futures contracts in
accordance with the provisions of Statement of Financial Accounting Standards
No. 80, "Accounting For Futures Contracts" ("Statement 80"). Statement 80
permits hedge accounting for interest rate futures contracts when the item
to be hedged exposes the Company to price or interest rate risk, and the
futures contract effectively reduces that exposure and is designated as a
hedge. Interest rate futures contracts held for purposes other than trading
are used primarily to hedge interest sensitive assets, and are designated at
inception as a hedge to specific assets.
AMBAC Indemnity Corporation and Subsidiaries
Notes to Consolidated Financial Statements -- (Continued)
(Dollar Amounts in Thousands)
Interest rate swaps that are linked with existing liabilities are
accounted for like a hedge of those liabilities, using the accrual method
as an adjustment to interest expense. Interest rate swaps that are linked
with existing assets classified as available-for-sale are accounted for
like hedges of those assets, using the accrual method as an adjustment
to interest income, with unrealized gains and losses included in
stockholder's equity, net of tax.
Interest Rate Contracts Held for Trading Purposes:
AMBAC Indemnity, in connection with its market making activities as a
provider of interest rate swaps, primarily to states, municipalities,
municipal authorities and other entities in connection with their financings,
uses interest rate contracts which are classified as held for trading
purposes. Interest rate contracts are recorded on trade date at fair value.
Changes in fair value are recorded as a component of other income. The fair
value of interest rate swaps is determined through the use of valuation
models. The portion of the interest rate swap's initial fair value that
reflects credit considerations, on-going servicing and transaction hedging
costs is recognized over the life of the interest rate swap, as an adjustment
to other income. Interest rate swaps are recorded on a gross basis; assets
and liabilities are netted by customer only when a legal right of set-off
exists.
INCOME TAXES:
AMBAC Inc., as common parent, files a consolidated Federal income tax
return with its subsidiaries. Effective January 1, 1993, AMBAC Indemnity
adopted Statement of Financial Accounting Standards No. 109, "Accounting
for Income Taxes" ("Statement 109"). Under Statement 109, deferred tax
assets and liabilities are recognized for the future tax consequences
attributable to differences between the financial statement carrying
amounts of existing assets and liabilities and their respective tax bases.
Deferred tax assets and liabilities are measured using enacted tax rates
expected to apply to taxable income in the years in which those temporary
differences are expected to be recovered or settled. The effect on
deferred tax assets and liabilities of a change in tax rates is recognized
in the period that includes the enactment date.
The cumulative effect of this change in accounting for income taxes
resulted in an increase to net income for 1993 of $1,162 and an increase to
additional paid-in capital of $4,708. The adjustment to additional paid-in
capital reflects Statement 109 adjustments for prior business combinations.
The Internal Revenue Code permits municipal bond insurance companies to
deduct from taxable income, subject to certain limitations, the amounts added
to the statutory mandatory contingency reserve during the year. The deduction
taken is allowed only to the extent that U.S. Treasury noninterest-bearing tax
and loss bonds are purchased at their par value prior to the original due date
of AMBAC Inc.'s consolidated Federal tax return and held in an amount equal to
the tax benefit attributable to such deductions. The amounts deducted must be
included in taxable income when the contingency reserve is released, at which
time AMBAC Indemnity may redeem the tax and loss bonds to satisfy the
additional tax liability. The purchases of tax and loss bonds are recorded as
payments of Federal income taxes and are not reflected in AMBAC Indemnity's
current tax provision.
POSTRETIREMENT AND POSTEMPLOYMENT BENEFITS:
AMBAC Inc., through its subsidiaries, provides various postretirement
and postemployment benefits, including pension, and health and life benefits
covering substantially all employees who meet certain age and service
requirements. AMBAC Indemnity accounts for these benefits under the accrual
method of accounting. Amounts related to the defined benefit pension plan and
postretirement health benefits are charged based on actuarial determinations.
AMBAC Indemnity Corporation and Subsidiaries
Notes to Consolidated Financial Statements -- (Continued)
(Dollar Amounts in Thousands)
Effective January 1, 1993, AMBAC Indemnity adopted Statement of
Financial Accounting Standards No. 106, "Employers' Accounting for
Postretirement Benefits Other Than Pensions" ("Statement 106"). Statement
106 requires that the expected cost of postretirement benefits, other
than pensions, be charged to expense during the period that the employee
renders service. AMBAC Indemnity elected to recognize the transition
obligation immediately and recorded a charge of $465, after reduction
of $240 for income tax benefits, as a cumulative effect of a change in
accounting principle as of the date of adoption.
Effective January 1, 1993, AMBAC Indemnity adopted Statement of
Financial Accounting Standards No. 112, "Employers' Accounting for
Postemployment Benefits" ("Statement 112"), which, similar to Statement
106, requires accrual of a liability representing the cost of certain
benefits earned by employees over their employment period. Statement 112
applies to vested benefits provided to former or inactive employees, their
beneficiaries and covered dependents, after employment but before retirement.
In adopting Statement 112, AMBAC Indemnity recorded a charge of $801, after
reduction for income tax benefits of $429, as a cumulative effect of a
change in accounting principle as of the date of adoption.
STOCK COMPENSATION PLANS:
In 1991, AMBAC Inc. adopted the AMBAC Inc. 1991 Stock Incentive Plan.
Under this plan awards are granted to eligible employees of AMBAC Indemnity
in the form of incentive stock options or other stock-based awards. In October
1995, the Financial Accounting Standards Board issued Statement of Financial
Accounting Standards No. 123, "Accounting for Stock-Based Compensation"
("Statement 123") which must be adopted no later than 1996. Statement 123
applies to all stock-based employee compensation plans (except employee stock
ownership plans) in which an employer grants shares of its stock or other
equity instruments to employees. Statement 123 permits a company to choose
either the fair value based method of accounting as defined in the statement
or the intrinsic value based method of accounting as prescribed by APB
Opinion No. 25, "Accounting for Stock Issued to Employees" ("APB 25") for
its stock-based compensation plans. Companies electing the accounting
requirements under APB 25 must also make pro forma disclosures of net income
and earnings per share as if the fair value based method of accounting had
been applied. AMBAC Indemnity currently accounts for its plans under APB 25
and intends to continue to do so after adopting Statement 123 in 1996. The
adoption of Statement 123 is expected to have no effect on AMBAC Indemnity's
results of operations.
RECLASSIFICATIONS:
Certain reclassifications have been made to prior years' amounts to
conform to the current year's presentation.
AMBAC Indemnity Corporation and Subsidiaries
Notes to Consolidated Financial Statements -- (Continued)
(Dollar Amounts in Thousands)
3 INVESTMENTS
The amortized cost and estimated fair value of investments in debt
securities at December 31, 1995 and 1994 were as follows:
<TABLE>
<CAPTION>
Gross Gross
Unrealized Estimated Amortized Unrealized
Losses Fair Value Cost Gains
---------- ----------- ---------- ----------
<S> <C> <C> <C> <C>
1995
Municipal obligations........................ $1,558,754 $ 98,090 $ 2,428 $1,654,416
Corporate securities......................... 261,492 30,785 3,263 289,014
U.S. Government obligations.................. 214,224 8,796 621 222,399
Mortgage-backed securities (including
GNMA)...................................... 55,631 3,362 294 58,699
Other........................................ 163,953 -- -- 163,953
---------- ---------- ---------- ----------
$2,254,054 $ 141,033 $ 6,606 $2,388,481
========= ======== ======== =========
Gross Gross
Amortized Unrealized Unrealized Estimated
Cost Gains Losses Fair Value
---------- ---------- ---------- ----------
1994
Municipal obligations........................ $1,505,501 $ 23,009 $ 80,935 $1,447,575
Corporate securities......................... 228,992 2,336 11,501 219,827
U.S. Government obligations.................. 61,906 311 1,797 60,420
Mortgage-backed securities (including
GNMA)...................................... 70,251 1,325 2,140 69,436
Other........................................ 83,902 -- -- 83,902
---------- ---------- ---------- ----------
$1,950,552 $ 26,981 $ 96,373 $1,881,160
========= ======== ======== =========
</TABLE>
The amortized cost and estimated fair value of debt securities at
December 31, 1995, by contractual maturity, were as follows:
<TABLE>
<CAPTION>
Amortized Estimated
Cost Fair Value
---------- ------------
<S> <S> <S>
1995
Due in one year or less.................... $ 223,069 $ 223,949
Due after one year through five years........ 168,417 181,772
Due after five years through ten years....... 302,601 315,385
Due after ten years.......................... 1,504,336 1,608,676
---------- ----------
2,198,423 2,329,782
Mortgage-backed securities.................. 55,631 58,699
---------- ----------
$2,254,054 $2,388,481
========= =========
</TABLE>
Expected maturities will differ from contractual maturities because
borrowers may have the right to call or prepay obligations with or without
call or prepayment penalties.
<TABLE>
AMBAC Indemnity Corporation and Subsidiaries
Notes to Consolidated Financial Statements -- (Continued)
(Dollar Amounts in Thousands)
Net investment income comprised the following:
<CAPTION>
<S> <C> <C> <C>
1995 1994 1993
------ ------ ------
Bonds.............................. $127,865 $118,685 $102,020
Short-term investments............. 6,116 3,512 4,278
-------- -------- --------
Total investment income............ 133,981 122,197 106,298
Investment expense................. (2,485) (2,460) (1,689)
-------- -------- --------
Net investment income.............. $131,496 $119,737 $104,609
======== ======== ========
</TABLE>
Gross realized gains were $27,786, $26,514 and $42,217 for 1995, 1994
and 1993, respectively, and gross realized losses were $27,609, $39,900 and
$12,072 for 1995, 1994 and 1993, respectively.
As of December 31, 1995, AMBAC Indemnity did not have any investment
concentrated in any single repayment source (excluding obligations of the
U.S. Government and its agencies) with a fair value greater than 2.0% of its
stockholder's equity.
As of December 31, 1995 and 1994, AMBAC Indemnity held securities
subject to agreements to resell for $4,120 and $8,011, respectively. Such
securities were held as collateral by AMBAC Indemnity. The agreements had
terms of less than 30 days.
As of December 31, 1995 and 1994, investment securities with a fair
value of $4,583 and $3,948, respectively, were pledged to futures brokers for
required margin.
4 REINSURANCE
In the ordinary course of business, AMBAC Indemnity cedes exposures
under various reinsurance contracts primarily designed to minimize losses from
large risks and to protect capital and surplus. The effect of reinsurance on
premiums written and earned was as follows:
<TABLE>
<CAPTION>
Year Ended December 31,
-------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
1995 1994 1993
--------------------- --------------------- ---------------------
Written Earned Written Earned Written Earned
-------- ------- -------- ------- -------- -------
Direct.............. $192,277 $127,322 $188,057 $136,632 $321,179 $181,320
Assumed............. 2,756 1,349 4,541 1,325 311 311
Ceded............... (28,606) (15,088) 2,815 (18,621) (35,810) (28,813)
--------- --------- -------- -------- --------- --------
Net premiums........ $166,427 $113,583 $195,413 $119,336 $285,680 $152,818
======= ======= ======== ======== ======= =======
</TABLE>
The reinsurance of risk does not relieve the ceding insurer of its
original liability to its policyholders. In the event that all or any of the
reinsurers are unable to meet their obligations to AMBAC Indemnity under the
existing reinsurance agreements, AMBAC Indemnity would be liable for such
defaulted amounts. To minimize its exposure to significant losses from
reinsurer insolvencies, AMBAC Indemnity evaluates the financial condition of
its reinsurers and monitors concentrations of credit risk. There were no
reinsurance receivables as of December 31, 1995 and 1994. As of December 31,
1995, prepaid reinsurance of approximately $48,120 was associated with a
single reinsurer. As of December 31, 1995, AMBAC Indemnity held letters of
credit and collateral amounting to approximately $90,643 from its
reinsurers to cover liabilities ceded under the aforementioned reinsurance
contracts.
AMBAC Indemnity terminated reinsurance contracts, resulting in return
premiums to AMBAC Indemnity of $18,141, $30,482 and $36,461 of which $15,700,
$25,891 and $31,010 were recorded as an increase to the unearned premium
reserve in 1995, 1994 and 1993, respectively, with the remainder
recognized as revenue.
5 LOSSES AND LOSS ADJUSTMENT EXPENSES
AMBAC Indemnity's liability for losses and loss adjustment expenses
includes case basis loss reserves and the ACR. Following is a summary of the
activity in the case basis loss and active credit reserve accounts and the
components of the liability for losses and loss adjustment expenses:
<TABLE>
<CAPTION>
<S> <C> <C> <C>
1995 1994 1993
------ ------ ------
Case basis loss reserves:
Balance at January 1......................... $38,892 $35,155 $28,321
------- ------- --------
Incurred related to:
Current year............................... 750 8,073 6,630
Prior years................................ 2,650 (3,368) (926)
------- ------- --------
Total incurred.......................... 3,400 4,705 5,704
------- ------- --------
Paid related to:
Current year............................... 150 275 315
Prior years................................ 2,893 693 (1,445)
------- ------- --------
Total paid.............................. 3,043 968 (1,130)
------- ------- --------
Balance at December 31....................... 39,249 38,892 35,155
------- ------- --------
Active credit reserve:
Balance at January 1......................... 26,770 28,882 36,434
Net provision for losses..................... 4,097 4,422 6,709
ACR transfers to case reserves............... (4,120) (6,534) (14,261)
------- ------- --------
Balance at December 31....................... 26,747 26,770 28,882
------- ------- --------
Total................................... $65,996 $65,662 $64,037
======= ======= ========
</TABLE>
The terms "current year" and "prior years" in the foregoing table refer
to the year in which case basis loss reserves were established.
6 COMMITMENTS AND CONTINGENCIES
AMBAC Indemnity is responsible for leases on the rental of office space,
principally in New York City. The lease agreements which expire periodically
through September 2014, contain provisions for scheduled periodic rent
increases and are accounted for as operating leases. An estimate of future
net minimum lease payments in each of the next five years ending
December 31, and the periods thereafter, is as follows:
<TABLE>
<CAPTION>
<S> <C>
Year Amount
- ---- ______
1996......................... $ 3,042
1997......................... 3,073
1998......................... 3,359
1999......................... 3,650
2000......................... 3,650
All later years.............. 53,880
-------
$70,654
=======
</TABLE>
Rent expense for the aforementioned leases amounted to $2,924, $2,719
and $2,778 for the years ended December 31, 1995, 1994 and 1993, respectively.
7 INSURANCE REGULATORY RESTRICTIONS
AMBAC Indemnity is subject to insurance regulatory requirements of the
States of Wisconsin, New York and the other jurisdictions in which it is
licensed to conduct business.
AMBAC Indemnity's ability to pay dividends is generally restricted by
law and subject to approval by the Office of the Commissioner of Insurance of
The State of Wisconsin (the "Wisconsin Commissioner"). Wisconsin insurance law
restricts the payment of dividends in any 12-month period without regulatory
approval to the lesser of (a) 10% of policyholders' surplus as of the
preceding December 31 and (b) the greater of (i) statutory net income for the
calendar year preceding the date of dividend, minus realized capital gains for
that calendar year and (ii) the aggregate of statutory net income for three
calendar years preceding the date of the dividend, minus realized capital gains
for those calendar years and minus dividends paid or credited within the first
two of the three preceding calendar years. AMBAC Indemnity paid dividends of
$40,000, $36,000 and $33,000 on its common stock in 1995, 1994 and 1993,
respectively. Based upon these restrictions, at December 31, 1995, the maximum
amount that will be available during 1996 for payment of dividends by AMBAC
Indemnity without prior approval is approximately $86,000.
However, as discussed in Note 15, AMBAC Indemnity, upon consummation of
the proposed PRIDES offering will deliver to AMBAC Inc. (in the form of an
extraordinary dividend) its 2,378,672 shares of HCIA common stock, at fair
value. The Wisconsin Commissioner has approved such dividend. The fair value
of such dividend will be determined based on the price per share of HCIA common
stock used to price the PRIDES. As a result, any dividends paid by AMBAC
Indemnity to AMBAC Inc. for the twelve months following the extraordinary
dividend will require pre-approval from the Wisconsin Commissioner. The
Wisconsin Commissioner has stated to AMBAC Indemnity management that it does
not foresee any reason such pre-approval would not be given.
The New York Financial Guarantee Insurance Law establishes single risk
limits applicable to all obligations issued by a single entity and backed by
a single revenue source. Under the limit applicable to municipal bonds, the
insured average annual debt service for a single risk, net
of reinsurance and collateral, may not exceed 10% of the sum of the insurer's
policyholders' surplus and contingency reserves. In addition, insured
principal of municipal bonds attributable to any single risk, net of
reinsurance and collateral, is limited to 75% of the insurer's policyholders'
surplus and contingency reserves. Additional single risk limits, which
generally are more restrictive than the municipal bond single risk limit, are
also specified for several other categories of insured obligations.
Statutory capital and surplus was $862,976 and $781,772 at December 31,
1995 and 1994, respectively. Qualified statutory capital (statutory surplus
plus contingency reserve) was $1,358,769 and $1,218,204 at December 31, 1995
and 1994, respectively. Statutory net income was $142,541, $116,238 and
$166,157 for 1995, 1994 and 1993, respectively. Statutory capital and surplus
differs from stockholder's equity determined under GAAP principally due to
statutory accounting rules that treat loss reserves, premiums earned, policy
acquisition costs and deferred income taxes differently.
8 INCOME TAXES
The total effect of income taxes on income and stockholder's equity for
the years ended December 31, 1995 and 1994 was as follows:
<TABLE>
<CAPTION>
<S> <C> <C>
1995 1994
----- -----
Total income taxes charged to income.......... $43,546 $42,563
-------- --------
Income taxes charged (credited) to stockholder's
equity:
Unrealized gain (loss) on bonds............. 71,722 (61,480)
Unrealized gain on investment in affiliate.. 602 --
Other..................................... (682) (116)
-------- --------
Total charged (credited) to stockholder's
equity................................... 71,642 (61,596)
-------- --------
Total effect of income taxes.................... $115,188 $(19,033)
======== ========
</TABLE>
The tax provisions in the accompanying consolidated statements of
operations reflect effective tax rates differing from prevailing Federal
corporate income tax rates. The following is a reconciliation of these
differences:
<TABLE>
<CAPTION>
1995 % 1994 % 1993 %
-------- ----- -------- ---- -------- ----
<S> <C> <C> <C> <C> <C> <C>
Computed expected tax at
statutory rate............... $ 72,920 35.0% $ 67,412 35.0% $ 89,610 35.0%
Increases (reductions) in
expected tax resulting from:
Tax-exempt interest........ (28,274) (13.6) (26,336) (13.7) (21,043) (8.2)
Adjustment to deferred tax
assets and liabilities
for enacted changes in
tax laws and rates...... -- -- -- -- 754 0.3
Other, net................. (1,100) (0.5) 1,487 0.8 1,155 0.4
------- ----- ------- ---- ------- ----
Income tax expense on income from
continuing operations.......... $ 43,546 20.9% $ 42,563 22.1% $ 70,476 27.5%
======= ===== ======= ==== ======= ====
</TABLE>
AMBAC Indemnity Corporation and Subsidiaries
Notes to Consolidated Financial Statements -- (Continued)
(Dollar Amounts in Thousands)
The tax effects of temporary differences that give rise to significant
portions of the deferred tax liabilities and deferred tax assets at December
31, 1995 and 1994 are presented below:
<TABLE>
<CAPTION>
1995 1994
-------- -------
<S> <C> <C>
Deferred tax liabilities:
Unrealized gains on bonds............................ $ 46,906 $ --
Deferred acquisition costs........................... 28,917 25,121
Unearned premiums.................................... 22,079 14,522
Unrealized gain on investment in affiliate........... 602 --
Investments.......................................... 2,911 796
Other................................................ 1,996 1,613
------- -------
Total deferred tax liabilities.............. 103,411 42,052
------- -------
Deferred tax assets:
Unrealized loss on bonds............................. -- 24,816
Loss reserves........................................ 9,631 9,733
Insurance in force................................... 2,870 3,205
Compensation......................................... 2,418 2,812
Other................................................ 3,484 3,264
------- -------
Sub-total deferred tax assets............... 18,403 43,830
Valuation allowance.................................. -- --
------- -------
Total deferred tax assets................... 18,403 43,830
------- -------
Net deferred tax (liabilities) assets....... $(85,008) $1,778
======= =======
</TABLE>
AMBAC Indemnity believes that no valuation allowance is necessary in
connection with the deferred tax assets.
9 EMPLOYEE BENEFITS
Pensions:
AMBAC Inc. has a defined benefit pension plan covering substantially all
employees of AMBAC Indemnity and AFS. The benefits are based on years of
service and the employee's compensation during the last five years of
employment. AMBAC Indemnity's funding policy is to contribute annually
the maximum amount that can be deducted for Federal income tax purposes.
Contributions are intended to provide not only for benefits attributed to
service-to-date but also for those expected to be earned in the future.
The actuarial present value of the benefit obligations shown in the
table below sets forth the plan's funded status and amounts recognized by
AMBAC Inc. as of December 31, 1995 and 1994.
AMBAC Indemnity Corporation and Subsidiaries
Notes to Consolidated Financial Statements -- (Continued)
(Dollar Amounts in Thousands)
Actuarial present value of the benefit obligations:
<TABLE> 1995 1994
------- -------
<S> <C> <C>
Accumulated benefit obligation, including vested benefits of
$6,049 and $4,300, respectively................................ $(6,788) $(5,000)
======= =======
Projected benefit obligation for service rendered to date........ (7,800) (5,500)
Plan assets at fair value, primarily listed stocks, commingled
funds and fixed income securities.............................. 7,054 4,898
- ------- -------
Unfunded projected benefit....................................... (746) (602)
Unrecognized prior service cost.................................. (1,784) (1,950)
Unrecognized net loss............................................ 1,906 1,412
Unrecognized net transition asset................................ (12) (15)
------- -------
Pension liability -- entire plan................................. $ (636) $(1,155)
======= =======
</TABLE>
Net pension costs for 1995, 1994 and 1993 included the following
components:
<TABLE>
<CAPTION>
1995 1994 1993
------- ----- -----
<S> <C> <C> <C>
Service cost............................................. $ 541 $ 558 $ 447
Interest cost on expected benefit obligation............. 456 386 297
Actual return on plan assets............................. (1,333) 30 (390)
Net amortization and deferral............................ 760 (547) (149)
------- ----- -----
Net periodic pension cost................................ $ 424 $427 $ 205
======= ===== =====
</TABLE>
The weighted-average discount rate used in the determination of the
actuarial present value for the projected benefit obligation was 7.25% and
8.0% for 1995 and 1994, respectively. The expected long-term rate of return
on assets was 9.25% for both 1995 and 1994. The rate of increase in future
compensation levels used in determining the actuarial present value of the
projected benefit obligation was 5.0% in both 1995 and 1994.
Substantially all employees of AMBAC Indemnity and AFS are covered by
a defined contribution plan (the "Savings Incentive Plan") for which
contributions and costs are determined as 6% of each covered employee's base
salary, plus a matching company contribution of 50% on contributions up to
6% of base salary made by eligible employees to the plan. The total cost of
the Savings Incentive Plan to AMBAC Indemnity was $1,435, $1,292 and $1,243
in 1995, 1994 and 1993, respectively.
Annual Incentive Plan:
AMBAC Indemnity has an annual incentive plan which provides for awards
to key officers and employees based upon predetermined criteria. The cost of
the plan to AMBAC Indemnity for the years ended December 31, 1995, 1994 and
1993 was $7,669, $8,531 and $6,165, respectively.
Postretirement Health Care and Other Benefits:
AMBAC Indemnity provides certain medical and life insurance benefits for
retired employees and eligible dependents. All plans are contributory. None
of the plans is currently funded.
AMBAC Indemnity Corporation and Subsidiaries
Notes to Consolidated Financial Statements -- (Continued)
(Dollar Amounts in Thousands)
Postretirement benefits expense was $168, $176 and $500 in 1995, 1994
and 1993, respectively. The unfunded accumulated postretirement benefit
obligation was $1,309 and the accrued postretirement liability was $1,368
as of December 31, 1995.
The assumed weighted average health care cost trend rates range from
13.5% in 1995, decreasing ratably to 5.5% in 2001, and remaining at that
level thereafter. Increasing the assumed health care cost trend rate by one
percentage point in each future year would increase the accumulated
postretirement benefit obligation at December 31, 1995 by $174 and the
1995 benefit expense by $28. The weighted average discount rate used to
measure the accumulated postretirement benefit obligation and 1995 expense
was 7.25%.
10 INSURANCE IN FORCE
The par amount of bonds insured by AMBAC Indemnity, net of reinsurance,
was $110,997,000 and $93,305,000 at December 31, 1995 and 1994, respectively.
As of December 31, 1995, AMBAC Indemnity's insured portfolio was diversified
by type of insured bond as shown in the following table:
<TABLE>
<CAPTION>
Net Par Amount
Outstanding
--------------------
(Dollars in Millions) As of December 31 1995 1994
-------- -------
<S> <C> <C>
Municipal finance:
General obligation........................... $ 30,546 $26,674
Utility revenue.............................. 21,053 19,597
Tax-backed revenue........................... 18,780 16,279
Health care revenue.......................... 12,553 10,922
Transportation revenue....................... 6,293 5,397
Investor Owned Utilities..................... 4,497 3,500
Higher education............................. 3,973 3,447
Student loan................................. 3,769 2,709
Housing revenue.............................. 3,577 2,567
Other........................................ 483 403
-------- -------
Total Municipal finance................... 105,524 91,495
-------- -------
Structured finance:
Domestic..................................... 3,238 902
International................................ 2,235 908
-------- -------
Total Structured finance.................. 5,473 1,810
-------- -------
$110,997 $93,305
========= =======
</TABLE>
As of December 31, 1995, California was the state with the highest
aggregate net par amount inforce, accounting for 14.3% of the total, and the
highest single insured risk represented 0.6% of aggregate net par amount
insured. AMBAC Indemnity's direct insurance in force (principal and interest)
was $235,118,000 and $205,810,000, at December 31, 1995 and 1994,
respectively. Net insurance in force (after giving effect to reinsurance) was
$199,078,000 and $171,678,000 as of December 31, 1995 and 1994, respectively.
AMBAC Indemnity Corporation and Subsidiaries
Notes to Consolidated Financial Statements -- (Continued)
(Dollar Amounts in Thousands)
11 FINANCIAL INSTRUMENTS HELD FOR PURPOSES OTHER THAN TRADING
Financial instruments with off-balance-sheet risk:
In the normal course of business, AMBAC Indemnity becomes a party to
various financial transactions to reduce its exposure to fluctuations in
interest rates. These financial instruments include an interest rate swap
agreement and exchange traded interest rate futures contracts. The notional
amounts of AMBAC Indemnity's off-balance-sheet financial instruments which
are held for purposes other than trading were as follows:
<TABLE>
<CAPTION>
As of December 31,
--------------------
1995 1994
------- --------
<S> <C> <C>
Interest rate futures contracts................ $44,500 $164,200
Interest rate swap............................. 20,000 20,000
</TABLE>
Notional principal amounts are often used to express the volume of these
transactions and do not reflect the extent to which positions may offset one
another. These amounts do not represent the much smaller amounts potentially
subject to risk.
Interest rate futures contracts are sold to hedge interest rate risk
inherent in fixed rate investment securities. At December 31, 1995, interest
rate futures contracts with an outstanding notional amount of $44,500 were
designated as hedges of fixed rate investment securities.
The interest rate swap held for purposes other than trading is used to
manage interest rate risk by synthetically changing the nature of certain
floating rate investments.
Fair values of financial instruments held for purposes other than
trading:
The following fair value amounts were determined by AMBAC Indemnity
using independent market information when available, and appropriate valuation
methodologies when market quotes were not available. In cases where specific
market quotes are unavailable, interpreting market data and estimating market
values necessarily require considerable judgment by management. Accordingly,
the estimates presented are not necessarily indicative of the amount AMBAC
Indemnity could realize in a current market exchange.
The following methods and assumptions were used to estimate the fair
value of each class of financial instruments for which it is practicable to
estimate that value:
Investments: The fair values of bonds are based on quoted market prices
or dealer quotes.
Short-term investments and cash: The fair values of short-term
investments and cash are assumed to equal amortized cost.
Securities purchased under agreements to resell: The fair value of
securities purchased under agreements to resell is assumed to approximate
carrying value.
Investment in affiliate: As of December 31, 1995, the fair value of
AMBAC Indemnity's investment in HCIA is based on the quoted market price of
HCIA common stock. As of December 31, 1994, the fair value of AMBAC
Indemnity's investment in HCIA was assumed to equal carrying value.
Interest rate contracts: Fair values of off-balance-sheet interest rate
contracts (futures and swap) are based on quoted market and dealer prices,
current settlement values, or pricing models.
AMBAC Indemnity Corporation and Subsidiaries
Notes to Consolidated Financial Statements -- (Continued)
(Dollar Amounts in Thousands)
Liability for net financial guarantees written: The fair value of the
liability for those financial guarantees written related to new issue and
secondary market exposures is based on the estimated cost to reinsure those
exposures at current market rates, which amount consists of the current
unearned premium reserve, less an estimated ceding commission thereon.
Certain other financial guarantee insurance policies have been written
on an installment basis, where the future premiums to be received by AMBAC
Indemnity are determined based on the outstanding exposure at the time the
premiums are due. The fair value of AMBAC Indemnity's liability under its
installment premium policies is measured using the present value of estimated
future installment premiums, less an assumed ceding commission. The estimate
of the amounts and timing of the future installment premiums is based on
contractual premium rates, debt service schedules and expected run-off
scenarios. This measure is used as an estimate of the cost to reinsure AMBAC
Indemnity's liability under these policies. The carrying amount and estimated
fair value of these financial instruments are presented below:
<TABLE>
As of December 31,
---------------------------------------------------
1995 1994
----------------------- -------------------------
Carrying Estimated Carrying Estimated
(Dollars in Millions) Amount Fair Value Amount Amount
-------- ---------- -------- -----------
<S> <C> <C> <C> <C>
Financial assets:
Investments........................ $2,225 $2,225 $1,796 $1,796
Short-term investments............. 164 164 85 85
Securities purchased under
agreements to resell............. 4 4 8 8
Investment in affiliate............ 26 111 25 25
Cash............................... 7 7 2 2
Unrecognized financial instruments:
Interest rate swap................. -- -- -- (1)
Interest rate futures contracts.... -- -- -- --
Liability for net financial
guarantees
Direct........................... -- 655 -- 609
Net of reinsurance............... -- 543 -- 507
Net installment premiums......... -- 80 -- 51
</TABLE>
12 FINANCIAL INSTRUMENTS HELD FOR TRADING PURPOSES
AMBAC Indemnity, through its affiliate AFS, is a provider of interest
rate swaps to states, municipalities, municipal authorities and other
entities, including its affiliate, AMBAC Capital Management, Inc. ("ACMI"),
in connection with their financings. AMBAC Indemnity manages its interest
rate swap business with the goal of being market neutral to changes in
overall interest rates, while retaining "basis risk", the relationship
between changes in floating rate tax-exempt and floating rate taxable
interest rates. If actual or projected floating rate tax-exempt interest
rates rise in relation to floating rate taxable rates, AMBAC Indemnity will
experience an unrealized mark-to-market loss. Conversely, if actual or
projected floating rate tax-exempt interest rates decline in relation to
floating rate taxable interest rates, AMBAC Indemnity will experience an
unrealized mark-to-market gain.
AMBAC Indemnity Corporation and Subsidiaries
Notes to Consolidated Financial Statements -- (Continued)
(Dollar Amounts in Thousands)
In the ordinary course of business, AMBAC Indemnity manages a variety
of risks -- principally credit, market, liquidity, operational and legal.
These risks are identified, measured and monitored through a variety of
control mechanisms, which are in place at different levels throughout the
organization.
Credit risk relates to the ability of counterparties to perform
according to the terms of their contractual commitments. Various procedures
and controls are in place to monitor the credit risk of interest rate swaps.
These include the initial credit approval process, the establishment of credit
limits, management approvals and a process that ensures the continuous
monitoring of credit exposure.
Market risk relates to the impact of price changes on future earnings.
This risk is a consequence of AMBAC Indemnity's market-making activities in
the municipal interest rate swap market. The principal market risk is basis
risk, the relationship between changes in floating rate tax-exempt and
floating rate taxable interest rates. Since the third quarter of 1995, all
municipal interest rate swaps transacted contain provisions which are designed
to protect AMBAC Indemnity against certain forms of tax reform, thus mitigating
its basis risk. An independent risk management group monitors trading risk
limits and, together with senior management, is involved in the application
of risk measurement methodologies.
The estimation of potential losses arising from adverse changes in
market relationships, known as "value at risk," is a key element in managing
market risk. AMBAC Indemnity has developed a value at risk methodology to
estimate potential losses over a specified holding period and based on
certain probabilistic assessments. AMBAC Indemnity estimates value at risk
utilizing historical short and long term interest rate volatilities and the
relationship between changes in tax-exempt and taxable interest rates
calculated on a consistent daily basis. For the year ended December 31, 1995,
AMBAC Indemnity's value at risk averaged approximately $1,358, calculated at
a ninety-nine percent confidence level. Since no single measure can capture
all dimensions of market risk, AMBAC Indemnity bolsters its value at risk
methodology by performing daily analyses of parallel and nonparallel shifts
in yield curves and stress test scenarios which measure the potential impact
of market conditions, however improbable, which might cause abnormal
volatility swings or disruptions of market relationships.
Liquidity risk relates to the possible inability to satisfy contractual
obligations when due. This risk is present in interest rate swap agreements
and in futures contracts used to hedge those agreements. AMBAC Indemnity
manages liquidity risk by maintaining cash and cash equivalents, closely
matching the dates swap payments are made and received and limiting the
amount of risk hedged by futures contracts.
Operational risk relates to the potential for loss caused by a breakdown
in information, communication and settlement systems. AMBAC Indemnity
mitigates operational risk by maintaining a comprehensive system of internal
controls. This includes the establishment of systems and procedures to
monitor transactions and positions, documentation and confirmation of
transactions, ensuring compliance with regulations and periodic reviews by
auditors.
Legal risk relates to the uncertainty of the enforceability, through
legal or judicial processes, of the obligations of AMBAC Indemnity's
counterparties, including contractual provisions intended to reduce credit
exposure by providing for the offsetting or netting of mutual obligations.
AMBAC Indemnity seeks to remove or minimize such uncertainties through
continuous consultation with internal and external legal advisers to analyze
and understand the nature of legal risk, to improve documentation and to
strengthen transaction structure.
AMBAC Indemnity Corporation and Subsidiaries
Notes to Consolidated Financial Statements -- (Continued)
(Dollar Amounts in Thousands)
The following table summarizes information about AMBAC Indemnity's
financial instruments held for trading purposes as of December 31, 1995 and
1994:
<TABLE>
<CAPTION>
Net Net Average Net Fair Value
Carrying Estimated ----------------------- Notional
Amount Fair Value Assets Liabilities Amount
-------- ---------- ------- ----------- ----------
<S> <C> <C> <C> <C> <C>
1995:
Interest rate
swaps............ $5,207 $5,207 $17,714 $16,667 $2,152,400
Interest rate
futures
contracts........ -- -- -- -- 569,800
1994:
Interest rate
swaps............ $1,681 $1,681 $ 4,441 $ 3,560 $ 771,900
Interest rate
futures
contracts........ -- -- -- -- 443,000
</TABLE>
The aggregate amount of net trading income recognized from interest rate
financial instruments held for trading purposes was $2,602 and $3,051 for
1995 and 1994, respectively. Average net fair values were calculated based on
average daily net fair values. For 1994, average net fair values began from
the commencement of operations in September 1994.
Notional principal amounts are often used to express the volume of these
transactions and do not reflect the extent to which positions may offset one
another. These amounts do not represent the much smaller amounts potentially
subject to risk.
13 LINES OF CREDIT
AMBAC Inc. and AMBAC Indemnity maintain a three-year revolving credit
facility with two major international banks, as co-agents, for $100,000. As
of December 31, 1995, no amounts were outstanding under this credit facility,
which expires in July 1998. This facility amended a one-year revolving credit
facility for $75,000. As of December 31, 1994, no amounts were outstanding
under this credit facility.
AMBAC Indemnity has an agreement with another major international bank,
as agent, for a $300,000 credit facility, expiring in 2002. This facility is
a seven-year stand-by irrevocable limited recourse line of credit, which was
increased from $225,000 to $300,000 and extended for an additional year in
December 1995. The line will provide liquidity to AMBAC Indemnity in the
event claims from municipal obligations exceed specified levels. Repayment
of any amounts drawn under the line will be limited primarily to the amount
of any recoveries of losses related to policy obligations. As of December 31,
1995 and 1994, no amounts were outstanding under this line.
14 RELATED PARTY TRANSACTIONS
During 1995 and 1994, AMBAC Indemnity guaranteed the timely payment of
principal and interest on obligations under municipal investment contracts
and municipal investment repurchase agreements issued by its affiliate, ACMI.
As of December 31, 1995 and 1994, the aggregate amount of municipal investment
contracts and municipal investment repurchase contracts insured was
$2,240,959 and $2,042,230, respectively, including accrued interest. These
insurance policies are collateralized by ACMI's investment securities, accrued
interest, securities purchased under agreements to resell and cash and cash
equivalents, which as of December 31, 1995 and 1994 had a fair value of
$2,299,687 and $1,964,830, respectively, in the aggregate.
AMBAC Indemnity Corporation and Subsidiaries
Notes to Consolidated Financial Statements -- (Continued)
(Dollar Amounts in Thousands)
During 1995 and 1994, AMBAC Indemnity recorded gross premiums written of
$1,707 and $2,692, and net premiums earned of $1,764 and $1,872,
respectively, related to these contracts.
During 1995 and 1994, several interest rate swap transactions were
executed between AFS and ACMI. As of December 31, 1995 and 1994, these
contracts had an outstanding notional amount of approximately $359,000
and $478,000, respectively. As of December 31, 1995 and 1994, AFS recorded
a positive fair value of $6,539 and a negative fair value of $5,492,
respectively, related to these transactions.
15 SUBSEQUENT EVENTS
On January 19, 1996, AMBAC Inc. filed with the Securities and Exchange
Commission a registration statement related to a proposed offering of
3,781,369 PRIDES(SM) (Provisionally Redeemable Income Debt Exchangeable
for Stock). The PRIDES, which constitute senior debt of AMBAC Inc., will
mature in 2001 and will be mandatorily exchanged at maturity into shares
of HCIA common stock (or, at AMBAC Inc.'s option, cash with an equal value)
determined in accordance with an exchange rate formula. AMBAC Inc. may
redeem the PRIDES, in whole or in part, after three years. AMBAC Inc. has
also granted the underwriters an option to purchase up to 378,136 PRIDES
to cover any over-allotments.
AMBAC Indemnity, upon consummation of the PRIDES offering, will deliver
to AMBAC Inc. (in the form of an extraordinary dividend) its 2,378,672 shares
of HCIA common stock, at fair value. The fair value of such dividend will be
determined based on the price per share of HCIA common stock used to price
the PRIDES.
AMBAC Indemnity Corporation and Subsidiaries
(a wholly-owned subsidiary of AMBAC Inc.)
Consolidated Unaudited Financial Statements
as of June 30, 1996 and December 31, 1995
and for the periods ended June 30, 1996 and 1995
<PAGE>
AMBAC Indemnity Corporation and Subsidiaries
Consolidated Balance Sheets
June 30, 1996 and December 31, 1995
(Dollars in Thousands Except Share Data)
<TABLE>
<CAPTION>
June 30, 1996 December 31, 1995
------------- -----------------
(unaudited)
<S> <C> <C>
Assets
- ------
Investments:
Bonds held in available for sale account, at fair value
(amortized cost of $2,162,449 in 1996 and $2,090,101 in 1995) $2,214,817 $2,224,528
Short-term investments, at cost (approximates fair value) 133,629 163,953
---------- ----------
Total investments 2,348,446 2,388,481
Cash 3,888 6,912
Securities purchased under agreements to resell 3,992 4,120
Receivable for securities 64,288 8,136
Investment income due and accrued 40,207 38,319
Investment in affiliate - 25,827
Deferred acquisition costs 88,107 82,620
Current income taxes - 2,171
Prepaid reinsurance 162,166 153,372
Other assets 54,378 48,472
---------- ----------
Total assets $2,765,472 $2,758,430
========== ==========
Liabilities and Stockholder's Equity
Liabilities:
Unearned premiums $936,870 $906,136
Losses and loss adjustment expenses 59,429 65,996
Ceded reinsurance balances payable 6,765 14,654
Deferred income taxes 57,190 85,008
Current income taxes 3,116 -
Accounts payable and other liabilities 47,035 43,625
Payable for securities 112,413 86,304
---------- ----------
Total liabilities 1,222,818 1,201,723
---------- ----------
Stockholder's equity:
Preferred stock, par value $1,000.00 per share; authorized
shares - 285,000; issued and outstanding shares - none - -
Common stock, par value $2.50 per share; authorized shares
- 40,000,000; issued and outstanding shares - 32,800,000
at June 30, 1996 and December 31, 1995 82,000 82,000
Additional paid-in capital 514,305 481,059
Unrealized gains (losses) on investments, net of tax 34,039 87,112
Retained earnings 912,310 906,536
---------- ----------
Total stockholder's equity 1,542,654 1,556,707
---------- ----------
Total liabilities and stockholder's equity $2,765,472 $2,758,430
========== ==========
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
<PAGE>
AMBAC Indemnity Corporation and Subsidiaries
Consolidated Statements of Operations
(Unaudited)
For The Periods Ended June 30, 1996 and 1995
(Dollars in Thousands)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
----------------------- ------------------------
1996 1995 1996 1995
------- ------- -------- -------
<S> <C> <C> <C> <C>
Revenues:
Gross premiums written $58,768 $36,893 $110,060 $77,465
Ceded premiums written (9,836) 6,514 (19,448) 3,055
------- ------- -------- -------
Net premiums written 48,932 43,407 90,612 80,520
Increase in unearned premiums (8,870) (15,126) (21,940) (27,563)
------- ------- -------- -------
Net premiums earned 40,062 28,281 68,672 52,957
Net investment income 35,584 32,419 70,489 64,293
Net realized gains (losses) 67,580 (2,202) 69,936 (6,876)
Other income 4,753 (393) 10,805 1,985
------- ------- -------- -------
Total revenues 147,979 58,105 219,902 112,359
------- ------- -------- -------
Expenses:
Losses and loss adjustment expenses 1,700 341 2,510 1,369
Underwriting and operating expenses 11,583 9,916 21,666 19,246
Interest expense 514 306 1,028 637
------- ------- -------- -------
Total expenses 13,797 10,563 25,204 21,252
------- ------- -------- -------
Income before income taxes 134,182 47,542 194,698 91,107
------- ------- -------- -------
Income tax expense:
Current taxes 38,665 6,696 52,313 13,543
Deferred taxes 806 2,458 760 3,666
------- ------- -------- -------
Total income taxes 39,471 9,154 53,073 17,209
------- ------- -------- -------
Net income 94,711 38,388 141,625 73,898
======= ======= ======== =======
</TABLE>
See accompanying Notes to Consolidated Unaudited Financial Statements
<PAGE>
AMBAC Indemnity Corporation and Subsidiaries
Consolidated Statements of Cash Flows
(Unaudited)
For The Periods Ended June 30, 1996 and 1995
(Dollars in Thousands)
<TABLE>
<CAPTION>
Six Months Ended
June 30,
--------------------------
1996 1995
-------- -----------
<S> <C> <C>
Cash flows from operating activities:
Net income $141,625 $73,898
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 950 678
Amortization of bond premium and discount (811) (440)
Current income taxes payable 5,287 574
Deferred income taxes payable 760 3,666
Deferred acquisition costs (5,487) (9,366)
Unearned premiums 21,940 27,563
Losses and loss adjustment expenses (6,567) 45
Ceded reinsurance balances payable (7,889) (422)
(Gain) loss on sales of investments (69,936) 6,876
Other, net (8,685) (6,538)
-------- -----------
Net cash provided by operating activities 71,187 96,534
-------- -----------
Cash flows from investing activities:
Proceeds from sales of bonds at amortized cost 742,407 837,619
Proceeds from maturities of bonds at amortized cost 43,165 70,281
Purchases of bonds at amortized cost (901,331) (1,001,767)
Change in short-term investments 30,324 19,183
Proceeds from sale of affiliate 115,865 -
Securities purchased under agreements to resell 128 (392)
Other, net (1,404) (223)
-------- -----------
Net cash provided by (used in) investing activities 29,154 (75,299)
-------- -----------
Cash flows from financing activities:
Dividends paid (135,865) (20,000)
Capital contribution 32,500 -
-------- -----------
Net cash used in financing activities (103,365) (20,000)
-------- -----------
Net cash flow (3,024) 1,235
Cash at beginning of year 6,912 2,117
-------- -----------
Cash at June 30 $3,888 $3,352
======== ===========
Supplemental disclosure of cash flow information:
Cash paid during the year for:
Income taxes $13,300 $12,700
======== ===========
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
<PAGE>
AMBAC INDEMNITY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED UNAUDITED FINANCIAL STATEMENTS
(1) BASIS OF PRESENTATION
AMBAC Indemnity Corporation ("AMBAC Indemnity") is a leading insurer of
municipal and structured finance obligations. Financial guarantee insurance
underwritten by AMBAC Indemnity guarantees payment when due of the principal of
and interest on the obligation insured. In the case of a default on the insured
obligation, payments under the insurance policy may not be accelerated by the
policyholder without AMBAC Indemnity's consent. As of June 30, 1996, AMBAC
Indemnity's net insurance in force (principal and interest) was $209.3 billion.
AMBAC Indemnity is a wholly-owned subsidiary of AMBAC Inc., which is a holding
company that provides through its affiliates financial guarantee insurance and
financial services to both public and private clients.
AMBAC Indemnity has one wholly-owned subsidiary, American Municipal Bond
Holding Company ("AMBH"), which is a holding company for certain real estate
interests.
On May 6, 1996, AMBAC Inc. sold its 4,159,505 shares of common stock of its
affiliate, HCIA Inc. (NASDAQ:HCIA) ("HCIA") in a secondary public offering.
Prior to consummation of the secondary public offering, AMBAC Indemnity
delivered to AMBAC Inc. (in the form of an extraordinary dividend) its 2,378,672
shares of HCIA common stock, at fair value. The fair value of the HCIA shares
was $115.9 million, based on the offering price per share of HCIA common stock
in the secondary public offering. The carrying value of AMBAC Indemnity's HCIA
shares was $26.2 million, and the resulting gain to AMBAC Indemnity from the
disposition of the shares was $89.7 million. As a result of the secondary public
offering, neither AMBAC Indemnity, nor AMBAC Inc. owned any shares of HCIA.
AMBAC Indemnity, as the sole limited partner, owns 90% of the total
partnership interests of AMBAC Financial Services, Limited Partnership ("AFS"),
a limited partnership which provides interest rate swaps primarily to states,
municipalities and municipal authorities. The sole general partner of AFS, AMBAC
Financial Services Holdings, Inc., a wholly-owned subsidiary of AMBAC Inc., owns
a general partnership interest representing 10% of the total partnership
interest in AFS.
AMBAC Indemnity's consolidated unaudited interim financial statements have
been prepared on the basis of generally accepted accounting principles and, in
the opinion of management, reflect all adjustments necessary for a fair
presentation of the Company's financial condition, results of operations and
cash flows for the periods presented. The results of operations for the six
months ended June 30, 1996 may not be indicative of the results that may be
expected for the full year ending December 31, 1996. These financial statements
and notes should be read in conjunction with the financial statements and notes
included in the audited consolidated financial statements of AMBAC Indemnity
Corporation and its subsidiaries as of December 31, 1995 and 1994, and for each
of the years in the three-year period ended December 31, 1995.
<PAGE>
AMBAC INDEMNITY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED UNAUDITED FINANCIAL STATEMENTS (CONTINUED)
(2) INCOME TAXES
The tax provisions in the accompanying financial statements reflect
effective tax rates differing from prevailing federal corporate income tax
rates, primarily as a result of tax-exempt interest income.
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with
the Securities and Exchange Commission. These securities may not be sold
nor may offers to buy be accepted prior to the time the registration
statement becomes effective. This prospectus shall not constitute an
offer to sell or the solicitation of an offer to buy nor shall there be
any sale of these securities in any State in which such offer,
solicitation or sale would be unlawful prior to registration or
qualification under the securities laws of any such State.
SUBJECT TO COMPLETION, DATED OCTOBER 16, 1996
PROSPECTUS SUPPLEMENT
- ---------- ----------
(To Prospectus dated _______ __, 1996)
$_______________ (APPROXIMATE)
MLCC MORTGAGE INVESTORS, INC., SELLER
ML REVOLVING HOME EQUITY LOAN ASSET BACKED CERTIFICATES, SERIES 199_-_
PRINCIPAL AND INTEREST PAYABLE ON THE __TH DAY OF EACH MONTH,
BEGINNING IN ________ 199_
MERRILL LYNCH CREDIT CORPORATION, SERVICER
_______________
The ML Revolving Home Equity Loan Asset Backed Certificates, Series
199_-_ (the "Certificates") will represent undivided interests in the ML
Revolving Home Equity Loan Trust 199_-_ (the "Trust"). The Trust will be
created pursuant to a Pooling and Servicing Agreement (the "Agreement")
among MLCC Mortgage Investors, Inc. (the "Seller"), Merrill Lynch Credit
Corporation (referred to as "MLCC" or the "Servicer"), an affiliate of the
Seller, and Bankers Trust Company of California, N.A., as trustee (the
"Trustee"). The property of the Trust (the "Trust Fund") will consist
primarily of a pool (the "Mortgage Pool") of home equity revolving credit
line loans (the "Mortgage Loans"), to the extent of their Trust Balances,
made under certain home equity revolving credit line loan agreements. The
Mortgage Loans are secured by mortgages on one- to four-family residential
properties. As of _________, 1996 (the "Cut-off Date"), approximately
_____% of the Mortgage Loans by principal balance are first mortgages and
substantially all of the remainder are second mortgages. The Mortgage
Loans were originated by MLCC in the ordinary course of its lending
business. Terms used and not otherwise defined herein shall have the
respective meanings ascribed to such terms in the Prospectus dated ______
__, 1996 attached hereto (the "Prospectus").
The aggregate undivided interest in the Trust Fund represented by the
Certificates will, as of the Closing Date, represent approximately __% of
the outstanding principal balances of the Mortgage Loans. The remaining
undivided interest in the Trust Fund not represented by the Certificates
(the "Seller Interest") will be initially equal to approximately
$_________, which as of the Closing Date is approximately _% of the
outstanding principal balances of the Mortgage Loans. Only the
Certificates are offered hereby.
(LOGO)
On each Distribution Date, holders of the Certificates will be
entitled to receive, from and to the limited extent of funds available in
the Certificate Account, distributions with respect to interest and
principal calculated as set forth herein. The Certificates will not be
insured or guaranteed by the Seller, the Servicer, the Trustee or any
affiliate thereof. However, on or before the issuance of the Certificates,
the Seller will obtain from (AMBAC Indemnity Corporation) (MBIA Insurance
Corporation) (the "Certificate Insurer") a certificate guaranty insurance
policy (the "Certificate Insurance Policy"), relating to the Certificates,
in favor of the Trustee. The Certificate Insurance Policy will protect
holders of the Certificates against certain shortfalls in amounts due to
be distributed at the times and to the extent described herein. See "The
Certificate Insurance Policy and the Certificate Insurer" herein.
(Cover continued on next page)
_______________
THE CERTIFICATES REPRESENT BENEFICIAL INTERESTS IN THE TRUST FUND
ONLY AND DO NOT REPRESENT INTERESTS IN OR OBLIGATIONS OF THE SELLER, THE
SERVICER, THE TRUSTEE OR ANY AFFILIATE THEREOF. THE CERTIFICATES ARE NOT
INSURED OR GUARANTEED BY ANY GOVERNMENTAL AGENCY OR BY ANY OTHER PERSON OR
ENTITY (OTHER THAN THE CERTIFICATE INSURER), INCLUDING THE SELLER, THE
SERVICER, THE TRUSTEE OR ANY AFFILIATE THEREOF. DISTRIBUTIONS ON THE
CERTIFICATES WILL BE PAYABLE SOLELY FROM THE ASSETS TRANSFERRED TO THE
TRUST FUND FOR THE BENEFIT OF THE HOLDERS OF THE CERTIFICATES.
FOR A DISCUSSION OF CERTAIN FACTORS RELATING TO AN INVESTMENT IN THE
CERTIFICATES, SEE "SPECIAL CONSIDERATIONS AND RISK FACTORS" ON PAGE S-20
HEREIN.
_______________
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.
THE ATTORNEY GENERAL OF THE STATE OF NEW YORK
HAS NOT PASSED ON OR ENDORSED THE MERITS OF THIS OFFERING.
ANY REPRESENTATION TO THE CONTRARY IS UNLAWFUL.
_______________
The Certificates are being offered by the Underwriter from time to
time to the public in negotiated transactions or otherwise at varying
prices to be determined, in each case, at the time of sale.
The aggregate proceeds to the Seller from the sale of the
Certificates will be approximately $___________, before deducting expenses
payable by the Seller, estimated to be $________ in the aggregate. The
Underwriter will reimburse the Seller for approximately $______ of such
expenses.
The Underwriter expects to enter into market making transactions in
the Certificates and may act as principal or agent in any such
transactions. Any such purchases or sales will be made at prices related
to prevailing market prices at the time of sale. This Prospectus
Supplement and the Prospectus may be used by the Underwriter in connection
with such transactions.
The Certificates offered hereby are offered subject to prior sale,
when, as and if issued by the Trust and accepted by the Underwriter and
subject to its right to reject orders in whole or in part. It is expected
that delivery of the Certificates will be made in book-entry form only
through the facilities of The Depository Trust Company, Cedel Bank S.A.
and Euroclear on or about ______, 199_ (the "Closing Date").
_______________
MERRILL LYNCH & CO.
_______________
The date of this Prospectus Supplement is _____________ __, 199__.
(Cover continued from previous page)
Interest on the Certificates will accrue from the Closing Date. Distributions
of principal and interest on the Certificates will be made on the ___th
day of each month or, if such day is not a Business Day, on the next
succeeding Business Day (each, a "Distribution Date"), beginning
in ____ 199__. On each Distribution Date, distributions with respect to
interest will be payable on the aggregate outstanding principal balance of
the Certificates at the Certificate Rate described herein which will
adjust monthly, beginning with the first Distribution Date, to a rate per
annum ____% in excess of the London interbank offered rate for one-month
U.S. dollar deposits ("LIBOR"), calculated and subject to the maximum rate
described herein.
The Seller Interest will be subordinated to the rights of the
Certificateholders to the limited extent of the Seller Subordinated Amount
as described herein.
The interests of the owners of the Certificates (the "Certificate
Owners") will be represented by book-entries on the records of The
Depository Trust Company ("DTC") and participating members thereof. See
"Description of the Certificates--Registration of the Certificates"
herein.
Merrill Lynch, Pierce, Fenner & Smith Incorporated (the
"Underwriter"), an affiliate of the Seller and the Servicer, intends to
make a secondary market in the Certificates, but has no obligation to do
so. There can be no assurance that a secondary market for the Certificates
will develop, or if it does develop, that it will provide holders of the
Certificates with liquidity of investment at any particular time or for
the life of the Certificates. The Certificates will not be listed on any
securities exchange.
Upon receipt of a request by an investor who has received an
electronic Prospectus Supplement and Prospectus from the Underwriter or a
request by such investor's representative within the period during which
there is an obligation to deliver a Prospectus Supplement and Prospectus,
the Seller or the Underwriter will promptly deliver, or cause to be
delivered, without charge, a paper copy of the Prospectus Supplement and
Prospectus.
REPORTS TO THE CERTIFICATE HOLDERS
Unless and until Definitive Certificates are issued, unaudited
monthly and annual reports, containing information concerning the Trust
Fund and prepared by the Servicer, will be sent on behalf of the Trust to
the Trustee and Cede & Co., as registered holder of the Certificates and
the nominee of DTC. Such reports may be made available to Certificate
Owners in accordance with the rules, regulations and procedures creating
and affecting DTC. See "Description of the Certificates--Reports to
Holders of the Certificates" and "--Registration of the Certificates"
herein. The Trust does not intend to provide any financial information to
the holders of the Certificates which has been examined and reported upon,
with an opinion expressed by, an independent public accountant.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
All documents filed by the Seller pursuant to Section 13(a), 13(c),
14 or 15(d) of the Securities Exchange Act of 1934, as amended, subsequent
to the date of this Prospectus and prior to the termination of the
offering of the Certificates made by this Prospectus Supplement are
incorporated herein by reference. The Seller hereby undertakes to provide
without charge to each person to whom this Prospectus Supplement and
Prospectus are delivered, on request of such person, a copy of any or all
of the documents incorporated herein by reference other than the exhibits
to such documents (unless such exhibits are specifically incorporated by
reference in such documents). Requests should be directed to the
Corporate Secretary of MLCC Mortgage Investors, Inc., in writing at 4802
Deer Lake Drive East, Jacksonville, Florida 32246, or by telephone at
(904) 928-6000.
THE CERTIFICATES OFFERED HEREBY ARE BEING OFFERED BY THE SELLER FROM
TIME TO TIME PURSUANT TO THIS PROSPECTUS SUPPLEMENT AND THE PROSPECTUS
ACCOMPANYING THIS PROSPECTUS SUPPLEMENT. THIS PROSPECTUS SUPPLEMENT DOES
NOT CONTAIN COMPLETE INFORMATION ABOUT THE OFFERING OF THE 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 CERTIFICATES MAY NOT BE CONSUMMATED UNLESS THE PURCHASER HAS
RECEIVED BOTH THIS PROSPECTUS SUPPLEMENT AND THE PROSPECTUS.
TO THE EXTENT THAT ANY STATEMENTS IN THIS PROSPECTUS SUPPLEMENT MODIFY
STATEMENTS CONTAINED IN THE PROSPECTUS, THE STATEMENTS IN THIS PROSPECTUS
SUPPLEMENT SHALL CONTROL.
_______________
UNTIL 90 DAYS FROM THE DATE OF THIS PROSPECTUS SUPPLEMENT, ALL DEALERS
EFFECTING TRANSACTIONS IN THE 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.
SUMMARY OF 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
or elsewhere in this Prospectus Supplement.
Securities Offered......ML Revolving Home Equity Loan Asset Backed
Certificates, Series 199_-_ (the "Certificates").
Issuer..................ML Revolving Home Equity Loan Trust 199_-_ (the
"Trust") is the issuer of the Certificates.
Seller..................MLCC Mortgage Investors, Inc., a wholly-owned,
limited purpose subsidiary of the Servicer and an
affiliate of the Underwriter, will transfer and
assign the Mortgage Loans to the Trust Fund in
exchange for the Certificates and the Seller
Interest. The Mortgage Loans will be acquired by the
Seller from MLCC.
Servicer................Merrill Lynch Credit Corporation, an indirect
wholly-owned subsidiary of Merrill Lynch & Co., Inc.
("ML & Co.") and an affiliate of the Seller and the
Underwriter, will service the Mortgage Loans.
Agreement...............The Certificates will be issued pursuant to a
Pooling and Servicing Agreement (the "Agreement")
dated as of ______, 199_ (the "Cut-off Date") among
the Seller, MLCC, as Servicer, and Bankers Trust
Company of California, N.A., as trustee (the
"Trustee").
Description of the
Certificates.......The Certificates represent an undivided interest
in the Trust Fund. Each Certificate represents
the right to receive monthly payments of interest
at the variable rate described below (the
"Certificate Rate") and payments of principal at
such times and to the extent provided below.
Distributions on Certificates will be made on the
__th day of each month or, if such day is not a
Business Day, on the next succeeding Business Day
(each, a "Distribution Date"), commencing in _____
199_, to holders of record of the Certificates in
an amount equal to such holder's respective
Percentage Interest multiplied by the amount
distributed in respect of the Certificates
on such Distribution Date.
The initial principal balance of the Certificates
will be $__________ (the "Original Certificate
Principal Balance") (approximate). The Certificate
Principal Balance as of any date is equal to
the Original Certificate Principal Balance minus the
aggregate amounts actually distributed as principal
to Certificateholders. See "Description of the
Certificates" herein and in the Prospectus.
The aggregate undivided interest in the Trust Fund
represented by the Certificates as of the date of
issuance of the Certificates
(the "Closing Date") will equal $__________ (the
"Original Invested Amount"), which represents
approximately ___% of the Cut-off Date Pool Balance.
Following the Closing Date, the "Invested Amount" with
respect to any date will be an amount equal to the
Original Invested Amount minus the sum of (i) the
total of Principal Collections previously distributed
to Certificateholders and (ii) the total of the amount
for each Distribution Date equal to the product of the
Floating Allocation Percentage and the Liquidation
Loss Amount (other than any losses that have been
reallocated to the Seller Interest as described under
"--Limited Subordination of the Seller Interest"
below). The Seller will hold the remaining undivided
interest (the "Seller Interest") in the Trust Balances
of the Mortgage Loans, which interest is equal to the
Pool Balance minus the Invested Amount and initially
will equal approximately _% of the Cut-off Date Pool
Balance.
With respect to any Distribution Date, the "Floating
Allocation Percentage" is the percentage equivalent of
a fraction determined by dividing the Invested Amount
by the Pool Balance as of the beginning of the related
Collection Period.
Certificate Rate........As to any Distribution Date, the per annum rate equal to
LIBOR on the second to the last business day prior to
the preceding Distribution Date (or as of ________,
199_, in the case of the first Distribution Date) plus
_____%, subject to a maximum rate described under
"Description of the Certificates--Distributions on the
Certificates" herein.
Denominations...........The Certificates will be issuable in minimum
denominations of $_______ and integral multiples of
$1,000 in excess thereof. The interest in the Trust
Fund evidenced by a Certificate (the "Percentage
Interest") will be equal to the percentage derived
by dividing the denomination of such Certificate by
the Original Certificate Principal Balance.
The Trust Fund..........The property of the Trust (the "Trust Fund") will
include: a pool of home equity revolving credit line
loans (the "Mortgage Loans"), to the extent of their
Trust Balances, made under certain home equity
revolving credit line loan agreements (the "Credit
Line Agreements") and secured by mortgages on one-to
four-family residential properties (the "Mortgaged
Properties") of which approximately ______% by Cut-off
Date Pool Balance are first mortgages and
substantially all of the remainder are second
mortgages; collections in respect of the Trust's
interest in the Mortgage Loans received on or after
the Cut-off Date; the Trust's interest in property
that secured a Mortgage Loan and which has been
acquired by foreclosure or deed in lieu of
foreclosure or otherwise; the Certificate Insurance
Policy; the Trust's interest in rights under certain
hazard insurance policies covering the Mortgaged
Properties, and certain other property relating to
the Mortgage Loans, as described more fully herein.
The Trust Fund will include all or a portion of
the unpaid principal balance of each Mortgage Loan
as of the Cut-off Date (the "Cut-off Date Trust
Balance") plus any additions thereto as a result of
advances made pursuant to the applicable Credit Line
Agreement (the "Additional Balance") during the
Managed Amortization Period. In the case of any
Common Mortgage Loan, the Cut-off Date Trust Balance
of such Mortgage Loan excludes the portion thereof
owned by one or more Prior Trusts. The aggregate of
the Cut-off Date Trust Balances of the Mortgage
Loans (the "Cut-off Date Pool Balance") is
$____________. With respect to any date, the "Pool
Balance" will be equal to the aggregate of the Trust
Balances of the Mortgage Loans as of such date.
Trust Balance...........The "Trust Balance" of a Mortgage Loan (other
than a Liquidated Mortgage Loan, which has a
Trust Balance of zero) on any day is equal to its
Cut-off Date Trust Balance, plus the Additional
Balances, if any, in respect of such Mortgage
Loan assigned to the Trust each month, minus all
collections credited against the principal balance of
such Mortgage Loan (excluding, in the case of any
Common Mortgage Loan, any such principal collections
applied to reduce the principal balance thereof owned
by one or more Prior Trusts) in accordance with the
related Credit Line Agreement prior to such day. In
certain cases the Cut-off Date Trust Balance of a
Mortgage Loan is zero. The "Loan Balance" of a
Mortgage Loan on any day is equal to the sum of the
Trust Balance and, in the case of a Common Mortgage
Loan, the portion of the principal balance of such
Mortgage Loan owned by one or more Prior Trusts.
Additional Balances.....During the Managed Amortization Period, all Additional
Balances will be transferred to and become property of
the Trust Fund. The Additional Balances initially will
be funded by MLCC. The Pool Balance will generally
fluctuate during a Collection Period because the
amount of draws by borrowers representing Additional
Balances and the amount of principal payments by
borrowers will usually differ from day to day. Because
the Seller Interest represents the interest in the
Trust Fund not represented by the Certificates, the
amount of the Seller Interest will generally fluctuate
during a Collection Period as draws are made and as
principal is paid under the Mortgage Loans.
Common Mortgage Loans...Certain balances outstanding on ________________, 19__
with respect to certain of the Mortgage Loans were
sold by Merrill Lynch Home Equity Acceptance, Inc.
("MLHEA"), an affiliate of the Seller, the Servicer
and the Underwriter, to ML Home Equity Loan Trust
____ ("Trust 1989"); certain balances outstanding on
___________ with respect to certain of the Mortgage
Loans were sold by MLHEA to ML Home Equity Loan Trust
_______ ("Trust 1991"); certain balances outstanding
on ___________ with respect to certain of the Mortgage
Loans were sold by MLHEA to ML Home Equity Loan Trust
_____ ("Trust 1993"); certain balances outstanding on
____________ with respect to certain of the Mortgage
Loans were sold by MLHEA to ML Home Equity Loan Trust
_______ ("Trust 1994-1"); certain balances outstanding
on __________, 1994 with respect to certain of the
Mortgage Loans were sold by the Seller to ML Home
Equity Loan Trust ______ ("Trust 1994-2"); certain
balances outstanding on _________ with respect to
certain of the Mortgage Loans were sold by the Seller
to ML Home Equity Loan Trust ______ ("Trust 1995-1");
and certain balances outstanding on ________ with
respect to certain of the Mortgage Loans were sold by
the Seller to ML Home Equity Loan Trust ______ ("Trust
1995-2" and, together with Trust 1989, Trust 1991,
Trust 1993, Trust 1994-1, Trust 1994-2 and Trust
1995-1, the "Prior Trusts"). Mortgage Loans with
balances sold to one or more of the Prior Trusts are
referred to as "Common Mortgage Loans". The
Certificates will not represent an interest in the
portion of a Common Mortgage Loan owned by one or more
of the Prior Trusts.
The Trust Fund includes _______ Common Mortgage Loans
having $__________ in aggregate Trust Balances which
represent ______% of all the Trust Balances sold and
assigned to the Trust Fund. See the table captioned
"Data on Common Mortgage Loans" under "The Mortgage
Loan Pool" herein. MLCC, which will act as Servicer
of the Trust Fund, also acts as servicer for each of
the Prior Trusts. Bankers Trust Company of Californi,
N.A., which will act as Trustee, also acts as the
trustee for each of the Prior Trusts.
The Mortgage Loans......The Mortgage Loans are home equity revolving credit line
loans secured by mortgages (of which approximately
_____% by Cut-off Date Pool Balance are first
mortgages and substantially all of the remainder are
second mortgages) on residential one- to four-family
properties. The Mortgage Loans were originated by MLCC
in the ordinary course of its lending business. See
"The Mortgage Loan Pool" herein for a description of
the Mortgage Loans.
Each Mortgage Loan bears interest at a variable rate
which may change daily or monthly subject to a maximum
per annum interest rate. The combined loan-to-value
ratio (the "Combined Loan-to-Value Ratio") (computed
at its maximum permitted principal amount or "Credit
Limit" plus the principal balance of any related
senior mortgage loan) of each Mortgage Loan, except
with respect to ____% of the Mortgage Loans by Cut-off
Date Pool Balance, which had Combined Loan-to-Value
Ratios in excess of 85%, did not exceed 85% at the
time of execution of the Credit Line Agreement, based
upon an appraisal of the Mortgaged Property obtained
by MLCC in the course of processing the loan
application. The term to maturity of each Mortgage
Loan at origination was ten years. Interest on each
Mortgage Loan is payable on the fifteenth day of each
month and is computed daily on its outstanding Loan
Balance at a floating rate per annum (the "Loan Rate")
equal, at any time, to
the extent not limited by its applicable interest
rate cap, to a specified margin (the "Margin") over
the "prime rate" at the time in effect, for such day,
as published in The Wall Street Journal. Interest is
billed monthly in arrears based on the daily
outstanding balance during the related Collection
Period. Principal may be drawn down (up to the Credit
Limit) or repaid under each Mortgage Loan from time
to time. There are no required payments of principal
prior to the final maturity of each Mortgage Loan. The
entire outstanding principal balance of each Mortgage
Loan is due at maturity. See "The Mortgage Loan Pool"
herein.
The Trust Balances of the Mortgage Loans at the Cut-off
Date ranged from $0 to $________ and averaged $_______
for those Mortgage Loans with a Cut-off Date Trust
Balance greater than $0. Credit Limits ranged from
$______ to $_________ and averaged $________. The
weighted average credit limit utilization rate
(computed by dividing the Loan Balance as of the
Cut-off Date by the related Credit Limit) was
_______%. The weighted average remaining term to
stated maturity at the Cut-off Date was _____ months
and the latest scheduled maturity of any Mortgage Loan
is ______, 20__. The weighted average second mortgage
ratio for Mortgage Loans in a junior lien position was
______%. The "Second Mortgage Ratio" of a Mortgage
Loan is the ratio computed (i) in the case of a Common
Mortgage Loan, by dividing the difference between
(a) its Credit Limit and (b) the total Prior Trust
balance as of the Cut-off Date of such Common Mortgage
Loan, by the sum of its Credit Limit and the
outstanding balances of any senior mortgages as of
the date of the origination of such Common Mortgage
Loan, and (ii) in the case of any other Mortgage Loan,
by dividing its Credit Limit by the sum of its Credit
Limit and the outstanding balances of any senior
mortgages as of the date of the origination of such
Mortgage Loan.
The borrowers obligated on approximately ______% of the
Mortgage Loans by Cut-off Date Pool Balance are
employees or independent contractors of ML & Co. or
subsidiaries thereof. See "MLCC and Its Equity
Access(R) Program" herein.
The Mortgage Loans are covered by standard hazard
insurance policies insuring against losses due to
fire and various other causes. See "Description of the
Certificates--Servicing and Hazard Insurance" herein.
SUMMARY OF MORTGAGE LOAN
CHARACTERISTICS AS OF THE CUT-OFF DATE
(APPROXIMATE)
Pool Balance...................................................... $
Number of Mortgage Loans..........................................
Number of Mortgage Loans with a $0 Cut-off Date Trust Balance.....
Weighted Average Loan Rate........................................ %
Weighted Average Maximum Loan Rate(1)............................. %
Weighted Average Margin........................................... %
Range of Margins.................................................. % to %
Weighted Average Combined Loan-to-Value Ratio at Origination...... %
Weighted Average Remaining Term to Stated Maturity................ months
Range of Remaining Terms to Stated Maturity....................... to months
Range of Trust Balances.......................................$ to $
Average Trust Balance(2).......................................... $
Latest Maturity Date.............................................. , 20
Weighted Average Credit Limit Utilization Rate.................... %
Weighted Average Second Mortgage Ratio............................ %
__________
(1) For those Mortgage Loans subject to specified lifetime interest rate caps.
(2) For those Mortgage Loans with a Cut-off Date Trust Balance greater than $0.
Removal of Certain
Mortgage Loans..........The Seller may, but shall not be obligated to, remove
from the Trust Fund on the last business day of any
Collection Period (a "Removal Date") during the
Managed Amortization Period, the entire Trust Balance
of certain Mortgage Loans without notice to the
Certificateholders. The Seller is permitted to
designate the Mortgage Loans to be removed. Mortgage
Loans so designated will only be removed upon
satisfaction of certain conditions specified in the
Agreement, including:
(i) the Seller Interest as of the Removal Date
(after giving effect to such removal) exceeds
the Minimum Seller Interest;
(ii) the Seller shall have delivered to the Trustee
a "Mortgage Loan Schedule" containing a list
of all Mortgage Loans remaining in the Trust
Fund after such removal;
(iii) the Seller shall represent and warrant that no
selection procedures which are adverse to the
interests of the Certificateholders or the
Certificate Insurer were used by the Seller in
selecting such Mortgage Loans;
(iv) in connection with the first such removal of
Mortgage Loans, the Rating Agencies shall have
been notified of the proposed transfer and
prior to the Removal Date shall not have
notified the Seller in writing that such
transfer would result in a reduction or
withdrawal of the ratings assigned to the
Certificates without regard to the Certificate
Insurance Policy; and
(v) the Seller shall have delivered to the Trustee
and the Certificate Insurer an officer's
certificate confirming the conditions set forth
in clauses (i) through (iii) above.
The "Minimum Seller Interest" as of any date is an
amount equal to the lesser of (i) _% of the Pool
Balance on such date and (ii) the Seller Interest as
of the Closing Date.
Collections.............Collections on the Mortgage Loans will be allocated in
accordance with the Credit Line Agreements between
amounts collected in respect of interest and amounts
collected in respect of principal.
As to any Distribution Date, "Interest Collections" on
the Mortgage Loans will be equal to the aggregate
amount collected on the Mortgage Loans during the
related Collection Period that is allocated to
interest pursuant to the terms of the Credit Line
Agreements, including Net Liquidation Proceeds so
allocated, reduced by the aggregate Servicing Fee for
such Collection Period. As to any Distribution Date,
"Trust Interest Collections" will be equal to the
total amount of the Trust's share of Interest
Collections. The Trust's share of Interest
Collections for each Mortgage Loan will be the
portion of the amount allocated to interest on such
Mortgage Loan equal to interest accrued at the
Net Loan Rate on the Trust Balance during the related
Interest Period. "Interest Period" means the monthly
period during which interest accrues on the Mortgage
Loans. The first Interest Period will be ______ 1996.
As to any
Distribution Date, the "Collection Period" is
generally the calendar month preceding such
Distribution Date. The "Net Loan Rate" is the Loan
Rate minus the Servicing Fee Rate.
As to any Distribution Date, "Principal Collections"
will be equal to the aggregate amount collected on
the Mortgage Loans during the related Collection
Period that is allocated to principal pursuant to the
terms of the Credit Line Agreements. Principal
Collections on a Common Mortgage Loan will be applied
first to reduce to zero the applicable portion thereof
owned by one or more Prior Trusts before any such
collections are applied in reduction of the Trust
Balance of such Common Mortgage Loan. As to any
Distribution Date, "Trust Principal Collections" will
be equal to the total amount of the Trust's share of
Principal Collections. The Trust's share of Principal
Collections on each Mortgage Loan will equal the sum
of (i) the amount allocated to principal that was
received from the borrower in the related Collection
Period (excluding, in the case of a Common Mortgage
Loan, principal allocated to reduce the portion of
such Common Mortgage Loan owned by one or more Prior
Trusts in accordance with the second preceding
sentence), (ii) the principal portion of Net Trust
Liquidation Proceeds and Trust Insurance Proceeds
and (iii) the principal portion of the Transfer
Deposit Amount of a retransferred Mortgage Loan.
"Net Trust Liquidation Proceeds" with respect to a
Mortgage Loan are equal to the aggregate of all
amounts received upon liquidation of such Mortgage
Loan, including insurance proceeds, reduced by related
expenses, plus accrued and unpaid interest thereon
through the date of liquidation, but not including
the portion, if any, of such amount that exceeds the
Trust Balance of such Mortgage Loan at the end of the
preceding Collection Period.
"Trust Insurance Proceeds" with respect to a Mortgage
Loan and Collection Period are the Trust's share of
insurance proceeds paid to the Servicer during such
Collection Period pursuant to any insurance policy
covering such Mortgage Loan, reduced by related
expenses, which (i) are not liquidation proceeds,
(ii) are not applied to the restoration or repair of
the related Mortgaged Property or released to the
related borrower in accordance with the normal
servicing procedures of the Servicer and (iii) will
be applied by the Servicer in reduction of the Loan
Balance of such Mortgage Loan, but not including the
portion, if any, of such amount that exceeds the
Trust Balance of such Mortgage Loan at the end of
such Collection Period.
"Transfer Deposit Amount" with respect to any
Distribution Date is the amount of cash required to
be deposited in the Certificate Account by the
Servicer to maintain the Minimum Seller Interest with
respect to a repurchased Defective Mortgage Loan after
taking into account any transfer of an Eligible
Substitute Mortgage Loan to the Trust with respect to
such Defective Mortgage Loan.
Application of
Certificate
Interest
Collections..........As to any Distribution Date, interest allocable to the
Certificates ("Certificate Interest Collections") will
equal the product of Trust Interest Collections and the
Floating Allocation Percentage. The remaining amount of
Trust Interest Collections will be allocated to the
Seller Interest as more fully described herein.
On each Distribution Date, the Certificate Interest
Collections will be applied in the following order of
priority:
(i) to pay the premium for the Certificate
Insurance Policy;
(ii) as payment for the accrued interest due and
any overdue accrued interest at the
applicable Certificate Rate on the Certificate
Principal Balance for the related Accrual
Period;
(iii) to pay Certificateholders the "Investor Loss
Amount" equal to the product of the Floating
Allocation Percentage and the Liquidation Loss
Amount for such Distribution Date;
(iv) as payment for any Investor Loss Amount that
was not previously (a) paid from Certificate
Interest Collections, (b) paid from Trust
Interest Collections and Trust Principal
Collections allocable to the Seller Interest or
reallocated to reduce the Seller Interest up to
the Seller Subordinated Amount as described
under "--Limited Subordination of the Seller
Interest" below, (c) covered by
overcollateralization as described under
"--Overcollateralization" below or (d) funded
by draws on the Certificate Insurance Policy;
(v) to reimburse prior draws from the Certificate
Insurance Policy, together with interest
thereon, and to pay any fees and expenses owed
to the Certificate Insurer pursuant to the
Insurance Agreement, together with interest
thereon;
(vi) to pay principal on the Certificates until the
Invested Amount exceeds the Certificate
Principal Balance by the amount, if any, equal
to (x) the Required Amount minus (y) the Seller
Subordinated Amount (such payment is referred
to as the "Accelerated Principal Distribution
Amount"); and
(vii) to the Seller.
Payments to Certificateholders pursuant to clause (ii)
will be interest payments on the Certificates.
Payments to Certificateholders pursuant to clauses
(iii) and (iv) will be principal payments on the
Certificates and will reduce the Certificate
Principal Balance. Although payments of the
Accelerated Principal Distribution Amount, if any, to
Certificateholders pursuant to clause (vi) will reduce
the Certificate Principal Balance, such payments will
not reduce the Invested Amount. Payments to
Certificateholders of Trust Interest Collections and
Trust Principal Collections allocable to the Seller
Interest as described under "--Limited Subordination
of the Seller Interest" below will also reduce the
Certificate Principal Balance. Payments of the
Accelerated Principal Distribution Amount are neither
guaranteed by the Certificate Insurance Policy nor
supported by the Seller Subordinated Amount.
An "Accrual Period" for any Distribution Date is the
period beginning on the preceding Distribution Date
(or the Closing Date in the case of the first
Distribution Date) and ending on the day preceding
such Distribution Date.
For each Distribution Date occurring on or prior to the
__th Distribution Date, the "Required Amount" will
be ___% of the Cut-off Date Pool Balance. For each
Distribution Date thereafter, the Required Amount
will be the lesser of (i) _% of the Cut-off Date
Pool Balance and (ii) _% of the outstanding Pool
Balance; provided that in no event will the
Required Amount be less than a floor amount equal
to the greater of (x) _% of the Cut-off Date Pool
Balance and (y) __% of the aggregate Trust Balances
of all Mortgage Loans delinquent 91 days or more as
of the end of the related Collection Period.
Notwithstanding the foregoing, for each Distribution
Date, if the cumulative principal losses on the
Trust Balances of the Mortgage Loans as of the end
of the related Collection Period exceed ___% of the
Cut-off Date Pool Balance, then the Required Amount
will be ____% of the Cut-off Date Pool Balance.
A "Liquidation Loss Amount" with respect to any
Liquidated Mortgage Loan and Distribution Date will
be the unrecovered Trust Balance thereof at the end
of the related Collection Period in which such
Mortgage Loan became a Liquidated Mortgage Loan,
after giving effect to the principal portion of Net
Trust Liquidation Proceeds in connection therewith.
Principal Payments
from Principal
Collections.............For the period beginning on the first Distribution Date
and, unless a Rapid Amortization Event shall have
earlier occurred, ending on the Distribution Date in
____ 20_ (the "Managed Amortization Period"), the
amount of Trust Principal Collections payable to
Certificateholders on each Distribution Date will
equal, to the extent funds are available therefor
from Trust Principal Collections, the Scheduled
Principal Collections Payment for such Distribution
Date. On any Distribution Date during the Managed
Amortization Period, the "Scheduled Principal
Collections Payment" will equal the lesser of (i) the
Maximum Principal Payment and (ii) the Alternative
Principal Payment.
For the period beginning with the first Distribution
Date following the end of the Managed Amortization
Period (the "Rapid Amortization Period"), the amount
of Trust Principal Collections payable to
Certificateholders on each Distribution Date will be
equal to the Maximum Principal Payment.
With respect to any Distribution Date, the "Maximum
Principal Payment" will equal the product of the
Trust Principal Collections and the Fixed Allocation
Percentage. With respect to any Distribution Date,
the "Alternative Principal Payment" is equal to the
amount, but not less than zero, of Trust Principal
Collections minus the aggregate of Additional Balances
created during the related Collection Period.
With respect to any date of determination, the "Fixed
Allocation Percentage" will equal the greater of (i)
___% and (ii) the percentage equivalent (but not in
excess of 100%) of a fraction, the numerator of which
is the Invested Amount and the denominator of which
is the Pool Balance as of the end of such day. The
Fixed Allocation Percentage initially will be __%.
On the Distribution Date in ____ 20__ (the "Stated
Maturity Date"), to the extent funds are available
therefor, Certificateholders will be entitled to
receive as payment of principal an amount equal to
the outstanding Certificate Principal Balance. To
the extent funds are not otherwise available for
such payment, a
draw on the Certificate Insurance Policy for such
insufficiency will be made on the Stated Maturity
Date.
Distributions of Trust Principal Collections based upon
the Fixed Allocation Percentage may result in
distributions of principal to Certificateholders in
amounts that are greater relative to the declining
Pool Balance than would be the case if the Floating
Allocation Percentage were used to determine the
percentage of Trust Principal Collections distributed
in respect of the Invested Amount.
The aggregate distributions of principal to
Certificateholders will not exceed the Original
Certificate Principal Balance.
The Seller will be entitled to receive the portion of
the Trust Principal Collections on each Distribution
Date that is not distributable on the Certificates;
provided that such distribution will not reduce the
Seller Interest below the Minimum Seller Interest as
of such related Distribution Date.
Certificate
Insurance Policy........On or before the Closing Date, the Certificate
Insurance Policy will be issued by the Certificate
Insurer pursuant to the provisions of the Agreement
and the Insurance and Indemnity Agreement (the
"Insurance Agreement"), among the Seller, the Servicer
and the Certificate Insurer.
The Certificate Insurance Policy will unconditionally
and irrevocably guarantee principal and interest
payments on the Certificates at the times and in the
amounts described below. On each Distribution Date,
other than any Dissolution Distribution Date, a draw
will be made on the Certificate Insurance Policy
equal to (i) the amount by which interest accrued at
the Certificate Rate on the outstanding Certificate
Principal Balance exceeds all amounts on deposit in
the Certificate Account available to be distributed
therefor plus (ii) after the Seller Subordinated
Amount has been reduced to zero, the amount, if any,
by which the Certificate Principal Balance as of such
Distribution Date (after giving effect to all other
amounts distributable and allocable to principal on
the Certificates) exceeds the Invested Amount as of
such Distribution Date (after giving effect to all
other amounts distributable and allocable to principal
on the Certificates).
In addition, the Certificate Insurance Policy will
guarantee the payment of the outstanding Certificate
Principal Balance on the Stated Maturity Date (after
giving effect to all other amounts distributable and
allocable to principal on the Certificates).
In the absence of payments under the Certificate
Insurance Policy, Certificateholders will directly
bear the credit and other risks associated with their
undivided interest in the Trust Fund. See "The
Certificate Insurance Policy and the Certificate
Insurer" herein.
The Certificate Insurance Policy does not guarantee to
Certificateholders, and does not protect against any
adverse consequences caused by, any specified rate of
prepayments of the Mortgage Loans.
Certificate Insurer.....(AMBAC Indemnity Corporation) (MBIA Insurance
Corporation).
Limited Subordination of the
Seller Interest.......If Certificate Interest Collections on any Distribution
Date are insufficient to pay the sum of (i) the
premium for the Certificate Insurance Policy, (ii)
accrued interest due and any overdue accrued
interest on the Certificates, and (iii) the Investor
Loss Amount on such Distribution Date (such
insufficiency is referred to as the "Deficiency
Amount"), Trust Interest Collections and Trust
Principal Collections allocable to the Seller
Interest (but not in excess of the then current
Seller Subordinated Amount, determined as described
below) will be applied to cover the Deficiency
Amount. The portion of the Deficiency Amount in
respect of clause (iii) above not covered by such
collections (up to the remaining Seller Subordinated
Amount and not in excess of the Investor Loss Amount)
will be reallocated to, and will reduce, the Seller
Interest. If such Certificate Interest Collections
plus the amount of collections allocable to the
Seller Interest which have been so applied to cover
the Deficiency Amount are together insufficient to
pay the amount set forth in item (ii) of the
definition of Deficiency Amount, then a draw will be
made on the Certificate Insurance Policy to cover
such shortfall. After the Seller Subordinated Amount
has been reduced to zero, the Deficiency Amount will
no longer be covered by the Seller Interest as
described above.
With respect to any Distribution Date, the "Seller
Subordinated Amount" equals the least of (i) __% of
the Cut-off Date Pool Balance minus the sum of (a)
the aggregate amount of principal collections
allocable to the Seller Interest that have previously
been distributed to Certificateholders to cover a
Deficiency Amount as described above and (b) the
aggregate amount of Investor Loss Amounts that have
previously been reallocated in reduction of the Seller
Interest as described above; or (ii) the Seller
Subordinated Amount on the previous Distribution Date;
or (iii) the Required Amount.
The Seller Subordinated Amount at any time may also be
further reduced if such reduction is consented to by
both of the Rating Agencies and the Certificate
Insurer and upon satisfaction of certain other
conditions specified in the Agreement.
Overcollateralization...The payment of Accelerated Principal Distribution
Amounts, if any, to Certificateholders may result in
the Invested Amount being greater than the Certificate
Principal Balance, thereby creating
overcollateralization. On any Distribution Date,
such overcollateralization, if any, will be available
to absorb any Investor Loss Amount that is not
covered either by (i) Certificate Interest Collections
remaining after the payment of the premium for the
Certificate Insurance Policy and the distribution of
interest on the Certificates or (ii) the limited
subordination of the Seller Interest as described
above. Any Investor Loss Amounts not covered by
Certificate Interest Collections, the limited
subordination of the Seller Interest or such
overcollateralization will be covered by draws on the
Certificate Insurance Policy to the extent provided
therein.
Overcollateralization will be created only by the
payments, if any, of Accelerated Principal
Distribution Amounts. As of the Closing Date, the
Invested Amount
will be equal to the Original Certificate Principal
Balance and, accordingly, there will not be any
initial overcollateralization. Payment of the
Accelerated Principal Distribution Amount on a
Distribution Date is made in an amount equal to the
excess, if any, of the Required Amount over the Seller
Subordinated Amount. As of the Closing Date, the
Required Amount is equal to the Seller Subordinated
Amount. Thus, no Accelerated Principal Distribution
Amount is expected to be paid, and no
overcollateralization will be created, on the first
Distribution Date. Any payments of Trust Principal
Collections allocable to the Seller's Interest that
decrease the Seller Subordinated Amount would be
expected to result in a payment of the Accelerated
Principal Distribution Amount and the creation of, or
increase in, overcollateralization if the Required
Amount is in excess of the Seller Subordinated Amount
on a Distribution Date and there are sufficient Trust
Interest Collections. If the Seller Subordinated
Amount is reduced to zero, then payments of the
Accelerated Principal Distribution Amount from Trust
Interest Collections may be made in an amount up to
the Required Amount. Any such payments would result in
increases in the level of overcollateralization.
Advances................The Servicer will be obligated to make advances of cash,
which will be part of the Trust Interest Collections
and Trust Principal Collections, in an amount equal to
all amounts of interest and principal, if any, at the
time known by the Servicer to be delinquent on the
Trust Balance of each Mortgage Loan and not previously
advanced, but only to the extent that the Servicer
believes that such amounts will be recoverable by it.
Any advance made by the Servicer with respect to the
Trust Balance of each Mortgage Loan will be
reimbursable to it. The Servicer will be entitled to
reimburse itself in respect of otherwise
non-recoverable advances from funds otherwise
distributable to Certificateholders. See "Description
of the Certificates--Advances" herein.
Servicing Fee...........The Servicer will receive a fee (the "Servicing Fee")
computed daily at an annual rate equal to 0.__% (the
"Servicing Fee Rate") on the aggregate Loan Balance
of the Mortgage Loans outstanding during a Collection
Period and, for any Distribution Date, the Servicing
Fee will be deducted from collections allocable to
payments of interest received during the related
Collection Period. See "Description of the
Certificates--Servicing and Other Compensation and
Payment of Expenses" herein.
Substitution or
Repurchase
of Mortgage Loans.....The Servicer has the option either to substitute the
balance of one or more new Mortgage Loans or to
repurchase the Trust Balance of a Mortgage Loan that
was actually retransferred to the Servicer immediately
prior to a Distribution Date on account of (i) a
breach of a representation or warranty regarding such
Mortgage Loan that materially and adversely affects
the interests of the Certificateholders, (ii) a
material defect in the related loan documentation,
(iii) a loss resulting from retention by the Servicer
of the related loan documentation (each Mortgage Loan
described in (i) through (iii) above is a "Defective
Mortgage Loan"), or (iv) the occurrence of certain
circumstances specified in the Agreement for which the
Servicer is either required or permitted to
repurchase, or substitute for, the Trust Balance of a
Mortgage Loan. Any Mortgage Loan so substituted (an
"Eligible Substitute Mortgage
Loan") must, among other things, have a Trust Balance
(or if the new Mortgage Loan is a Common Mortgage
Loan, a balance conveyed to the Trust Fund) not
substantially greater or less than the Trust Balance
of the Mortgage Loan for which it is being
substituted, and a Loan Rate of not less then the
current Loan Rate of the Defective Mortgage Loan it
replaces and not more than __% in excess thereof.
Termination;
Retirement of
the Certificates......The Trust Fund will terminate on the Distribution Date
following the later of (A) payment in full of all
amounts owing to the Certificate Insurer and (B) the
earliest of (i) the Distribution Date on which the
Certificate Principal Balance has been reduced to
zero, (ii) the final payment or other liquidation of
the last Mortgage Loan in the Trust Fund, (iii) the
optional transfer to the Servicer of the Mortgage
Loans, as described below and (iv) the Distribution
Date in ______ 20__.
At their option at any time when the outstanding
Certificate Principal Balance is less than 10% of the
Original Certificate Principal Balance, the Servicer,
or in the absence of the exercise thereof by the
Servicer, the Certificate Insurer, may purchase from
the Trust Fund all remaining Mortgage Loans and other
property held by the Trust Fund. The purchase price
will be equal to the sum of the outstanding
Certificate Principal Balance and accrued and unpaid
interest thereon at the Certificate Rate through the
day preceding the final Distribution Date. See
"Description of the Certificates--Termination;
Retirement of the Certificates" herein.
In addition, the Trust may be liquidated as a result of
certain events of insolvency, receivership or
conservatorship relating to the Seller. See
"Description of the Certificates--Rapid Amortization
Events" herein.
Certain Federal Income
Tax Considerations....In the opinion of tax counsel to the Seller, the
Certificates will be properly characterized as
indebtedness for federal income tax purposes. Under
the Agreement, the Seller and the Certificateholders
will agree to treat the Certificates as indebtedness
for federal income tax purposes. See "Certain Federal
Income Tax Consequences" herein and in the Prospectus.
ERISA Considerations....A fiduciary of a pension or other employee benefit plan
(a "Plan") subject to the Employee Retirement Income
Security Act of 1974, as amended ("ERISA"),
contemplating the purchase of Certificates should
consult with its counsel before making a purchase and
the fiduciary and such legal advisors should consider
the possible application of Prohibited Transaction
Exemption 90-29 and certain other exemptions described
herein. See "ERISA Considerations" herein and in the
Prospectus.
Legal Investment
Considerations........The Certificates will not constitute "mortgage related
securities" for purposes of the Secondary Mortgage
Market Enhancement Act of 1984 because, among other
reasons, most of the mortgages securing the Mortgage
Loans are not first mortgages. Accordingly, many
institutions with legal authority to invest in
comparably rated securities based on first mortgage
loans may not be legally authorized to invest in the
Certificates. See "Legal Investment Considerations"
herein.
Use of Proceeds.........Substantially all of the net proceeds from the sale of
the Certificates will be applied by the Seller to the
purchase price of the Trust Balances of the
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Mortgage Loans and to pay expenses connected with
pooling the Mortgage Loans and issuing the
Certificates.
Certificate Rating......It is a condition to the issuance of the Certificates
that they be rated _____ by
____________________________________ ("___") and
_____ by _____________________________ ("______" and
together with ___, the "Rating Agencies"). A security
rating is not a recommendation to buy, sell or hold
securities and may be subject to revision or
withdrawal at any time by the assigning Rating Agency.
There can be no assurance that the ratings assigned
to the Certificates on the date the Certificates are
initially issued will not be lowered or withdrawn at
any time by such Rating Agencies. A security rating
does not address the frequency of prepayments on the
Mortgage Loans or the corresponding effect on yield
to investors. See "Certificate Rating" herein.
Registration of the
Certificates..........The Certificates initially will be issued in book-entry
form. Persons acquiring beneficial ownership interests
in the Certificates ("Certificate Owners") may elect
to hold their Certificate interests through
The Depository Trust Company ("DTC"), in the United
States, or through Centrale de Livraison de Valeurs
Mobilieres S.A. ("CEDEL") or the Euroclear System
("Euroclear"), in Europe. Transfers within DTC, CEDEL
or Euroclear, as the case may be, will be in
accordance with the usual rules and operating
procedures of the relevant system. So long as the
Certificates are Book-Entry Certificates, such
Certificates will be evidenced by one or more
Certificates registered in the name of Cede & Co.
("Cede"), as the nominee of DTC, or one of the
relevant depositaries (collectively, the "European
Depositaries"). The Certificates will initially be
registered in the name of Cede. The interests of
Certificateholders will be represented by book
entries on the records of DTC and participating
members thereof. Cross-market transfers between
persons holding directly or indirectly through DTC,
on the one hand, and counterparties holding directly
or indirectly through CEDEL or Euroclear, on the
other, will be effected within DTC through Citibank
N.A. or Morgan Guaranty Trust Company of New York,
the relevant depositaries of CEDEL or Euroclear,
respectively, and each a participating member of DTC.
No Certificate Owner will be entitled to receive a
definitive certificate representing such person's
interest, except in the event that Definitive
Certificates are issued under the limited
circumstances described herein. All references
herein to "holders" or "Certificateholders" shall
reflect the rights of Certificate Owners only as
such rights may be exercised through DTC and
participating members thereof for so long as such
Certificates are held by DTC. See "Special
Considerations and Risk Factors -- Book-Entry
Certificates", "Description of the Certificates --
Registration of the Certificates" herein and "Annex
I" hereto.
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<PAGE.
SPECIAL CONSIDERATIONS AND RISK FACTORS
Limited Liquidity. There is currently no market for the Certificates.
While the Underwriter currently intends to make a market in the
Certificates, it is under no obligation to do so. There can be no
assurance that a secondary market will develop or, if a secondary market
does develop, that it will provide holders of the Certificates with
liquidity of investment or that it will continue for the life of the
Certificates. The Certificates will not be listed on any securities
exchange.
Issuance of the Certificates in book-entry form may reduce the liquidity
of such Certificates in the secondary trading market since investors may
be unwilling to purchase Certificates for which they cannot obtain
physical certificates. See "Description of the Certificates --
Registration of Certificates" herein.
Nature of Security; Subordinate Mortgage Loans. The Mortgage Loans are
revolving credit line loans and a majority of the Mortgage Loans are
secured by second mortgages on residential properties. In the case of
liquidations, Mortgage Loans secured by second mortgages are entitled to
proceeds that remain from the sale of the related Mortgaged Property after
any related first mortgage loan has been satisfied in full (including any
related foreclosure costs). In the event that such proceeds are
insufficient to satisfy both loans in the aggregate, the Trust Fund and,
accordingly, the Certificateholders, as the holders of the second mortgage
loan, bear (i) the risk of loss unless a deficiency judgment is obtained
and realized upon and (ii) even if there is full realization upon a
deficiency judgment, the risk of delay in distributions pending such
realization. See "Certain Legal Aspects of the Mortgage Loans" in the
Prospectus.
Since no payments in reduction of the entire outstanding principal
balances of the Mortgage Loans are required prior to their maturity, the
remaining principal balance of a Mortgage Loan will be due in a balloon
payment at maturity. The ability of a borrower to make such payment may be
dependent on the ability to obtain refinancing of the balance due on the
Mortgage Loan. In addition, an increase in interest rates over the Loan
Rate applicable at the time the Mortgage Loan was originated may have an
adverse effect on the borrower's ability to pay the required monthly
interest payment. Such an increase in interest rates may also reduce the
borrower's ability to obtain refinancing and to pay the balance of the
Mortgage Loan at its maturity.
Even assuming that the Mortgaged Properties provide adequate security
for the Mortgage Loans, substantial delay could be encountered in
connection with the liquidation of defaulted Mortgage Loans and
corresponding delays in the receipt of related proceeds by
Certificateholders could occur. Further, liquidation expenses (such as
legal fees, real estate taxes, and maintenance and preservation expenses)
will reduce the proceeds payable to Certificateholders and thereby reduce
the security for the Mortgage Loans. In the event any Mortgaged Properties
fail to provide adequate security for the related Mortgage Loans, required
payments under the Certificate Insurance Policy were not made, and the
protection provided by the limited subordination of the Seller Interest
and the availability of overcollateralization have been exhausted,
Certificateholders could experience a loss on their investments.
Local Real Estate Markets. An overall decline in the residential real
estate markets in the states in which the Mortgaged Properties are located
could adversely affect the values of the Mortgaged Properties such that
the outstanding Loan Balances, together with the outstanding balances of
any senior lien thereon, equal or exceed the values of the Mortgaged
Properties. Such declines would adversely affect the position of a second
mortgagee before having such an effect on that of the related first
mortgagee and could extinguish the interest of the holder of a second
mortgage on the Mortgaged Property. Residential real estate markets in
many states have softened in recent years. There is no reliable
information available to the Seller with respect to the rate at which real
estate values have declined in such states. The Seller can neither
quantify the impact of such declines in property values nor predict how
long such decline may continue or when such declines will end. During a
period of such declines, the rates of delinquencies, foreclosures and
losses on the Mortgage Loans would be expected to be higher than those
experienced in the mortgage lending industry in general.
Moreover, in many cases home equity revolving credit line borrowers have
primary residences with above average values, and those properties may
experience greater relative declines in value than other properties with
lower values. A rise in interest rates over a period of time and the
general condition of the Mortgaged Property as well as other factors may
have the effect of reducing the value of the Mortgaged Property from the
appraised value at the time the Mortgage
Loan was originated. If there is a reduction in value of the Mortgaged Property,
the ratio of the amount of the Mortgage Loan to the value of the Mortgaged
Property may increase over what it was at the time the Mortgage Loan was
originated. Such an increase may reduce the likelihood of liquidation or other
proceeds being sufficient to satisfy the Mortgage Loan after satisfaction of
any senior liens. In addition, if the borrower has an adjustable rate first
mortgage loan, any increase in the interest rate thereon may adversely affect
such borrower's ability to make payments on the related Mortgage Loan.
Cash Flow Considerations. The rights of the holder of the Seller
Interest to receive Certificate Interest Collections remaining after the
payment of accrued interest due and any overdue accrued interest on the
Certificates, along with certain other expenses, and to receive Trust
Interest Collections and Trust Principal Collections allocable to the
Seller Interest (but not in excess of the then current Seller Subordinated
Amount) are subordinated to certain rights of holders of the Certificates
in order to enhance the likelihood of receipt by holders of the
Certificates of the full amount of their scheduled distributions of
interest on each Distribution Date and the ultimate receipt by such
holders of principal equal to the Original Certificate Principal Balance.
This subordination feature must absorb the risks associated with a
possible narrowing of the spread between the prime rate (which is the
index for determining the Loan Rate for each Mortgage Loan) and the
Certificate Rate (which is based upon LIBOR plus a specified margin). If
this spread disappears (i.e., the Certificate Rate derived from the LIBOR
formula exceeds the weighted average of the Loan Rates (net of the
Servicing Fee Rate of the Mortgage Loans and the monthly premium due on
the Certificate Insurance Policy)), the Certificate Rate for the related
Distribution Date will be the weighted average of such net Loan Rates of
the Mortgage Loans during the prior Collection Period. As described more
fully herein, the percentage amount added to the prime rate to produce the
Loan Rate applicable at any time to certain of the Mortgage Loans may
decrease as additional amounts are borrowed thereunder. The Certificate
Rate could also be limited if all or a significant portion of the Loan
Rates were prevented by their lifetime interest rate caps from increasing
in accordance with increases in the prime rate as described herein.
General credit risk may also be greater to Certificateholders than to
holders of certificates representing interests in level payment first
mortgage loans since no payment of principal is required until final
maturity. Borrowers under the Mortgage Loans are under no obligation to
pay down all or part of their outstanding principal balances prior to
maturity and, in the event such balances have not been substantially paid
down prior to maturity, some borrowers may find themselves unable to make
the required final payment. Even assuming that the Mortgaged Properties
provide adequate security for such Mortgage Loans, substantial delay could
be encountered in connection with the liquidation of defaulted Mortgage
Loans and corresponding delays in the receipt of related liquidation
proceeds by Certificateholders could occur. Further, liquidation expenses
(such as legal fees, real estate taxes, and maintenance and preservation
expenses) will reduce the proceeds payable to Certificateholders and
thereby reduce the security for the Mortgage Loans. In the event any
Mortgaged Properties fail to provide adequate security for the related
Mortgage Loans, required payments under the Certificate Insurance Policy
were not made, and the protection provided by the limited subordination of
the Seller Interest and the availability of overcollateralization have
been exhausted, Certificateholders could experience a loss on their
investments.
Maturity and Prepayment Considerations. The Mortgage Loans may be
prepaid in whole or in part at any time without penalty. There is limited
data available on the rate of prepayment of home equity loans such as the
Mortgage Loans. Generally, home equity loans are not viewed by mortgagors
as permanent financing. Accordingly, the Mortgage Loans may experience a
higher rate of prepayment than traditional mortgage loans. On the other
hand, it can be expected that a portion of borrowers will not prepay their
Mortgage Loans to any significant degree. Borrowers who treat the amounts
borrowed as a long-term loan are more likely to allow their Mortgage Loans
to remain outstanding until maturity. The presence or absence of these two
types of Mortgage Loans in the Trust Fund may have a significant impact on
the rate and timing of principal payments (including prepayments) on the
Mortgage Loans and, as a result, the weighted average lives of the
Certificates. In addition, any future limitations on the right of
borrowers to deduct interest payments on the Mortgage Loans for federal
income tax purposes may result in a higher rate of prepayments of the
Mortgage Loans. The Trust Fund's prepayment experience may be affected by
a wide variety of factors, including general economic conditions, the
level of prevailing interest rates, the availability of alternative
financing and homeowner mobility. In addition, all of the Mortgage Loans
contain due-on-sale provisions. The Servicer is under no obligation to
enforce such provisions and will refrain therefrom if such exercise will
impair or threaten to impair any recovery under any related insurance
policy, is not permitted by applicable law, or in other circumstances
deemed appropriate by MLCC.
The rate of acceleration of amortization of the Certificate Principal
Balance will be affected by the inclusion in the Trust Fund of Common
Mortgage Loans and Mortgage Loans with a Cut-off Date Trust Balance of $0.
Common Mortgage Loans, whose Trust Balances account for ____% by Cut-off
Date principal amount of the balances to be transferred to the Trust Fund,
are those Mortgage Loans which generated prior balances that were
transferred to one or more of the Prior Trusts. See table captioned "Data
on Common Mortgage Loans" under "The Mortgage Loan Pool" herein. Payments
of principal (including prepayments) on a Common Mortgage Loan will be
applied first to reduce to zero the principal balance of such Common
Mortgage Loan assigned to the applicable Prior Trusts before any such
payments are applied to reduce the Trust Balance of such Common Mortgage
Loan. Partial prepayments of Common Mortgage Loans therefore would result
in distributions on the Certificates at a slower rate than partial
prepayments of other Mortgage Loans.
In the event a large number of Mortgage Loans are prepaid, the weighted
average life of the Certificates will be substantially shorter than the
weighted average life calculated on the assumption that all payments on
the Mortgage Loans are made only as scheduled. The weighted average life
of the Certificates will be sensitive to the rate and timing of principal
payments (including prepayments) on the Mortgage Loans, which may
fluctuate significantly from time to time. See "Prepayment and Yield
Considerations" herein.
No assurance can be given as to the level of prepayments that the Trust
Fund will experience. Under the Agreement, the Servicer will be obligated
to purchase Defective Mortgage Loans and Mortgage Loans as to which the
Servicer consented to increases in the related Credit Limits resulting in
Combined Loan-to-Value Ratios in excess of 85%. This will require the
Servicer to deposit in the Certificate Account the full amount of the
Trust Balance of the related Mortgage Loan, together with accrued interest
thereon at the Net Loan Rate. Amounts so deposited will be distributed to
Certificateholders as a prepayment in full of such Trust Balance, further
accelerating payments on the Certificates.
Realization Upon Defaulted Mortgage Loans; Delays and Expenses
Associated with Legal Actions. An action to foreclose a Mortgage Loan is
regulated by statutes and rules and is subject to a court's equitable
powers. A foreclosure action is subject to many of the delays and expenses
of other lawsuits if defenses or counterclaims are interposed, sometimes
requiring several years to complete. Furthermore, an action to obtain a
deficiency judgment also is regulated by statutes and rules, and the
amount of a deficiency judgment may be limited by law. In the event of a
default by a borrower, these restrictions, among others, may impede the
ability of the Servicer to foreclose on or to sell the Mortgaged Property
or to obtain a deficiency judgment in connection therewith. If required
payments under the Certificate Insurance Policy were not made and the
protection afforded the Certificateholders by the limited subordination of
the Seller Interest and the availability of overcollateralization have
been exhausted, such restrictions may delay distributions to the
Certificateholders and may ultimately limit the amounts distributed with
respect to such defaulted Mortgage Loans and result in a loss to the
Certificateholders on their investments. See "Certain Legal Aspects of the
Mortgage Loans" in the Prospectus.
Difficulty in Pledging. Since transactions in Certificates can be
effected only through DTC, CEDEL, Euroclear, participating organizations,
indirect participants and certain banks, the ability of a Certificate
Owner to pledge a Certificate to persons or entities that do not
participate in the DTC, CEDEL, or Euroclear system, or otherwise to take
actions in respect of such Certificates, may be limited due to lack of a
physical certificate representing the Certificates. See "Description of
the Certificates -- Registration of the Certificates" herein.
Potential Delays in Receipt of Distributions. Certificate Owners may
experience some delay in their receipt of distributions of interest and
principal on the Certificates since such distributions will be forwarded
by the Trustee to DTC and DTC will credit such distributions to the
accounts of its Participants (as defined herein) which will thereafter
credit them to the accounts of Certificate Owners either directly or
indirectly through indirect participants. See "Description of the
Certificates -- Registration of The Certificates" herein.
Certificate Ratings. The rating of the Certificates will depend
primarily on an assessment by the Rating Agencies of the underlying
Mortgage Loans, the Certificate Insurance Policy, the amount of
overcollateralization and the limited subordination afforded by the Seller
Interest. The rating by the Rating Agencies of the Certificates is not a
recommendation to purchase, hold or sell the Certificates, inasmuch as
such rating does not comment as to the market
price or suitability for a particular investor. There is no assurance that the
ratings will remain for any given period of time or that the ratings will not
be reduced, suspended or withdrawn by the Rating Agencies. The ratings of the
Certificates do not address the possibility of the imposition of United
States withholding tax with respect to non-U.S. persons.
Certificate Insurance Policy. Credit enhancement with respect to the
Certificates will be provided by the Certificate Insurance Policy. See
"Description of the Certificates -- Certificate Insurance Policy" herein.
If required payments under the Certificate Insurance Policy were not made,
the Certificateholders will be at greater risk with respect to losses on
the Mortgage Loans.
Other Legal Considerations. Applicable state laws generally regulate
interest rates and other charges, and require certain disclosures. In
addition, many states have other laws, such as consumer protection laws,
unfair and deceptive practices acts and debt collection practices acts
which may apply to the origination or collection of the Mortgage Loans.
Depending on the provisions of the applicable law, violations of these
laws may limit the ability of the Servicer to collect all or part of the
principal of or interest on the Mortgage Loans, may entitle the borrower
to a refund of amounts previously paid and, in addition, could subject the
Servicer to damages and administrative enforcement. See "Certain Legal
Aspects of the Mortgage Loans" in the Prospectus.
The Mortgage Loans are also subject to federal laws, including:
(i) the Federal Truth-in-Lending Act and Regulation Z promulgated
thereunder, which require certain disclosures to the borrowers regarding the
terms of the Mortgage Loans;
(ii) the Equal Credit Opportunity Act and Regulation B promulgated
thereunder, which prohibit discrimination on the basis of age, race,
color, sex, religion, marital status, national origin, receipt of public
assistance or the exercise of any right under the Consumer Credit Protection
Act, in the extension of credit; and
(iii) the Fair Credit Reporting Act, which regulates the use and
reporting of information related to the borrower's credit experience.
Violations of certain provisions of these federal laws may limit the
ability of the Servicer to collect all or part of the principal of or
interest on the Mortgage Loans, may subject the Servicer to damages and
administrative enforcement and in addition could be raised by borrowers as
a recoupment or setoff in a collection or foreclosure action. See "Certain
Legal Aspects of the Mortgage Loans" in the Prospectus.
Under the terms of the Agreement, so long as ML & Co.'s long-term
unsecured debt is rated at least A- by __________________________________
and A3 by _______________________, the Servicer will be entitled to
maintain possession of the documentation relating to each Mortgage Loan
sold by it, including the Credit Line Agreement or other evidence of
indebtedness signed by the borrower. Failure to deliver such documents to
the Trustee will have the result of making the sale of the Cut-off Date
Trust Balances, any Additional Balances and such documents potentially
ineffective against creditors of the Servicer or, in the event the
Servicer fraudulently or inadvertently resells a Mortgage Loan to a
purchaser who had no notice of the prior sale thereof and takes possession
of the related Credit Line Agreement or other evidence of indebtedness,
against such a purchaser. The Agreement provides that if any loss is
suffered in respect of a Mortgage Loan as a result of the Servicer's
retention of the documentation relating to such Mortgage Loan, the
Servicer will purchase such Mortgage Loan from the Trust Fund. In the
event ML & Co.'s long-term unsecured debt rating does not satisfy the
above referenced standards, the documentation relating to each Mortgage
Loan will be delivered to and maintained by the Trustee.
The Servicer and the Seller will treat the transfer of the Trust
Balances of the Mortgage Loans by the Servicer to the Seller as a sale for
accounting purposes. The Seller and the Trust Fund will treat the transfer
of the Trust Balances of the Mortgage Loans from the Seller to the Trust
Fund as a sale for accounting purposes. As a sale of the Trust Balances of
the Mortgage Loans by the Servicer to the Seller, the Mortgage Loans would
not be part of the Servicer's bankruptcy estate and would not be available
to the Servicer's creditors. However, in the event of the insolvency of
the Servicer, it is
S-23
<PAGE.
possible that the bankruptcy trustee or a creditor of the Servicer or the
Servicer as debtor in possession may attempt to recharacterize the sale of
the Trust Balances of the Mortgage Loans as a
borrowing by the Servicer, secured by a pledge of the Mortgage Loans. This
position, if argued before or accepted by a court, could prevent timely
payments of amounts due on the Certificates and result in a reduction of
payments due on the Certificates. Furthermore, so long as the Servicer
retains the documentation relating to the Mortgage Loans in its
possession, if such recharacterization were to occur, the
Certificateholders may be treated as unsecured creditors of the Servicer.
The Seller will warrant in the Agreement that the transfer of the Trust
Balances of the Mortgage Loans by it to the Trust is either a valid
transfer and assignment of the Trust Balances of the Mortgage Loans to the
Trust or the grant to the Trust of a security interest therein. In
addition, cash collections may be commingled with the Servicer's own funds
prior to each Distribution Date. In the event of the insolvency of the
Servicer, the Trust Fund will likely not have a perfected interest in such
collections since they would not have been deposited in a segregated
account within 10 days after the collection thereof, and the inclusion
thereof in the bankruptcy estate of the Servicer may result in delays in
payment and failure to pay amounts due on the Certificates.
If a conservator, receiver or trustee were appointed for the Seller, or
if certain other events relating to the bankruptcy or insolvency of the
Seller were to occur, Additional Balances would not be sold to the Trust.
In such an event, the Rapid Amortization Period would commence and the
Trustee would attempt to sell the Mortgage Loans (unless
Certificateholders holding Certificates evidencing undivided interests
aggregating at least 51% of the outstanding Certificate Principal Balance
of the Certificates not held by the Seller instruct otherwise), thereby
causing early payment of the Certificate Principal Balance. The net
proceeds of such sale will first be paid to the Certificate Insurer to the
extent of unreimbursed draws under the Certificate Insurance Policy and
other amounts owing to the Certificate Insurer pursuant to the Insurance
Agreement. The Fixed Allocation Percentage of remaining amounts will be
distributed to the Certificateholders. The Certificate Insurance Policy
will not cover any amount by which such remaining net proceeds are
insufficient to pay the Certificate Principal Balance in full.
In the event of a bankruptcy or insolvency of the Servicer, the
bankruptcy trustee or receiver may have the power to prevent the Trustee
or the Certificateholders from appointing a successor Servicer.
THE MORTGAGE LOAN POOL
THE MORTGAGE LOANS
The Mortgage Loans are evidenced by loan agreements (each, a "Credit
Line Agreement") secured by mortgages or deeds of trust (of which
approximately ______% by Cut-off Date Pool Balance are first liens and
substantially all of the remainder are second liens) on Mortgaged
Properties located in ___ states, the Virgin Islands and the District of
Columbia. In the case of Mortgage Loans which are third or fourth liens,
MLCC is generally acting as the servicer of the related second and third,
as the case may be, mortgage or deed of trust. The term to maturity of
each Mortgage Loan at origination was ___ years.
Each Mortgage Loan was selected by MLCC for inclusion in the Trust Fund
from among those that met the following criteria as of the Cut-off Date:
(i) no payment was more than one month past due and (ii) not less than
three months to contractual maturity. The Mortgage Loans were selected
from the mortgage loans in MLCC's servicing portfolio that met the above
criteria using a selection process believed by the Seller and the Servicer
not to be adverse to Certificateholders. The loan application for each
Mortgage Loan was initially approved between _______ and _______ in the
ordinary course of MLCC's home equity revolving credit line loan program.
As of the Cut-off Date, the average Trust Balance was approximately
$_______ for those Mortgage Loans with a Trust Balance greater than $0. As
of the Cut-off Date, the weighted average Margin was approximately ______%
and the weighted average Loan Rate was approximately _____%. The weighted
average Combined Loan-to-Value Ratio at origination was approximately
______%. As of the Cut-off Date, the weighted average credit limit
utilization rate (computed by dividing the Loan Balance for each Mortgage
Loan by the related Credit Limit) was approximately _______%. The weighted
average remaining term to stated maturity at the Cut-off Date was ___
months and the latest scheduled maturity of any Mortgage Loan is _______,
20__.
As of the Cut-off Date, Mortgage Loans representing approximately _____%
by Cut-off Date Pool Balance have a weighted average lifetime interest
rate cap of _____% and lifetime interest rate caps ranging from ____% to
______%. The remaining Mortgage Loans have no interest rate caps but are
generally subject to applicable state usury ceilings. None of the Mortgage
Loans have interest rate floors.
As of the Cut-off Date, the Loan Rates for approximately _____% of the
Mortgage Loans by Pool Balance were calculated on the basis of a zero
Margin. As of the Cut-off Date, borrowers obligated on approximately
_____% of the Mortgage Loans by Pool Balance were employees or independent
contractors of ML & Co. or subsidiaries thereof.
Set forth below is a description of certain additional
characteristics of the Mortgage Loans as of the Cut-off Date.
The sum of the percentages in each table below may not equal the
total of 100% due to rounding.
Geographical Distribution of Mortgaged Properties
-------------------------------------------------
- -------------------------------------------------------------------------------
PERCENT OF
NUMBER OF CUT-OFF
STATE OR MORTGAGE CUT-OFF DATE DATE POOL
TERRITORY LOANS TRUST BALANCES BALANCE
- -------------------------------------------------------------------------------
California................... $ %
Connecticut..................
Florida......................
Michigan.....................
New Jersey...................
New York.....................
Other(1).....................
--------- -------------- -----------
Total................. $ 100.00%
========= ============== ===========
__________
(1) Other includes 43 other states, the Virgin Islands and the District
of Columbia with under 3% concentrations individually.
CREDIT LIMITS(1)
----------------
- --------------------------------------------------------------------------------
PERCENT OF
NUMBER OF CUT-OFF
RANGE OF MORTGAGE CUT-OFF DATE DATE POOL
CREDIT LIMITS LOANS TRUST BALANCE BALANCE
- --------------------------------------------------------------------------------
$ 0.00--$ 24,999.99 $ %
25,000.00-- 49,999.99
50,000.00-- 74,999.99
75,000.00-- 99,999.99
100,000.00-- 124,999.99
125,000.00-- 149,999.99
150,000.00-- 199,999.99
200,000.00-- 249,999.99
250,000.00-- 299,999.99
300,000.00-- 349,999.99
350,000.00-- 399,999.99
400,000.00-- 449,999.99
450,000.00-- 499,999.99
500,000.00-- 749,999.99
750,000.00-- 999,999.99
1,000,000.00--1,249,999.99
1,250,000.00--1,499,999.99
1,500,000.00--1,749,999.99
1,750,000.00--1,999,999.99
2,000,000.00--2,249,999.99
2,750,000.00--2,999,999.99
3,000,000.00--3,249,999.99
3,250,000.00--3,499,999.99
5,000,000.00--5,249,999.99
--------- -------------- ----------
Total $ 100.00%
========= ============== ===========
_________
(1) As of the Cut-off Date, the weighted average Credit Limit was
approximately $___________.
OCCUPANCY STATUS
----------------
- --------------------------------------------------------------------------------
PERCENT OF
NUMBER OF CUT-OFF
MORTGAGE CUT-OFF DATE DATE POOL
STATUS LOANS TRUST BALANCE BALANCE
- --------------------------------------------------------------------------------
Owner-occupied............... $ %
Second home..................
Investment property..........
-------- ------------- -----------
Total................... $ 100.00%
======== ============= ===========
TRUST BALANCES(1)(2)
--------------------
- --------------------------------------------------------------------------------
PERCENT OF
NUMBER OF CUT-OFF
RANGE OF MORTGAGE CUT-OFF DATE DATE POOL
TRUST BALANCES LOANS TRUST BALANCE BALANCE
- --------------------------------------------------------------------------------
$ 0.00--$ 24,999.99 $ %
25,000.00-- 49,999.99
50,000.00-- 74,999.99
75,000.00-- 99,999.99
100,000.00-- 124,999.99
125,000.00-- 149,999.99
150,000.00-- 199,999.99
200,000.00-- 249,999.99
250,000.00-- 299,999.99
300,000.00-- 349,999.99
350,000.00-- 399,999.99
400,000.00-- 449,999.99
450,000.00-- 499,999.99
500,000.00-- 749,999.99
750,000.00-- 999,999.99
1,000,000.00--1,249,999.99
1,500,000.00--1,749,999.99
2,000,000.00--2,249,999.99
3,000,000.00--3,249,999.99
--------- ------------- -----------
Total $ 100.00%
========= ============= ===========
__________
(1) As of the Cut-off Date, the average Trust Balance was approximately
$________ for those Mortgage Loans with a Cut-off Date Trust Balance
greater than $0.
(2) There are _______ Mortgage Loans with a $0 Cut-off Date Trust Balance.
ORIGINAL COMBINED LOAN-TO-VALUE RATIOS(1)
-----------------------------------------
- --------------------------------------------------------------------------------
PERCENT OF
RANGE OF NUMBER OF CUT-OFF
ORIGINAL COMBINED MORTGAGE CUT-OFF DATE DATE POOL
LOAN-TO-VALUE RATIOS LOANS TRUST BALANCE BALANCE
- --------------------------------------------------------------------------------
0.01% -- 10.00%............. $ %
10.01 -- 20.00..............
20.01 -- 30.00..............
30.01 -- 40.00..............
40.01 -- 50.00..............
50.01 -- 60.00..............
60.01 -- 70.00..............
70.01 -- 75.00..............
75.01 -- 80.00..............
80.01 -- 85.00..............
85.01 -- 90.00..............
90.01 -- 95.00..............
95.01 --100.00..............
100.01 --115.00..............
--------- ------------- -----------
Total................... $ 100.00%
========= ============= ============
__________
(1) As of the Cut-off Date, the weighted average Combined Loan-to-Value
Ratio at origination was approximately ________%.
CREDIT LIMIT UTILIZATION RATES(1)
---------------------------------
- --------------------------------------------------------------------------------
PERCENT OF
RANGE OF NUMBER OF CUT-OFF
CREDIT LIMIT MORTGAGE CUT-OFF DATE DATE POOL
UTILIZATION RATES LOANS TRUST BALANCE BALANCE
- --------------------------------------------------------------------------------
0.00%-- 9.99%.............. $ %
10.00 --19.99...............
20.00 --29.99...............
30.00 --39.99...............
40.00 --49.99...............
50.00 --59.99...............
60.00 --69.99...............
70.00 --74.99...............
75.00 --79.99...............
80.00 --84.99...............
85.00 --89.99...............
90.00 --94.99...............
95.00 --99.99...............
100.00.......................
--------- ------------- -----------
Total................... $ 100.0%
--------- ------------- -----------
________
(1) As of the Cut-off Date, the weighted average credit limit utilization
rate was _____%.
MARGINS(1)
----------
- --------------------------------------------------------------------------------
PERCENT OF
NUMBER OF CUT-OFF
MORTGAGE CUT-OFF DATE DATE POOL
MARGINS LOANS TRUST BALANCE BALANCE
- --------------------------------------------------------------------------------
0.00%........................ $ %
0.75.........................
1.00.........................
1.25.........................
1.50.........................
1.75.........................
2.00.........................
--------- ------------- -----------
Total................... $ 100.0%
========= ============= ===========
__________
(1) As of the Cut-Off Date, the weighted average Margin was _______%.
REMAINING TERM TO STATED MATURITY(1)
------------------------------------
- --------------------------------------------------------------------------------
PERCENT OF
RANGE OF REMAINING TERMS NUMBER OF CUT-OFF
TO STATED MATURITY MORTGAGE CUT-OFF DATE DATE POOL
(MONTHS) LOANS TRUST BALANCE BALANCE
- --------------------------------------------------------------------------------
1-- 12..................... $ %
13-- 24.....................
25-- 36.....................
37-- 48.....................
49-- 60.....................
61-- 72.....................
73-- 84.....................
85-- 96.....................
97--108.....................
109--120.....................
--------- ------------- -----------
Total................... $ 100.00%
========= ============= ===========
_________
(1) As of the Cut-off Date, the weighted average remaining term to stated
maturity was ___ months.
SECOND MORTGAGE RATIOS(1)(2)
----------------------------
- --------------------------------------------------------------------------------
PERCENT OF
NUMBER OF CUT-OFF
RANGE OF MORTGAGE CUT-OFF DATE DATE POOL
SECOND MORTGAGE RATIOS LOANS TRUST BALANCE BALANCE
- --------------------------------------------------------------------------------
0.00%-- 9.99%............... $ %
10.00 --19.99................
20.00 --29.99................
30.00 --39.99................
40.00 --49.99................
50.00 --59.99................
60.00 --69.99................
70.00 --74.99................
75.00 --79.99................
80.00 --84.99................
85.00 --89.99................
90.00 --94.99................
95.00 --99.99................
--------- ------------ -----------
Total................... $ 100.0%
========= ============ ===========
__________
(1) The Second Mortgage Ratio of a Mortgage Loan is the ratio (expressed
as a percentage) computed (i) in the case of a Common Mortgage Loan, by
dividing the difference between (a) its Credit Limit and (b) the total
Prior Trust balance as of the Cut-off Date of such Common Mortgage Loan,
by the sum of its Credit Limit and the outstanding balances of any
senior mortgages as of the date of the origination of such Common
Mortgage Loan, and (ii) in the case of any other Mortgage Loan, by
dividing its Credit Limit by the sum of its Credit Limit and the
outstanding balances of any senior mortgages as of the date of the
origination of such Mortgage Loan. The Second Mortgage Ratio is
calculated only with respect to those Mortgage Loans in a junior lien
position.
(2) As of the Cut-off Date, the weighted average Second Mortgage Ratio
was ______%.
LIFETIME INTEREST RATE CAPS(1)
------------------------------
- --------------------------------------------------------------------------------
PERCENT OF
NUMBER OF CUT-OFF
RANGE OF LIFETIME MORTGAGE CUT-OFF DATE DATE POOL
INTEREST RATE CAPS LOANS TRUST BALANCE BALANCE
- --------------------------------------------------------------------------------
No Lifetime Interest Rate $ %
Cap(2).....................
13.01%--13.50%.............
13.51 --14.00..............
14.01 --14.50..............
14.51 --15.00..............
15.01 --15.50..............
15.51 --16.00..............
16.01 --16.50..............
16.51 --17.00..............
17.01 --17.50..............
17.51 --18.00..............
18.01 --18.50..............
18.51 --19.00..............
19.01 --19.50..............
--------- ------------- -----------
Total................... $ 100.0%
--------- ------------- -----------
__________
(1) As of the Cut-off Date, the weighted average lifetime interest rate
cap of the Mortgage Loans subject to specified caps was _____%.
(2) Mortgage Loans originated prior to December 1987 generally did not
have specified lifetime interest rate caps, but were subject to
applicable state usury limits, if any.
Set forth below is a description of certain characteristics of the
Common Mortgage Loans:
DATA ON COMMON MORTGAGE LOANS(1)
--------------------------------
<TABLE>
<CAPTION>
Type of Number of Cut-off Percent of Cut-off Cut-off Mortgage
Mortgage Mortgage Date Cut-off Date Date Loan
Loan Loans Trust Date Balances in Loan Credit
Balance Pool Balance Prior Trusts Balance Limits
<S> <C> <C> <C> <C> <C> <C> <C>
Common
Mortgage
Loan in
Trust
1989 ... $ % $ $ $
1991 ...
1993 ...
1994-1 ..
1994-2 ..
1995-1 ..
1995-2 ..
Other(2)
Total $ 100.0% $ $ $
__________
(1) Common Mortgage Loans are those Mortgage Loans which had balances
that were previously transferred to Trust 1989, Trust 1991, Trust 1993, Trust
1994-1, Trust 1994-2, Trust 1995-1 and/or Trust 1995-2 balance. Principal
collections on a Common Mortgage Loan will be applied first to reduce the
Trust 1989, Trust 1991, Trust 1993, Trust 1994-1, Trust 1994-2,
Trust 1995-1 and/or Trust 1995-2 balance, as applicable, of such Common
Mortgage Loan to zero before any such collections are applied in reduction
of the Trust Balance of such Common Mortgage Loan. See "Special
Considerations and Risk Factors-- Maturity and Prepayment Considerations"
herein.
(2) Other Mortgage Loans are those that do not have a Prior Trust
balance.
MLCC will transfer and assign to the Seller all of its right, title and
interest in the Cut-off Date Pool Balance and the Seller in turn will
assign such aggregate balances to the Trustee for the benefit of the
holders of the Certificates. The Servicer will continue to service the
Mortgage Loans, pursuant to the Agreement, and will receive the monthly
Servicing Fee for such services. See "Description of the Certificates--
Assignment of Trust Balances of the Mortgage Loans" and "--Servicing and
Other Compensation and Payment of Expenses" herein.
MLCC will make certain representations and warranties regarding the
Mortgage Loans, but its transfer and assignment of the Cut-off Date Pool
Balance to the Seller will be without recourse. See "Description of the
Certificates--Assignment of Trust Balances of the Mortgage Loans" herein.
The Servicer's obligations with respect to the Mortgage Loans will consist
principally of its contractual servicing obligations under the Agreement
and its obligation to make certain cash advances in the event of
delinquencies in payments on or with respect to the Mortgage Loans in
amounts described under "Description of the Certificates--Advances"
herein.
MLCC AND ITS EQUITY ACCESS(R) PROGRAM
MLCC, a wholly-owned indirect subsidiary of Merrill Lynch & Co., Inc.
("ML & Co.") and an affiliate of the Seller and the Underwriter, is a
Delaware corporation qualified to do business in each state where its
mortgage program is offered. It maintains licenses in various states as a
real estate or mortgage broker, and/or as a mortgage banker, and/or as a
first or second mortgage lender. It also has the following approvals: HUD
nonsupervised one- to four-family mortgagee; FHA approved mortgagee; FNMA
first and second mortgage one- to four-family seller/servicer; FHLMC first
and second mortgage one- to four-family seller/servicer; GNMA mortgage
backed securities issuer under the GNMA I and GNMA II single family
programs; and supervised VA lender.
MLCC's offices are located in Jacksonville, Florida. MLCC generally does
not establish local offices in the states where its loans are offered, but
has, in the past, and where required, appointed employees of other Merrill
Lynch companies which do have local offices as officers or agents of MLCC,
and has used the other Merrill Lynch companies' local offices as MLCC's
local offices for licensing purposes. MLCC also maintains an office in San
Juan, Puerto Rico. On July 16, 1991, MLCC changed its name from Merrill
Lynch Equity Management, Inc. to Merrill Lynch Credit Corporation.
MLCC is in the business of making real estate secured, revolving credit
line loans ("Home Equity Loans" or "HELs") available to borrowers as well
as making real estate secured, first mortgage loans. These lines of credit
are called "Equity Access(R) credit accounts," or "Equity Access(R)
loans." The first mortgage loans are originated by MLCC through its
various mortgage programs.
In most states, a minimum Credit Limit is imposed with respect to Equity
Access(R) loans. A maximum Credit Limit of $2,000,000 is applied for all
states, but exceptions are made on occasion permitting credit lines in
excess of $2,000,000. The average Credit Limit amount as of __________ 1,
199_ for all Equity Access(R) loans was approximately $__________. In most
instances, these lines of credit are secured by second mortgages on the
borrowers' owner-occupied primary or vacation houses. However, they may be
secured by either purchase money or nonpurchase money first mortgages on
such properties, and they may be secured by first or second mortgages on
one- to four-family rental properties or by first liens on shares issued
by private cooperative apartment housing corporations.
In certain cases, MLCC may originate its Equity Access(R) loans in
conjunction with the origination of a first mortgage on the subject
property. The underwriting guidelines applied to such Equity Access(R)
loans are substantially the same as those described below for MLCC's
stand-alone Equity Access(R) program.
The Equity Access(R) program is marketed through stockbrokers (referred
to as "financial consultants") employed by Merrill Lynch, Pierce, Fenner &
Smith Incorporated, mortgage and credit specialists employed by MLCC,
newspaper and other print advertising, as well as through direct mail
campaigns.
MLCC underwriting guidelines are applied to evaluate the prospective
borrower's credit standing and repayment ability, and the value and
adequacy of the Mortgaged Property as collateral. Initially, the borrower
is required to fill out a detailed application providing pertinent credit
and property information. As part of the description of the borrower's
financial condition, the borrower is required to provide information
concerning assets, liabilities, income and expenses, as well as an
authorization permitting MLCC to apply for a credit report summarizing the
borrower's credit history with merchants and lenders and any record of
recent bankruptcy. In addition, an employment verification is obtained
which must report the borrower's current salary and may contain the length
of employment and an indication as to whether it is expected that the
borrower will continue such employment in the future. If a prospective
borrower is self-employed, the borrower is generally required to submit
copies of signed tax returns.
In determining the adequacy of the Mortgaged Property as collateral, an
appraisal is made of each home 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 or renovation, 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 sufficient employment, credit and property information is obtained,
a determination is made as to whether sufficient unencumbered equity in
the property exists and whether the prospective borrower has sufficient
monthly income available to meet the borrower's monthly obligations
consisting of first mortgage payments, property taxes and hazard insurance
premiums, other monthly credit obligations, and the payment of interest on
the credit line to be extended by MLCC. These determinations are made in a
manner similar to the underwriting methods employed by FNMA and FHLMC,
except that MLCC uses a single debt-to-income ratio ("DTI") requirement
that generally does not exceed 50%, (this ratio may be limited to 38% in
cases where certain disposable income thresholds are not met). The DTI
ratio is calculated as the ratio of the borrower's total monthly debt
obligations (including the interest only payment on the proposed loan
assuming a fully utilized credit line and an interest rate that is 4%
higher than the original rate) divided by the borrower's total verified
monthly income. In certain limited cases, MLCC may accept verification of
borrower assets in addition to or in lieu of income verification, provided
that the borrower meets certain standards with regard to the ratio of
liquid assets to the loan amount and other compensating factors are
present.
The Mortgaged Properties may be located in states where, in general, a
lender providing credit on a single-family property may not seek a
deficiency judgment against the mortgagor but rather must look solely to
the property for repayment in the event of foreclosure. MLCC's
underwriting standards applicable to all states (including anti-deficiency
states) require that the value of the property being financed, as
indicated by the appraisal, currently supports and is anticipated to
support in the future the outstanding loan balance.
In 1992, MLCC began originating loans through mortgage brokers that are
not affiliated with MLCC. The mortgage brokers solicit the prospective
borrower and process the documentation described above for such borrower's
loan. Personnel of MLCC review such documentation and underwrite the loan
in accordance with the above described underwriting standards. In that
regard, the related appraisals are either conducted or reviewed by
appraisers who are approved by MLCC. Such loans are closed in the name of,
and funded by, MLCC.
The above described underwriting guidelines may be varied in certain
cases, on the basis of compensating factors, as deemed appropriate by
MLCC's underwriting personnel.
If an application is approved, the applicant obtains his line of credit
by signing loan documents, including a loan agreement and second mortgage
or deed of trust (or a first mortgage or deed of trust, where appropriate)
encumbering the subject property and securing the credit line. The loan
agreement provides for obligatory advances up to the Credit Limit, and
contains payment obligations similar to those found in a traditional note.
A separate note is not currently used, although separate notes were used
for some of the Mortgage Loans. The loan agreement and mortgage or deed of
trust (generally in a second position) are in the full amount of the
Credit Limit. For Mortgage Loans that closed prior to May 24, 1994 and
that have a Margin greater than 0%, customary closing costs and a fee of
approximately $300 were paid by the borrower. For Mortgage Loans that
closed after such date and that have a Margin greater than 0%, the only
closing costs incurred by the borrower was a fee generally ranging from $0
to $250, and mortgage recording taxes in certain states. Borrowers
obtaining certain Mortgage Loans with credit limits of $200,000 or more
and a Margin equal to 0% were required to pay an origination fee in
addition to customary closing costs (this program is called the "Equity
Access Prime(R) Program"). There is an annual service charge (the maximum
charge of which is $50) for maintaining a borrower's credit line, where
such charge is legally permitted.
The customer may draw funds (up to the amount of his Credit Limit) by
writing checks or by using a special VISA card issued by a New Jersey
state bank that is a subsidiary of ML & Co. Monthly, the customer is
required to pay only interest on his outstanding balance and any fees due
(such as late charges and the annual service charge mentioned above). The
customer may prepay the principal of the funds advanced to him at any time
during the term of the credit line, without penalty. The amount of funds
available to the customer is increased by the amount of principal which
the customer repays. For example, if a customer has a $50,000 Credit
Limit, and draws down $30,000 of that line without repaying any of the
principal, he would be entitled to borrow a maximum of $20,000 more.
However, if that customer is current in his interest payments and repays
$20,000 of principal (reducing his outstanding balance from $30,000 to
$10,000), the customer could borrow up to $40,000 more (the difference
between the amount of his Credit Limit and his outstanding principal
balance). There are no required payments of principal, but the customer
must repay his entire outstanding principal balance ten years from the
date that he opens his credit line.
MLCC generally does not require title insurance on Equity Access(R)
loans except in certain instances deemed appropriate by MLCC. These
instances include, but are not limited to, cases where the Equity
Access(R) loan amount will equal or exceed $1,000,000 and where the Equity
Access(R) loan is being extended as part of a purchase money first
mortgage transaction. However, MLCC obtains a property report showing the
results of a title search on the subject property in those cases in which
it does not require title insurance.
The home equity revolving line of credit bears interest at a variable
rate which may change daily or monthly subject to a maximum interest rate
specified in the Credit Line Agreement. The daily periodic rate (the "Loan
Rate") is 1/365th of the sum of the Index Rate (as defined below) plus a
Margin. The Margin on an Equity Access(R) loan is generally 1.50% for
borrowers who are existing clients of Merrill Lynch, Pierce, Fenner &
Smith Incorporated, and 1.75% for non-clients. Borrowers establishing
lines of credit over $200,000 may elect to pay a 1% origination fee in
exchange for a Margin of 0%. Mortgage Loans originated prior to June 1994
generally carry a variable Margin, which ranges between 1.50% and 2.00%,
and decreases as the outstanding principal balance of the account
increases. Equity Access(R) loans made to employees or affiliates of ML &
Co. or its subsidiaries generally carry a Margin of 0.75%. Upon the
termination of employment or affiliation between such borrower and ML &
Co. or an affiliate thereof, the Margin used for such borrower's Mortgage
Loan is increased to the applicable percentage described above. Interest
on the home equity revolving lines of credit is payable at the Loan Rate.
Interest is billed monthly in arrears based on the daily outstanding
principal balance and the applicable daily rate.
For most Mortgage Loans the "Index Rate" for each day is the "prime
rate" published for that day in The Wall Street Journal. If a prime rate
range is published, then the highest rate of that range will usually be
used. The documentation for some Mortgage Loans provides that the midpoint
of any prime rate range published in The Wall Street Journal will be used.
For other Mortgage Loans, the documentation provides that the "Index Rate"
for any day is the highest "prime rate" (or equivalent rate) quoted for
that day by three specified banks. Furthermore, each Credit Line Agreement
provides for a variety of additional alternatives for the Index Rate if
the provisions described above fail to produce an Index Rate. The Credit
Line Agreements generally provide that the Loan Rate will change when the
Index Rate changes, meaning that an increase or decrease in the Loan Rate
will take effect on the date the Index Rate changes. However, in the
states of New Jersey and Washington, the Loan Rate for a given month
generally is established on the first business day of that month.
The Servicer has the right to require the borrower to make immediate
payment of the entire balance plus all other accrued but unpaid charges
and to cancel his credit privileges under the Credit Line Agreement if,
among other things, the borrower fails to make payment under the Credit
Line Agreement within thirty days (or any longer time period required by
state law) after notice from the Servicer that such payment is past due or
if the borrower transfers any interest in the property securing the Credit
Line Agreement.
In the event of a default on a first mortgage that is senior to a
Mortgage Loan, the Servicer has the right in many states to satisfy the
defaulted senior mortgage in full, or to cure such default and make the
defaulted senior mortgage current as to payment, in either event adding
any amounts expended in connection with such satisfaction or cure to the
then current Loan Balance for such Mortgage Loan. In such event of
default, the Servicer will either take the actions described above, take
other appropriate actions or refrain from taking any action based upon the
Servicer's practice in connection with servicing loans for itself and
others. See "Certain Legal Aspects of the Mortgage Loans --
Foreclosure/Repossession" in the Prospectus.
DELINQUENCY AND LOAN LOSS EXPERIENCE
The following tables set forth information relating to the delinquency
and loan loss experience on the home equity revolving credit line mortgage
loans originated by MLCC for its own account or for the account of MLCC
affiliates and included in MLCC's servicing portfolio as of and for each
of the five years in the period ended December 31, 1995, respectively and
the six-month period ending June 30, 1996. The delinquency and loan loss
experience set forth in the following tables represents the historical
experience of MLCC for the dates and period given, and there can be no
assurance that the future experience on the Mortgage Loans in the Trust
Fund will be the same as, or more favorable than, that of the total
mortgage loans in MLCC's servicing portfolio, which mortgage loans are not
fully seasoned and the terms of which do not require the payment of
principal until final maturity.
MORTGAGE LOAN DELINQUENCY EXPERIENCE
</TABLE>
<TABLE>
<CAPTION>
As of December 31,
1991 1992 1993 1994 1995
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C>
Number of
revolving credit
line loans
serviced 15,913 15,084 13,839 15,598 25,056
Aggregate loan
balance of
revolving credit
line loans
serviced $1,073,492 $1,062,930 $1,037,427 $1,079,693 $1,293,483
Loan balance of
revolving credit
line loans
2 months
delinquent 2,250 3,717 5,161 5,358 8,447
Loan balance of
revolving credit
line loans
3 months or
more delinquent 22,361 18,751 17,508 22,989 33,763
Total of 2 months
or more
delinquent as a
percentage of
aggregate loan
balance of
revolving credit
line loans 2.29% 2.11% 2.19% 2.63% 3.26%
</TABLE>
MORTGAGE LOAN LOSS EXPERIENCE
<TABLE>
<CAPTION>
As of December 31,
1991 1992 1993 1994 1995
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C>
Number of
revolving credit
line loans
serviced 15,913 15,084 13,839 15,598 25,056
Aggregate loan
balance of
revolving credit
line loans
serviced $1,073,492 $1,062,930 $1,037,427 $1,079,693 $1,293,483
S OF DECEMBER 31,
For the period:
Gross charge-
offs dollars 936 1,447 3,153 1,118 3,700
Percentage(1) 0.09% 0.14% 0.30% 0.10% 0.29%
</TABLE>
__________
(1) As a percentage of aggregate balance of revolving credit line loans
serviced.
(2) Not annualized.
No assurance can be given that values of the Mortgaged Properties as of
the dates of origination of the related Mortgage Loans have remained or
will remain constant. If residential real estate markets experience a
further decline in property values such that the outstanding balances of
the Mortgage Loans, together with any primary financing on the Mortgaged
Properties, equal or exceed the value of the Mortgaged Properties, the
actual rates of delinquencies, foreclosures and losses could be higher
than those currently experienced in the mortgage lending industry in
general. To the extent that the Mortgaged Properties are concentrated in
areas which experience declining residential real estate values, the
delinquencies, foreclosures and losses with respect to the Mortgage Pool
may be particularly effected. See "The Mortgage Loan Pool" herein. The
likelihood that borrowers will become delinquent in the payment of the
Mortgage Loans, the rate of any subsequent foreclosures, and the severity
of any losses, also may be affected by a number of factors related to each
borrower's personal circumstances, including, but not limited to,
unemployment or change in employment (or in the case of self-employed
borrowers relying on commission income, fluctuations in income) and
marital separation. In addition, adverse economic conditions (which may or
may not affect real property values) may affect the timely payment by
borrowers of scheduled payments of principal and interest on the Mortgage
Loans and, accordingly, the actual rates of delinquencies, foreclosures
and losses with respect to the Mortgage Loans. To the extent that such
losses are not covered by required payments under the Certificate
Insurance Policy that were not made by the Certificate Insurer or through
the availability of the limited subordination of the Seller Interest and
overcollateralization, they will be borne, at least in part, by holders of
the Certificates. Management of MLCC believes that the principal reason
for the increase in delinquencies over the last several years is the
occurrence of a recession followed by an expansion that did not result in
significant increases in employment. In many cases the expansion has been
accompanied by an increase in unemployment among persons with above
average incomes, who are the typical borrowers under the Mortgage Loans.
Any further continuation or deepening of these trends, particularly as
they may affect affluent persons, would be expected to have a continuing
adverse effect on the delinquency and loan loss experience of home equity
loans in MLCC's servicing portfolio, including the Mortgage Loans. In
addition, home equity revolving credit line borrowers generally have
primary residences with above average values, and those properties may
experience greater declines in value during adverse economic conditions
than other properties with lower values.
ALLOCATIONS OF PAYMENTS ON THE MORTGAGE
LOANS BETWEEN THE TRUST AND THE PRIOR TRUSTS
Balances outstanding on November 1, 1989, September 1, 1991, February 1,
1993, April 1, 1994, September 1, 1994, March 1, 1995 and October 1, 1995
with respect to the Common Mortgage Loans were sold to Trust 1989, Trust
1991, Trust 1993, Trust 1994-1, Trust 1994-2, Trust 1995-1 and Trust 1995-2,
respectively. The Cut-off Date Trust Balances of the Mortgage Loans and
all Additional Balances thereon are being sold and assigned to the Trust
Fund. Future payments on the Common Mortgage Loans will be allocated
between the Trust Fund and the owners of the balances sold and assigned to
the Prior Trusts, in the following manner:
(a) The Servicing Fee for any Distribution Date will be deducted
from payments of interest received on the Mortgage Loans during the
related Collection Period. Following the deduction for the Servicing Fee,
each borrower payment of interest will be applied first to interest on the
Mortgage Loan at the then-current Net Loan Rate. Assuming full payment of
interest by the borrower, such payment will be allocated on a pro rata basis
between the Trust Balance thereof and the balance owned by one or more Prior
Trusts in proportion to the interest owed on each balance.
(b) Any remaining portion of a borrower's payment will be applied
to principal on the Mortgage Loan. Such collections of principal on the
Mortgage Loan during any Collection Period will be applied first to reduce
the Trust 1989 balance thereof, if any, to zero, then to reduce the Trust
1991 balance thereof, if any, to zero, then to reduce the Trust 1993 balance
thereof, if any, to zero, then to reduce the Trust 1994-1 balance thereof, if
any, to zero, then to reduce the Trust 1994-2 balance thereof,
if any, to zero, then to reduce the Trust 1995-1 balance thereof, if any, to
zero, then to reduce the Trust 1995-2 balance thereof, if any, to zero,
before such payment is applied as a principal payment in reduction of the
Trust Balance of such Common Mortgage Loan.
(c) Net Liquidation Proceeds received on a defaulted Mortgage Loan
and any Insurance Proceeds which are not liquidation proceeds and are
applied in reduction of a Loan Balance will be allocated first to unpaid
interest in the manner described above. Any remaining proceeds will be
allocated first to reduce the Trust 1989 balance thereof, the Trust 1991
balance thereof, the Trust 1993 balance thereof, the Trust 1994-1 balance
thereof, the Trust 1994-2 balance thereof, the Trust 1995-1 balance thereof
and the Trust 1995-2 balance thereof in the manner described above. Any
excess remaining after such allocation to one or more of the Prior Trusts
will be applied in reduction of the Trust Balance of such Common Mortgage
Loan.
PREPAYMENT AND YIELD CONSIDERATIONS
All of the Mortgage Loans may be prepaid without penalty in full or in
part at any time. The prepayment experience with respect to the Mortgage
Loans in the Trust Fund will affect the life of the Certificates.
There is limited data available on the rate of prepayment of home equity
loans such as the Mortgage Loans. Generally, home equity loans are not
viewed by borrowers as permanent financing. Accordingly, the Mortgage
Loans may experience a higher rate of prepayment than traditional mortgage
loans. On the other hand, because the Mortgage Loans are non-amortizing,
in the absence of significant voluntary borrower prepayments they would
experience slower rates of principal payment than traditional fully
amortizing first mortgages. The Trust Fund's prepayment experience may be
affected by a wide variety of factors, including general economic
conditions, the level of prevailing interest rates, the availability of
alternative financing, borrower cash flow, homeowner mobility and changes
affecting the deductibility for federal income tax purposes of interest
payments on home equity loans.
The rate of amortization of the Certificate Principal Balance will be
affected by the inclusion of the Trust Balances of Common Mortgage Loans
in the Trust Fund. Common Mortgage Loans, which account for ______% by
Cut-off Date Pool Balance, are those Mortgage Loans which generated prior
balances that were transferred to one or more of the Prior Trusts. See
table captioned "Data on Common Mortgage Loans" under "The Mortgage Loan
Pool" herein. Payments of principal (including prepayments) on a Common
Mortgage Loan will be applied first to reduce to zero the principal
balance of the applicable Prior Trusts before any such payments are
applied to reduce the Trust Balance of such Common Mortgage Loan. Partial
prepayments of Common Mortgage Loans therefore would result in
distributions on the Certificates at a slower rate than partial
prepayments of other Mortgage Loans.
Because principal payments on the Mortgage Loans will be distributed to
Certificateholders as they are collected, the rate of principal payments
and the aggregate amount of each interest payment on the Certificates and
the yields to maturity of the Certificates will vary in relation to the
rate and timing of losses sustained by the Certificateholders resulting
from the liquidation of Mortgage Loans or otherwise. Principal prepayments
on the Mortgage Loans may be in the form of prepayments, payments under
the Certificate Insurance Policy, repurchases by the Servicer and
liquidations due to default, casualty, condemnation and the like. The
weighted average life of the Certificates will be sensitive to the rate
and timing of principal payments (including prepayments) on the Mortgage
Loans, which may fluctuate significantly from time to time.
If the actual amount of losses in respect of the Mortgage Loans
experienced by the Trust Fund exceeds the amount of losses assumed by
investors in the Certificates, subject to the protection provided by the
Certificate Insurance Policy and the availability of the limited
subordination of the Seller Interest and overcollateralization, such
investors may experience a loss on their investments.
The Trust Fund's prepayment experience will be affected by any
repurchases of Mortgage Loans by the Servicer pursuant to the Agreement.
Although substantially all of the Mortgage Loans contain due-on-sale
provisions, the Servicer is under no obligation to enforce such provisions
and will refrain therefrom if such exercise is not permitted by applicable
law or will impair or threaten to impair any recovery under any related
insurance policy. However, transfers of Mortgaged Properties resulting in
the voluntary prepayment of the full amount due under the related Credit
Line Agreements will affect the level of prepayments on the Mortgage
Loans. See "The Pooling and Servicing Agreement--Collection Procedures"
and "Certain Legal Aspects of the Mortgage Loans--Due-on-Sale Clauses" in
the Prospectus for a description of certain provisions of the Agreement
referred to below that may affect the prepayment experience on the
Mortgage Loans.
The yield to an investor who purchases the Certificates in the secondary
market at a price other than par will vary from the anticipated yield if
the rate of prepayment on the Mortgage Loans is actually different than
the rate anticipated by such investor at the time such Certificates were
purchased.
Collections on the Mortgage Loans may vary because, among other things,
borrowers may make payments during any month (other than the month in
which the Mortgage Loan matures) as low as the interest payment for such
month or as high as the entire outstanding balance plus accrued interest
thereon. Collections on the Mortgage Loans may also vary due to seasonal
purchasing and payment habits of borrowers.
Although the Servicer is restricted under the Agreement from increasing
the Credit Limit under a Credit Line Agreement above a certain level
without repurchasing the related Mortgage Loan, it is not prohibited from
entering into a new loan agreement with the borrower providing for the
increased credit limit and simultaneously prepaying the Loan Balance on
behalf of the borrower from amounts advanced under such new loan
agreement. Any such prepayments would be passed through to holders of the
Certificates and may affect the weighted average life of the Certificates.
No assurance can be given as to the level of prepayments that the Trust
Fund will experience and it can be expected that a portion of borrowers
will not prepay their Mortgage Loans to any significant degree.
During the Managed Amortization Period, Certificateholders will receive,
to the extent of the availability thereof, amounts from Trust Principal
Collections either based upon the Fixed Allocation Percentage of principal
received or the principal received less amounts drawn under the Credit
Line Agreements, whichever is less. Upon the commencement of the Rapid
Amortization Period, Certificateholders will receive amounts from Trust
Principal Collections based solely upon their Fixed Allocation Percentage.
Because prior distributions of Trust Principal Collections to
Certificateholders serve to reduce the Floating Allocation Percentage but
do not change their Fixed Allocation Percentage, allocations of Trust
Principal Collections based on the Fixed Allocation Percentage may result
in distributions of principal to the Certificateholders in amounts that
are, in most cases, greater relative to the declining balance of the
Mortgage Loans than would be the case if the Floating Allocation
Percentage were used to determine the percentage of Trust Principal
Collections distributed to Certificateholders. This is especially true
during the Rapid Amortization Period when the Certificateholders are
entitled to receive the Maximum Principal Payment and not a lesser amount.
In addition, Certificate Interest Collections may be distributed as
principal to Certificateholders in connection with the Accelerated
Principal Distribution Amount, if any. Furthermore, to the extent of
losses allocable to the Certificateholders, Certificateholders may also
receive as payment of principal the amount of such losses either from (i)
Certificate Interest Collections, (ii) Trust Interest Collections and
Trust Principal Collections otherwise allocable to the Seller Interest up
to the Seller Subordinated Amount or (iii), in some instances, draws under
the Certificate Insurance Policy. The level of losses may therefore affect
the rate of payment of principal on the Certificates.
To the extent borrowers make more draws than principal payments, the
Seller Interest may grow. Because during the Rapid Amortization Period the
Certificateholder's share of Trust Principal Collections is based upon its
Fixed Allocation Percentage (without reduction), an increase in the Seller
Interest due to additional draws may also result in Certificateholders
receiving principal at a greater rate. The Agreement permits the Seller,
at its option, but subject to the satisfaction of certain conditions
specified in the Agreement, including the conditions described below, to
remove certain Mortgage Loans from the Trust during the Managed
Amortization Period, so long as the Seller Interest (after giving effect
to such removal) is not less than the Minimum Seller Interest. Such
removals may affect the rate at which principal is distributed to
Certificateholders by reducing the overall Pool Balance and thus the
amount of Trust Principal Collections. See "Description of the
Certificates--Optional Retransfers of Mortgage Loans to the Seller."
WEIGHTED AVERAGE LIFE OF THE CERTIFICATES
The following information is given solely to illustrate the effect of
prepayments of the Mortgage Loans on the weighted average lives of the
Certificates under the stated assumptions and is not a prediction of the
prepayment rate that might actually be experienced by the Mortgage Loans.
Weighted average life refers to the average amount of time from the date
of issuance of a security until each dollar of principal of such security
will be repaid to the investor. The weighted average lives of the
Certificates will be affected by the rate at which principal on the
Mortgage Loans supporting such Class of Certificates is paid. Principal
payments on Mortgage Loans may be in the form of scheduled amortization or
prepayments (for this purpose, the term "prepayment" includes prepayments
and liquidations due to default or other dispositions of Mortgage Loans).
Prepayments on mortgage loans may be measured by a prepayment standard or
model. The model used in this Prospectus Supplement is a Constant
Prepayment Rate ("CPR"). The CPR represents an assumed constant rate of
prepayment each month, expressed as a per annum percentage of the
scheduled principal balance of the pool of mortgage loans for that month.
As used in the following tables, the column headed "0%" assumes that none
of the Mortgage Loans is prepaid before maturity. The columns headed
"___%", "___%" and "___%" assume that prepayments on the Mortgage Loans
are made at CPRs of "___%", "___%" and "___%", respectively. THE CPR DOES
NOT PURPORT TO BE A HISTORICAL DESCRIPTION OF PREPAYMENT EXPERIENCE OR A
PREDICTION OF THE ANTICIPATED RATE OF PREPAYMENT OF ANY POOL OF MORTGAGE
LOANS, INCLUDING THE MORTGAGE LOANS.
There is no assurance, however, that prepayments of the Mortgage Loans
will conform to any level of CPR, and no representation is made that the
Mortgage Loans will prepay at the CPRs shown or any other prepayment rate.
The rate of principal payments on pools of mortgage loans is influenced by
a variety of economic, geographic, social and other factors, including the
level of interest rates and the rate at which homeowners sell their homes
or default on their mortgage loans. Other factors affecting prepayment of
mortgage loans include changes in borrowers' housing needs, job transfers,
unemployment and obligors' net equity in their homes.
The following tables set forth below are based on a conditional
prepayment rate and constant draw rate (which for purposes of these
assumptions is the amount of Additional Balances on the Mortgage Loans
drawn each month expressed as an annualized percentage of the total
principal of the pool of Mortgage Loans outstanding at the beginning of
such month) indicated in the tables below.
The tables below set forth the characteristics of three aggregate pools
that have been assumed for the tables on the following pages. The weighted
average remaining months to balloon payment/maturity represent the number
of months remaining until the final balloon payment. The weighted average
loan rate is based on a prime rate of 8.25% and such rate does not vary.
<TABLE>
<CAPTION>
Weighted
Average Weighted
Cut-off Remaining Average
Date Prior Months to Weighted Credit Limit
Trust Trust Balloon Average Utilization
Pool Balance Balance Payment/Maturity Loan Rate Rate
<S> <C> <C> <C> <C> <C>
1 $ $ % %
2
3
</TABLE>
In addition, such tables assume that (i) the distributions are made in
accordance with the description set forth under "Description of the
Certificates--Distributions on the Certificates" herein, (ii) the
Certificate Rate is ____% and such rate does not vary, (iii) the Servicing
Fee Rate, together with the premium rate on the Certificate Insurance
Policy, is assumed to be ____% per annum, the Servicing Fee is calculated
monthly on the Pool Balance at the beginning of any Collection Period and
the premium on the Certificate Insurance Policy is calculated monthly on
the Certificate Principal Balance at the beginning of any Collection
Period, (iv) distributions of principal and interest on the Certificates
will be made on the ____th day of each calendar month regardless of the
day on which the Distribution Date actually occurs, commencing _______
199_, (v) monthly draws are calculated under each of the assumptions as
set forth in the tables below before giving effect to prepayments, (vi) no
extension past the scheduled maturity date of a Mortgage Loan is made,
(vii) no delinquencies occur, (viii) all prepayments are prepayments in
full and include thirty days' interest thereon, (ix) Mortgage Loans are
removed from the Trust Fund so that the Seller Interest on each Removal
Date equals or exceeds the Minimum Seller Interest, (x) the scheduled due
date for each of the Mortgage Loans is the first day of each month, (xi)
the Closing Date is ______, 199_, (xii) no losses on the Mortgage Loans
will be realized and (xiii) the Original Certificate Principal Balance is
$_________.
Since the tables were prepared on the basis of the assumptions in the
preceding paragraphs, there are discrepancies between the characteristics
of the actual Mortgage Loans and the characteristics of the Mortgage Loans
assumed in preparing the tables. Any such discrepancy may have an effect
upon the percentages of the Original Certificate Principal Balance
outstanding and the weighted average lives of the Certificates set forth
in the tables. In particular, the Loan Rates are adjustable and will most
likely vary from the assumed constant interest rates, which may have a
significant effect on the percentages of the Original Certificate
Principal Balance outstanding and the weighted average lives. In addition,
since the actual Mortgage Loans in the Trust Fund have characteristics
which differ from those assumed in preparing the tables set forth below,
the distributions of principal on the Certificates may be made earlier or
later than as indicated in the tables.
It is not likely that the Mortgage Loans will prepay at any constant CPR
to maturity or that all Mortgage Loans will prepay at the same rate. In
addition, the diverse remaining terms to maturity of the Mortgage Loans
could produce slower distributions of principal than as indicated in the
related tables at the various CPRs specified even if the weighted average
remaining months to balloon payment/maturity of the Mortgage Loans are as
assumed above.
Investors are urged to make their investment decisions on a basis that
includes their determination as to anticipated prepayment rates under a
variety of the assumptions discussed herein.
Based on the foregoing assumptions, the following table indicates the
resulting weighted average lives of the Certificates and sets forth the
percentage of the Original Certificate Principal Balance that would be
outstanding after each of the dates shown at the indicated CPR.
PERCENTAGE OF ORIGINAL CERTIFICATE PRINCIPAL BALANCE--AMORTIZATION
SCHEDULE (1)
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Payment Date _% % % %
Closing Date % % % %
_____ 25, 199_ % % % %
_____ 25, 199_ % % % %
_____ 25, 199_ % % % %
_____ 25, 200_ % % % %
_____ 25, 200_ % % % %
_____ 25, 200_ % % % %
_____ 25, 200_ % % % %
_____ 25, 200_ % % % %
_____ 25, 200_ % % % %
_____ 25, 200_ % % % %
Weighted Average Life (years)(2)
</TABLE>
__________
(1) Assumes (i) that an optional termination is exercised when the
outstanding Certificate Principal Balance is less than or equal to __% of the
Original Certificate Principal Balance and (ii) a constant draw rate of __%.
Pool 2 has a monthly draw rate of __% for the first seven months and then has
a monthly draw rate equal to the terminal constant draw rate.
(2) The weighted average life of a Certificate is determined by (i)
multiplying the amount of each principal payment by the number of years from
the date of issuance to the related Distribution Date, (ii) adding the
results, and (iii) dividing the sum by the Original Certificate Principal
Balance.
WEIGHTED AVERAGE LIFE(1) AND FINAL SCHEDULED PAYMENT DATE(2)
SENSITIVITY OF THE CERTIFICATES TO PAYMENTS AND DRAWS
<TABLE>
<CAPTION>
Conditional Prepayment Rate (% CPR)(3)
0% ___% ___% ___%
Terminal
Constant
Draw
Rate(4) WAL Date WAL Date WAL Date WAL Date
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
% __/25/20_ __/25/2005 __/25/20__ __/25/20__
% __/25/20_ __/25/2003 __/25/20__ __/25/20__
% __/25/20_ __/25/2003 __/25/20__ __/25/20__
% __/25/20_ __/25/2003 __/25/20__ __/25/20__
</TABLE>
<TABLE>
<CAPTION>
Conditional Prepayment Rate (% CPR)(5)
0% ___% ___% ___%
Terminal
Constant
Draw
Rate(4) WAL Date WAL Date WAL Date WAL Date
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
% __/25/20_ __/25/2005 __/25/20__ __/25/20__
% __/25/20_ __/25/2003 __/25/20__ __/25/20__
% __/25/20_ __/25/2003 __/25/20__ __/25/20__
% __/25/20_ __/25/2003 __/25/20__ __/25/20__
</TABLE>
__________
(1) The weighted average life of the Certificate is determined by (i)
multiplying the amount of each principal payment by the number of years from
the date of issuance to the related Distribution Date, (ii) adding the
results, and (iii) dividing the sum by the Original Certificate Principal
Balance.
(2) The final scheduled payment date of the Certificates is the date on
which the Certificate Principal Balance is reduced to zero.
(3) Assumes that an optional termination is exercised when the outstanding
Certificate Principal Balance is less than or equal to 10% of the Original
Certificate Principal Balance.
(4) Assumes that each Mortgage Loan has a monthly draw rate equal to the
terminal constant draw rate except for pool 2, which has a monthly draw rate
of ___% for the first seven months and then has a monthly draw rate equal to
the terminal constant draw rate.
(5) Assumes no optional termination is exercised.
The Servicer, or if the Servicer fails to exercise its option, the
Certificate Insurer, has the option of purchasing all of the assets of the
Trust Fund at such time as the outstanding Certificate Principal Balance
is less than 10% of the Original Certificate Principal Balance. Under
these circumstances, distributions allocable to principal will be made to
Certificateholders in advance and possibly significantly in advance of the
time that the aggregate amount of such distributions would otherwise have
been made to Certificateholders. See "Description of Certificates--
Termination; Retirement of the Certificates" herein.
See "Special Considerations and Risk Factors--Maturity and Prepayment
Considerations" herein for certain additional prepayment considerations.
DESCRIPTION OF THE CERTIFICATES
The Certificates will be issued pursuant to the Agreement among the
Seller, the Servicer and the Trustee. A copy of the Agreement (exclusive
of the list of Mortgage Loans) will be attached as an exhibit to the
Current Report on Form 8-K to be filed with the Securities and Exchange
Commission after the date of delivery of the Certificates. Reference is
made to the Prospectus for additional information regarding the terms and
conditions of the Agreement to the extent not revised by the following
description. To the extent that the statements in this Prospectus
Supplement modify statements in the Prospectus, the statements in this
Prospectus Supplement control.
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
The Certificates will be available for purchase in denominations of
$_______ and integral multiples of $1,000 in excess thereof and will
evidence specified beneficial ownership interests in the Trust Fund. The
Trust Fund consists of (i) a pool of home equity revolving credit line
loans (the "Mortgage Loans"), to the extent of their Trust Balances, made
under certain Credit Line Agreements; (ii) collections in respect of the
Trust's interest in the Mortgage Loans received on or after the Cut-off
Date; (iii) the Trust's interest in property that secured a Mortgage Loan
and which has been acquired by foreclosure or deed in lieu of foreclosure
or otherwise; (iv) the Certificate Insurance Policy; (v) the Trust's
interest in rights under certain hazard insurance policies covering the
Mortgaged Properties, (vi) and certain other property relating to the
Mortgage Loans as described herein. Definitive Certificates, if issued,
will be transferable and exchangeable at the corporate trust office of the
Trustee, acting as Certificate Registrar. No service charge will be made
for any registration of exchange or transfer, but the Trustee may require
payment of a sum sufficient to cover any related tax or other governmental
charge.
The initial principal balance of the Certificates will be
$______________ (the "Original Certificate Principal Balance")
(approximate). The Certificate Principal Balance as of any date is equal
to the Original Certificate Principal Balance minus the aggregate amounts
actually distributed as principal to Certificateholders. Each Certificate
represents the right to receive payments of interest at the Certificate
Rate and payments of principal as described below.
The aggregate undivided interest in the Trust Fund represented by the
Certificates as of the Closing Date will equal $____________ (the
"Original Invested Amount"), which represents approximately __% of the
Cut-off Date Pool Balance. Following the Closing Date, the "Invested
Amount" with respect to any date will be an amount equal to the Original
Invested Amount minus the sum of (i) the total of Principal Collections
previously distributed to Certificateholders and (ii) the total of the
amount for each Distribution Date equal to the product of the Floating
Allocation Percentage and the Liquidation Loss Amount (other than any
Investor Loss Amount that has been reallocated to the Seller Interest on
such Distribution Date).
The Seller will hold the remaining undivided interest (the "Seller
Interest") in the Trust Balances of the Mortgage Loans, which interest is
equal to the Pool Balance minus the Invested Amount and initially will
equal approximately __% of the Cut-off Date Pool Balance. In general, the
Pool Balance will vary during a Collection Period as principal is paid on
the Mortgage Loans, liquidation losses are incurred and Additional
Balances are drawn down by borrowers.
The Seller has the right to sell or pledge the Seller Interest at any
time, provided (i) the Rating Agencies have notified the Seller and the
Trustee in writing that such action will not result in the reduction or
withdrawal of the ratings assigned to the Certificates, and (ii) certain
other conditions specified in the Agreement are satisfied.
PAYMENTS ON MORTGAGE LOANS; DEPOSITS TO CERTIFICATE ACCOUNT
The Certificate Account will be established by the Servicer in the name
of and on behalf of the Trustee. Not later than 1:00 p.m. New York time on
the Business Day prior to each Distribution Date, the Servicer is
obligated under the Agreement to remit to the Trustee for deposit in the
Certificate Account an amount in same day funds equal to the aggregate of
the amounts described below. The Servicer shall include with such deposit
any Monthly Advance for such Distribution Date.
On each Distribution Date upon which there is a Monthly Advance
Reimbursement Amount, the Servicer shall require the Trustee to withdraw
from the Certificate Account an amount, as determined by the Servicer,
equal to the lesser of (i) such Monthly Advance Reimbursement Amount and
(ii) the amount of Trust Interest Collections and Trust Principal
Collections on deposit in the Certificate Account less the required
distribution of interest and principal on the Certificates, the monthly
premium due on the Certificate Insurance Policy and all unreimbursed
amounts owed to the Certificate Insurer. A "Monthly Advance Reimbursement
Amount" means, as to any Distribution Date, all Monthly Advances which
have not been previously reimbursed to the Servicer either from the
Certificate Account or from debits to the mortgage loan payment record
maintained by the Servicer.
ALLOCATIONS AND COLLECTIONS
All collections on the Mortgage Loans will be allocated in accordance
with the Credit Line Agreements between amounts collected in respect of
interest and amounts collected in respect of principal.
As to any Distribution Date, "Interest Collections" on the Mortgage
Loans will be equal to the aggregate amount collected on the Mortgage
Loans during the related Collection Period that is allocated to interest
pursuant to the terms of the Credit Line Agreements, including Net
Liquidation Proceeds so allocated, reduced by the aggregate Servicing Fee
for such Collection Period. As to any Distribution Date, "Trust Interest
Collections" will be equal to the total amount of the Trust's share of
Interest Collections. The Trust's share of Interest Collections for each
Mortgage Loan will be the portion of the amount allocated to interest on
such Mortgage Loan equal to interest accrued at the Net Loan Rate on the
Trust Balance during the related Interest Period. "Interest Period" means
the monthly period during which interest accrues on the Mortgage Loans.
The first Interest Period will be ________ 1996. As to any Distribution
Date, the "Collection Period" is generally the calendar month preceding
such Distribution Date.
As to any Distribution Date, "Principal Collections" will be equal to
the aggregate amount collected on the Mortgage Loans during the related
Collection Period that is allocated to principal pursuant to the terms of
the Credit Line Agreements. Principal Collections on a Common Mortgage
Loan will be applied first to reduce to zero the applicable portion
thereof owned by one or more Prior Trusts before any such collections are
applied in reduction of the Trust Balance of such Common Mortgage Loan. As
to any Distribution Date, "Trust Principal Collections" will be equal to
the total amount of the Trust's share of Principal Collections. The
Trust's share of Principal Collections on each Mortgage Loan will equal
the sum of (i) the amount allocated to principal that was received from
the borrower in the related Collection Period (excluding, in the case of a
Common Mortgage Loan, principal allocated to reduce the portion of such
Common Mortgage Loan owned by one or more Prior Trusts in accordance with
the second preceding sentence), (ii) the principal portion of Net Trust
Liquidation Proceeds and Trust Insurance Proceeds and (iii) the principal
portion of the Transfer Deposit Amount of a retransferred Mortgage Loan.
"Net Trust Liquidation Proceeds" with respect to a Mortgage Loan are
equal to the aggregate of all amounts received upon liquidation of such
Mortgage Loan, including insurance proceeds, reduced by related expenses,
plus accrued and unpaid interest thereon through the date of liquidation,
but not including the portion, if any, of such amount that exceeds the
Trust Balance of such Mortgage Loan at the end of the preceding Collection
Period.
"Trust Insurance Proceeds" with respect to a Mortgage Loan and
Collection Period are the Trust's share of insurance proceeds paid to the
Servicer during such Collection Period pursuant to any insurance policy
covering such Mortgage Loan, reduced by related expenses, which (i) are
not liquidation proceeds, (ii) are not applied to the restoration or
repair of the related Mortgaged Property or released to the related
borrower in accordance with the normal servicing procedures of the
Servicer and (iii) will be applied by the Servicer in reduction of the
Loan Balance of such Mortgage Loan, but not including the portion, if any,
of such amount that exceeds the Trust Balance of such Mortgage Loan at the
end of such Collection Period.
"Transfer Deposit Amount" with respect to any Distribution Date is the
amount of cash required to be deposited to the Certificate Account by the
Servicer to maintain the Minimum Seller Interest with respect to a
repurchased Defective Mortgage Loan after taking into account any transfer
of an Eligible Substitute Mortgage Loan to the Trust with respect to such
Defective Mortgage Loan.
As to any Distribution Date, interest allocable to the Certificates
("Certificate Interest Collections") will equal the product of Trust
Interest Collections for such Distribution Date and the Floating
Allocation Percentage. The remaining amount of Interest Collections will
be allocated to the Seller Interest. With respect to any Distribution
Date, the "Floating Allocation Percentage" is the percentage equivalent of
a fraction determined by dividing the Invested Amount by the Pool Balance
as of the beginning of the related Collection Period.
The Trustee will deposit any amounts drawn under the Certificate
Insurance Policy into the Certificate Account.
With respect to any date, the "Pool Balance" will be equal to the
aggregate of the Trust Balances of the Mortgage Loans as of such date. The
"Trust Balance" of a Mortgage Loan (other than a Liquidated Mortgage Loan,
which shall have a Trust Balance of zero) on any day is equal to its Cut-off
Date Trust Balance, plus the Additional Balances, if any, in respect
of such Mortgage Loan assigned to the Trust each month, minus all
collections credited against the principal balance of such Mortgage Loan
(excluding in the case of any Common Mortgage Loan, any such principal
collections applied to reduce the principal balance thereof owned by one
or more Prior Trusts) in accordance with the related Credit Line Agreement
prior to such day. In certain cases the Cut-off Date Trust Balance of a
Mortgage Loan is zero. In the case of any Common Mortgage Loan, the Cut-off
Date Trust Balance of such Mortgage Loan excludes the portion of the
Loan Balance owned by one or more Prior Trusts.
The "Loan Balance" of a Mortgage Loan on any day is equal to the sum of
the Trust Balance and, in the case of a Common Mortgage Loan, the portion
of the outstanding principal balance of such Mortgage Loan owned by one or
more Prior Trusts.
DISTRIBUTIONS ON THE CERTIFICATES
Beginning with the month after the month in which the Cut-off Date for
the Certificates occurs, distributions of principal and interest on
Certificates will be made by the Trustee on each Distribution Date (i.e.,
the 25th day of each month or, if such day is not a Business Day, then the
next succeeding Business Day) to the persons in whose names such
Certificates are registered on the last Business Day of the month prior to
the month in which such Distribution Date occurs (or, in the case of the
first Distribution Date, on the date of issuance of the Certificates) (the
"Record Date"), except that the final distribution in respect of any
Certificate will only be made upon presentation and surrender of such
Certificate at the office or agency designated by the Trustee for that
purpose in New York, New York.
Distributions to Certificateholders will be made in an amount equal to
each holder's respective Percentage Interest multiplied by the amount
distributed in respect of the Certificates on each Distribution Date. The
undivided percentage interest (the "Percentage Interest") evidenced by any
Certificate will be equal to the percentage obtained by dividing the
initial principal balance of such Certificate by the Original Certificate
Principal Balance.
Each distribution with respect to a Book-Entry Certificate will be paid
to DTC, which will credit the amount of such distribution to the accounts
of its Participants in accordance with its normal procedures. Each
Participant will be responsible for disbursing such distribution to the
Certificate Owners that it represents and to each indirect participating
brokerage firm (a "brokerage firm" or "indirect participating firm") for
which it acts as agent. Each brokerage firm will be responsible for
disbursing funds to the Certificate Owners that it represents. All such
credits and disbursements with respect to a Book-Entry Certificate are to
be made by DTC and the Participants in accordance with the provisions of
the Certificates. For purposes of the Agreement a "Business Day" is
defined as any day other than (i) a Saturday or a Sunday or (ii) a day on
which banks in the states of New York, Florida or California are required
or authorized by law to be closed.
The Certificate Principal Balance as of any date is equal to the
Original Certificate Principal Balance minus the aggregate amounts
actually distributed as principal to Certificateholders.
Application of Interest Collections
On each Distribution Date, the Certificate Interest Collections will be
applied in the following order of priority:
(i) to pay the premium for the Certificate Insurance Policy;
(ii) as payment for the accrued interest due and any overdue accrued
interest at the applicable Certificate Rate on the Certificate Principal
Balance for the related Accrual Period;
(iii) to pay Certificateholders the "Investor Loss Amount" equal to
the product of the Floating Allocation Percentage and the Liquidation Loss
Amount for such Distribution Date;
(iv) as payment for any Investor Loss Amount that was not previously
(a) paid from Certificate Interest Collections, (b) paid from Trust Interest
Collections and Trust Principal Collections allocable to the Seller Interest
or reallocated to reduce the Seller Interest up to the Seller Subordinated
Amount as described under "--Limited Subordination of the Seller Interest"
below, (c) covered by overcollateralization as described under "--
Overcollateralization" below or (d) funded by draws on the Certificate
Insurance Policy;
(v) to reimburse prior draws from the Certificate Insurance Policy,
together with interest thereon, and to pay any fees and expenses owed to the
Certificate Insurer pursuant to the Insurance Agreement, together with
interest thereon;
(vi) to pay principal on the Certificates until the Invested Amount
exceeds the Certificate Principal Balance by the amount, if any, equal to (x)
the Required Amount minus (y) the Seller Subordinated Amount (such payment is
referred to as the "Accelerated Principal Distribution Amount"); and
(vii) to the Seller.
Payments to Certificateholders pursuant to clause (ii) will be interest
payments on the Certificates. Payments to Certificateholders pursuant to
clauses (iii) and (iv) will be principal payments on the Certificates and
will reduce the Certificate Principal Balance. Although payments of the
Accelerated Principal Distribution Amount, if any, to Certificateholders
pursuant to clause (vi) will reduce the Certificate Principal Balance,
such payments will not reduce the Invested Amount. Payments to
Certificateholders of Trust Interest Collections and Trust Principal
Collections allocable to the Seller Interest will reduce the Certificate
Principal Balance. Payments of the Accelerated Principal Distribution
Amount are neither guaranteed by the Certificate Insurance Policy nor
supported by the Seller Subordinated Amount.
An "Accrual Period" for any Distribution Date is the period beginning on
the preceding Distribution Date (or the Closing Date in the case of the
first Distribution Date) and ending on the day preceding such Distribution
Date.
For each Distribution Date occurring on or prior to the _____
Distribution Date, the "Required Amount" will be __% of the Cut-off Date
Pool Balance. For each Distribution Date thereafter, the Required Amount
will be the lesser of (i) __% of the Cut-off Date Pool Balance and (ii)
__% of the outstanding Pool Balance; provided that in no event will the
Required Amount be less than a floor amount equal to the greater of (x) _%
of the Cut-off Date Pool Balance and (y) __% of the aggregate Trust
Balances of all Mortgage Loans delinquent 91 days or more (including for
this purpose any Mortgage Loans in foreclosure and any Mortgage Loans with
respect to which the related Mortgaged Properties have been acquired by
the Trust Fund) as of the end of the related Collection Period.
Notwithstanding the foregoing, for each Distribution Date, if the
cumulative principal losses on the Trust Balances of the Mortgage Loans
(i.e., the excess of (a) the aggregate Trust Balances of Mortgage Loans
liquidated during all Collection Periods subsequent to the Cut-off Date
over (b) the aggregate Net Trust Liquidation Proceeds received during such
Collection Periods) as of the end of the related Collection Period exceed
____% of the Cut-off Date Pool Balance, then the Required Amount will be
____% of the Cut-off Date Pool Balance.
A "Liquidation Loss Amount" with respect to any Liquidated Mortgage Loan
and Distribution Date will be the unrecovered Trust Balance thereof at the
end of the related Collection Period in which such Mortgage Loan became a
Liquidated Mortgage Loan, after giving effect to the principal portion of
Net Trust Liquidation Proceeds in connection therewith.
Certificate Rate
On each Distribution Date, the "Certificate Rate" will be equal to LIBOR
(as described below) on the second LIBOR Business Day prior to the
preceding Distribution Date (or as of _______, 199_ in the case of the
first Distribution Date) plus ____%.
In the event that the Certificate Rate for any such Distribution Date is
greater than the weighted average of the "Net Loan Rates" (the Loan Rate
less the Servicing Fee Rate) applicable to the related Collection Period
minus a per annum rate representing the monthly premium due on the
Certificate Insurance Policy (which monthly premium rate, together with
the Servicing Fee Rate, shall not exceed ____% per annum) the Certificate
Rate for any such Distribution Date will be equal to such weighted average
rate minus such premium rate (the "Alternate Certificate Rate").
Calculation of LIBOR
LIBOR with respect to any Distribution Date following the initial
Distribution Date will be determined by the Trustee and will equal the
arithmetic mean (rounded, if necessary, to the nearest one sixteenth of a
percent, with one thirty-second of a percent rounded upwards) of the
offered rates for United States dollar deposits for one month which appear
on the Reuters Screen LIBO Page (as defined below) as of 11:00 a.m.,
London time, on the second LIBOR Business Day prior to the immediately
preceding Distribution Date (as of ______, 199_ in the case of the first
Distribution Date); provided that at least two such offered rates appear
on the Reuters Screen LIBO Page on such date. If fewer than two offered
rates appear, LIBOR will be determined on such date as described in the
paragraph below. "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 rates of major banks). "LIBOR Business
Day," for purposes of the Agreement, is a Business Day and a day on which
banking institutions in the city of London, England are not required or
authorized by law to be closed.
If on such date fewer than two offered rates appear on the Reuters
Screen LIBO Page as described above, the Trustee will request the
principal London office of each of the reference banks (which shall be
four major banks specified in the Agreement that are engaged in
transactions in the London interbank market) ("Reference Banks") to
provide the Trustee with such bank's offered quotation for United States
dollar deposits for one month to prime banks in the London interbank
market as of 11:00 a.m., London time, on such date. If at least two
Reference Banks provide the Trustee with such offered quotations, then
LIBOR on such date will be the arithmetic mean (rounded, if necessary, to
the nearest one sixteenth of a percent with one thirty-second of a percent
rounded upwards) of all such quotations. If on such date fewer than two of
the Reference Banks provide the Trustee with such an offered quotation,
LIBOR on such date will be the arithmetic mean (rounded, if necessary, to
the nearest one sixteenth of a percent with one thirty-second of a percent
rounded upwards) of the offered per annum rates which one or more leading
banks in The City of New York selected by the Trustee (after consultation
with the Servicer) are quoting as of 11:00 a.m., New York City time, on
such date to leading European banks for United States dollar deposits for
one month, provided, however, that if such banks are not quoting as
described above, LIBOR will be the LIBOR applicable to the immediately
preceding Distribution Date.
Seller Collections
Collections allocable to the Seller Interest that are not distributed to
Certificateholders will be distributed to the Seller only to the extent
that such distribution will not reduce the amount of the Seller Interest
as of the related Distribution Date below the Minimum Seller Interest.
Amounts not distributed to the Seller because of such limitations will be
retained in the Certificate Account until the Seller Interest exceeds the
Minimum Seller Interest, at which time such excess shall be released to
the Seller. If any such amounts are still retained in the Certificate
Account upon the commencement of the Rapid Amortization Period, such
amounts will be paid to the Certificateholders as a reduction of the
Certificate Principal Balance.
Principal Payments from Principal Collections
For the period beginning on the first Distribution Date and, unless a
Rapid Amortization Event shall have earlier occurred, ending on the
Distribution Date in ____ 20__ (the "Managed Amortization Period"), the
amount of Trust Principal Collections payable to Certificateholders on
each Distribution Date will equal, to the extent funds are available
therefor from Trust Principal Collections, the Scheduled Principal
Collections Payment for such Distribution Date. On any Distribution Date
during the Managed Amortization Period, the "Scheduled Principal
Collections Payment" will equal the lesser of (i) the Maximum Principal
Payment and (ii) the Alternative Principal Payment.
For the period beginning with the first Distribution Date following the
end of the Managed Amortization Period (the "Rapid Amortization Period"),
the amount of Trust Principal Collections payable to Certificateholders on
each Distribution Date will be equal to the Maximum Principal Payment.
With respect to any Distribution Date, the "Maximum Principal Payment"
will equal the product of the Trust Principal Collections and the Fixed
Allocation Percentage. With respect to any Distribution Date, the
"Alternative Principal Payment" is equal to the amount, but not less than
zero, of Trust Principal Collections minus the aggregate of Additional
Balances created during the related Collection Period.
With respect to any date of determination, the "Fixed Allocation
Percentage" will equal the greater of (i) __% and (ii) the percentage
equivalent (but not in excess of ___%) of a fraction, the numerator of
which is the Invested Amount and the denominator of which is the Pool
Balance as of the end of such day. The Fixed Allocation Percentage
initially will be __%.
On the Distribution Date in ____ 20__ (the "Stated Maturity Date"), to
the extent funds are available therefor, Certificateholders will be
entitled to receive as payment of principal an amount equal to the
outstanding Certificate Principal Balance. To the extent funds are not
otherwise available for such payment, a draw on the Certificate Insurance
Policy for such insufficiency will be made on the Stated Maturity Date.
The aggregate distributions of principal to Certificateholders will not
exceed the Original Certificate Principal Balance.
The Seller will be entitled to receive the portion of the Trust
Principal Collections on each Distribution Date that is not distributable
on the Certificates; provided that such distribution will not reduce the
Seller Interest below the Minimum Seller Interest as of such Distribution
Date.
RAPID AMORTIZATION EVENTS
As described above, the Managed Amortization Period will continue
through the Distribution Date in _____ 20__, unless a Rapid Amortization
Event occurs prior to such date in which case the Rapid Amortization
Period will commence prior to such date. "Rapid Amortization Event" refers
to any of the following events:
(a) failure on the part of the Servicer (i) to make a payment or
deposit required under the Agreement within five Business Days after the date
such payment or deposit is required to be made or (ii) to observe or perform
in any material respect any other covenants or agreements of the Servicer set
forth in the Agreement, which failure continues unremedied for a period of 60
days after written notice;
(b) any representation or warranty made by the Servicer in the
Agreement proves to have been incorrect in any material respect when made and
continues to be incorrect in any material respect for a period of 60 days
after written notice and as a result of which the interests of the
Certificateholders are materially and adversely affected; provided, however,
that a Rapid Amortization Event shall not be deemed to occur if the Servicer
has purchased or made a substitution for the related Mortgage
Loan or Mortgage Loans if applicable during such period (or within an
additional 60 days with the consent of the Trustee) in accordance with the
provisions of the Agreement;
(c) the occurrence of certain events of bankruptcy, insolvency or
receivership relating to the Seller or the Servicer;
(d) the Trust becomes subject to regulation by the Securities and
Exchange Commission as an investment company within the meaning of the
Investment Company Act of 1940, as amended; or
(e) the aggregate of all draws under the Certificate Insurance
Policy exceeds 1% of the Cut-off Date Pool Balance.
In the case of any event described in clause (a) or (b), a Rapid
Amortization Event will be deemed to have occurred only if, after the
applicable grace period, if any, described in such clauses, either the
Trustee or Certificateholders holding Certificates evidencing more than
51% of the Percentage Interests or the Certificate Insurer (so long as
there is no default by the Certificate Insurer in the performance of its
obligations under the Certificate Insurance Policy), by written notice to
the Seller and the Servicer (and to the Trustee, if given by the
Certificateholders) declare that a Rapid Amortization Event has occurred
as of the date of such notice. In the case of any event described in
clause (c), (d) or (e), a Rapid Amortization Event will be deemed to have
occurred without any notice or other action on the part of the Trustee,
the Certificate Insurer or the Certificateholders immediately upon the
occurrence of such event.
In addition to the consequences of a Rapid Amortization Event discussed
above, if the Seller files a bankruptcy petition or goes into liquidation
or any person is appointed a receiver or bankruptcy trustee of the Seller,
on the day of any such filing or appointment no further Additional
Balances will be transferred to the Trust Fund, the Seller will
immediately cease to transfer Additional Balances to the Trust and the
Seller will promptly give notice to the Trustee of any such filing or
appointment. Within 15 days, the Trustee will furnish by mail to
Certificateholders a notice of the liquidation or the filing or
appointment stating that the Trustee intends to sell, dispose of or
otherwise liquidate the Trust Balances of the Mortgage Loans in a
commercially reasonable manner and to the best of its ability. Unless
otherwise instructed within a specified period by Certificateholders
representing Percentage Interests aggregating more than 51% of the
Certificate Principal Balance of the Certificates not held by the Seller,
the Trustee will sell, dispose of or otherwise liquidate the Trust
Balances of the Mortgage Loans in a commercially reasonable manner and on
commercially reasonable terms. The proceeds from the sale, disposition or
liquidation of the Trust Balances of the Mortgage Loans will first be paid
to the Certificate Insurer to the extent of unreimbursed draws under the
Certificate Insurance Policy and other amounts owing to the Certificate
Insurer pursuant to the Insurance Agreement. Any remaining amounts will be
treated as collections and the portion thereof allocated to the
Certificateholders will be distributed to the Certificateholders on the
date such proceeds are received (the "Dissolution Distribution Date"). If
the portion of such proceeds allocable to the Certificateholders are not
sufficient to pay in full the remaining amount due on the Certificates,
the Certificateholders will suffer a corresponding loss. The Certificate
Insurance Policy will not be available to cover any such loss.
Notwithstanding the foregoing, if a conservator, receiver or trustee-in-
bankruptcy is appointed for the Servicer and no Rapid Amortization Event
exists other than such conservatorship, receivership or insolvency of the
Servicer, the conservator, receiver or trustee-in-bankruptcy may have the
power to prevent the commencement of the Rapid Amortization Period or the
sale of the Trust Balances of the Mortgage Loans described above.
CERTIFICATE INSURANCE POLICY
On or before the Closing Date, the Seller will obtain the Certificate
Insurance Policy, which will be issued by the Certificate Insurer in favor
of the Trustee and will provide for payment of Insured Amounts in
accordance with the terms of the Certificate Insurance Policy solely for
the benefit of the Certificateholders. The Certificate Insurance Policy is
non-cancelable. See "The Certificate Insurance Policy and the Certificate
Insurer" herein.
The Certificate Insurance Policy will be issued by the Certificate
Insurer pursuant to the provisions of the Agreement and the Insurance and
Indemnity Agreement (the "Insurance Agreement"), among the Seller, the
Servicer and the Certificate Insurer. The Certificate Insurance Policy
will unconditionally and irrevocably guarantee principal and interest
payments on the Certificates at the times and in the amounts described
below. On each Distribution Date other than any Dissolution Distribution
Date, a draw will be made on the Certificate Insurance Policy equal to (i)
the amount by which interest accrued at the Certificate Rate on the
outstanding Certificate Principal Balance during the preceding Accrual
Period exceeds all amounts on deposit in the Certificate Account available
to be distributed therefor plus (ii) after the Seller Subordinated Amount
has been reduced to zero, the amount, if any, by which the Certificate
Principal Balance as of such Distribution Date (after giving effect to all
other amounts distributable and allocable to principal on the Certificates
on such Distribution Date) exceeds the Invested Amount as of such
Distribution Date (after giving effect to all other amounts distributable
and allocable to principal on the Certificates on such Distribution Date).
In addition, the Certificate Insurance Policy will guarantee the payment
of the outstanding Certificate Principal Balance on the Stated Maturity
Date (after giving effect to all other amounts distributable and allocable
to principal on the Certificates).
In the absence of payments under the Certificate Insurance Policy,
Certificateholders will directly bear the credit and other risks
associated with their undivided interest in the Trust Fund. See "The
Certificate Insurance Policy and the Certificate Insurer" herein.
The Certificate Insurance Policy does not protect against the adverse
consequences of, and does not guarantee, any specified rate of prepayments
(including any prepayments resulting from payments of Accelerated
Principal Distribution Amounts). The Certificate Insurer has the right to
terminate the Trust Fund, causing the transfer of amounts in certain
accounts and the acceleration of the Certificates, under certain
circumstances if the outstanding Certificate Principal Balance becomes
less than 10% of the Original Certificate Principal Balance.
LIMITED SUBORDINATION OF THE SELLER INTEREST
If Certificate Interest Collections on any Distribution Date are
insufficient to pay the sum of (i) the premium for the Certificate
Insurance Policy, (ii) accrued interest due and any overdue accrued
interest on the Certificates, and (iii) the Investor Loss Amount on such
Distribution Date (such insufficiency, the "Deficiency Amount"), Trust
Interest Collections and Trust Principal Collections allocable to the
Seller Interest (but not in excess of the then current Seller Subordinated
Amount, determined as described below) will be applied to cover the
Deficiency Amount. The portion of the Deficiency Amount in respect of
clause (iii) above not covered by such collections (up to the remaining
Seller Subordinated Amount and not in excess of the Investor Loss Amount)
will be reallocated to, and will reduce, the Seller Interest. If such
Certificate Interest Collections plus the amount of collections allocable
to the Seller Interest which have been so applied to cover the Deficiency
Amount are together insufficient to pay the amount set forth in item (ii)
of the definition of Deficiency Amount, then a draw will be made on the
Certificate Insurance Policy to cover such shortfall. After the Seller
Subordinated Amount has been reduced to zero, the Deficiency Amount will
no longer be covered by the Seller Interest as described above.
With respect to any Distribution Date, the "Seller Subordinated Amount"
equals the least of
(i) __% of the Cut-off Date Pool Balance minus the sum of (a) the
aggregate amount of principal collections allocable to the Seller Interest
that have previously been distributed to Certificateholders to cover a
Deficiency Amount as described above and (b) the aggregate amount of the
Investor Loss Amounts that have previously been reallocated in reduction of
the Seller Interest as described above; or
(ii) the Seller Subordinated Amount on the previous Distribution
Date; or
(iii) the Required Amount.
The Seller Subordinated Amount at any time may also be further reduced
if such reduction is consented to by both of the Rating Agencies and the
Certificate Insurer and upon satisfaction of certain other conditions
specified in the Agreement.
OVERCOLLATERALIZATION
The payment of Accelerated Principal Distribution Amounts, if any, to
Certificateholders may result in the Invested Amount being greater than
the Certificate Principal Balance, thereby creating overcollateralization.
On any Distribution Date, such overcollateralization, if any, will be
available to absorb any Investor Loss Amount that is not covered either by
(i) Certificate Interest Collections remaining after the payment of the
premium for the Certificate Insurance Policy and the distribution of
interest on the Certificates or (ii) the limited subordination of the
Seller Interest as described above. Any Investor Loss Amounts not covered
by Certificate Interest Collections, the limited subordination of the
Seller Interest or such overcollateralization will be covered by draws on
the Certificate Insurance Policy to the extent provided therein.
Overcollateralization will be created only by the payments, if any, of
Accelerated Principal Distribution Amounts. As of the Closing Date, the
Invested Amount will be equal to the Original Certificate Principal
Balance and, accordingly, there will not be any initial
overcollateralization. Payment of the Accelerated Principal Distribution
Amount on a Distribution Date is made in an amount equal to the excess, if
any, of the Required Amount over the Seller Subordinated Amount. As of the
Closing Date, the Required Amount is equal to the Seller Subordinated
Amount. Thus, no Accelerated Principal Distribution Amount is expected to
be paid, and no overcollateralization will be created, on the first
Distribution Date. Any payments of Trust Principal Collections allocable
to the Seller's Interest that decrease the Seller Subordinated Amount
would be expected to result in a payment of the Accelerated Principal
Distribution Amount and the creation of, or increase in,
overcollateralization if the Required Amount is in excess of the Seller
Subordinated Amount on a Distribution Date and there are sufficient Trust
Interest Collections. If the Seller Subordinated Amount is reduced to
zero, then payments of the Accelerated Principal Distribution Amount from
Trust Interest Collections may be made in an amount up to the Required
Amount. Any such payments would result in increases in the level of
overcollateralization.
ADVANCES
Under the Agreement, the Servicer will be obligated to advance an amount
(a "Monthly Advance") of cash, which will be part of Trust Interest
Collections and Trust Principal Collections, equal to the aggregate of all
installments of interest at the related Net Loan Rate and principal, if
any, which (a) were known by the Servicer to be delinquent on the Trust
Balance of each Mortgage Loan as of the end of the related Collection
Period, (b) were not previously the subject of a Servicer advance and (c)
would, in the judgment of the Servicer, be recoverable out of late
payments by the borrowers, Liquidation Proceeds, Insurance Proceeds or
otherwise.
In making advances, the Servicer will endeavor to maintain a regular
flow of scheduled interest payments to holders of the Certificates, rather
than to guarantee or insure against losses. Any Servicer funds advanced as
described in the preceding paragraph will be reimbursable to the Servicer
either out of recoveries on the specific Mortgage Loans in respect of
which such advances were made (e.g., late payment made by the related
borrower, any related Insurance Proceeds, Liquidation Proceeds or proceeds
of any Mortgage Loan purchased by MLCC under the circumstances described
above) or out of amounts otherwise distributable to holders of the
Certificates. In addition to the foregoing, such advances by the Servicer
will be reimbursable to the Servicer from cash otherwise distributable to
the holders of Certificates to the extent that the Servicer determines
that any such advances previously made are not ultimately recoverable as
described above.
REPORTS TO HOLDERS OF THE CERTIFICATES
Not later than the second Business Day prior to each Distribution Date
the Servicer will deliver to the Trustee for mailing to each holder of a
Certificate (which will be Cede as nominee of DTC, unless and until
Definitive Certificates are issued) a statement setting forth among other
items:
(i) the amount being distributed to Certificateholders;
(ii) the amount of interest included in such distribution and the
related Certificate Rate;
(iii) the amount, if any, of overdue accrued interest included in
such distribution;
(iv) the amount, if any, of the remaining overdue accrued interest
after giving effect to such distribution;
(v) the amount, if any, of principal included in such distribution;
(vi) the amount, if any, of the reimbursement of previous Investor
Loss Amounts included in such distribution;
(vii) the amount, if any, of the aggregate unreimbursed Investor
Loss Amounts after giving effect to such distribution;
(viii) the Floating Allocation Percentage for the preceding
Collection Period;
(ix) the Invested Amount, the Certificate Principal Balance and the
"Factor" (the outstanding Certificate Principal Balance divided by the
Original Certificate Principal Balance), each after giving effect to such
distribution;
(x) the Required Amount for such Distribution Date;
(xi) the Seller Subordinated Amount after giving effect to such
distribution;
(xii) the Pool Balance as of the end of the preceding Collection
Period;
(xiii) the amount of any overcollateralization;
(xiv) the Servicing Fee for such Distribution Date;
(xv) the amount of any Monthly Advance by the Servicer;
(xvi) the number and aggregate Loan Balance of Mortgage Loans
delinquent (a) 31 to 60 days, (b) 61 to 90 days and (c) 91 days or more,
respectively, as of the end of the related Collection Period;
(xvii) the book value of any real estate which is acquired by the
Trust through foreclosure or grant of deed in lieu of foreclosure;
(xviii) the amount of any draws on the Certificate Insurance
Policy; and
(xix) the number and aggregate Trust Balance of Mortgage Loans that
will be retransferred from the Trust Fund on the related Removal Date and the
cumulative number and aggregate Trust Balance of all Mortgage Loans that have
been retransferred on all prior Removal Dates.
In the case of information furnished pursuant to clauses (ii), (iii),
(iv), (v), (vi) and (vii) above, the amounts shall be expressed as a
dollar amount per Certificate with a $1,000 denomination.
Within 90 days after the end of each calendar year, the Servicer will
deliver to the Trustee for mailing to each Person who at any time during
the calendar year was a holder of a Certificate a statement containing the
information set forth in clauses (ii) and (v) above aggregated for such
calendar year or, in the case of each Person who was a Certificateholder
for a portion of such calendar year, setting forth such information for
each month thereof.
ASSIGNMENT OF TRUST BALANCES OF THE MORTGAGE LOANS
At the time of issuance of the Certificates, the Seller will transfer
and assign all of its right, title and interest in and to the Trust
Balances of each Mortgage Loan (including any Additional Balances arising
during the Managed Amortization Period, related Credit Line Agreements,
mortgages and other related documents (collectively, the "Related
Documents"), including all collections received on or with respect to each
such Mortgage Loan after the Cut-off Date (other than payments of
principal and interest allocable to payment of the Servicing Fee),
together with all its right, title and interest in and to the Trust Fund's
allocable portion of the proceeds of any related insurance policies
received on and after the Cut-off Date. The Trustee will, concurrently
with such assignment, deliver the Certificates to the Seller in exchange
for the Mortgage Loans and the Seller Interest. Each Mortgage Loan will be
identified in a schedule appearing as an exhibit to the Agreement. Such
schedule will include information as to the Cut-off Date Trust Balance of
each Mortgage Loan, as well as information respecting the Margin and the
maturity of the Mortgage Loan.
Under the terms of the Agreement, so long as ML & Co.'s long-term
unsecured debt is rated at least A- by _______________ and A3 by
_______________, the Servicer shall be entitled to maintain possession of
certain documents relating to the Mortgage Loans (the "Mortgage Files")
and will not be required to deliver any of them to the Trustee. In the
event that ML & Co.'s long-term unsecured debt rating does not satisfy the
above referenced standards, the documentation relating to each Mortgage
Loan will be delivered to and maintained by the Trustee.
At such time, if any, as the Mortgage Files are delivered to the
Trustee, the Trustee will review each Mortgage File (or copies thereof)
and if any document required to be included in any Mortgage File is found
to be defective in any material respect and such defect is not cured
within 60 days following notification thereof to the Servicer by the
Trustee, the Servicer will repurchase such Mortgage Loan in the manner set
forth below.
The Servicer will make certain representations and warranties as to the
accuracy in all material respects of certain information furnished to the
Trustee with respect to each Mortgage Loan in the Trust Fund (e.g.,
original Combined Loan-to-Value Ratio, principal balance as of the Cut-off
Date, Margin and maturity). In addition, the Servicer will make certain
other representations and warranties customary to sales of Mortgage Loans
and will also represent and warrant that, as of the Cut-off Date, no
Mortgage Loan was more than one month past due.
If any loss is suffered by the Trust Fund, on behalf of the
Certificateholders, in respect of any Mortgage Loan as a result of (a) a
defective document in any Mortgage File, (b) the Servicer's retention of
such Mortgage File or (c) a breach of any representation made by the
Servicer in the Agreement as to a Mortgage Loan, which materially and
adversely affects the interest of the Certificateholders in such Mortgage
Loan, the Servicer will be obligated to accept the retransfer of such
Mortgage Loan from the Trust. Upon such transfer, the Trust Balance of
such Mortgage Loan will be deducted from the Pool Balance, thus reducing
the amount of the Seller Interest. If the deduction would cause the Seller
Interest to become less than the Minimum Seller Interest at such time, the
Servicer will be obligated to either substitute an Eligible Substitute
Mortgage Loan or make a deposit into the Certificate Account in the amount
(the "Transfer Deposit Amount") equal to the amount by which the Seller
Interest would be reduced to less than the Minimum Seller Interest at such
time. Any such deduction, substitution or deposit, will be considered a
payment in full of such Mortgage Loan. Any Transfer Deposit Amount will be
treated as a Principal Collection. Notwithstanding the foregoing, however,
prior to all required deposits to the Certificate Account being made no
such transfer shall be considered to have occurred unless such deposit is
actually made. The obligation of the Servicer to accept a retransfer of a
Defective Mortgage Loan is the sole remedy regarding any defects in the
Mortgage Loans and Related Documents available to the Trustee or the
Certificateholders; provided, however, that the Trustee as successor
servicer shall have no obligation to repurchase any of the Mortgage Loans.
An "Eligible Substitute Mortgage Loan" is a mortgage loan substituted by
the Servicer for a Defective Mortgage Loan which must, on the date of such
substitution, (i) have a Trust Balance (or in the case of a substitution
of more than one Mortgage Loan for a Defective Mortgage Loan, an aggregate
Trust Balance), not substantially greater or less than the Defective
Mortgage Loan; (ii) have a Loan Rate not less than the Loan Rate of the
Defective Mortgage Loan and not more than ___% in excess of the Loan Rate
of such Defective Mortgage Loan; (iii) have a Loan Rate based on the same
Index as that of the Defective Mortgage Loan; (iv) have a Margin that is
not less than the Margin of the Defective Mortgage Loan and not more than
___ basis points higher than the Margin for the Defective Mortgage Loan;
(v) have a mortgage of the same or higher level of priority as the
mortgage relating to the Defective Mortgage Loan; (vi) have a remaining
term to maturity not more than six months earlier and not more than six
months later than the remaining term to maturity of the Defective Mortgage
Loan and in no case later than _______ 1, 20___; (vii) comply with each
representation and warranty as to the Mortgage Loans set forth in the
Agreement (deemed to be made as of the date of substitution); (viii) have
an original Combined Loan-to-Value Ratio not greater than that of the
Defective Mortgage Loan; and (ix) satisfy certain other conditions
specified in the Agreement. To the extent the Trust Balance of an Eligible
Substitute Mortgage Loan is less than the Trust Balance of the related
Defective Mortgage Loan and to the extent that the Seller Interest would
be reduced below the Minimum Seller Interest, the Servicer will be
required to make a deposit to the Certificate Account equal to such
difference.
Mortgage Loans required to be transferred to the Servicer as described
in the preceding paragraphs are referred to as "Defective Mortgage Loans."
AMENDMENTS TO CREDIT LINE AGREEMENTS
In connection with the servicing of the Mortgage Loans, the Servicer may
at the request of a borrower or at its own initiative agree to modify the
Credit Line Agreement relating to a Mortgage Loan or waive compliance by
the borrower with any provision of the Credit Line Agreement, provided
that any such modification or waiver (i) does not extend the scheduled
maturity date of, modify the interest rate payable under (except as
required by law or as contemplated by the Credit Line Agreement), or
constitute a cancellation or discharge of the outstanding Loan Balance
under such Mortgage Loan, (ii) is not inconsistent with the Servicer's
then current practice respecting comparable mortgage loans held in its own
portfolio, or (iii) does not materially and adversely affect the security
afforded by the Mortgaged Property; provided, however, that the Servicer
may agree to changes to the terms of a Credit Line Agreement which would
otherwise be violative of clauses (i) and (iii) above if (a) the Servicer
has determined that such changes are necessary to avoid prepayment of the
related Mortgage Loan as a result of refinancing provided by another
lender or to accommodate the request of a borrower to extend the scheduled
maturity date of the related Mortgage Loan and such changes are consistent
with prudent business practice and (b) the Servicer repurchases the
related Mortgage Loan on the Business Day preceding the Distribution Date
immediately following the Collection Period during which such changes were
made. Any such retransfer will be accomplished in the manner described
under "Description of the Certificates--Assignment of Trust Balances of
the Mortgage Loans" herein.
CONSENT TO SENIOR LIENS AND INCREASE IN CREDIT LIMITS
The Servicer, acting as agent for the Trust Fund and to the extent
consistent with its then current practice respecting comparable mortgage
loans held in its own portfolio, may permit the placement of a subsequent
senior mortgage on any Mortgaged Property so long as either (i) the
Combined Loan-to-Value Ratio of the related Mortgage Loan immediately
following such placement does not exceed the Combined Loan-to-Value Ratio
at origination of such Mortgage Loan or (ii) the placement of such senior
mortgage is in connection with the refinancing of a prior senior mortgage
and results in a reduction of the interest rate applicable to such senior
mortgage and generally does not result in an increase in the then
outstanding principal balance of such senior mortgage. The Servicer may
also permit an increase of the Credit Limit applicable to a Mortgage Loan
so long as the Combined Loan-to-Value Ratio at such Mortgage Loan
immediately following such increase does not exceed 85%.
OPTIONAL RETRANSFERS OF MORTGAGE LOANS TO THE SELLER
Subject to the conditions specified in the Agreement, on any
Distribution Date during the Managed Amortization Period the Seller may,
but shall not be obligated to, remove from the Trust Fund on such
Distribution Date (the "Removal Date"), certain Mortgage Loans without
notice to the Certificateholders. The Seller is permitted to designate the
Mortgage Loans to be removed. Mortgage Loans so designated will only be
removed upon satisfaction of certain conditions specified in the
Agreement, including: (i) the Seller Interest as of such Removal Date
(after giving effect to such removal) exceeds the Minimum Seller Interest;
(ii) the Seller shall have delivered to the Trustee a "Mortgage Loan
Schedule" containing a list of all Mortgage Loans remaining in the Trust
after such removal; (iii) the Seller shall represent and warrant that no
selection procedures which the Seller reasonably believes are adverse to
the interests of the Certificateholders or the Certificate Insurer were
used by the Seller in selecting such Mortgage Loans; (iv) in connection
with the first such retransfer of Mortgage Loans, the Rating Agencies
shall have been notified of the proposed transfer and prior to the Removal
Date shall not have notified the Seller in writing that such transfer
would result in a reduction or withdrawal of the ratings assigned to the
Certificates without regard to the Certificate Insurance Policy; and (v)
the Seller shall have delivered to the Trustee and the Certificate Insurer
an officer's certificate confirming the conditions set forth in clauses
(i) through (iii) above.
As of any date of determination, the "Minimum Seller Interest" is an
amount equal to the lesser of (a) __% of the Pool Balance on such date and
(b) the Seller Interest as of the Closing Date.
SERVICING AND HAZARD INSURANCE
The Mortgage Loans will be serviced in accordance with procedures as
described generally in the Prospectus under "The Pooling and Servicing
Agreement" and as set forth in the Agreement.
In any case in which the Servicer becomes aware that a Mortgaged
Property has been conveyed by a borrower (except to, or for the benefit
of, the borrower, a co-borrower or a relative of the borrower), the
Servicer will take reasonable steps to freeze the borrower's Credit Limit
at the level of the current outstanding Loan Balance. The Servicer is not
obligated to enforce any due-on-sale clause in a Credit Line Agreement. If
the Servicer elects not to enforce any due-on-sale clause or is prevented
from enforcing such due-on-sale clause under applicable law, the Servicer
is authorized to enter into an assumption and modification agreement with
the person to whom such Mortgaged Property has been or is about to be
conveyed, pursuant to which such person becomes liable under the Credit
Line Agreement and, to the extent permitted by applicable law, the
borrower remains liable thereon. If the Servicer elects to enforce such
"due-on-sale" provisions in connection with transfers of the related
Mortgaged Properties, the acceleration of the Mortgage Loans as a result
of such enforcement will affect the level of prepayments on the Mortgage
Loans, thereby affecting the weighted average life of the Certificates.
See "Yield and Prepayment Considerations" in the Prospectus and
"Prepayment and Yield Considerations" herein.
Under the terms of the Mortgage Loans, each borrower is required to
maintain for the corresponding Mortgaged Property a hazard insurance
policy which contains a standard mortgagee's clause and which insures
against loss by fire and by hazards included within the term "extended
coverage," and by such other hazards for which the Servicer requires
coverage. The hazard insurance must be in the amounts and for the periods
of time required by the Servicer. The Servicer will maintain on property
acquired upon foreclosure, or by deed in lieu of foreclosure, hazard
insurance with extended coverage in a similar amount. All amounts
collected by the Servicer under any hazard policy, to the extent they
constitute Net Trust Liquidation Proceeds or Trust Insurance Proceeds,
will ultimately be deposited in the Certificate Account. The Agreement
provides that as protection against coverage lapses in the individual
hazard insurance policies, the Servicer, or an affiliate thereof, will
obtain and maintain a "mortgagee interest policy" issued by an insurer
acceptable to the Rating Agencies insuring against hazard losses on all of
the Mortgaged Properties in an amount equal to the aggregate Loan Balances
outstanding from time to time under the Mortgage Loans. See "The Pooling
and Servicing Agreement--Hazard Insurance" 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 included in the Mortgage Pool be subject to FHA
Insurance or VA Guaranty or be covered by a Primary Mortgage Insurance
Policy.
REALIZATION UPON DEFAULTED MORTGAGE LOANS
In the event that title to any Mortgaged Property is acquired by
foreclosure or by deed in lieu of foreclosure, the deed or certificate of
sale will be issued to the Servicer, or to the Trustee or its nominee on
behalf of the Certificateholders. Notwithstanding any such acquisition of
title and cancellation of the related Mortgage Loan, such Mortgage Loan
will be considered for most purposes to be an outstanding Mortgage Loan
held in the Trust Fund until such time as the Mortgaged Property is sold
and such Mortgage Loan is liquidated.
OPTIONAL PURCHASE OF DEFAULTED MORTGAGE LOANS
The Servicer may, in its sole discretion, purchase defaulted Mortgage
Loans from the Trust Fund. Any such purchase will be at a price equal to
100% of the Trust Balance of each such Mortgage Loan together with accrued
interest thereon at the Net Loan Rate from the date through which interest
was last paid by the related borrower or advanced by the Servicer to the
end of the Collection Period preceding the Distribution Date on which the
proceeds of such purchase are required to be distributed.
SERVICING AND OTHER COMPENSATION AND PAYMENT OF EXPENSES
The principal servicing compensation to be paid to the Servicer in
respect of its servicing activities relating to the Certificates (the
"Servicing Fee") will be retained by it from collections of interest on
the Mortgage Loans in the Trust Fund at the time such collections are
required to be deposited into the Certificate Account and will be equal to
___% (the "Servicing Fee Rate") per annum of the outstanding Loan Balance
of each such Mortgage Loan. In addition, the Servicer will receive any net
investment income from the investment of funds in the Certificate Account.
All assumption fees and late payment charges, to the extent collected from
borrowers shall be retained by the Servicer.
The Servicer will pay certain ongoing expenses associated with the Trust
Fund and incurred by it in connection with its responsibilities under the
Agreement, including, without limitation, payment of the fees and
disbursements of the Trustee, any custodian appointed by the Trustee, the
Certificate Registrar and any paying agent. In addition, as indicated in
the preceding section, the Servicer will be entitled to reimbursement for
certain expenses incurred by it in connection with defaulted Mortgage
Loans and in connection with the restoration of Mortgaged Properties, such
right of reimbursement being prior to the rights of Certificateholders to
receive any related Trust Insurance Proceeds or Net Trust Liquidation
Proceeds.
TERMINATION; RETIREMENT OF THE CERTIFICATES
The Trust Fund will terminate on the Distribution Date following the
later of (A) payment in full of all amounts owing to the Certificate
Insurer and (B) the earliest of (i) the Distribution Date on which the
Certificate Principal Balance has been reduced to zero, (ii) the final
payment or other liquidation of the last Mortgage Loan in the Trust Fund,
(iii) the optional transfer to the Servicer of the Mortgage Loans, as
described below and (iv) the Distribution Date in _________.
The Mortgage Loans and all property acquired in respect of any Mortgage
Loan held in the Trust Fund will be subject to optional transfer to the
Servicer, or in the absence of the exercise thereof by the Servicer, the
Certificate Insurer, on any Distribution Date after the outstanding
Certificate Principal Balance is less than or equal to 10% of the Original
Certificate Principal Balance and all amounts due and owing to the
Certificate Insurer and unreimbursed draws on the Certificate Insurance
Policy, together with interest thereon, as provided under the Insurance
Agreement, have been paid. The purchase price will be equal to the sum of
the outstanding Certificate Principal Balance and accrued and unpaid
interest thereon at the Certificate Rate through the day preceding the
final Distribution Date. In no event, however, will the Trust created by
the Agreement continue in perpetuity. Written notice of termination of the
Agreement will be given to each Certificateholder, and the final
distribution will be made only upon surrender and cancellation of the
Certificates at an office or agency appointed by the Trustee which will be
specified in the notice of termination. Under certain circumstances, the
Certificate Insurer may exercise the Servicer's right of repurchase. See
"Description of the Certificates -- Certificate Insurance Policy" herein.
In addition, the Trust may be liquidated as a result of certain events
of bankruptcy, insolvency or receivership relating to the Seller or the
Servicer. See "-- Rapid Amortization Events" herein.
MISCELLANEOUS
In determining the percentage of the Trust Fund evidenced by a
Certificate for purposes of determining the consent of Certificateholders
or other action by Certificateholders as discussed under "The Pooling and
Servicing Agreement--Amendment" in the Prospectus, such percentage shall
be based upon the relative outstanding principal balances of the
Certificates. Amendments to the Agreement requiring the consent of
Certificateholders shall require only the consent of the holders of
Certificates affected thereby, evidencing Percentage Interests aggregating
at least 66%. Amendments to the Agreement may be made only with the prior
written consent of the Certificate Insurer. Certain other actions under
the Agreement also require the prior written consent of the Certificate
Insurer. The Certificate Insurer may direct the Trustee to waive any
default by the Servicer under the Agreement, except that a default in
making any required distribution on any Certificate may only be waived by
the affected Certificateholder. Upon an Event of Default, the Trustee may
terminate the rights of the Servicer only with the consent of the
Certificate Insurer, and shall terminate the Servicer at the direction of
the Certificate Insurer.
REGISTRATION OF THE CERTIFICATES
The Certificates will initially be registered in the name of Cede, the
nominee of DTC. Certificateholders may hold their Certificates through DTC
(in the United States) or CEDEL or Euroclear (each as defined below) (in
Europe) if they are participants of such systems, or indirectly through
organizations that are participants in such systems.
Cede, as nominee for DTC, will hold the global Certificates. CEDEL and
Euroclear will hold omnibus positions on behalf of the CEDEL Participants
and the Euroclear Participants (each as defined below), respectively,
through customers' securities accounts in CEDEL's and Euroclear's names on
the books of their respective depositaries (collectively, the
"Depositaries") which in turn will hold such positions in customers'
securities accounts in the Depositaries' names on the books of DTC.
DTC is a limited-purpose trust company organized under the laws of the
State of New York, a member of the Federal Reserve System, a "clearing
corporation" within the meaning of the New York Uniform Commercial Code,
and a "clearing agency" registered pursuant to the provisions of Section
17A of the 1934 Act. DTC accepts securities for deposit from its
participating organizations ("Participants") and facilitates the clearance
and settlement of securities transactions between Participants in such
securities through electronic book-entry changes in accounts of
Participants, thereby eliminating the need for physical movement of
certificates. Participants include securities brokers and dealers, banks
and trust companies and clearing corporations and may include certain
other organizations. Indirect access to the DTC system is also 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.
Transfers between Participants will occur in accordance with DTC rules.
Transfers between CEDEL Participants and Euroclear Participants will occur
in the ordinary way in accordance with their applicable rules and
operating procedures.
Cross-market transfers between persons holding directly or indirectly
through DTC, on the one hand, and counterparties holding directly or
indirectly through CEDEL Participants or Euroclear Participants, on the
other, will be effected within DTC in accordance with DTC rules on behalf
of the relevant European international clearing system by its Depositary;
however, such cross-market transactions will require delivery of
instructions to the relevant European international clearing system by the
counterparty in such system in accordance with its rules and procedures
and within its established deadlines (European time). The relevant
European international clearing system will, if the transaction meets its
settlement requirements, deliver instructions to its Depositary to take
action to effect final settlement on its behalf by delivering or receiving
securities in DTC, and making or receiving payment in accordance with
normal procedures for same-day funds settlement applicable to DTC. CEDEL
Participants and Euroclear Participants may not deliver instructions
directly to the Depositaries.
Because of time-zone differences, credits of securities in CEDEL or
Euroclear as a result of a transaction with a Participant will be made
during the subsequent securities settlement processing, dated the business
day following the DTC settlement date, and such credits or any
transactions in such securities settled during such processing will be
reported to the relevant CEDEL Participant or Euroclear Participant on
such business day. Cash received in CEDEL or Euroclear as a result of
sales of securities by or through a CEDEL Participant or a Euroclear
Participant to a Participant will be received with value on the DTC
settlement date but will be available in the relevant CEDEL or Euroclear
cash account only as of the business day following settlement in DTC.
Certificate Owners who are not Participants but desire to purchase, sell
or otherwise transfer ownership of the Certificates may do so only through
Participants (unless and until Definitive Certificates, as defined below,
are issued). In addition, Certificate Owners will receive all
distributions of principal of and interest on the Certificates from the
Trustee through DTC and Participants. Certificate Owners will not receive
or be entitled to receive certificates representing their respective
interests in the Certificates, except under the limited circumstances
described below.
Unless and until Definitive Certificates (as defined below) are issued,
it is anticipated that the only "Certificateholder" of the Certificates
will be Cede, as nominee of DTC. Certificate Owners will not be
Certificateholders as that term is used in the Agreement. Certificate
Owners are only permitted to exercise the rights of Certificateholders
indirectly through Participants and DTC.
While the Certificates are outstanding (except under the circumstances
described below), under the rules, regulations and procedures creating and
affecting DTC and its operations, DTC is required to make book-entry
transfers among Participants on whose behalf it acts with respect to the
Certificates and is required to receive and transmit distributions of
principal of, and interest on, the Certificates. Unless and until
Definitive Certificates are issued, Certificate Owners who are not
Participants may transfer ownership of the Certificates only through
Participants by instructing such Participants to transfer Certificates, by
book-entry transfer, through DTC for the account of the purchasers of such
Certificates, which account is maintained with their respective
Participants. Under the Rules and in accordance with DTC's normal
procedures, transfers of ownership of the Certificates will be executed
through DTC and the accounts of the respective Participants at DTC will be
debited and credited.
The Certificates will be issued in registered form to Certificate
Owners, or their nominees, rather than to DTC (such Certificates being
referred to herein as "Definitive Certificates"), only if (i) DTC or the
Seller advises the Trustee in writing that DTC is no longer willing or
able to discharge properly its responsibilities as nominee and depository
with respect to the Certificates and the Seller or the Trustee is unable
to locate a qualified successor, (ii) the Seller, at its sole option and
with the consent of the Trustee, elects to terminate the book-entry system
through DTC or (iii) after the occurrence of an Event of Default, DTC, at
the direction of Certificate Owners having a majority in Percentage
Interests of the Certificates together, advises the Trustee in writing
that the continuation of a book-entry system through DTC (or a successor
thereto) to the exclusion of any physical certificates being issued to
Certificate Owners is no longer in the best interest of Certificate
Owners. Upon issuance of Definitive Certificates to Certificate Owners,
such Certificates will be transferable directly (and not exclusively on a
book-entry basis) and registered holders will deal directly with the
Trustee with respect to transfers, notices and distributions.
DTC has advised the Seller and the Trustee that, unless and until
Definitive Certificates are issued, DTC will take any action permitted to
be taken by a holder of the Certificates under the Agreement only at the
direction of one or more Participants to whose DTC account the
Certificates are credited. DTC has advised the Seller that DTC will take
such action with respect to any Percentage Interests of the Certificates
only at the direction of and on behalf of such Participants with respect
to such Percentage Interests of the Certificates. DTC may take actions, at
the direction of the related Participants, with respect to some
Certificates which conflict with actions taken with respect to other
Certificates.
Cedel Bank, societe anonyme ("CEDEL") is incorporated under the laws of
Luxembourg as a professional depository. CEDEL holds securities for its
participating organizations ("CEDEL Participants") and facilitates the
clearance and settlement of securities transactions between CEDEL
Participants through electronic book-entry changes in accounts of CEDEL
Participants, thereby eliminating the need for physical movement of
certificates. Transactions may be settled in CEDEL in any of 28
currencies, including United States dollars. CEDEL provides to its CEDEL
Participants, among other things, services for safekeeping,
administration, clearance and settlement of internationally traded
securities and securities lending and borrowing. CEDEL interfaces with
domestic markets in several countries. As a professional depository, CEDEL
is subject to regulation by the Luxembourg Monetary Institute. CEDEL
Participants are recognized financial institutions around the world,
including underwriters, securities brokers and dealers, banks, trust
companies, clearing corporations and certain other organizations and may
include the underwriters of any class of Certificates. Indirect access to
CEDEL is also available to others, such as banks, brokers, dealers and
trust companies that clear through or maintain a custodial relationship
with a CEDEL Participant, either directly or indirectly.
The Euroclear System was created in 1968 to hold securities for
participants of the Euroclear System ("Euroclear Participants") and to
clear and settle transactions between Euroclear Participants through
simultaneous electronic book-entry delivery against payment, thereby
eliminating the need for physical movement of certificates and any risk
from lack of simultaneous transfers of securities and cash. Transactions
may now be settled in any of 32 currencies, including United States
dollars. The Euroclear System includes various other services, including
securities lending and borrowing and interfaces with domestic markets in
several countries generally similar to the arrangements for cross-market
transfers with DTC described above. The Euroclear System is operated by
Morgan Guaranty Trust Company of New York, Brussels, Belgium office (the
"Euroclear Operator" or "Euroclear"), under contract with Euroclear
Clearance System, S.C., a Belgian cooperative corporation (the "Euroclear
Cooperative"). All operations are conducted by the Euroclear Operator, and
all Euroclear securities clearance accounts and Euroclear cash accounts
are accounts with the Euroclear Operator, net the Euroclear Cooperative.
The Euroclear Cooperative establishes policy for the Euroclear System on
behalf of Euroclear Participants. Euroclear Participants include banks
(including central banks), securities brokers and dealers and other
professional financial intermediaries. Indirect access to the Euroclear
System is also available to other firms that clear through or maintain a
custodial relationship with a Euroclear Participant, either directly or
indirectly.
The Euroclear Operator is the Belgian branch of a New York banking
corporation which is a member bank of the Federal Reserve System. As such,
it is regulated and examined by the Board of Governors of the Federal
Reserve System and the New York State Banking Department, as well as the
Belgian Banking Commission.
Securities clearance accounts and cash accounts with the Euroclear
Operator are governed by the Terms and Conditions Governing Use of
Euroclear and the related Operating Procedures of the Euroclear System and
applicable Belgian law (collectively, the "Terms and Conditions"). The
Terms and Conditions govern transfers of securities and cash within the
Euroclear System, withdrawal of securities and cash from the Euroclear
System, and receipts of payments with respect to securities in the
Euroclear System. All securities in the Euroclear System are held on a
fungible basis without attribution of specific certificates to specific
securities clearance accounts. The Euroclear Operator acts under the Terms
and Conditions only on behalf of Euroclear Participants and has no record
of or relationship with persons holding through Euroclear Participants.
Distributions with respect to the Certificates held through CEDEL or
Euroclear will be credited to the cash accounts of CEDEL Participants or
Euroclear Participants in accordance with the relevant system's rules and
procedures, to the extent received by its Depositary. Such distributions
will be subject to tax reporting in accordance with relevant United States
tax laws and regulations. See "Certain Federal Income Tax Consequences."
CEDEL or the Euroclear Operator, as the case may be, will take any other
action permitted to be taken by a Certificate Owner under the Agreement on
behalf of a CEDEL Participant or Euroclear Participant only in accordance
with its relevant rules and procedures and subject to its Depositary's
ability to effect such actions on its behalf through DTC.
Although DTC, CEDEL and Euroclear have agreed to the foregoing
procedures in order to facilitate transfers of the Certificates among
participants of DTC, CEDEL and Euroclear, they are under no obligation to
perform or continue to perform such procedures and such procedures may be
discontinued at any time.
In the event that any of DTC, Cedel or Euroclear should discontinue its
services, the Seller would seek an alternative depositary (if available)
or cause the issuance of Definitive Certificates to Certificate Owners or
their nominees in the manner described above.
Issuance of the Certificates in book-entry form rather than as physical
certificates may adversely affect the liquidity of the Certificates in the
secondary market and the ability of Certificate Owners to pledge them. In
addition, since distributions on the Certificates will be made by the
Trustee to DTC and DTC will credit such distributions to the accounts of
its Participants, which will further credit them to the accounts of
indirect participants of Certificate Owners, Certificate Owners may
experience delays in the receipt of such distributions.
THE TRUSTEE
_______________________________________, a national banking association,
will act as Trustee of the Trust Fund. The mailing address of the
Trustee's corporate trust office is _________________, ___________________
and its telephone number is (___) ________.
The Trustee may resign at any time, in which event the Servicer will be
obligated to appoint a successor Trustee. The Servicer may also remove the
Trustee if the Trustee ceases to be eligible to continue as such under the
Agreement or if the Trustee becomes insolvent. Upon becoming aware of such
circumstances, the Servicer will be obligated to appoint a successor
Trustee. If a downgrading in the credit rating of the Trustee would
materially adversely affect the rating of the Certificates, the Servicer,
under certain circumstances, may remove the Trustee and appoint a
successor Trustee. Any resignation or removal of the Trustee and
appointment of a successor Trustee will not become effective until
acceptance of the appointment by the successor Trustee.
CERTAIN ACTIVITIES
The Trust Fund has not and will not: (i) issue senior securities (except
for the Certificates); (ii) borrow money; (iii) make loans; (iv) invest in
securities for the purpose of exercising control; (v) underwrite
securities; (vi) except as provided in the Agreement, engage in the
purchase and sale (or turnover) of investments; (vii) offer securities in
exchange for property (except Certificates for the Mortgage Loans); or
(viii) repurchase or otherwise reacquire its securities. The Agreement
does not provide for meetings of Certificateholders, and neither the
Seller nor the Servicer contemplate holding such meetings.
THE CERTIFICATE INSURANCE POLICY AND THE CERTIFICATE INSURER
(The following information has been supplied by AMBAC Indemnity
Corporation ("AMBAC") for inclusion in this Prospectus Supplement.
The Certificate Insurer, in consideration of the payment of the premium
and subject to the terms of the Certificate Insurance Policy,
unconditionally and irrevocably guarantees that an amount equal to each
full and complete Insured Amount will be received by the Trustee for
distribution to holders of the Certificates in accordance with the terms
of the Agreement. The Certificate Insurer's obligations under the
Certificate Insurance Policy with respect to a particular Insured Amount
shall be finally and completely discharged to the extent funds equal to
the applicable Insured Amount are received from the Certificate Insurer by
the Trustee. The Certificate Insurer is not responsible for the
application of any Insured Amount subsequent to the receipt thereof by the
Trustee. Insured Amounts shall be paid only at the time set forth in the
Certificate Insurance Policy.
Notwithstanding the foregoing paragraph, the Certificate Insurance
Policy does not cover shortfalls, if any, attributable to the liability of
the Trust Fund or the Trustee for withholding taxes, if any (including
interest and penalties in respect of any such liability). The Certificate
Insurance Policy does not protect against the adverse consequences of, and
does not guarantee any specified rate of, prepayments (including
prepayments resulting from payments of Accelerated Principal Distribution
Amounts) and does not protect against any risk other than Nonpayment,
including failure of the Trustee to make any Insured Payment due to
holders of the Certificates.
In the event the Trustee has notice that any payment of principal or
interest which has been made to a holder of the Certificates by or on
behalf of the Trustee has been deemed a preferential transfer and
theretofore recovered from its registered owner pursuant to the United
States Bankruptcy Code in accordance with a final, nonappealable order of
a court of competent jurisdiction, the Certificate Insurer will make
payment to the Trustee in respect thereof.
The Certificate Insurer will pay any Insured Amount payable under the
Certificate Insurance Policy from its own funds on the later of (a) one
Business Day next following the Business Day on which the Certificate
Insurer receives notice of Nonpayment and (b) the applicable Distribution
Date. Such payments shall be made only upon presentation of an instrument
in form and substance satisfactory to the Certificate Insurer, who shall
be subrogated to all rights of the holders of the Certificates to payment
on the related Certificates to the extent of the Insured Payments so made.
Once the Insured Payments have been made to the Trustee, the Certificate
Insurer shall have no further obligation in respect of the related Insured
Amounts.
As used in the Certificate Insurance Policy, the following terms shall
have the following meanings:
"Agreement" means the Pooling and Servicing Agreement dated as of
______, 199_ by and among the Seller, the Servicer, and the Trustee
without regard to any amendment or supplement thereto without the prior
consent of the Certificate Insurer.
"Business Day" means any day other than a Saturday, Sunday or any
day on which national banks in the States of New York, Florida or
California are authorized or obligated by law or executive order to close.
"Insured Amount" and "Nonpayment" mean with respect to any
Distribution Date other than any Dissolution Distribution Date, the sum of
(a)(i) the amount by which interest accrued at the Certificate Rate on the
outstanding Certificate Principal Balance during the preceding Accrual Period
exceeds all amounts on deposit in the Certificate Account available
to be distributed therefor plus (ii) after the Seller Subordinated Amount has
been reduced to zero, the amount, if any, by which the Certificate Principal
Balance as of such Distribution Date (after giving effect to all
other amounts distributable and allocable to principal on the Certificates)
exceeds the Invested Amount as of such Distribution Date (after giving effect
to all other amounts distributable and allocable to principal on the
Certificates); provided, that the Certificate Insurance Policy will not cover
any such amounts on any Dissolution Distribution Date, plus (iii) the
outstanding Certificate Principal Balance on the Stated Maturity Date (after
giving effect to all other amounts distributable and allocable to principal
on the Certificates, and (b) any
Preference Amount that has not been paid to the Trustee by the Certificate
Insurer prior to such Distribution Date.
"Insured Payment" means with respect to any Distribution Date the
Insured Amount for such Distribution Date paid to the Trustee by the
Certificate Insurer.
"Preference Amount" means any payment of principal or interest
which has been made to a holder of the Certificates by or on behalf of the
Trustee which has been deemed a preferential transfer and theretofore
recovered from its registered owner pursuant to the United States Bankruptcy
Code in accordance with a final, nonappealable order of a court
of competent jurisdiction.
The Certificate Insurance Policy is being issued under and pursuant to,
and shall be construed under, the laws of the State of California (without
giving effect to conflict of laws principles thereof).
The insurance provided by the Certificate Insurance Policy is not
covered by the Property/Casualty Insurance Security Fund specified in
Article 76 of the New York Insurance Law.
The Certificate Insurance Policy is not cancelable for any reason. The
premiums on the Certificate Insurance Policy are not refundable for any
reason including payment, or provision being made for payment, prior to
the maturity of the Certificates.
AMBAC is a Wisconsin-domiciled stock insurance corporation regulated by
the Office of the Commissioner of Insurance of the State of Wisconsin and
licensed to do business in 50 states, the District of Columbia, the
Commonwealth of Puerto Rico, and Guam. AMBAC primarily insures newly
issued municipal bonds. AMBAC is a wholly owned subsidiary of AMBAC Inc.,
a 100% publicly held company. Moody's, S&P and Fitch Investors Service,
L.P. have each assigned a triple-A claims-paying ability rating to AMBAC.
AMBAC has entered into pro rata reinsurance agreements under which a
percentage of the insurance underwritten pursuant to certain of AMBAC's
municipal bond and structured finance insurance policies have been and
will be assumed by a number of foreign and domestic unaffiliated
reinsurers.
The following table sets forth AMBAC's capitalization as of December 31,
1993, December 31, 1994, December 31, 1995 and June 30, 1996,
respectively, in conformity with generally accepted accounting principles.
AMBAC INDEMNITY CORPORATION
CAPITALIZATION TABLE
<TABLE>
<CAPTION>
December December December June
31, 31, 31, 30,
1993 1994 1995 1996
(Unaudited)
(Dollars in millions)
<S> <C> <C> <C> <C>
Unearned premiums $ 785 $ 840 $ 906 $ 937
Other liabilities 192 136 295 286
Stockholder's equity:
Common stock $ 82 $ 82 $ 82 $ 82
Additional
paid-in capital 444 444 481 514
Unrealized gain
(loss) on bonds;
net of tax 68 (46) 87 34
Retained earnings 668 782 907 912
Total
stockholder's
equity $1,262 $1,262 $1,557 $1,542
Total
liabilities
and stock-
holder's
equity $2,239 $2,238 $2,758 $2,765
</TABLE>
__________
For additional financial information concerning AMBAC, see the audited
financial statements of AMBAC included as Appendix A of this Prospectus
Supplement and the unaudited financial statements of AMBAC as Appendix B
of this Prospectus Supplement.
Effective December 31, 1993, AMBAC adopted Statement of Financial
Accounting Standards No. 115, "Accounting for Certain Debt and Equity
Securities" ("Statement 115") with all investments designated as
available-for-sale. As required under Statement 115, prior years'
financial statements have not been restated. The cumulative effect of
adopting Statement 115 as of December 31, 1993 was to increase AMBAC's
stockholder's equity $63.6 million, net of tax. The adoption of Statement
115 had no effect on earnings.
The Certificate Insurer does not accept any responsibility for the
accuracy or completeness of this Prospectus Supplement or the Prospectus
or any information or disclosure contained herein, or omitted herefrom,
other than with respect to the accuracy of the information regarding the
Certificate Insurance Policy and Certificate Insurer set forth under this
heading "The Certificate Insurance Policy and the Certificate Insurer"
and, the information provided in Appendix A and Appendix B.)
(The following information has been supplied by MBIA Insurance
Corporation (the "Certificate Insurer") for inclusion in this Prospectus
Supplement.
The Certificate Insurer, in consideration of the payment of the premium
and subject to the terms of the Certificate Guaranty Insurance Policy (the
"Certificate Insurance Policy"), hereby unconditionally and irrevocably
guarantees to any Owner that an amount equal to each full and complete
Insured Payment will be received by the Trustee, or its successor, as
trustee for the Owners, on behalf of the Owners from the Certificate
Insurer, for distribution by the Trustee to each Owner of each Owner's
proportionate share of the Insured Payment. The Certificate Insurer's
obligations under the Certificate Insurance Policy with respect to a
particular Insured Payment shall be discharged to the extent funds equal
to the applicable Insured Payment are received by the Trustee, whether or
not such funds are properly applied by the Trustee. Insured Payments
shall be made only at the time set forth in the Certificate Insurance
Policy and no accelerated Insured Payments shall be made regardless of any
acceleration of the Certificates, unless such acceleration is at the sole
option of the Certificate Insurer.
Notwithstanding the foregoing paragraph, the Certificate Insurance
Policy does not cover shortfalls, if any, attributable to the liability of
the Trust or the Trustee for withholding taxes, if any (including interest
and penalties in respect of any such liability).
The Certificate Insurer will pay any Insured Payment that is a
Preference Amount on the Business Day following receipt on a Business Day
by the Fiscal Agent (as described below) of (i) a certified copy of the
order requiring the return of a preference payment, (ii) an opinion of
counsel satisfactory to the Certificate Insurer that such order is final
and not subject to appeal, (iii) an assignment in such form as is
reasonably required by the Certificate Insurer, irrevocably assigning to
the Certificate Insurer all rights and claims of the Owner relating to or
arising under the Certificates against the debtor which made such
preference payment or otherwise with respect to such preference payment
and (iv) appropriate instruments to effect the appointment of the
Certificate Insurer as agent for such Owner in any legal proceeding
related to such preference payment, such instruments being in a form
satisfactory to the Certificate Insurer, provided that if such documents
are received after 12:00 noon New York City time on such Business Day,
they will be deemed to be received on the following Business Day. Such
payments shall be disbursed to the receiver or trustee in bankruptcy named
in the final order of the court exercising jurisdiction on behalf of the
Owner and not to any Owner directly unless such Owner has returned
principal or interest paid on the Certificates to such receiver or trustee
in bankruptcy, in which case such payment shall be disbursed to such
Owner.
The Certificate Insurer will pay any other amount payable under the
Certificate Insurance Policy no later than 12:00 noon New York City time
on the later of the Distribution Date on which the related Deficiency
Amount is due or the Business Day following receipt in New York, New York
on a Business Day by State Street Bank and Trust Company, N.A., as Fiscal
Agent for the Certificate Insurer or any successor fiscal agent appointed
by the Certificate Insurer (the "Fiscal Agent") of a Notice (as described
below); provided that if such Notice is received after 12:00 noon New York
City time on such Business Day, it will be deemed to be received on the
following Business Day. If any such Notice received by the Fiscal Agent
is not in proper form or is otherwise insufficient for the purpose of
making claim under the Certificate Insurance Policy it shall be deemed not
to have been received by the Fiscal Agent for purposes of this paragraph,
and the Certificate Insurer or the Fiscal Agent, as the case may be, shall
promptly so advise the Trustee and the Trustee may submit an amended
Notice.
Insured Payments due under the Certificate Insurance Policy unless
otherwise stated therein will be disbursed by the Fiscal Agent to the
Trustee on behalf of the Owners by wire transfer of immediately available
funds in the amount of the Insured Payment less, in respect of Insured
Payments related to Preference Amounts, any amount held by the Trustee for
the payment of such Insured Payment and legally available therefor.
The Fiscal Agent is the agent of the Certificate Insurer only and the
Fiscal Agent shall in no event be liable to Owners for any acts of the
Fiscal Agent or any failure of the Certificate Insurer to deposit or cause
to be deposited, sufficient funds to make payments due under the
Certificate Insurance Policy.
As used in the Certificate Insurance Policy, the following terms shall
have the following meanings:
"Agreement" means the Pooling and Servicing Agreement dated as of
_________, 19__ among the Seller, the Servicer and the Trustee without
regard to any amendment or supplement thereto without the prior consent of
the Certificate Insurer.
"Business Day" means any day other than a Saturday, a Sunday or a day on
which the Certificate Insurer and national banks in the States of New
York, Florida or California are authorized or obligated by law or
executive order to close.
"Deficiency Amount" means, (i) with respect to any Distribution Date
other than the Dissolution Distribution Date, the sum of (a) the amount by
which interest accrued at the Certificate Rate on the outstanding
Certificate Principal Balance during the preceding Accrual Period exceeds
all amounts on deposit in the Certificate Account available to be
distributed therefor and (b) after the Seller Subordinated Amount has been
reduced to zero, the amount, if any, by which the Certificate Principal
Balance as of such Distribution Date (after giving effect to all other
amounts distributable and allocable to principal on the Certificates)
exceeds the Invested Amount on such Distribution Date (after giving effect
to all other amounts distributable and allocable to principal on the
Certificates); provided, that the Certificate Insurance Policy will not
cover any such amounts on any Dissolution Distribution Date and (ii) the
outstanding Certificate Principal Balance on the Stated Maturity Date
(after giving effect to all other amounts distributable and allocable to
principal on the Certificates.
"Insured Payment" means (i) with respect to any Distribution Date, the
Deficiency Amount and (ii) any Preference Amount.
"Notice" means the telephonic or telegraphic notice, promptly confirmed
in writing by telecopy substantially in the form of Exhibit A attached to
the Certificate Insurance Policy, the original of which is subsequently
delivered by registered or certified mail, from the Trustee specifying the
Insured Payment which shall be due and owing on the applicable
Distribution Date.
"Owner" means each holder (as defined in the Agreement) who, on the
applicable Distribution Date, is entitled under the terms of the
applicable Certificates to payment thereunder.
"Preference Amount" means any amount previously distributed to an Owner
on the Certificates that is recoverable and sought to be recovered as a
voidable preference by a trustee in bankruptcy pursuant to the United
States Bankruptcy Code (11 U.S.C.), as amended from time to time in
accordance with a final nonappealable order of a court having competent
jurisdiction.
Capitalized terms used in the Certificate Insurance Policy and not
otherwise defined in the Certificate Insurance Policy shall have the
respective meanings set forth in the Agreement as of the date of execution
of the Certificate Insurance Policy, without giving effect to any
subsequent amendment or modification to the Agreement unless such
amendment or modification has been approved in writing by the Certificate
Insurer.
Any notice under the Certificate Insurance Policy or service of process
on the Fiscal Agent of the Certificate Insurer may be made at the address
listed below for the Fiscal Agent of the Certificate Insurer or such other
address as the Certificate Insurer shall specify in writing to the
Trustee.
The notice address of the Fiscal Agent is 15th Floor, 61 Broadway,
New York, New York 10006 Attention: Municipal Registrar and Paying Agency,
or such other address as the Fiscal Agent shall specify to the Trustee in
writing.
The Certificate Insurance Policy is being issued under and pursuant to,
and shall be construed under, the laws of the State of New York, without
giving effect to the conflict of laws principles thereof.
The insurance provided by the Certificate Insurance Policy is not
covered by the Property/Casualty Insurance Security Fund specified in
Article 76 of the New York Insurance Law.
The Certificate Insurance Policy is not cancelable for any reason. The
premium on the Certificate Insurance Policy is not refundable for any
reason including payment, or provision being made for payment, prior to
maturity of the Certificates.
The Certificate Insurer is the principal operating subsidiary of MBIA
Inc., a New York Stock Exchange listed company. MBIA Inc. is not
obligated to pay the debts of or claims against the Certificate Insurer.
The Certificate Insurer is domiciled in the State of New York and licensed
to do business in and is subject to regulation under the laws of all 50
states, the District of Columbia, the Commonwealth of Puerto Rico, the
Commonwealth of the Northern Mariana Islands, the Virgin Islands of the
United States and the Territory of Guam. The Certificate Insurer has two
European branches, one in the Republic of France and the other in the
Kingdom of Spain. New York has laws prescribing minimum capital
requirements, limiting classes and concentrations of investments and
requiring the approval of policy rates and forms. State laws also
regulate the amount of both the aggregate and individual risks that may be
insured, the payment of dividends by the Insurer, changes in control and
transactions among affiliates. Additionally, the Certificate Insurer is
required to maintain contingency reserves on its liabilities in certain
amounts and for certain periods of time.
The consolidated financial statements of the Certificate Insurer, a
wholly owned subsidiary of MBIA Inc., and its subsidiaries as of
December 31, 1995 and December 31, 1994 and for the three years ended
December 31, 1995, prepared in accordance with generally accepted
accounting principles, included in the Annual Report on Form 10-K of MBIA
Inc. for the year ended December 31, 1995 and the consolidated financial
statements of the Insurer and its subsidiaries for the six months ended
June 30, 1996 and for the periods ending June 30, 1996 and June 30, 1995
included in the Quarterly Report on Form 10-Q of MBIA, Inc. for the period
ending June 30, 1996, are hereby incorporated by reference into this
Prospectus and shall be deemed to be a part hereof. Any statement
contained in a document incorporated by reference herein shall be modified
or superseded for purposes of this Prospectus to the extent that a
statement contained herein or in any other subsequently filed document
which also is incorporated by reference herein modifies or supersedes such
statement. Any statement so modified or superseded shall not be deemed,
except as so modified or superseded, to constitute a part of this
Prospectus.
The tables below present selected financial information of the
Certificate Insurer determined in accordance with statutory accounting
practices prescribed or permitted by insurance regulatory authorities
("SAP") and generally accepted accounting principles ("GAAP"):
<TABLE>
<CAPTION>
SAP
December 31, 1995 June 30, 1996
(Audited) (Unaudited)
(In millions)
<S> <C> <C>
Admitted Assets $3,814 $4,179
Liabilities 2,540 2,804
Capital and Surplus 1,274 1,375
</TABLE>
<TABLE>
<CAPTION>
SAP
December 31, 1995 June 30, 1996
(Audited) (Unaudited)
(In millions)
<S> <C> <C>
Assets $4,463 $4,691
Liabilities 1,937 2,088
Shareholder's Equity 2,526 2,602
</TABLE>
Copies of the financial statements of the Certificate Insurer
incorporated by reference herein and copies of the Certificate Insurer's
1995 year-end audited financial statements prepared in accordance with
statutory accounting practices are available, without charge, from the
Certificate Insurer. The address of the Certificate Insurer is 113 King
Street, Armonk, New York 10504. The telephone number of the Certificate
Insurer is (914) 273-4545.
The Certificate Insurer does not accept any responsibility for the
accuracy or completeness of this Prospectus or any information or
disclosure contained herein, or omitted herefrom, other than with respect
to the accuracy of the information regarding the Certificate Insurance
Policy and the Certificate Insurer set forth under the heading "THE
CERTIFICATE INSURANCE POLICY AND THE CERTIFICATE INSURER."
Moody's Investors Service, Inc. rates the claims paying ability of the
Certificate Insurer "Aaa."
Standard & Poor's Ratings Services, a division of The McGraw-Hill
Companies, Inc. rates the claims paying ability of the Certificate Insurer
"AAA."
Fitch Investors Service, L.P. rates the claims paying ability of the
Certificate Insurer "AAA."
Each rating of the Certificate Insurer should be evaluated
independently. The ratings reflect the respective rating agency's current
assessment of the creditworthiness of the Certificate Insurer and its
ability to pay claims on its policies of insurance. Any further
explanation as to the significance of the above ratings may be obtained
only from the applicable rating agency.
The above ratings are not recommendations to buy, sell or hold the
Certificates, and such ratings may be subject to revision or withdrawal at
any time by the rating agencies. Any downward revision or withdrawal of
any of the above ratings may have an adverse effect on the market price of
the Certificates. The Certificate Insurer does not guaranty the market
price of the Certificates nor does it guaranty that the ratings on the
Certificates will not be revised or withdrawn.)
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
GENERAL
The following discussion, which summarizes certain U.S. federal income
tax aspects of the purchase, ownership and disposition of the
Certificates, is based on the provisions of the Internal Revenue Code of
1986, as amended (the "Code"), the Treasury Regulations thereunder, and
published rulings and court decisions in effect as of the date hereof, all
of which are subject to change, possibly retroactively. This discussion
does not address every aspect of the U.S. federal income tax laws which
may be relevant to Certificate Owners in light of their personal
investment circumstances or to certain types of Certificate Owners subject
to special treatment under the U.S. federal income tax laws (for example,
banks and life insurance companies). Accordingly, investors should consult
their tax advisors regarding U.S. federal, state, local, foreign and any
other tax consequences to them of investing in the Certificates.
CHARACTERIZATION OF THE CERTIFICATES AS INDEBTEDNESS
Based on the application of existing law to the facts as set forth in
the Agreement and other relevant documents and assuming compliance with
the terms of the Agreement as in effect on the date of issuance of the
Certificates, Brown & Wood LLP, special tax counsel to the Seller ("Tax
Counsel"), is of the opinion that the Certificates will be treated as debt
instruments for federal income tax purposes as of such date. See "Certain
Federal Income Tax Consequences" in the Prospectus.
The Seller and the Certificateholders express in the Agreement their
intent that, for applicable tax purposes, the Certificates will be
indebtedness secured by the Mortgage Loans. The Seller and the
Certificateholders, by accepting the Certificates, and each Certificate
Owner by its acquisition of a beneficial interest in a Certificate, have
agreed to treat the Certificates as indebtedness for U.S. federal income
tax purposes. However, because different criteria are used to determine
the non-tax accounting characterization of the transaction, the Seller
intends to treat this transaction as a sale of an interest in the Trust
Balance of the Mortgage Loans for financial accounting and certain
regulatory purposes.
In general, whether for U.S. federal income tax purposes a transaction
constitutes a sale of property or a loan, the repayment of which is
secured by property, is a question of fact, the resolution of which is
based upon the economic substance of the transaction rather than its form
or the manner in which it is labeled. While the Internal Revenue Service
(the "IRS") and the courts have set forth several factors to be taken into
account in determining whether the substance of a transaction is a sale of
property or a secured loan, the primary factor in making this
determination is whether the transferee has assumed the risk of loss or
other economic burdens relating to the property and has obtained the
benefits of ownership thereof. Tax Counsel has analyzed and relied on
several factors in reaching its opinion that the weight of the benefits
and burdens of ownership of the Mortgage Loans has been retained by the
Seller and has not been transferred to the Certificate Owners.
In some instances, courts have held that a taxpayer is bound by the
particular form it has chosen for a transaction, even if the substance of
the transaction does not accord with its form. Tax Counsel has advised
that the rationale of those cases will not apply to this transaction,
because the form of the transaction as reflected in the operative
provisions of the documents either accords with the characterization of
the Certificates as debt or otherwise makes the rationale of those cases
inapplicable to this situation.
TAXATION OF INTEREST INCOME OF CERTIFICATE OWNERS
Assuming that the Certificate Owners are holders of debt obligations for
U.S. federal income tax purposes, the Certificates generally will be
taxable in the following manner. While it is not anticipated that the
Certificates will be issued at a greater than de minimis discount, under
Treasury regulations (the "OID Regulations") it is possible that the
Certificates could nevertheless be deemed to have been issued with
original issue discount ("OID") if the interest were not treated as
"unconditionally payable" under the OID Regulations. If such regulations
were to apply, all of the taxable income to be recognized with respect to
the Certificates would be includible in income of Certificate Owners as
OID, but would not be includible again when the interest is actually
received. See "Certain Federal Income Tax Consequences -- Single Class of
Senior Certificates -- Original Issue Discount" in the Prospectus for a
discussion of the application of the OID rules if the Certificates are in
fact issued at a greater than de minimis discount or are treated as having
been issued with OID under the OID Regulations. For purposes of
calculating OID, it is likely that the Certificates will be treated as
Pay-Through Securities.
POSSIBLE CLASSIFICATION OF THE CERTIFICATES AS A PARTNERSHIP OR
ASSOCIATION TAXABLE AS A CORPORATION
The opinion of Tax Counsel is not binding on the courts or the IRS. It
is possible that the IRS could assert that, for purposes of the Code, the
transaction contemplated by this Prospectus Supplement with respect to the
Certificates constitutes a sale of the Mortgage Loans (or an interest
therein) to the Certificate Owners and that the proper classification of
the legal relationship between the Seller and the Certificate Owners
resulting from this transaction is that of a partnership (including a
publicly traded partnership), a publicly traded partnership treated as a
corporation, or an association taxable as a corporation. Since Tax Counsel
has advised that the Certificates will be treated as indebtedness in the
hands of the Certificateholders for U.S. federal income tax purposes and
that the entity constituted by the Trust will not be a publicly traded
partnership treated as a corporation or an association taxable as a
corporation, the Seller will not attempt to comply with U.S. federal
income tax reporting requirements applicable to partnerships or
corporations as such requirements would apply if the Certificates were
treated as indebtedness.
If it were determined that this transaction created an entity classified
as a corporation (including a publicly traded partnership taxable as a
corporation), the Trust would be subject to U.S. federal income tax at
corporate income tax rates on the income it derives from the Mortgage
Loans, which would reduce the amounts available for distribution to the
Certificate Owners. Cash distributions to the Certificate Owners generally
would be treated as dividends for tax purposes to the extent of such
corporation's earnings and profits.
If the transaction were treated as creating a partnership between the
Certificate Owners and the Seller, the partnership itself would not be
subject to U.S. federal income tax (unless it were to be characterized as
a publicly traded partnership taxable as a corporation); rather, the
Seller and each Certificate Owner would be taxed individually on their
respective distributive shares of the partnership's income, gain, loss,
deductions and credits. The amount and timing of items of income and
deductions of the Certificate Owner could differ if the Certificates were
held to constitute partnership interests rather than indebtedness.
POSSIBLE CLASSIFICATION AS A TAXABLE MORTGAGE POOL
In relevant part, Section 7701(i) of the Code provides that any entity
(or a portion of an entity) that is a "taxable mortgage pool" will be
classified as a taxable corporation and will not be permitted to file a
consolidated U.S. federal income tax return with another corporation.
Subject to a grandfather provision for existing entities, any entity (or a
portion of any entity) will be a taxable mortgage pool if (i)
substantially all of its assets consist of debt instruments, more than 50%
of which are real estate mortgages, (ii) the entity is the obligor under
debt obligations with two or more maturities, and (iii) under the terms of
the entity's debt obligations (or an underlying arrangement), payments on
such debt obligations bear a relationship to the debt instruments held by
the entity.
Assuming that all of the provisions of the Agreement, as in effect on
the date of issuance, are complied with, Tax Counsel is of the opinion
that the arrangement created by the Agreement will not be a taxable
mortgage pool under Section 7701(i) of the Code because only one class of
indebtedness secured by the Mortgage Loans is being issued.
The opinion of Tax Counsel is not binding on the IRS or the courts. If
the IRS were to contend successfully (or future regulations were to
provide) that the arrangement created by the Agreement is a taxable
mortgage pool, such arrangement would be subject to U.S. federal corporate
income tax on its taxable income generated by ownership of the Mortgage
Loans. Such a tax might reduce amounts available for distributions to
Certificate Owners. The amount of such a tax would depend upon whether
distributions to Certificate Owners would be deductible as interest
expense in computing the taxable income of such an arrangement as a
taxable mortgage pool.
FOREIGN INVESTORS
In general, subject to certain exceptions, interest (including OID) paid
on a Certificate to a nonresident alien individual, foreign corporation or
other non-United States person is not subject to U.S. federal income tax,
provided that such interest is not effectively connected with a trade or
business of the recipient in the United States and the Certificate Owner
provides the required foreign person information certification. See
"Certain Federal Income Tax Consequences -- Tax Treatment of Foreign
Investors" in the Prospectus.
If the interests of the Certificate Owners were deemed to be partnership
interests, the partnership would be required, on a quarterly basis, to pay
withholding tax equal to the product, for each foreign partner, of such
foreign partner's distributive share of "effectively connected" income of
the partnership multiplied by the highest rate of tax applicable to that
foreign partner. In addition, such foreign partner would be subject to
branch profits tax. Each non-foreign partner would be required to certify
to the partnership that it is not a foreign person. The tax withheld from
each foreign partner would be credited against such foreign partner's U.S.
income tax liability.
If the Trust were taxable as a corporation, distributions to foreign
persons, to the extent treated as dividends, would generally be subject to
withholding at the rate of 30%, unless such rate were reduced by an
applicable tax treaty.
BACKUP WITHHOLDING
Certain Certificate Owners may be subject to backup withholding at the
rate of 31% with respect to interest paid on the Certificates if the
Certificate Owners, upon issuance of the Certificates, fail to supply the
Trustee or the Certificate Owners' brokers with their respective taxpayer
identification numbers, furnish an incorrect taxpayer identification
number, fail to report interest, dividends, or other "reportable payments"
(as defined in the Code) properly, or, under certain circumstances, fail
to provide the Trustee or the Certificate Owners' brokers with certified
statements, under penalty of perjury, that they are not subject to backup
withholding.
The Trustee will be required to report annually to the IRS, and to each
Certificateholder of record, the amount of interest paid (and OID accrued,
if any) on the Certificates (and the amount of interest withheld for U.S.
federal income taxes, if any) for each calendar year, except as to exempt
holders (generally, holders that are corporations, certain tax-exempt
organizations or nonresident aliens who provide certification as to their
status as nonresidents). As long as the only "Certificateholder" of record
is Cede, as nominee for DTC, Certificate Owners and the IRS will receive
tax and other information including the amount of interest paid on the
Certificates owned from Participants and Indirect Participants rather than
from the Trustee. (The Trustee, however, will respond to requests for
necessary information to enable Participants, Indirect Participants and
certain other persons to complete their reports.) Each non-exempt
Certificate Owner will be required to provide, under penalty of perjury, a
certificate on IRS Form W-9 containing his or her name, address, correct
federal taxpayer identification number and a statement that he or she is
not subject to backup withholding. Should a non-exempt Certificate Owner
fail to provide the required certification, the Participants or Indirect
Participants (or the Paying Agent) will be required to withhold 31% of the
interest (and principal) otherwise payable to the holder, and remit the
withheld amount to the IRS as a credit against the holder's federal income
tax liability.
STATE TAXES
The Seller makes no representations regarding the tax consequences of
purchase, ownership or disposition of the Certificates under the tax laws
of any state. Investors considering an investment in the Certificates
should consult their own tax advisors regarding such tax consequences.
All investors should consult their own tax advisors regarding the
federal, state, local or foreign income tax consequences of the purchase,
ownership and disposition of the Certificates.
ERISA CONSIDERATIONS
GENERAL
The Employee Retirement Income Security Act of 1974, as amended
("ERISA"), imposes certain restrictions on employee benefit plans that are
subject to ERISA ("Plans") and on persons who are fiduciaries with respect
to such Plans. See "ERISA Considerations" in the Prospectus.
PROHIBITED TRANSACTIONS
General
Section 406 of ERISA prohibits parties in interest with respect to a
Plan from engaging in certain transactions involving a Plan and its assets
unless a statutory or administrative exemption applies to the transaction.
Section 4975 of the Code (or, in some cases, Section 502(i) of ERISA)
imposes certain excise taxes on parties in interest which engage in non-
exempt prohibited transactions.
The United States Department of Labor ("DOL") has issued a final
regulation (29 C.F.R. Section 2510.3-101) containing rules for determining
what constitutes the assets of a Plan. This regulation provides that, as a
general rule, the underlying assets and properties of corporations,
partnerships, trusts and certain other entities in which a Plan makes an
"equity investment" will be deemed for purposes of ERISA to be assets of
the Plan unless certain exceptions apply.
Under the terms of the regulation, the Trust may be deemed to hold plan
assets by reason of a Plan's investment in a Certificate; such plan assets
would include an undivided interest in the Mortgage Loans and any other
assets held by the Trust. In such an event, the Seller, the Servicer, the
Trustee and other persons, in providing services with respect to the
Mortgage Loans, may be parties in interest, subject to the fiduciary
responsibility provisions of Title I of ERISA, including the prohibited
transaction provisions of Section 406 of ERISA (and of Section 4975 of the
Code), with respect to transactions involving the Mortgage Loans unless
such transactions are subject to a statutory or administrative exemption.
AVAILABILITY OF CLASS EXEMPTION FOR CERTIFICATES
The U.S. Department of Labor has granted to Merrill Lynch, Pierce,
Fenner & Smith Incorporated (the "Underwriter") an administrative
exemption (Prohibited Transaction Exemption 90-29; Exemption Application
No. D-8012, 55 Fed. Reg. 21459 (1990)) (the "Exemption") from certain of
the prohibited transaction rules of ERISA with respect to the initial
purchase, the holding and the subsequent resale by Plans of certificates
representing interests in asset-backed pass-through trusts that consist of
certain receivables, loans and other obligations that meet the conditions
and requirements of the Exemption. The definition of "receivables" covered
by the Exemption applies to mortgage loans such as the Mortgage Loans in
the Trust Fund. The Exemption will apply to the acquisition, holding and
resale of the Certificates by a Plan, provided that certain conditions
(certain of which are described below) are met.
Among the conditions which must be satisfied for the Exemption to apply
to the Certificates are the following:
(1) The acquisition of the Certificates by a Plan is on terms
(including the price for the Certificates) that are at least as favorable to
the Plan as they would be in an arm's-length transaction with an unrelated
party;
(2) The rights and interests evidenced by the Certificates acquired
by the Plan are not subordinated to the rights and interests evidenced by
other certificates of the Trust Fund;
(3) The Certificates acquired by the Plan have received a rating at
the time of such acquisition that is in one of the three highest generic
rating categories from either Standard & Poor's Rating Services, Moody's
Investors Service, Inc., Duff & Phelps Inc. or Fitch Investors Service, Inc.;
(4) The Trustee is not an affiliate of any member of the Restricted
Group (as defined below);
(5) The sum of all payments made to the Underwriter in connection
with the distribution of the Certificates represents not more than
reasonable compensation for underwriting the Certificates. The sum of all
payments made to and retained by the Seller pursuant to the sale of the
Certificates to the Trust Fund represents not more than the fair market value
of such Mortgage Loans. The sum of all payments made to and retained
by the Servicer represents not more than reasonable compensation for the
Servicer's services under the Agreement and reimbursement of the Servicer's
reasonable expenses in connection therewith; and
(6) The Plan investing in the Certificates is an "accredited
investor" as defined in Rule 501(a)(1) of Regulation D of the Securities and
Exchange Commission under the Securities Act of 1933, as amended.
Moreover, the Exemption would provide relief from certain self-
dealing/conflict of interest prohibited transactions only if, among other
requirements, (i) in the case of the acquisition of Certificates in
connection with the initial issuance, at least fifty (50) percent of the
Certificates are acquired by persons independent of the Restricted Group
(as defined below), (ii) the Plan's investment in Certificates does not
exceed twenty-five (25) percent of all of the Certificates outstanding at
the time of the acquisition and (iii) immediately after the acquisition,
no more than twenty-five (25) percent of the assets of the Plan are
invested in certificates representing an interest in one or more trusts
containing assets sold or serviced by the same entity. The Exemption does
not apply to Plans sponsored by the Seller, the Underwriter, the Trustee,
the Servicer, any obligor with respect to Mortgage Loans included in the
Trust Fund constituting more than five percent of the aggregate
unamortized principal balance of the assets in the Trust Fund, or any
affiliate of such parties (the "Restricted Group").
The Seller believes that the Exemption will apply to the acquisition and
holding by Plans of Certificates sold by the Underwriter and that all
conditions of the Exemption other than those within the control of the
investors have been met. In addition, as of the date hereof, no obligor
with respect to Mortgage Loans included in the Trust Fund constitutes more
than five percent of the aggregate unamortized principal balance of the
assets of the Trust Fund.
Employee benefit plans that are governmental plans (as defined in
Section 3(32) of ERISA) and certain church plans (as defined in Section
3(33) of ERISA) are not subject to ERISA requirements. Accordingly, assets
of such plans may be invested in the Certificates without regard to the
ERISA restrictions described above, subject to applicable provisions of
other federal and state laws.
REVIEW BY PLAN FIDUCIARIES
Due to the complexity of these rules and the penalties imposed upon
persons involved in prohibited transactions, it is especially important
that any Plan fiduciary who proposes to cause a Plan to purchase
Certificates should consult with its own counsel with respect to the
potential consequences under ERISA and the Code of the Plan's acquisition
and ownership of Certificates. Assets of a Plan or individual retirement
account should not be invested in the Certificates unless it is clear that
the assets of the Trust will not be plan assets or unless it is clear that
the Exemption or a prohibited transaction class exemption will apply and
exempt all potential prohibited transactions.
USE OF PROCEEDS
Substantially all of the net proceeds to be received from the sale of
the Certificates will be applied by the Seller to the purchase price of
the Mortgage Loans and expenses connected with pooling the Mortgage Loans
and issuing the Certificates.
LEGAL INVESTMENT CONSIDERATIONS
The Certificates will not constitute "mortgage related securities" for
purposes of the Secondary Mortgage Market Enhancement Act of 1984
("SMMEA") because, among other things, most of the mortgages securing the
Mortgage Loans are not first mortgages. Accordingly, many institutions
with legal authority to invest in comparably rated securities based on
first mortgage loans (i.e. "mortgage related securities" under SMMEA) may
not be legally authorized to invest in the Certificates. No representation
is made as to whether the Certificates constitute legal investments for
any entity under any applicable statute, law, rule, regulation or order.
Prospective purchasers are urged to consult with their counsel concerning
the status of the Certificates as legal investments for such purchasers
prior to investing in the Certificates.
UNDERWRITING
Merrill Lynch, Pierce, Fenner & Smith Incorporated, the sole underwriter
(the "Underwriter"), has agreed, on the terms and conditions of the
Underwriting Agreement and a Terms Agreement (together, the "Underwriting
Agreement") relating to the Certificates, to purchase the entire principal
amount of the Certificates offered hereby.
In the Underwriting Agreement, the Underwriter has agreed, subject to
the terms and conditions set forth therein, to purchase all the
Certificates offered hereby if any Certificates are purchased.
The distribution of the Certificates by the Underwriter may 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
Underwriter may effect such transactions by selling the Certificates to or
through dealers, and such dealers may receive compensation in the form of
underwriting discounts, concessions or commissions from the Underwriter.
In connection with the sale of the Certificates, the Underwriter may be
deemed to have received compensation from the Seller in the form of
underwriting compensation. The Underwriter and any dealers that
participate with the Underwriter in the distribution of the Certificates
may be deemed to be underwriters and any commissions received by them and
any profit on the resale of the Certificates positioned by them may be
deemed to be underwriting discounts and commissions under the Securities
Act of 1933, as amended.
The Seller and the Servicer have agreed to indemnify the Underwriter
against certain liabilities, including liabilities under the Securities
Act of 1933, as amended.
Upon receipt of a request by an investor who has received an electronic
Prospectus Supplement and Prospectus from the Underwriter or by such
investor's representative within the period during which there is an
obligation to deliver a Prospectus Supplement and Prospectus, the
Underwriter will promptly deliver to such investor a paper copy of the
Prospectus Supplement and Prospectus.
EXPERTS
(The consolidated balance sheets of AMBAC Indemnity Corporation, at
December 31, 1994 and 1995 and the consolidated statements of operations,
stockholder's equity and cash flows of AMBAC Indemnity Corporation for
each of the years in the three year period ended December 31, 1995,
appearing in Appendix A and Appendix B of this Prospectus Supplement have
been included herein in reliance upon the report of KPMG Peat Marwick LLP,
independent certified public accountants, appearing elsewhere herein and
upon the authority of said firm as experts in accounting and auditing.
The report of KPMG Peat Marwick LLP covering the consolidated financial
statements referred to above of AMBAC Indemnity Corporation refers to the
adoption of the Financial Accounting Standards Board's Statements of
Financial Accounting Standards No. 109, "Accounting for Income Taxes," No.
115, "Accounting for Certain Investments in Debt and Equity Securities,"
No. 106, "Employers' Accounting for Postretirement Benefits Other Than
Pensions," and No. 112, "Employers' Accounting for Postemployment
Benefits," in 1993.)
(The consolidated financial statements of the Certificate Insurer, MBIA
Insurance Corporation, as of December 31, 1995 and 1994 and for each of
the three years in the period ended December 31, 1995, incorporated by
reference in this Prospectus Supplement have been audited by Coopers &
Lybrand, independent accountants, as set forth in their report thereon
appearing elsewhere herein. Such consolidated financial statements are
included in reliance upon such report and upon the authority of such firm
as experts in accounting and auditing.)
LEGAL MATTERS
Certain legal matters will be passed upon for the Seller and the
Underwriter by Brown & Wood LLP, New York, New York. The material federal
income tax consequences of the Certificates will be passed upon for the
Seller by Brown & Wood LLP.
CERTIFICATE RATING
It is a condition to the issuance of the Certificates that they be rated
_____ by ________, and _____ by ______ (together with ___, the "Rating
Agencies"). A security rating is not a recommendation to buy, sell or hold
securities and may be subject to revision or withdrawal at any time by the
assigning Rating Agency. The ratings assigned to the Certificates address
the likelihood of the receipt of distributions due on the Certificates
according to their terms. The ratings take into consideration, among other
things, the credit quality of the Mortgage Loans, the structural and legal
aspects associated with the Certificates, and the claims-paying ability of
the Certificate Insurer. An adverse change in any of such factors or in
other factors may be a basis for the downward revision or withdrawal of
the rating of the Certificates affected by such change. The ratings
assigned to the Certificates do not represent any assessment of the
likelihood that principal prepayments might differ from those originally
anticipated. The rating does not address the possibility that the holders
of the Certificates might suffer a lower than anticipated yield. There can
be no assurance as to whether any other rating agency will rate the
Certificates, or if it does, what rating it will assign to the
Certificates.
INDEX OF PRINCIPAL TERMS
Accelerated Principal Distribution Amount . . . . . . . . . . . . S-13, S-49
Accrual Period . . . . . . . . . . . . . . . . . . . . . . . . . S-13, S-49
Additional Balance . . . . . . . . . . . . . . . . . . . . . . . . . . . S-7
Agreement . . . . . . . . . . . . . . . . . . . . . . . . . Cover, S-5, S-65
Alternate Certificate Rate . . . . . . . . . . . . . . . . . . . . . . S-50
Alternative Principal Payment . . . . . . . . . . . . . . . . . . S-14, S-51
AMBAC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-65
Brokerage firm . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-49
Business Day . . . . . . . . . . . . . . . . . . . . . . . . . . S-49, S-65
Cede . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-19
CEDEL . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-19, S-62
CEDEL Participants . . . . . . . . . . . . . . . . . . . . . . . . . . S-62
Certificate Insurance Policy . . . . . . . . . . . . . . . . . . . . . Cover
Certificate Insurer . . . . . . . . . . . . . . . . . . . . . . . . . . Cover
Certificate Interest Collections . . . . . . . . . . . . . . . . S-12, S-48
Certificate Owners . . . . . . . . . . . . . . . . . . . . . . . . S-3, S-19
Certificate Rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-5
Certificateholder(s) . . . . . . . . . . . . . . . . . . . S-19, S-61, S-73
Certificates . . . . . . . . . . . . . . . . . . . . . . . . . . Cover, S-5
Clearing agency . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-61
Closing Date . . . . . . . . . . . . . . . . . . . . . . . . . . . S-2, S-6
Code . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-70
Collection Period . . . . . . . . . . . . . . . . . . . . . . . . S-12, S-47
Combined Loan-to-Value Ratio . . . . . . . . . . . . . . . . . . . . . . S-8
Common Mortgage Loans . . . . . . . . . . . . . . . . . . . . . . . . . . S-8
CPR . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-42
Credit Limit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-8
Credit Line Agreement(s) . . . . . . . . . . . . . . . . . . . . . S-6, S-25
Cut-off Date . . . . . . . . . . . . . . . . . . . . . . . . . . Cover, S-5
Cut-off Date Pool Balance . . . . . . . . . . . . . . . . . . . . . . . . S-7
Cut-off Date Trust Balance . . . . . . . . . . . . . . . . . . . . . . . S-7
Defective Mortgage Loan(s) . . . . . . . . . . . . . . . . . . . S-17, S-57
Deficiency Amount . . . . . . . . . . . . . . . . . . . . . . . . S-16, S-53
Definitive Certificates . . . . . . . . . . . . . . . . . . . . . . . . S-62
Depositaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-61
Dissolution Distribution Date . . . . . . . . . . . . . . . . . . . . . S-53
Distribution Date . . . . . . . . . . . . . . . . . . . . . . . . . S-3, S-5
DTC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-3, S-19
Eligible Substitute Mortgage Loan . . . . . . . . . . . . . . . . S-18, S-57
Equity Access Prime(R) Program . . . . . . . . . . . . . . . . . . . . S-36
Equity Access(R) credit accounts . . . . . . . . . . . . . . . . . . . S-35
Equity Access(R) loans . . . . . . . . . . . . . . . . . . . . . . . . S-35
ERISA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-18, S-73
Euroclear . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-19, S-63
Euroclear Cooperative . . . . . . . . . . . . . . . . . . . . . . . . . S-63
Euroclear Operator . . . . . . . . . . . . . . . . . . . . . . . . . . S-62
Euroclear Participants . . . . . . . . . . . . . . . . . . . . . . . . S-62
European Depositaries . . . . . . . . . . . . . . . . . . . . . . . . . S-19
Exemption . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-74
Extended coverage . . . . . . . . . . . . . . . . . . . . . . . . . . . S-59
Factor . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-55
Financial consultants . . . . . . . . . . . . . . . . . . . . . . . . . S-35
Fixed Allocation Percentage . . . . . . . . . . . . . . . . . . . S-14, S-51
Floating Allocation Percentage . . . . . . . . . . . . . . . . . . S-6, S-48
Global Securites . . . . . . . . . . . . . . . . . . . . . . . . . . . Annex
HELs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-35
Holders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-19
Home Equity Loans . . . . . . . . . . . . . . . . . . . . . . . . . . . S-35
Index Rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-37
Indirect participating firm . . . . . . . . . . . . . . . . . . . . . . S-49
Insurance Agreement . . . . . . . . . . . . . . . . . . . . . . . S-15, S-53
Insured Amount . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-65
Insured Payment . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-65
Interest Collections . . . . . . . . . . . . . . . . . . . . . . S-11, S-47
Interest Period . . . . . . . . . . . . . . . . . . . . . . . . . S-11, S-47
Invested Amount . . . . . . . . . . . . . . . . . . . . . . . . . . S-6, S-46
Investor Loss Amount . . . . . . . . . . . . . . . . . . . . . . S-13, S-49
LIBO . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-50
LIBOR . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-3
LIBOR Business Day . . . . . . . . . . . . . . . . . . . . . . . . . . S-50
Liquidation Loss Amount . . . . . . . . . . . . . . . . . . . . . S-14, S-50
Loan Balance . . . . . . . . . . . . . . . . . . . . . . . . . . . S-7, S-48
Loan Rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-8, S-37
Managed Amortization Period . . . . . . . . . . . . . . . . . . . S-14, S-51
Margin . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-9
Maximum Principal Payment . . . . . . . . . . . . . . . . . . . . S-14, S-51
MBIA Insurance Corporation . . . . . . . . . . . . . . . . . . . . . . S-66
Minimum Seller Interest . . . . . . . . . . . . . . . . . . . . . S-11, S-58
ML & Co. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-5, S-35
MLCC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Cover
MLHEA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-7
Monthly Advance . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-55
Monthly Advance Reimbursement Amount . . . . . . . . . . . . . . . . . S-47
Mortgage Files . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-56
Mortgage Loan Schedule . . . . . . . . . . . . . . . . . . . . . S-11, S-58
Mortgage Loans . . . . . . . . . . . . . . . . . . . . . . Cover, S-6, S-46
Mortgage Pool . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Cover
Mortgage related securities . . . . . . . . . . . . . . . . . . . S-18, S-73
Mortgaged Properties . . . . . . . . . . . . . . . . . . . . . . . . . . S-6
Mortgagee interest policy . . . . . . . . . . . . . . . . . . . . . . . S-59
Net Loan Rate(s) . . . . . . . . . . . . . . . . . . . . . . . . S-12, S-50
Net Trust Liquidation Proceeds . . . . . . . . . . . . . . . . . S-12, S-47
OID . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-71
OID Regulations . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-71
Original Certificate Principal Balance . . . . . . . . . . . . . . S-5, S-46
Original Invested Amount . . . . . . . . . . . . . . . . . . . . . S-6, S-46
Participants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-61
Percentage Interest . . . . . . . . . . . . . . . . . . . . . . . . S-6, S-48
Plan(s) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-18, S-73
Pool Balance . . . . . . . . . . . . . . . . . . . . . . . . . . . S-7, S-48
Preference Amount . . . . . . . . . . . . . . . . . . . . . . . . . . . S-65
Principal Collections . . . . . . . . . . . . . . . . . . . . . . S-12, S-47
Prior Trusts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-8
Prospectus . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Cover
Rapid Amortization Event . . . . . . . . . . . . . . . . . . . . . . . S-52
Rapid Amortization Period . . . . . . . . . . . . . . . . . . . . S-14, S-51
Rating Agencies . . . . . . . . . . . . . . . . . . . . . . . . . S-19, S-77
Record Date . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-48
Reference Banks . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-50
Related Documents . . . . . . . . . . . . . . . . . . . . . . . . . . . S-56
Removal Date . . . . . . . . . . . . . . . . . . . . . . . . . . S-11, S-58
Required Amount . . . . . . . . . . . . . . . . . . . . . . . . . S-14, S-50
Reuters Screen LIBO Page . . . . . . . . . . . . . . . . . . . . . . . S-50
Scheduled Principal Collections Payment . . . . . . . . . . . . . S-14, S-51
Second Mortgage Ratio . . . . . . . . . . . . . . . . . . . . . . . . . . S-9
Seller . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Cover
Seller Interest . . . . . . . . . . . . . . . . . . . . . . Cover, S-6, S-46
Seller Subordinated Amount . . . . . . . . . . . . . . . . . . . S-16, S-54
Servicer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Cover
Servicing Fee . . . . . . . . . . . . . . . . . . . . . . . . . . S-17, S-59
Servicing Fee Rate . . . . . . . . . . . . . . . . . . . . . . . S-17, S-59
Stated Maturity Date . . . . . . . . . . . . . . . . . . . . . . S-14, S-51
Tax Counsel . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-72
Taxable mortgage pool . . . . . . . . . . . . . . . . . . . . . . . . . S-72
Transfer Deposit Amount . . . . . . . . . . . . . . . . . . S-12, S-48, S-57
Trust . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Cover, S-5
Trust 1989 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-7
Trust 1991 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-7
Trust 1993 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-7
Trust 1994-1 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-8
Trust 1994-2 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-8
Trust 1995-1 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-8
Trust 1995-2 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-8
Trust Balance . . . . . . . . . . . . . . . . . . . . . . . . . . . S-7, S-48
Trust Fund . . . . . . . . . . . . . . . . . . . . . . . . . . . Cover, S-6
Trust Insurance Proceeds . . . . . . . . . . . . . . . . . . . . S-12, S-48
Trust Interest Collections . . . . . . . . . . . . . . . . . . . S-11, S-47
Trust Principal Collections . . . . . . . . . . . . . . . . . . . S-12, S-47
Trustee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Cover, S-5
Underwriter . . . . . . . . . . . . . . . . . . . . . . . . . . . S-3, S-76
Underwriting Agreement . . . . . . . . . . . . . . . . . . . . . . . . S-76
ANNEX I
GLOBAL CLEARANCE, SETTLEMENT AND TAX DOCUMENTATION PROCEDURES
Except in certain limited circumstances, the globally offered MLCC
Mortgage Investors, Inc. ML Revolving Home Equity Loan Asset Backed
Certificates, Series 199_-_ (the "Global Securities") will be available
only in book-entry form. Investors in the Global Securities may hold such
Global Securities through any of DTC, CEDEL or Euroclear. The Global
Securities will be tradeable as home market instruments in both the
European and U.S. domestic markets. Initial settlement and all secondary
trades will settle in same-day funds. Capitalized terms used but not
defined in this Annex I have the meanings assigned to them in the
Prospectus Supplement and the Prospectus.
Secondary market trading between investors holding Global Securities
through CEDEL and Euroclear will be conducted in the ordinary way in
accordance with their normal rules and operating procedures and in
accordance with conventional eurobond practice (i.e., seven calendar day
settlement).
Secondary market trading between investors holding Global Securities
through DTC will be conducted according to the rules and procedures
applicable to U.S. corporate debt obligations.
Secondary cross-market trading between CEDEL or Euroclear and DTC
Participants holding Certificates will be effected on a delivery-against-
payment basis through the respective Depositaries of CEDEL and Euroclear
(in such capacity) and as DTC Participants.
Non-U.S. holders (as described below) of Global Securities will be
subject to U.S. withholding taxes unless such holders meet certain
requirements and deliver appropriate U.S. tax documents to the securities
clearing organizations or their participants.
INITIAL SETTLEMENT
All Global Securities will be held in book-entry form by DTC in the name
of Cede & Co. as nominee of DTC. Investors' interests in the Global
Securities will be represented through financial institutions acting on
their behalf as direct and indirect Participants in DTC. As a result,
CEDEL and Euroclear will hold positions on behalf of their participants
through their respective Depositaries, which in turn will hold such
positions in accounts as DTC Participants.
Investors electing to hold their Global Securities through DTC will
follow the settlement practices applicable to similar issues of pass-through
certificates. Investors' securities custody accounts will be
credited with their holdings against payment in same-day funds on the
settlement date.
Investors electing to hold their Global Securities through CEDEL or
Euroclear accounts will follow the settlement procedures applicable to
conventional eurobonds, except that there will be no temporary global
security and no "lock-up" or restricted period. Global Securities will be
credited to the securities custody accounts on the settlement date against
payments in same-day funds.
SECONDARY MARKET TRADING
Since the purchaser determines the place of delivery, it is important to
establish at the time of the trade where both the purchaser's and seller's
accounts are located to ensure that settlement can be made on the desired
value date.
Trading between DTC Participants. Secondary market trading between DTC
Participants will be settled using the procedures applicable to similar
issues of pass-through certificates in same-day funds.
Trading between CEDEL and/or Euroclear Participants. Secondary market
trading between CEDEL Participants or Euroclear Participants will be
settled using the procedures applicable to conventional eurobonds in same-day
funds.
Trading between DTC seller and CEDEL or Euroclear purchaser. When
Global Securities are to be transferred from the account of a DTC
Participant to the account of a CEDEL Participant or a Euroclear
Participant, the purchaser will send instructions to CEDEL or Euroclear
through a CEDEL Participant or Euroclear Participant at least one business
day prior to settlement. CEDEL or Euroclear will instruct the respective
Depositary, as the case may be, to receive the Global Securities against
payment. Payment will include interest accrued on the Global Securities
from and including the last coupon payment date to and excluding the
settlement date. Payment will then be made by the respective Depositary to
the DTC Participant's account against delivery of the Global Securities.
After settlement has been completed, the Global Securities will be
credited to the respective clearing system and by the clearing system, in
accordance with its usual procedures, to the CEDEL Participant's or
Euroclear Participant's account. The Global Securities credit will appear
the next day (European time) and the cash debit will be back-valued to,
and the interest on the Global Securities will accrue from, the value date
(which would be the preceding day when settlement occurred in New York).
If settlement is not completed on the intended value date (i.e., the trade
fails), the CEDEL or Euroclear cash debit will be valued instead as of the
actual settlement date.
CEDEL Participants and Euroclear Participants will need to make
available to the respective clearing systems the funds necessary to
process same-day funds settlement. The most direct means of doing so is to
pre-position funds for settlement, either from cash on hand or existing
lines of credit, as they would for any settlement occurring within CEDEL
or Euroclear. Under this approach, they may take on credit exposure to
CEDEL or Euroclear until the Global Securities are credited to their
accounts one day later.
As an alternative, if CEDEL or Euroclear has extended a line of credit
to them, CEDEL Participants or Euroclear Participants can elect not to
pre-position funds and allow that credit line to be drawn upon the finance
settlement. Under this procedure, CEDEL Participants or Euroclear
Participants purchasing Global Securities would incur overdraft charges
for one day, assuming they cleared the overdraft when the Global
Securities were credited to their accounts. However, interest on the
Global Securities would accrue from the value date. Therefore, in many
cases the investment income on the Global Securities earned during that
one-day period may substantially reduce or offset the amount of such
overdraft charges, although this result will depend on each CEDEL
Participant's or Euroclear Participant's particular cost of funds.
Since the settlement is taking place during New York business hours, DTC
Participants can employ their usual procedures for sending Global
Securities to the respective Depositary for the benefit of CEDEL
Participants or Euroclear Participants. The sale proceeds will be
available to the DTC seller on the settlement date. Thus, to the DTC
Participant a cross-market transaction will settle no differently than a
trade between two DTC Participants.
Trading between CEDEL or Euroclear seller and DTC purchaser. Due to
time zone differences in their favor, CEDEL Participants and Euroclear
Participants may employ their customary procedures for transactions in
which Global Securities are to be transferred by the respective clearing
system, through the respective Depositary, to a DTC Participant. The
seller will send instructions to CEDEL or Euroclear through a CEDEL
Participant or Euroclear Participant at least one business day prior to
settlement. In these cases, CEDEL or Euroclear will instruct the
respective Depositary, as appropriate, to deliver the bonds to the DTC
Participant's account against payment. Payment will include interest
accrued on the Global Securities from and including the last coupon
payment date to and excluding the settlement date. The payment will then
be reflected in the account of the CEDEL Participant or Euroclear
Participant the following day, and receipt of the cash proceeds in the
CEDEL Participant's or Euroclear Participant's account would be back-valued
to the value date (which would be the preceding day, when
settlement occurred in New York). Should the CEDEL Participant or
Euroclear Participant have a line of credit with its respective clearing
system and elect to be in debit in anticipation of receipt of the sale
proceeds in its account, the back-valuation will extinguish any overdraft
charges incurred over that one-day period. If settlement is not completed
on the intended value date (i.e., the trade fails), receipt of the cash
proceeds in the CEDEL Participant's or Euroclear Participant's account
would instead be valued as of the actual settlement date. Finally, day
traders that use CEDEL or Euroclear and that purchase Global Securities
from DTC Participants for delivery to CEDEL Participants or Euroclear
Participants should note that these trades would automatically fail on the
sale side unless affirmative action were taken. At least three techniques
should be readily available to eliminate this potential problem:
(a) borrowing through CEDEL or Euroclear for one day (until the
purchase side of the day trade is reflected in their CEDEL or Euroclear
accounts) in accordance with the clearing system's customary procedures;
(b) borrowing the Global Securities in the U.S. from a DTC
Participant no later than one day prior to settlement, which would give the
Global Securities sufficient time to be reflected in their CEDEL or Euroclear
account in order to settle the sale side of the trade; or
(c) staggering the value dates for the buy and sell sides of the
trade so that the value date for the purchase from the DTC Participant is at
least one day prior to the value date for the sale to the CEDEL Participant
or Euroclear Participant.
CERTAIN U.S. FEDERAL INCOME TAX DOCUMENTATION REQUIREMENTS
A beneficial owner of Global Securities holding securities through CEDEL
or Euroclear (or through DTC if the holder has an address outside the
U.S.) will be subject to the 30% U.S. withholding tax that generally
applies to payments of interest (including original issue discount) on
registered debt issued by U.S. Persons, unless (i) each clearing system,
bank or other financial institution that holds customers' securities in
the ordinary course of its trade or business in the chain of
intermediaries between such beneficial owner and the U.S. entity required
to withhold tax complies with applicable certification requirements and
(ii) such beneficial owner takes one of the following steps to obtain an
exemption or reduced tax rate:
Exemption for non-U.S. Persons (Form W-8). Beneficial owners of
Certificates that are non-U.S. Persons can obtain a complete exemption from
the withholding tax by filing a signed Form W-8 (Certificate of Foreign
Status). If the information shown on Form W-8 changes, a new Form W-8 must be
filed within 30 days of such change.
Exemption for non-U.S. Persons with effectively connected income
(Form 4224). A non-U.S. Person, including a non-U.S. corporation or bank
with a U.S. branch, for which the interest income is effectively connected
with its conduct of a trade or business in the United States, can obtain an
exemption from the withholding tax by filing Form 4224 (Exemption from
Withholding of Tax on Income Effectively Connected with the Conduct of a
Trade or Business in the United States).
Exemption or reduced rate for non-U.S. Persons resident in treaty
countries (Form 1001). Non-U.S. Persons that are Certificate Owners
residing in a country that has a tax treaty with the United States can obtain
an exemption or reduced tax rate (depending on the treaty terms) by
filing Form 1001 (Ownership, Exemption or Reduced Rate Certificate). If the
treaty provides only for a reduced rate, withholding tax will be imposed at
that rate unless the filer alternatively files Form W-8. Form 1001 may be
filed by the Certificate Owner or his agent.
Exemption for U.S. Persons (Form W-9). U.S. Persons can obtain a
complete exemption from the withholding tax by filing Form W-9 (Payer's
Request for Taxpayer Identification Number and Certification).
U.S. Federal Income Tax Reporting Procedure. The Certificate Owner
of a Global Security or, in the case of a Form 1001 or a Form 4224 filer, his
agent, files by submitting the appropriate form to the person through whom it
holds (the clearing agency, in the case of persons holding directly on the
books of the clearing agency). Form W-8 and Form 1001 are effective for three
calendar years and Form 4224 is effective for one calendar year.
The term "U.S. Person" means (i) a citizen or resident of the United
States, (ii) a corporation 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. This summary does
not deal with all aspects of U.S. Federal income tax withholding that may
be relevant to foreign holders of the Global Securities. Investors are
advised to consult their own tax advisors for specific tax advice
concerning their holding and disposing of the Global Securities.
<PAGE>
AMBAC INDEMNITY CORPORATION AND SUBSIDIARIES
(a wholly owned subsidiary of AMBAC Inc.)
Consolidated Financial Statements
December 31, 1995 and 1994
(With Independent Auditors' Report Thereon)
Independent Auditors' Report
The Board of Directors
AMBAC Indemnity Corporation:
We have audited the accompanying consolidated balance sheets of AMBAC
Indemnity Corporation and subsidiaries (a wholly owned subsidiary of AMBAC
Inc.) as of December 31, 1995 and 1994, and the related consolidated
statements of operations, stockholder's equity and cash flows for each of
the years in the three-year period ended December 31, 1995. These
consolidated financial statements are the responsibility of AMBAC Indemnity
Corporation's management. Our responsibility is to express an opinion on
these consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of AMBAC
Indemnity Corporation and subsidiaries as of December 31, 1995 and 1994, and
the results of their operations and their cash flows for each of the years
in the three-year period ended December 31, 1995 in conformity with generally
accepted accounting principles.
As discussed in Note 2 to the consolidated financial statements, AMBAC
Indemnity Corporation has adopted the provisions of the Financial Accounting
Standards Board's Statements of Financial Accounting Standards No. 109,
"Accounting for Income Taxes," No. 115, "Accounting for Certain Investments
in Debt and Equity Securities," No. 106, "Employers' Accounting for
Postretirement Benefits Other Than Pensions" and No. 112, "Employers'
Accounting for Postemployment Benefits," in 1993.
KPMG Peat Marwick LLP
New York, New York
January 31, 1996
<TABLE>
AMBAC Indemnity Corporation and Subsidiaries
Consolidated Balance Sheets
(Dollars In Thousands Except Share Data)
<CAPTION>
December 31,
-------------------------
1995 1994
---------- ----------
<S> <C> <C>
Assets
Investments:
Bonds held in available-for-sale account, at fair value
(amortized cost of $2,090,101 in 1995 and $1,865,350
in 1994).............................................. $2,224,528 $1,795,958
Short-term investments, at cost (approximates fair
value)................................................ 163,953 85,202
---------- ----------
Total investments..................................... 2,388,481 1,881,160
Cash....................................................... 6,912 2,117
Securities purchased under agreements to resell............ 4,120 8,011
Receivable for securities.................................. 8,136 21,508
Investment income due and accrued.......................... 38,319 34,902
Investment in affiliate.................................... 25,827 24,976
Deferred acquisition costs................................. 82,620 71,774
Deferred income taxes...................................... -- 1,778
Current income taxes....................................... 2,171 10,544
Prepaid reinsurance........................................ 153,372 139,855
Other assets............................................... 48,472 41,677
-------- ---------
Total assets.......................................... $2,758,430 $2,238,302
========== ==========
Liabilities and Stockholder's Equity
Liabilities:
Unearned premiums........................................ $ 906,136 $ 839,775
Losses and loss adjustment expenses...................... 65,996 65,662
Ceded reinsurance balances payable....................... 14,654 908
Deferred income taxes.................................... 85,008 --
Accounts payable and other liabilities................... 43,625 43,519
Payable for securities................................... 86,304 26,696
---------- ----------
Total liabilities..................................... 1,201,723 976,560
---------- ----------
Stockholder's equity:
Preferred stock, par value $1,000.00 per share.
Authorized shares -- 285,000; issued and outstanding
shares -- none........................................ -- --
Common stock, par value $2.50 per share. Authorized
shares -- 40,000,000; issued and outstanding
shares -- 32,800,000 at December 31, 1995 and 1994.... 82,000 82,000
Additional paid-in capital............................... 481,059 444,258
Unrealized gains (losses) on investments, net of tax..... 87,112 (46,087)
Retained earnings........................................ 906,536 781,571
---------- ----------
Total stockholder's equity............................ 1,556,707 1,261,742
---------- ----------
Total liabilities and stockholder's equity............ $2,758,430 $2,238,302
========== ==========
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
AMBAC Indemnity Corporation and Subsidiaries
Consolidated Statements of Operations
(Dollars In Thousands)
<TABLE>
Years Ended December 31,
------------------------------
<CAPTION>
1995 1994 1993
-------- -------- --------
<S> <C> <C> <C>
Revenues:
Gross premiums written........................... $195,033 $192,598 $321,490
Ceded premiums written........................... (28,606) 2,815 (35,810)
-------- -------- --------
Net premiums written.......................... 166,427 195,413 285,680
Increase in unearned premiums, net............... (52,844) (76,077) (132,862)
-------- -------- --------
Net premiums earned........................... 113,583 119,336 152,818
Net investment income............................ 131,496 119,737 104,609
Net realized gains (losses)...................... 177 (13,386) 30,145
Other income..................................... 6,777 6,887 1,516
-------- -------- --------
Total revenues................................ 252,033 232,574 289,088
-------- -------- --------
Expenses:
Losses and loss adjustment expenses.............. 3,377 2,593 (1,849)
Underwriting and operating expenses.............. 38,722 35,946 34,746
Interest expense................................. 1,590 1,428 163
-------- -------- --------
Total expenses................................ 43,689 39,967 33,060
-------- -------- --------
Income before income taxes.................... 208,344 192,607 256,028
-------- -------- --------
Income tax expense:
Current taxes.................................... 29,085 26,286 66,386
Deferred taxes................................... 14,461 16,277 4,090
-------- -------- --------
Total income taxes............................ 43,546 42,563 70,476
-------- -------- --------
Income before cumulative effect of changes in
accounting principles......................... 164,798 150,044 185,552
Cumulative effect of changes in accounting
principles.................................... -- -- (98)
-------- -------- --------
Net income.................................... $164,798 $150,044 $185,454
========= ========= =========
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
AMBAC Indemnity Corporation and Subsidiaries
Consolidated Statements of Stockholder's Equity
(Dollars In Thousands)
<TABLE>
<CAPTION> Years Ended December 31,
---------------------------------
1995 1994 1993
--------- --------- --------
<S> <C> <C> <C>
Preferred Stock:
Balance at January 1 and December 31........... $ -- $ -- $ --
========== ========== =========
Common Stock:
Balance at January 1 and December 31........... $ 82,000 $ 82,000 $ 82,000
========== ========== =========
Additional Paid-in Capital:
Balance at January 1........................... $ 444,258 $ 444,143 $397,570
Capital contributions.......................... 35,000 -- 40,000
Cumulative effect of changes in accounting
principles.................................. -- -- 4,708
Other paid-in capital.......................... 1,801 115 1,865
--------- --------- --------
Balance at December 31......................... $ 481,059 $ 444,258 $444,143
========== ========== =========
Unrealized Gains (Losses) on Investments, Net of
Tax:
Balance at January 1........................... $ (46,087) $ 68,091 $ 5,285
Unrealized gain from change in accounting
principle................................... -- -- 63,568
Change in unrealized gain (loss)............... 133,199 (114,178) (762)
--------- --------- --------
Balance at December 31......................... $ 87,112 ($ 46,087) $ 68,091
========== ========== =========
Retained Earnings:
Balance at January 1........................... $ 781,571 $ 667,527 $515,073
Net income..................................... 164,798 150,044 185,454
Dividends declared-common stock................ (40,000) (36,000) (33,000)
Other.......................................... 167 -- --
--------- --------- --------
Balance at December 31......................... $ 906,536 $ 781,571 $667,527
========== ========== =========
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
AMBAC Indemnity Corporation and Subsidiaries
Consolidated Statements of Cash Flows
(Dollars In Thousands)
<TABLE>
<CAPTION> Years Ended December 31,
-------------------------------------------
1995 1994 1993
----------- ----------- -----------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income............................... $ 164,798 $ 150,044 $ 185,454
Adjustments to reconcile net income to
net cash provided by operating
activities:
Depreciation and amortization............ 1,605 1,106 1,080
Amortization of bond premium and
discount.............................. (831) (1,097) (507)
Current income taxes payable............. 8,373 (6,069) (20,844)
Deferred income taxes payable............ 14,462 16,277 (2,463)
Deferred acquisition costs............... (10,846) (20,757) (7,059)
Unearned premiums........................ 52,844 76,077 132,862
Losses and loss adjustment expenses...... 334 1,625 (718)
Ceded reinsurance balances payable....... 13,746 (2,963) (5,147)
(Gain) loss on sales of investments...... (177) 13,386 (30,145)
Proceeds from sales of bonds in trading
account............................... -- -- 2,091,143
Proceeds from maturities of bonds in
trading account....................... -- -- 34,409
Purchases of bonds for trading account... -- -- (2,181,198)
Accounts payable and other liabilities... 106 20,497 9,591
Other, net............................... (11,273) 7,179 (1,622)
----------- ----------- -----------
Net cash provided by operating
activities......................... 233,141 255,305 204,836
----------- ----------- -----------
Cash flows from investing activities:
Proceeds from sales of bonds at amortized
cost.................................. 1,882,485 1,305,011 18,912
Proceeds from maturities of bonds at
amortized cost........................ 163,031 39,126 60,131
Purchases of bonds at amortized cost..... (2,192,824) (1,559,982) (258,832)
Investment in preferred stock of
affiliate............................. -- -- (3,000)
Change in short-term investments......... (78,751) 9,005 (25,252)
Securities purchased under agreements to
resell................................ 3,891 (8,011) --
Other, net............................... (1,178) (3,786) (2,370)
----------- ----------- -----------
Net cash used in investing
activities......................... (223,346) (218,637) (210,411)
----------- ----------- -----------
Cash flows from financing activities:
Dividends paid........................... (40,000) (36,000) (33,000)
Capital contribution..................... 35,000 -- 40,000
----------- ----------- -----------
Net cash (used in) provided by
financing activities............... (5,000) (36,000) 7,000
----------- ----------- -----------
Net cash flow......................... 4,795 668 1,425
Cash at beginning of year.................. 2,117 1,449 24
----------- ----------- -----------
Cash at December 31........................ $ 6,912 $ 2,117 $ 1,449
=========== =========== ===========
Supplemental disclosure of cash flow
information:
Cash paid during the year for:
Income taxes.......................... $ 19,500 $ 32,153 $ 86,781
=========== =========== ===========
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
AMBAC Indemnity Corporation and Subsidiaries
Notes to Consolidated Financial Statements
(Dollar Amounts in Thousands)
1 BACKGROUND
AMBAC Indemnity Corporation ("AMBAC Indemnity") is a leading insurer of
municipal and structured finance obligations. Financial guarantee insurance
underwritten by AMBAC Indemnity guarantees payment when due of the principal
of and interest on the obligation insured. In the case of a default on the
insured bond, payments under the insurance policy may not be accelerated by
the policyholder without AMBAC Indemnity's consent. As of December 31, 1995,
AMBAC Indemnity's net insurance in force (principal and interest) was
$199,078,000. AMBAC Indemnity is a wholly owned subsidiary of AMBAC Inc.
(NYSE: ABK), a holding company that provides financial guarantee insurance
and financial services to both public and private clients through its
subsidiaries.
As of December 31, 1995, AMBAC Indemnity owned approximately 26.5% of
the outstanding common stock of an affiliate, HCIA Inc. (NASDAQ: HCIA)
("HCIA"), a leading health care information content company. AMBAC Inc. owns
approximately 19.9% of the outstanding common stock of HCIA. Prior to 1995,
AMBAC Inc. and AMBAC Indemnity combined owned approximately 96% of HCIA.
During 1995, HCIA offered approximately 3.5 million shares of its common
stock for sale in two separate public offerings. In addition, in conjunction
with the second public offering by HCIA, AMBAC Inc. sold approximately 1.1
million shares of HCIA common stock. As a result of these public offerings,
as of December 31, 1995, AMBAC Indemnity and AMBAC Inc. combined owned 46.4%
of the common stock of HCIA.
AMBAC Indemnity, as the sole limited partner, owns a limited partnership
interest representing 90% of the total partnership interests of AMBAC
Financial Services, Limited Partnership ("AFS"), a limited partnership which
provides interest rate swaps primarily to states, municipalities and municipal
authorities. The sole general partner of AFS, AMBAC Financial Services
Holdings, Inc., a wholly owned subsidiary of AMBAC Inc., owns a general
partnership interest representing 10% of the total partnership interest in
AFS.
AMBAC Indemnity has one wholly owned subsidiary, American Municipal Bond
Holding Company ("AMBH"), which is a holding company for certain real estate
interests.
2 SIGNIFICANT ACCOUNTING POLICIES
The accompanying consolidated financial statements have been prepared
on the basis of generally accepted accounting principles ("GAAP"). The
preparation of financial statements in conformity with GAAP requires
management to make estimates and assumptions that affect the reported amounts
of assets and liabilities and disclosures of contingent assets and liabilities
at the date of the financial statements and the reported revenues and expenses
during the reporting period. Actual results could differ from those estimates.
The significant accounting policies of AMBAC Indemnity and its subsidiaries
are as described below:
CONSOLIDATION:
The consolidated financial statements include the accounts of AMBAC
Indemnity, AFS and AMBH (sometimes collectively referred to as "AMBAC
Indemnity"). All significant intercompany balances have been eliminated.
AMBAC Indemnity Corporation and Subsidiaries
Notes to Consolidated Financial Statements -- (Continued)
(Dollar Amounts in Thousands)
INVESTMENTS:
AMBAC Indemnity's investment portfolio is accounted for on a trade-date
basis and consists entirely of investments in debt securities which are
considered available-for-sale and are carried at fair value. Fair value is
based on quotes obtained by AMBAC Indemnity from independent market sources.
Short-term investments are carried at cost, which approximates their fair
value. Unrealized gains and losses, net of deferred income taxes, are
included as a separate component of stockholder's equity and are computed
using amortized cost as the basis. For purposes of computing amortized
cost, premiums and discounts are accounted for using the interest method.
For bonds purchased at a price below par value, discounts are accreted over
the remaining term of the securities. For bonds purchased at a price above
par value which have call features, premiums are amortized to the most
likely call dates as determined by management. For premium bonds which
do not have call features, such premiums are amortized over the remaining
term of the securities. Premiums and discounts on mortgage-backed securities
are adjusted for the effects of actual and anticipated prepayments.
Realized gains and losses on the sale of investments are determined on the
basis of specific identification.
Effective December 31, 1993, AMBAC Indemnity adopted Statement of
Financial Accounting Standards No. 115, "Accounting for Certain Investments
in Debt and Equity Securities" ("Statement 115"). Pursuant to Statement 115,
AMBAC Indemnity has designated all investments as "available-for-sale" and
reports them at fair value. Unrealized gains and losses are excluded from
earnings and reported as a separate component of stockholder's equity, net
of tax. The cumulative effect of adopting Statement 115 as of December 31,
1993 was to increase AMBAC Indemnity's stockholder's equity by $63,568, net
of tax. The adoption of Statement 115 had no effect on earnings.
SECURITIES PURCHASED UNDER AGREEMENTS TO RESELL:
Securities purchased under agreements to resell are collateralized
financing transactions, and are recorded at their contracted resale amounts,
plus accrued interest. AMBAC Indemnity takes possession of the collateral
underlying those agreements and monitors its market value on a daily basis
and, when necessary, requires prompt transfer of additional collateral to
reflect current market value.
PREMIUM REVENUE RECOGNITION:
Premiums for municipal new issue and secondary market policies are: (i)
generally computed as a percentage of principal and interest insured; (ii)
typically collected in a single payment at policy inception date; and (iii)
are earned pro rata over the period of risk. Premiums for structured finance
policies can be computed as a percentage of either principal or principal and
interest insured. The timing of the collection of structured finance premiums
varies among individual transactions. For policies where premiums are
collected in a single payment at policy inception date, premiums are earned
pro rata over the period of risk. For policies with premiums that are
collected periodically (i.e., monthly, quarterly or annually), premiums are
reflected in income pro rata over the period covered by the premium payment.
When an AMBAC Indemnity-insured new or secondary market issue has been
refunded or called, the remaining unearned premium is generally earned at
that time, as the risk to AMBAC Indemnity is considered to have been
eliminated.
AMBAC Indemnity Corporation and Subsidiaries
Notes to Consolidated Financial Statements -- (Continued)
(Dollar Amounts in Thousands)
LOSSES AND LOSS ADJUSTMENT EXPENSES:
The liability for losses and loss adjustment expenses consists of the
Active Credit Reserve ("ACR") and case basis loss reserves. The development
of the ACR is based upon estimates of the ultimate aggregate losses inherent
in the obligations insured and reflects the net result of contributions
related to the portion of earnings required to cover those losses, less
reductions of ACR no longer deemed necessary by management. When losses occur
(actual monetary defaults or defaults which are imminent on insured
obligations), case basis loss reserves are established in an amount that
is sufficient to cover the present value of the anticipated defaulted debt
service payments over the expected period of default and estimated expenses
associated with settling the claims, less estimated recoveries under salvage
or subrogation rights. All or part of case basis loss reserves are allocated
from any ACR available for such insured obligation.
AMBAC Indemnity's management believes that the reserves for losses and
loss adjustment expenses are adequate to cover the ultimate net cost of
claims, but the reserves are necessarily based on estimates and there can
be no assurance that the ultimate liability will not exceed such estimates.
DEFERRED ACQUISITION COSTS:
Certain costs incurred which vary with, and are primarily related to,
the production of business have been deferred. These costs include direct and
indirect expenses related to underwriting, marketing and policy issuance,
rating agency fees and premium taxes, net of reinsurance ceding commissions.
The deferred acquisition costs are being amortized over the periods in which
the related premiums are earned, and such amortization amounted to $10,183,
$9,348 and $12,120 for 1995, 1994 and 1993, respectively. Deferred acquisition
costs, net of such amortization, amounted to $10,845, $20,757 and $7,059 for
1995, 1994 and 1993, respectively.
DEPRECIATION AND AMORTIZATION:
Depreciation of furniture and fixtures and electronic data processing
equipment is provided over the estimated useful lives of the respective
assets using the straight-line method. Amortization of leasehold improvements
and intangibles, including certain computer software licenses, is provided
over the estimated useful lives of the respective assets using the straight-
line method.
INTEREST RATE CONTRACTS:
Interest Rate Contracts Held for Purposes Other Than Trading:
AMBAC Indemnity uses interest rate contracts for hedging purposes as
part of its overall interest rate risk management. Gains and losses on
interest rate futures and options contracts that qualify as accounting hedges
of existing assets or liabilities are included in the carrying amounts and
amortized over the remaining lives of the assets and liabilities as an
adjustment to interest income. When the hedged asset is sold, the unamortized
gain or loss on the related hedge is recognized in income. Gains and losses on
interest rate contracts that do not qualify as accounting hedges are recognized
in current period income.
AMBAC Indemnity accounts for its interest rate futures contracts in
accordance with the provisions of Statement of Financial Accounting Standards
No. 80, "Accounting For Futures Contracts" ("Statement 80"). Statement 80
permits hedge accounting for interest rate futures contracts when the item
to be hedged exposes the Company to price or interest rate risk, and the
futures contract effectively reduces that exposure and is designated as a
hedge. Interest rate futures contracts held for purposes other than trading
are used primarily to hedge interest sensitive assets, and are designated at
inception as a hedge to specific assets.
AMBAC Indemnity Corporation and Subsidiaries
Notes to Consolidated Financial Statements -- (Continued)
(Dollar Amounts in Thousands)
Interest rate swaps that are linked with existing liabilities are
accounted for like a hedge of those liabilities, using the accrual method
as an adjustment to interest expense. Interest rate swaps that are linked
with existing assets classified as available-for-sale are accounted for
like hedges of those assets, using the accrual method as an adjustment
to interest income, with unrealized gains and losses included in
stockholder's equity, net of tax.
Interest Rate Contracts Held for Trading Purposes:
AMBAC Indemnity, in connection with its market making activities as a
provider of interest rate swaps, primarily to states, municipalities,
municipal authorities and other entities in connection with their financings,
uses interest rate contracts which are classified as held for trading
purposes. Interest rate contracts are recorded on trade date at fair value.
Changes in fair value are recorded as a component of other income. The fair
value of interest rate swaps is determined through the use of valuation
models. The portion of the interest rate swap's initial fair value that
reflects credit considerations, on-going servicing and transaction hedging
costs is recognized over the life of the interest rate swap, as an adjustment
to other income. Interest rate swaps are recorded on a gross basis; assets
and liabilities are netted by customer only when a legal right of set-off
exists.
INCOME TAXES:
AMBAC Inc., as common parent, files a consolidated Federal income tax
return with its subsidiaries. Effective January 1, 1993, AMBAC Indemnity
adopted Statement of Financial Accounting Standards No. 109, "Accounting
for Income Taxes" ("Statement 109"). Under Statement 109, deferred tax
assets and liabilities are recognized for the future tax consequences
attributable to differences between the financial statement carrying
amounts of existing assets and liabilities and their respective tax bases.
Deferred tax assets and liabilities are measured using enacted tax rates
expected to apply to taxable income in the years in which those temporary
differences are expected to be recovered or settled. The effect on
deferred tax assets and liabilities of a change in tax rates is recognized
in the period that includes the enactment date.
The cumulative effect of this change in accounting for income taxes
resulted in an increase to net income for 1993 of $1,162 and an increase to
additional paid-in capital of $4,708. The adjustment to additional paid-in
capital reflects Statement 109 adjustments for prior business combinations.
The Internal Revenue Code permits municipal bond insurance companies to
deduct from taxable income, subject to certain limitations, the amounts added
to the statutory mandatory contingency reserve during the year. The deduction
taken is allowed only to the extent that U.S. Treasury noninterest-bearing tax
and loss bonds are purchased at their par value prior to the original due date
of AMBAC Inc.'s consolidated Federal tax return and held in an amount equal to
the tax benefit attributable to such deductions. The amounts deducted must be
included in taxable income when the contingency reserve is released, at which
time AMBAC Indemnity may redeem the tax and loss bonds to satisfy the
additional tax liability. The purchases of tax and loss bonds are recorded as
payments of Federal income taxes and are not reflected in AMBAC Indemnity's
current tax provision.
POSTRETIREMENT AND POSTEMPLOYMENT BENEFITS:
AMBAC Inc., through its subsidiaries, provides various postretirement
and postemployment benefits, including pension, and health and life benefits
covering substantially all employees who meet certain age and service
requirements. AMBAC Indemnity accounts for these benefits under the accrual
method of accounting. Amounts related to the defined benefit pension plan and
postretirement health benefits are charged based on actuarial determinations.
AMBAC Indemnity Corporation and Subsidiaries
Notes to Consolidated Financial Statements -- (Continued)
(Dollar Amounts in Thousands)
Effective January 1, 1993, AMBAC Indemnity adopted Statement of
Financial Accounting Standards No. 106, "Employers' Accounting for
Postretirement Benefits Other Than Pensions" ("Statement 106"). Statement
106 requires that the expected cost of postretirement benefits, other
than pensions, be charged to expense during the period that the employee
renders service. AMBAC Indemnity elected to recognize the transition
obligation immediately and recorded a charge of $465, after reduction
of $240 for income tax benefits, as a cumulative effect of a change in
accounting principle as of the date of adoption.
Effective January 1, 1993, AMBAC Indemnity adopted Statement of
Financial Accounting Standards No. 112, "Employers' Accounting for
Postemployment Benefits" ("Statement 112"), which, similar to Statement
106, requires accrual of a liability representing the cost of certain
benefits earned by employees over their employment period. Statement 112
applies to vested benefits provided to former or inactive employees, their
beneficiaries and covered dependents, after employment but before retirement.
In adopting Statement 112, AMBAC Indemnity recorded a charge of $801, after
reduction for income tax benefits of $429, as a cumulative effect of a
change in accounting principle as of the date of adoption.
STOCK COMPENSATION PLANS:
In 1991, AMBAC Inc. adopted the AMBAC Inc. 1991 Stock Incentive Plan.
Under this plan awards are granted to eligible employees of AMBAC Indemnity
in the form of incentive stock options or other stock-based awards. In October
1995, the Financial Accounting Standards Board issued Statement of Financial
Accounting Standards No. 123, "Accounting for Stock-Based Compensation"
("Statement 123") which must be adopted no later than 1996. Statement 123
applies to all stock-based employee compensation plans (except employee stock
ownership plans) in which an employer grants shares of its stock or other
equity instruments to employees. Statement 123 permits a company to choose
either the fair value based method of accounting as defined in the statement
or the intrinsic value based method of accounting as prescribed by APB
Opinion No. 25, "Accounting for Stock Issued to Employees" ("APB 25") for
its stock-based compensation plans. Companies electing the accounting
requirements under APB 25 must also make pro forma disclosures of net income
and earnings per share as if the fair value based method of accounting had
been applied. AMBAC Indemnity currently accounts for its plans under APB 25
and intends to continue to do so after adopting Statement 123 in 1996. The
adoption of Statement 123 is expected to have no effect on AMBAC Indemnity's
results of operations.
RECLASSIFICATIONS:
Certain reclassifications have been made to prior years' amounts to
conform to the current year's presentation.
AMBAC Indemnity Corporation and Subsidiaries
Notes to Consolidated Financial Statements -- (Continued)
(Dollar Amounts in Thousands)
3 INVESTMENTS
The amortized cost and estimated fair value of investments in debt
securities at December 31, 1995 and 1994 were as follows:
<TABLE>
<CAPTION>
Gross Gross
Unrealized Estimated Amortized Unrealized
Losses Fair Value Cost Gains
---------- ----------- ---------- ----------
<S> <C> <C> <C> <C>
1995
Municipal obligations........................ $1,558,754 $ 98,090 $ 2,428 $1,654,416
Corporate securities......................... 261,492 30,785 3,263 289,014
U.S. Government obligations.................. 214,224 8,796 621 222,399
Mortgage-backed securities (including
GNMA)...................................... 55,631 3,362 294 58,699
Other........................................ 163,953 -- -- 163,953
---------- ---------- ---------- ----------
$2,254,054 $ 141,033 $ 6,606 $2,388,481
========= ======== ======== =========
Gross Gross
Amortized Unrealized Unrealized Estimated
Cost Gains Losses Fair Value
---------- ---------- ---------- ----------
1994
Municipal obligations........................ $1,505,501 $ 23,009 $ 80,935 $1,447,575
Corporate securities......................... 228,992 2,336 11,501 219,827
U.S. Government obligations.................. 61,906 311 1,797 60,420
Mortgage-backed securities (including
GNMA)...................................... 70,251 1,325 2,140 69,436
Other........................................ 83,902 -- -- 83,902
---------- ---------- ---------- ----------
$1,950,552 $ 26,981 $ 96,373 $1,881,160
========= ======== ======== =========
</TABLE>
The amortized cost and estimated fair value of debt securities at
December 31, 1995, by contractual maturity, were as follows:
<TABLE>
<CAPTION>
Amortized Estimated
Cost Fair Value
---------- ------------
<S> <C> <C>
1995
Due in one year or less.................. $ 223,069 $ 223,949
Due after one year through five years... 168,417 181,772
Due after five years through ten years... 302,601 315,385
Due after ten years....................... 1,504,336 1,608,676
---------- ----------
2,198,423 2,329,782
Mortgage-backed securities. ............. 55,631 58,699
---------- ----------
$2,254,054 $2,388,481
========= =========
</TABLE>
Expected maturities will differ from contractual maturities because
borrowers may have the right to call or prepay obligations with or without
call or prepayment penalties.
<TABLE>
AMBAC Indemnity Corporation and Subsidiaries
Notes to Consolidated Financial Statements -- (Continued)
(Dollar Amounts in Thousands)
Net investment income comprised the following:
<CAPTION>
<S> <C> <C> <C>
1995 1994 1993
------ ------ ------
Bonds.............................. $127,865 $118,685 $102,020
Short-term investments............. 6,116 3,512 4,278
-------- -------- --------
Total investment income............ 133,981 122,197 106,298
Investment expense................. (2,485) (2,460) (1,689)
-------- -------- --------
Net investment income.............. $131,496 $119,737 $104,609
======== ======== ========
</TABLE>
Gross realized gains were $27,786, $26,514 and $42,217 for 1995, 1994
and 1993, respectively, and gross realized losses were $27,609, $39,900 and
$12,072 for 1995, 1994 and 1993, respectively.
As of December 31, 1995, AMBAC Indemnity did not have any investment
concentrated in any single repayment source (excluding obligations of the
U.S. Government and its agencies) with a fair value greater than 2.0% of its
stockholder's equity.
As of December 31, 1995 and 1994, AMBAC Indemnity held securities
subject to agreements to resell for $4,120 and $8,011, respectively. Such
securities were held as collateral by AMBAC Indemnity. The agreements
had terms of less than 30 days.
As of December 31, 1995 and 1994, investment securities with a fair
value of $4,583 and $3,948, respectively, were pledged to futures brokers for
required margin.
4 REINSURANCE
In the ordinary course of business, AMBAC Indemnity cedes exposures
under various reinsurance contracts primarily designed to minimize losses from
large risks and to protect capital and surplus. The effect of reinsurance on
premiums written and earned was as follows:
<TABLE>
<CAPTION>
Year Ended December 31,
-------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
1995 1994 1993
--------------------- --------------------- ---------------------
Written Earned Written Earned Written Earned
-------- ------- -------- ------- -------- -------
Direct.............. $192,277 $127,322 $188,057 $136,632 $321,179 $181,320
Assumed............. 2,756 1,349 4,541 1,325 311 311
Ceded............... (28,606) (15,088) 2,815 (18,621) (35,810) (28,813)
--------- --------- -------- -------- --------- --------
Net premiums........ $166,427 $113,583 $195,413 $119,336 $285,680 $152,818
======= ======= ======== ======== ======= =======
</TABLE>
The reinsurance of risk does not relieve the ceding insurer of its
original liability to its policyholders. In the event that all or any of the
reinsurers are unable to meet their obligations to AMBAC Indemnity under
the existing reinsurance agreements, AMBAC Indemnity would be liable
for such defaulted amounts. To minimize its exposure to significant
losses from reinsurer insolvencies, AMBAC Indemnity evaluates
the financial condition of its reinsurers and monitors
concentrations of credit risk. There were no
reinsurance receivables as of December 31, 1995 and 1994.
As of December 31, 1995, prepaid reinsurance of approximately $48,120
was associated with a single reinsurer. As of December 31, 1995,
AMBAC Indemnity held letters of credit and collateral
amounting to approximately $90,643 from its reinsurers to cover liabilities
ceded under the aforementioned reinsurance contracts.
AMBAC Indemnity terminated reinsurance contracts, resulting in
return premiums to AMBAC Indemnity of $18,141, $30,482 and $36,461 of
which $15,700, $25,891 and $31,010 were recorded as an increase
to the unearned premium reserve in 1995, 1994 and 1993,
respectively, with the remainder recognized as revenue.
5 LOSSES AND LOSS ADJUSTMENT EXPENSES
AMBAC Indemnity's liability for losses and loss adjustment expenses
includes case basis loss reserves and the ACR. Following is a summary of the
activity in the case basis loss and active credit reserve accounts and the
components of the liability for losses and loss adjustment expenses:
<TABLE>
<CAPTION>
<S> <C> <C> <C>
1995 1994 1993
------ ------ ------
Case basis loss reserves:
Balance at January 1......................... $38,892 $35,155 $28,321
------- ------- --------
Incurred related to:
Current year............................... 750 8,073 6,630
Prior years................................ 2,650 (3,368) (926)
------- ------- --------
Total incurred.......................... 3,400 4,705 5,704
------- ------- --------
Paid related to:
Current year............................... 150 275 315
Prior years................................ 2,893 693 (1,445)
------- ------- --------
Total paid.............................. 3,043 968 (1,130)
------- ------- --------
Balance at December 31....................... 39,249 38,892 35,155
------- ------- --------
Active credit reserve:
Balance at January 1......................... 26,770 28,882 36,434
Net provision for losses..................... 4,097 4,422 6,709
ACR transfers to case reserves............... (4,120) (6,534) (14,261)
------- ------- --------
Balance at December 31....................... 26,747 26,770 28,882
------- ------- --------
Total................................... $65,996 $65,662 $64,037
======= ======= ========
</TABLE>
The terms "current year" and "prior years" in the foregoing table refer
to the year in which case basis loss reserves were established.
6 COMMITMENTS AND CONTINGENCIES
AMBAC Indemnity is responsible for leases on the rental of office space,
principally in New York City. The lease agreements which expire periodically
through September 2014, contain provisions for scheduled periodic rent
increases and are accounted for as operating leases. An estimate of
future net minimum lease payments in each of the next five years
ending December 31, and the periods thereafter, is as follows:
<TABLE>
<CAPTION>
<S> <C>
Year Amount
- ---- ______
1996......................... $ 3,042
1997......................... 3,073
1998......................... 3,359
1999......................... 3,650
2000......................... 3,650
All later years.............. 53,880
-------
$70,654
=======
</TABLE>
Rent expense for the aforementioned leases amounted to $2,924, $2,719
and $2,778 for the years ended December 31, 1995, 1994 and 1993, respectively.
7 INSURANCE REGULATORY RESTRICTIONS
AMBAC Indemnity is subject to insurance regulatory requirements of the
States of Wisconsin, New York and the other jurisdictions in which it is
licensed to conduct business.
AMBAC Indemnity's ability to pay dividends is generally restricted by
law and subject to approval by the Office of the Commissioner of Insurance of
The State of Wisconsin (the "Wisconsin Commissioner"). Wisconsin insurance law
restricts the payment of dividends in any 12-month period without regulatory
approval to the lesser of (a) 10% of policyholders' surplus as of the
preceding December 31 and (b) the greater of (i) statutory net income for the
calendar year preceding the date of dividend, minus realized capital gains for
that calendar year and (ii) the aggregate of statutory net income for three
calendar years preceding the date of the dividend, minus realized capital gains
for those calendar years and minus dividends paid or credited within the first
two of the three preceding calendar years. AMBAC Indemnity paid dividends of
$40,000, $36,000 and $33,000 on its common stock in 1995, 1994 and 1993,
respectively. Based upon these restrictions, at December 31, 1995, the maximum
amount that will be available during 1996 for payment of dividends by AMBAC
Indemnity without prior approval is approximately $86,000.
However, as discussed in Note 15, AMBAC Indemnity, upon consummation of
the proposed PRIDES offering will deliver to AMBAC Inc. (in the form of an
extraordinary dividend) its 2,378,672 shares of HCIA common stock, at fair
value. The Wisconsin Commissioner has approved such dividend. The fair value
of such dividend will be determined based on the price per share of HCIA common
stock used to price the PRIDES. As a result, any dividends paid by AMBAC
Indemnity to AMBAC Inc. for the twelve months following the extraordinary
dividend will require pre-approval from the Wisconsin Commissioner. The
Wisconsin Commissioner has stated to AMBAC Indemnity management that it does
not foresee any reason such pre-approval would not be given.
The New York Financial Guarantee Insurance Law establishes single risk
limits applicable to all obligations issued by a single entity and backed by
a single revenue source. Under the limit applicable to municipal bonds, the
insured average annual debt service for a single risk, net
of reinsurance and collateral, may not exceed 10% of the sum of the insurer's
policyholders' surplus and contingency reserves. In addition, insured
principal of municipal bonds attributable to any single risk, net of
reinsurance and collateral, is limited to 75% of the insurer's policyholders'
surplus and contingency reserves. Additional single risk limits, which
generally are more restrictive than the municipal bond single risk limit, are
also specified for several other categories of insured obligations.
Statutory capital and surplus was $862,976 and $781,772 at December 31,
1995 and 1994, respectively. Qualified statutory capital (statutory surplus
plus contingency reserve) was $1,358,769 and $1,218,204 at December 31, 1995
and 1994, respectively. Statutory net income was $142,541, $116,238 and
$166,157 for 1995, 1994 and 1993, respectively. Statutory capital and surplus
differs from stockholder's equity determined under GAAP principally due to
statutory accounting rules that treat loss reserves, premiums earned, policy
acquisition costs and deferred income taxes differently.
8 INCOME TAXES
The total effect of income taxes on income and stockholder's equity for
the years ended December 31, 1995 and 1994 was as follows:
<TABLE>
<CAPTION>
<S> <C> <C>
1995 1994
----- -----
Total income taxes charged to income.......... $43,546 $42,563
-------- --------
Income taxes charged (credited) to stockholder's
equity:
Unrealized gain (loss) on bonds............. 71,722 (61,480)
Unrealized gain on investment in affiliate.. 602 --
Other..................................... (682) (116)
-------- --------
Total charged (credited) to stockholder's
equity................................... 71,642 (61,596)
-------- --------
Total effect of income taxes.................... $115,188 $(19,033)
======== ========
</TABLE>
The tax provisions in the accompanying consolidated statements of
operations reflect effective tax rates differing from prevailing Federal
corporate income tax rates. The following is a reconciliation of these
differences:
<TABLE>
<CAPTION>
1995 % 1994 % 1993 %
-------- ----- -------- ---- -------- ----
<S> <C> <C> <C> <C> <C> <C>
Computed expected tax at
statutory rate............... $ 72,920 35.0% $ 67,412 35.0% $ 89,610 35.0%
Increases (reductions) in
expected tax resulting from:
Tax-exempt interest........ (28,274) (13.6) (26,336) (13.7) (21,043) (8.2)
Adjustment to deferred tax
assets and liabilities
for enacted changes in
tax laws and rates...... -- -- -- -- 754 0.3
Other, net................. (1,100) (0.5) 1,487 0.8 1,155 0.4
------- ----- ------- ---- ------- ----
Income tax expense on income from
continuing operations.......... $ 43,546 20.9% $ 42,563 22.1% $ 70,476 27.5%
======= ===== ======= ==== ======= ====
</TABLE>
AMBAC Indemnity Corporation and Subsidiaries
Notes to Consolidated Financial Statements -- (Continued)
(Dollar Amounts in Thousands)
The tax effects of temporary differences that give rise to significant
portions of the deferred tax liabilities and deferred tax assets at December
31, 1995 and 1994 are presented below:
<TABLE>
<CAPTION>
1995 1994
-------- -------
<S> <C> <C>
Deferred tax liabilities:
Unrealized gains on bonds............................ $ 46,906 $ --
Deferred acquisition costs........................... 28,917 25,121
Unearned premiums.................................... 22,079 14,522
Unrealized gain on investment in affiliate........... 602 --
Investments.......................................... 2,911 796
Other................................................ 1,996 1,613
------- -------
Total deferred tax liabilities.............. 103,411 42,052
------- -------
Deferred tax assets:
Unrealized loss on bonds............................. -- 24,816
Loss reserves........................................ 9,631 9,733
Insurance in force................................... 2,870 3,205
Compensation......................................... 2,418 2,812
Other................................................ 3,484 3,264
------- -------
Sub-total deferred tax assets............... 18,403 43,830
Valuation allowance.................................. -- --
------- -------
Total deferred tax assets................... 18,403 43,830
------- -------
Net deferred tax (liabilities) assets....... $(85,008) $1,778
======= =======
</TABLE>
AMBAC Indemnity believes that no valuation allowance is necessary in
connection with the deferred tax assets.
9 EMPLOYEE BENEFITS
Pensions:
AMBAC Inc. has a defined benefit pension plan covering substantially all
employees of AMBAC Indemnity and AFS. The benefits are based on years of
service and the employee's compensation during the last five years of
employment. AMBAC Indemnity's funding policy is to contribute annually
the maximum amount that can be deducted for Federal income tax purposes.
Contributions are intended to provide not only for benefits attributed to
service-to-date but also for those expected to be earned in the future.
The actuarial present value of the benefit obligations shown in the
table below sets forth the plan's funded status and amounts recognized by
AMBAC Inc. as of December 31, 1995 and 1994.
AMBAC Indemnity Corporation and Subsidiaries
Notes to Consolidated Financial Statements -- (Continued)
(Dollar Amounts in Thousands)
Actuarial present value of the benefit obligations:
<TABLE> 1995 1994
------- -------
<S> <C> <C>
Accumulated benefit obligation, including vested benefits of
$6,049 and $4,300, respectively................................ $(6,788) $(5,000)
======= =======
Projected benefit obligation for service rendered to date........ (7,800) (5,500)
Plan assets at fair value, primarily listed stocks, commingled
funds and fixed income securities.............................. 7,054 4,898
- ------- -------
Unfunded projected benefit....................................... (746) (602)
Unrecognized prior service cost.................................. (1,784) (1,950)
Unrecognized net loss............................................ 1,906 1,412
Unrecognized net transition asset................................ (12) (15)
------- -------
Pension liability -- entire plan................................. $ (636) $(1,155)
======= =======
</TABLE>
Net pension costs for 1995, 1994 and 1993 included the following
components:
<TABLE>
<CAPTION>
1995 1994 1993
------- ----- -----
<S> <C> <C> <C>
Service cost............................................. $ 541 $ 558 $ 447
Interest cost on expected benefit obligation............. 456 386 297
Actual return on plan assets............................. (1,333) 30 (390)
Net amortization and deferral............................ 760 (547) (149)
------- ----- -----
Net periodic pension cost................................ $ 424 $427 $ 205
======= ===== =====
</TABLE>
The weighted-average discount rate used in the determination of the
actuarial present value for the projected benefit obligation was 7.25% and
8.0% for 1995 and 1994, respectively. The expected long-term rate of return
on assets was 9.25% for both 1995 and 1994. The rate of increase in future
compensation levels used in determining the actuarial present value of the
projected benefit obligation was 5.0% in both 1995 and 1994.
Substantially all employees of AMBAC Indemnity and AFS are covered by
a defined contribution plan (the "Savings Incentive Plan") for which
contributions and costs are determined as 6% of each covered employee's base
salary, plus a matching company contribution of 50% on contributions up to
6% of base salary made by eligible employees to the plan. The total cost of
the Savings Incentive Plan to AMBAC Indemnity was $1,435, $1,292 and $1,243
in 1995, 1994 and 1993, respectively.
Annual Incentive Plan:
AMBAC Indemnity has an annual incentive plan which provides for awards
to key officers and employees based upon predetermined criteria. The cost of
the plan to AMBAC Indemnity for the years ended December 31, 1995, 1994 and
1993 was $7,669, $8,531 and $6,165, respectively.
Postretirement Health Care and Other Benefits:
AMBAC Indemnity provides certain medical and life insurance benefits for
retired employees and eligible dependents. All plans are contributory. None
of the plans is currently funded.
AMBAC Indemnity Corporation and Subsidiaries
Notes to Consolidated Financial Statements -- (Continued)
(Dollar Amounts in Thousands)
Postretirement benefits expense was $168, $176 and $500 in 1995, 1994
and 1993, respectively. The unfunded accumulated postretirement benefit
obligation was $1,309 and the accrued postretirement liability was $1,368
as of December 31, 1995.
The assumed weighted average health care cost trend rates range from
13.5% in 1995, decreasing ratably to 5.5% in 2001, and remaining at that
level thereafter. Increasing the assumed health care cost trend rate by one
percentage point in each future year would increase the accumulated
postretirement benefit obligation at December 31, 1995 by $174 and the
1995 benefit expense by $28. The weighted average discount rate used to
measure the accumulated postretirement benefit obligation and 1995 expense
was 7.25%.
10 INSURANCE IN FORCE
The par amount of bonds insured by AMBAC Indemnity, net of reinsurance,
was $110,997,000 and $93,305,000 at December 31, 1995 and 1994, respectively.
As of December 31, 1995, AMBAC Indemnity's insured portfolio was diversified
by type of insured bond as shown in the following table:
<TABLE>
<CAPTION>
Net Par Amount
Outstanding
--------------------
(Dollars in Millions) As of December 31 1995 1994
-------- -------
<S> <C> <C>
Municipal finance:
General obligation........................... $ 30,546 $26,674
Utility revenue.............................. 21,053 19,597
Tax-backed revenue........................... 18,780 16,279
Health care revenue.......................... 12,553 10,922
Transportation revenue....................... 6,293 5,397
Investor Owned Utilities..................... 4,497 3,500
Higher education............................. 3,973 3,447
Student loan................................. 3,769 2,709
Housing revenue.............................. 3,577 2,567
Other........................................ 483 403
-------- -------
Total Municipal finance................... 105,524 91,495
-------- -------
Structured finance:
Domestic..................................... 3,238 902
International................................ 2,235 908
-------- -------
Total Structured finance.................. 5,473 1,810
-------- -------
$110,997 $93,305
========= =======
</TABLE>
As of December 31, 1995, California was the state with the highest
aggregate net par amount inforce, accounting for 14.3% of the total, and the
highest single insured risk represented 0.6% of aggregate net par amount
insured. AMBAC Indemnity's direct insurance in force (principal and interest)
was $235,118,000 and $205,810,000, at December 31, 1995 and 1994,
respectively. Net insurance in force (after giving effect to reinsurance) was
$199,078,000 and $171,678,000 as of December 31, 1995 and 1994, respectively.
AMBAC Indemnity Corporation and Subsidiaries
Notes to Consolidated Financial Statements -- (Continued)
(Dollar Amounts in Thousands)
11 FINANCIAL INSTRUMENTS HELD FOR PURPOSES OTHER THAN TRADING
Financial instruments with off-balance-sheet risk:
In the normal course of business, AMBAC Indemnity becomes a party to
various financial transactions to reduce its exposure to fluctuations in
interest rates. These financial instruments include an interest rate swap
agreement and exchange traded interest rate futures contracts. The notional
amounts of AMBAC Indemnity's off-balance-sheet financial instruments which
are held for purposes other than trading were as follows:
<TABLE>
<CAPTION>
As of December 31,
--------------------
1995 1994
------- --------
<S> <C> <C>
Interest rate futures contracts................ $44,500 $164,200
Interest rate swap............................. 20,000 20,000
</TABLE>
Notional principal amounts are often used to express the volume of these
transactions and do not reflect the extent to which positions may offset one
another. These amounts do not represent the much smaller amounts potentially
subject to risk.
Interest rate futures contracts are sold to hedge interest rate risk
inherent in fixed rate investment securities. At December 31, 1995, interest
rate futures contracts with an outstanding notional amount of $44,500 were
designated as hedges of fixed rate investment securities.
The interest rate swap held for purposes other than trading is used to
manage interest rate risk by synthetically changing the nature of certain
floating rate investments.
Fair values of financial instruments held for purposes other than
trading:
The following fair value amounts were determined by AMBAC Indemnity
using independent market information when available, and appropriate valuation
methodologies when market quotes were not available. In cases where specific
market quotes are unavailable, interpreting market data and estimating market
values necessarily require considerable judgment by management. Accordingly,
the estimates presented are not necessarily indicative of the amount AMBAC
Indemnity could realize in a current market exchange.
The following methods and assumptions were used to estimate the fair
value of each class of financial instruments for which it is practicable to
estimate that value:
Investments: The fair values of bonds are based on quoted market prices
or dealer quotes.
Short-term investments and cash: The fair values of short-term
investments and cash are assumed to equal amortized cost.
Securities purchased under agreements to resell: The fair value of
securities purchased under agreements to resell is assumed to approximate
carrying value.
Investment in affiliate: As of December 31, 1995, the fair value of
AMBAC Indemnity's investment in HCIA is based on the quoted market price of
HCIA common stock. As of December 31, 1994, the fair value of AMBAC
Indemnity's investment in HCIA was assumed to equal carrying value.
Interest rate contracts: Fair values of off-balance-sheet interest rate
contracts (futures and swap) are based on quoted market and dealer prices,
current settlement values, or pricing models.
AMBAC Indemnity Corporation and Subsidiaries
Notes to Consolidated Financial Statements -- (Continued)
(Dollar Amounts in Thousands)
Liability for net financial guarantees written: The fair value of the
liability for those financial guarantees written related to new issue and
secondary market exposures is based on the estimated cost to reinsure those
exposures at current market rates, which amount consists of the current
unearned premium reserve, less an estimated ceding commission thereon.
Certain other financial guarantee insurance policies have been written
on an installment basis, where the future premiums to be received by AMBAC
Indemnity are determined based on the outstanding exposure at the time the
premiums are due. The fair value of AMBAC Indemnity's liability under its
installment premium policies is measured using the present value of estimated
future installment premiums, less an assumed ceding commission. The estimate
of the amounts and timing of the future installment premiums is based on
contractual premium rates, debt service schedules and expected run-off
scenarios. This measure is used as an estimate of the cost to reinsure AMBAC
Indemnity's liability under these policies. The carrying amount and estimated
fair value of these financial instruments are presented below:
<TABLE>
As of December 31,
---------------------------------------------------
1995 1994
----------------------- -------------------------
Carrying Estimated Carrying Estimated
(Dollars in Millions) Amount Fair Value Amount Amount
-------- ---------- -------- -----------
<S> <C> <C> <C> <C>
Financial assets:
Investments........................ $2,225 $2,225 $1,796 $1,796
Short-term investments............. 164 164 85 85
Securities purchased under
agreements to resell............. 4 4 8 8
Investment in affiliate............ 26 111 25 25
Cash............................... 7 7 2 2
Unrecognized financial instruments:
Interest rate swap................. -- -- -- (1)
Interest rate futures contracts.... -- -- -- --
Liability for net financial
guarantees
Direct........................... -- 655 -- 609
Net of reinsurance............... -- 543 -- 507
Net installment premiums......... -- 80 -- 51
</TABLE>
12 FINANCIAL INSTRUMENTS HELD FOR TRADING PURPOSES
AMBAC Indemnity, through its affiliate AFS, is a provider of interest
rate swaps to states, municipalities, municipal authorities and other
entities, including its affiliate, AMBAC Capital Management, Inc. ("ACMI"),
in connection with their financings. AMBAC Indemnity manages its interest
rate swap business with the goal of being market neutral to changes in
overall interest rates, while retaining "basis risk", the relationship
between changes in floating rate tax-exempt and floating rate taxable
interest rates. If actual or projected floating rate tax-exempt interest
rates rise in relation to floating rate taxable rates, AMBAC Indemnity will
experience an unrealized mark-to-market loss. Conversely, if actual or
projected floating rate tax-exempt interest rates decline in relation to
floating rate taxable interest rates, AMBAC Indemnity will experience an
unrealized mark-to-market gain.
AMBAC Indemnity Corporation and Subsidiaries
Notes to Consolidated Financial Statements -- (Continued)
(Dollar Amounts in Thousands)
In the ordinary course of business, AMBAC Indemnity manages a variety
of risks -- principally credit, market, liquidity, operational and legal.
These risks are identified, measured and monitored through a variety of
control mechanisms, which are in place at different levels throughout the
organization.
Credit risk relates to the ability of counterparties to perform
according to the terms of their contractual commitments. Various procedures
and controls are in place to monitor the credit risk of interest rate swaps.
These include the initial credit approval process, the establishment of credit
limits, management approvals and a process that ensures the continuous
monitoring of credit exposure.
Market risk relates to the impact of price changes on future earnings.
This risk is a consequence of AMBAC Indemnity's market-making activities in
the municipal interest rate swap market. The principal market risk is basis
risk, the relationship between changes in floating rate tax-exempt and
floating rate taxable interest rates. Since the third quarter of 1995, all
municipal interest rate swaps transacted contain provisions which are designed
to protect AMBAC Indemnity against certain forms of tax reform, thus mitigating
its basis risk. An independent risk management group monitors trading risk
limits and, together with senior management, is involved in the application
of risk measurement methodologies.
The estimation of potential losses arising from adverse changes in
market relationships, known as "value at risk," is a key element in managing
market risk. AMBAC Indemnity has developed a value at risk methodology to
estimate potential losses over a specified holding period and based on
certain probabilistic assessments. AMBAC Indemnity estimates value at risk
utilizing historical short and long term interest rate volatilities and the
relationship between changes in tax-exempt and taxable interest rates
calculated on a consistent daily basis. For the year ended December 31, 1995,
AMBAC Indemnity's value at risk averaged approximately $1,358, calculated at
a ninety-nine percent confidence level. Since no single measure can capture
all dimensions of market risk, AMBAC Indemnity bolsters its value at risk
methodology by performing daily analyses of parallel and nonparallel shifts
in yield curves and stress test scenarios which measure the potential impact
of market conditions, however improbable, which might cause abnormal
volatility swings or disruptions of market relationships.
Liquidity risk relates to the possible inability to satisfy contractual
obligations when due. This risk is present in interest rate swap agreements
and in futures contracts used to hedge those agreements. AMBAC Indemnity
manages liquidity risk by maintaining cash and cash equivalents, closely
matching the dates swap payments are made and received and limiting the
amount of risk hedged by futures contracts.
Operational risk relates to the potential for loss caused by a breakdown
in information, communication and settlement systems. AMBAC Indemnity
mitigates operational risk by maintaining a comprehensive system of internal
controls. This includes the establishment of systems and procedures to
monitor transactions and positions, documentation and confirmation of
transactions, ensuring compliance with regulations and periodic reviews by
auditors.
Legal risk relates to the uncertainty of the enforceability, through
legal or judicial processes, of the obligations of AMBAC Indemnity's
counterparties, including contractual provisions intended to reduce credit
exposure by providing for the offsetting or netting of mutual obligations.
AMBAC Indemnity seeks to remove or minimize such uncertainties through
continuous consultation with internal and external legal advisers to analyze
and understand the nature of legal risk, to improve documentation and to
strengthen transaction structure.
AMBAC Indemnity Corporation and Subsidiaries
Notes to Consolidated Financial Statements -- (Continued)
(Dollar Amounts in Thousands)
The following table summarizes information about AMBAC Indemnity's
financial instruments held for trading purposes as of December 31, 1995 and
1994:
<TABLE>
<CAPTION>
Net Net Average Net Fair Value
Carrying Estimated ----------------------- Notional
Amount Fair Value Assets Liabilities Amount
-------- ---------- ------- ----------- ----------
<S> <C> <C> <C> <C> <C>
1995:
Interest rate
swaps............ $5,207 $5,207 $17,714 $16,667 $2,152,400
Interest rate
futures
contracts........ -- -- -- -- 569,800
1994:
Interest rate
swaps............ $1,681 $1,681 $ 4,441 $ 3,560 $ 771,900
Interest rate
futures
contracts........ -- -- -- -- 443,000
</TABLE>
The aggregate amount of net trading income recognized from interest rate
financial instruments held for trading purposes was $2,602 and $3,051 for
1995 and 1994, respectively. Average net fair values were calculated based on
average daily net fair values. For 1994, average net fair values began from
the commencement of operations in September 1994.
Notional principal amounts are often used to express the volume of these
transactions and do not reflect the extent to which positions may offset one
another. These amounts do not represent the much smaller amounts potentially
subject to risk.
13 LINES OF CREDIT
AMBAC Inc. and AMBAC Indemnity maintain a three-year revolving credit
facility with two major international banks, as co-agents, for $100,000. As
of December 31, 1995, no amounts were outstanding under this credit facility,
which expires in July 1998. This facility amended a one-year revolving credit
facility for $75,000. As of December 31, 1994, no amounts were outstanding
under this credit facility.
AMBAC Indemnity has an agreement with another major international bank,
as agent, for a $300,000 credit facility, expiring in 2002. This facility is
a seven-year stand-by irrevocable limited recourse line of credit, which was
increased from $225,000 to $300,000 and extended for an additional year in
December 1995. The line will provide liquidity to AMBAC Indemnity in the
event claims from municipal obligations exceed specified levels. Repayment
of any amounts drawn under the line will be limited primarily to the amount
of any recoveries of losses related to policy obligations. As of December 31,
1995 and 1994, no amounts were outstanding under this line.
14 RELATED PARTY TRANSACTIONS
During 1995 and 1994, AMBAC Indemnity guaranteed the timely payment of
principal and interest on obligations under municipal investment contracts
and municipal investment repurchase agreements issued by its affiliate, ACMI.
As of December 31, 1995 and 1994, the aggregate amount of municipal investment
contracts and municipal investment repurchase contracts insured was
$2,240,959 and $2,042,230, respectively, including accrued interest. These
insurance policies are collateralized by ACMI's investment securities, accrued
interest, securities purchased under agreements to resell and cash and cash
equivalents, which as of December 31, 1995 and 1994 had a fair value of
$2,299,687 and $1,964,830, respectively, in the aggregate.
AMBAC Indemnity Corporation and Subsidiaries
Notes to Consolidated Financial Statements -- (Continued)
(Dollar Amounts in Thousands)
During 1995 and 1994, AMBAC Indemnity recorded gross premiums written of
$1,707 and $2,692, and net premiums earned of $1,764 and $1,872,
respectively, related to these contracts.
During 1995 and 1994, several interest rate swap transactions were
executed between AFS and ACMI. As of December 31, 1995 and 1994, these
contracts had an outstanding notional amount of approximately $359,000
and $478,000, respectively. As of December 31, 1995 and 1994, AFS recorded
a positive fair value of $6,539 and a negative fair value of $5,492,
respectively, related to these transactions.
15 SUBSEQUENT EVENTS
On January 19, 1996, AMBAC Inc. filed with the Securities and Exchange
Commission a registration statement related to a proposed offering of
3,781,369 PRIDES(SM) (Provisionally Redeemable Income Debt Exchangeable
for Stock). The PRIDES, which constitute senior debt of AMBAC Inc., will
mature in 2001 and will be mandatorily exchanged at maturity into shares
of HCIA common stock (or, at AMBAC Inc.'s option, cash with an equal value)
determined in accordance with an exchange rate formula. AMBAC Inc. may
redeem the PRIDES, in whole or in part, after three years. AMBAC Inc. has
also granted the underwriters an option to purchase up to 378,136 PRIDES
to cover any over-allotments.
AMBAC Indemnity, upon consummation of the PRIDES offering, will deliver
to AMBAC Inc. (in the form of an extraordinary dividend) its 2,378,672 shares
of HCIA common stock, at fair value. The fair value of such dividend will be
determined based on the price per share of HCIA common stock used to price
the PRIDES.
AMBAC Indemnity Corporation and Subsidiaries
(a wholly-owned subsidiary of AMBAC Inc.)
Consolidated Unaudited Financial Statements
as of June 30, 1996 and December 31, 1995
and for the periods ended June 30, 1996 and 1995
<PAGE>
AMBAC Indemnity Corporation and Subsidiaries
Consolidated Balance Sheets
June 30, 1996 and December 31, 1995
(Dollars in Thousands Except Share Data)
<TABLE>
<CAPTION>
June 30, 1996 December 31, 1995
------------- -----------------
(unaudited)
<S> <C> <C>
Assets
- ------
Investments:
Bonds held in available for sale account, at fair value
(amortized cost of $2,162,449 in 1996 and $2,090,101 in 1995) $2,214,817 $2,224,528
Short-term investments, at cost (approximates fair value) 133,629 163,953
---------- ----------
Total investments 2,348,446 2,388,481
Cash 3,888 6,912
Securities purchased under agreements to resell 3,992 4,120
Receivable for securities 64,288 8,136
Investment income due and accrued 40,207 38,319
Investment in affiliate - 25,827
Deferred acquisition costs 88,107 82,620
Current income taxes - 2,171
Prepaid reinsurance 162,166 153,372
Other assets 54,378 48,472
---------- ----------
Total assets $2,765,472 $2,758,430
========== ==========
Liabilities and Stockholder's Equity
Liabilities:
Unearned premiums $936,870 $906,136
Losses and loss adjustment expenses 59,429 65,996
Ceded reinsurance balances payable 6,765 14,654
Deferred income taxes 57,190 85,008
Current income taxes 3,116 -
Accounts payable and other liabilities 47,035 43,625
Payable for securities 112,413 86,304
---------- ----------
Total liabilities 1,222,818 1,201,723
---------- ----------
Stockholder's equity:
Preferred stock, par value $1,000.00 per share; authorized
shares - 285,000; issued and outstanding shares - none - -
Common stock, par value $2.50 per share; authorized shares
- 40,000,000; issued and outstanding shares - 32,800,000
at June 30, 1996 and December 31, 1995 82,000 82,000
Additional paid-in capital 514,305 481,059
Unrealized gains (losses) on investments, net of tax 34,039 87,112
Retained earnings 912,310 906,536
---------- ----------
Total stockholder's equity 1,542,654 1,556,707
---------- ----------
Total liabilities and stockholder's equity $2,765,472 $2,758,430
========== ==========
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
<PAGE>
AMBAC Indemnity Corporation and Subsidiaries
Consolidated Statements of Operations
(Unaudited)
For The Periods Ended June 30, 1996 and 1995
(Dollars in Thousands)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
----------------------- ------------------------
1996 1995 1996 1995
------- ------- -------- -------
<S> <C> <C> <C> <C>
Revenues:
Gross premiums written $58,768 $36,893 $110,060 $77,465
Ceded premiums written (9,836) 6,514 (19,448) 3,055
------- ------- -------- -------
Net premiums written 48,932 43,407 90,612 80,520
Increase in unearned premiums (8,870) (15,126) (21,940) (27,563)
------- ------- -------- -------
Net premiums earned 40,062 28,281 68,672 52,957
Net investment income 35,584 32,419 70,489 64,293
Net realized gains (losses) 67,580 (2,202) 69,936 (6,876)
Other income 4,753 (393) 10,805 1,985
------- ------- -------- -------
Total revenues 147,979 58,105 219,902 112,359
------- ------- -------- -------
Expenses:
Losses and loss adjustment expenses 1,700 341 2,510 1,369
Underwriting and operating expenses 11,583 9,916 21,666 19,246
Interest expense 514 306 1,028 637
------- ------- -------- -------
Total expenses 13,797 10,563 25,204 21,252
------- ------- -------- -------
Income before income taxes 134,182 47,542 194,698 91,107
------- ------- -------- -------
Income tax expense:
Current taxes 38,665 6,696 52,313 13,543
Deferred taxes 806 2,458 760 3,666
------- ------- -------- -------
Total income taxes 39,471 9,154 53,073 17,209
------- ------- -------- -------
Net income 94,711 38,388 141,625 73,898
======= ======= ======== =======
</TABLE>
See accompanying Notes to Consolidated Unaudited Financial Statements
<PAGE>
AMBAC Indemnity Corporation and Subsidiaries
Consolidated Statements of Cash Flows
(Unaudited)
For The Periods Ended June 30, 1996 and 1995
(Dollars in Thousands)
<TABLE>
<CAPTION>
Six Months Ended
June 30,
--------------------------
1996 1995
-------- -----------
<S> <C> <C>
Cash flows from operating activities:
Net income $141,625 $73,898
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 950 678
Amortization of bond premium and discount (811) (440)
Current income taxes payable 5,287 574
Deferred income taxes payable 760 3,666
Deferred acquisition costs (5,487) (9,366)
Unearned premiums 21,940 27,563
Losses and loss adjustment expenses (6,567) 45
Ceded reinsurance balances payable (7,889) (422)
(Gain) loss on sales of investments (69,936) 6,876
Other, net (8,685) (6,538)
-------- -----------
Net cash provided by operating activities 71,187 96,534
-------- -----------
Cash flows from investing activities:
Proceeds from sales of bonds at amortized cost 742,407 837,619
Proceeds from maturities of bonds at amortized cost 43,165 70,281
Purchases of bonds at amortized cost (901,331) (1,001,767)
Change in short-term investments 30,324 19,183
Proceeds from sale of affiliate 115,865 -
Securities purchased under agreements to resell 128 (392)
Other, net (1,404) (223)
-------- -----------
Net cash provided by (used in) investing activities 29,154 (75,299)
-------- -----------
Cash flows from financing activities:
Dividends paid (135,865) (20,000)
Capital contribution 32,500 -
-------- -----------
Net cash used in financing activities (103,365) (20,000)
-------- -----------
Net cash flow (3,024) 1,235
Cash at beginning of year 6,912 2,117
-------- -----------
Cash at June 30 $3,888 $3,352
======== ===========
Supplemental disclosure of cash flow information:
Cash paid during the year for:
Income taxes $13,300 $12,700
======== ===========
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
<PAGE>
AMBAC INDEMNITY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED UNAUDITED FINANCIAL STATEMENTS
(1) BASIS OF PRESENTATION
AMBAC Indemnity Corporation ("AMBAC Indemnity") is a leading insurer of
municipal and structured finance obligations. Financial guarantee insurance
underwritten by AMBAC Indemnity guarantees payment when due of the principal of
and interest on the obligation insured. In the case of a default on the insured
obligation, payments under the insurance policy may not be accelerated by the
policyholder without AMBAC Indemnity's consent. As of June 30, 1996, AMBAC
Indemnity's net insurance in force (principal and interest) was $209.3 billion.
AMBAC Indemnity is a wholly-owned subsidiary of AMBAC Inc., which is a holding
company that provides through its affiliates financial guarantee insurance and
financial services to both public and private clients.
AMBAC Indemnity has one wholly-owned subsidiary, American Municipal Bond
Holding Company ("AMBH"), which is a holding company for certain real estate
interests.
On May 6, 1996, AMBAC Inc. sold its 4,159,505 shares of common stock of its
affiliate, HCIA Inc. (NASDAQ:HCIA) ("HCIA") in a secondary public offering.
Prior to consummation of the secondary public offering, AMBAC Indemnity
delivered to AMBAC Inc. (in the form of an extraordinary dividend) its 2,378,672
shares of HCIA common stock, at fair value. The fair value of the HCIA shares
was $115.9 million, based on the offering price per share of HCIA common stock
in the secondary public offering. The carrying value of AMBAC Indemnity's HCIA
shares was $26.2 million, and the resulting gain to AMBAC Indemnity from the
disposition of the shares was $89.7 million. As a result of the secondary public
offering, neither AMBAC Indemnity, nor AMBAC Inc. owned any shares of HCIA.
AMBAC Indemnity, as the sole limited partner, owns 90% of the total
partnership interests of AMBAC Financial Services, Limited Partnership ("AFS"),
a limited partnership which provides interest rate swaps primarily to states,
municipalities and municipal authorities. The sole general partner of AFS, AMBAC
Financial Services Holdings, Inc., a wholly-owned subsidiary of AMBAC Inc., owns
a general partnership interest representing 10% of the total partnership
interest in AFS.
AMBAC Indemnity's consolidated unaudited interim financial statements have
been prepared on the basis of generally accepted accounting principles and, in
the opinion of management, reflect all adjustments necessary for a fair
presentation of the Company's financial condition, results of operations and
cash flows for the periods presented. The results of operations for the six
months ended June 30, 1996 may not be indicative of the results that may be
expected for the full year ending December 31, 1996. These financial statements
and notes should be read in conjunction with the financial statements and notes
included in the audited consolidated financial statements of AMBAC Indemnity
Corporation and its subsidiaries as of December 31, 1995 and 1994, and for each
of the years in the three-year period ended December 31, 1995.
<PAGE>
AMBAC INDEMNITY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED UNAUDITED FINANCIAL STATEMENTS (CONTINUED)
(2) INCOME TAXES
The tax provisions in the accompanying financial statements reflect
effective tax rates differing from prevailing federal corporate income tax
rates, primarily as a result of tax-exempt interest income.
<PAGE>
SUBJECT TO COMPLETION, DATED OCTOBER 16, 1996
--
PROSPECTUS
- ----------
MLCC Mortgage Investors, Inc.
Depositor
Asset Backed Certificates
(Issuable in Series)
_______________
This Prospectus relates to Asset Backed Certificates (the
"Certificates"), which may be sold from time to time in one or more Series
(each, a "Series") by MLCC Mortgage Investors, Inc. (the "Depositor") on
terms determined at the time of sale and described in this Prospectus and
the related Prospectus Supplement. The Certificates of a Series will
evidence beneficial ownership of a trust fund (a "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) promissory notes or other evidences
of indebtedness secured by first, second or more junior liens on fee
simple or leasehold interests in single family properties, including
participations in any of the foregoing ("Mortgage Loans"), (ii) mortgage
pass-through securities (the "Agency 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") or (iii) mortgage-backed securities that are not
guaranteed by GNMA, FNMA or FHLMC ("Private Mortgage-Backed Securities").
Private Mortgage-Backed Securities will have been previously offered and
sold pursuant to an effective registration statement under the Securities
Act of 1933 or were exempt from registration thereunder. The Mortgage
Assets will be acquired by the Depositor, either directly or indirectly,
from one or more institutions (each, a "Seller"), which may be affiliates
of the Depositor, and conveyed by the Depositor to the related Trust Fund.
A Trust Fund also may include insurance policies, cash accounts, reserve
funds, reinvestment income, guaranties, letters of credit or other forms
of credit enhancement described herein and in the related Prospectus
Supplement, or any combination thereof. In addition, if so specified in
the related Prospectus Supplement, the property of the Trust Fund will
include monies on deposit in a trust account (the "Pre-Funding Account")
to be established with the Trustee, which will be used to purchase at a
predetermined price additional Mortgage Assets (the "Subsequent Mortgage
Assets") from the Depositor from time to time within three months after
the issuance of the Certificates.
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THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS OR THE RELATED
PROSPECTUS SUPPLEMENT. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
_______________
Prior to issuance there will have been no market for the Certificates of
any Series, and there can be no assurance that a secondary market for any
Certificates will develop or, if it does develop, that it will continue.
This Prospectus may not be used to consummate sales of a Series of
Certificates unless accompanied by a Prospectus Supplement.
Offers of the Certificates may be made through one or more different
methods, including offerings through underwriters, as more fully described
under "Method of Distribution" herein and in the related Prospectus
Supplement. All certificates will be distributed by, or sold by
underwriters managed by:
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MERRILL LYNCH & CO.
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The date of this Prospectus is , 199__.
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Each Series of Certificates will be issued in one or more classes. Each
class of Certificates of a Series will evidence beneficial ownership of a
specified percentage (which may be 0%) or portion of future interest
payments and a specified percentage (which may be 0%) or portion of future
principal payments on the Mortgage Assets in the related Trust Fund. A
Series of Certificates may include one or more classes that are senior or
subordinate in right of payment to one or more other classes of
Certificates of such Series. One or more classes of Certificates of a
Series may be entitled to receive principal distributions with
disproportionate, nominal or no interest distributions or interest
distributions with disproportionate, nominal or no principal distributions
or any combination thereof prior to one or more other classes of
Certificates of such Series or after the occurrence of specified events,
in each case as specified in the related Prospectus Supplement.
Distributions among classes of Certificates in a Series may differ as to
timing, sequential order and priority.
Distributions to Certificateholders will be made monthly, quarterly,
semi-annually or at such other intervals and on the dates specified in the
related Prospectus Supplement. Distributions on the Certificates of a
Series will be made from the assets of the related Trust Fund or Funds or
other assets pledged for the benefit of the Certificateholders as
specified in the related Prospectus Supplement.
The Certificates of any Series will not represent an obligation of or
interest in the Depositor or any affiliate thereof and will not be insured
or guaranteed by any governmental agency or instrumentality or, unless
otherwise specified in the related Prospectus Supplement, by any other
person. Unless otherwise specified in the related Prospectus Supplement,
the only obligations of the Depositor with respect to a Series of
Certificates will be to obtain certain representations and warranties from
each Seller and to assign to the Trustee for the related Series of
Certificates the Depositor's rights with respect to such representations
and warranties. The principal obligations of the Master Servicer named in
the related Prospectus Supplement with respect to the related Series of
Certificates will be limited to obligations pursuant to certain
representations and warranties and to its contractual servicing
obligations, including any obligation it may have to advance delinquent
payments on the Mortgage Assets in the related Trust Fund.
The yield on each class of Certificates of a Series will be affected by,
among other things, the rate of payment of principal (including
prepayments) on the Mortgage Assets in the related Trust Fund and the
timing of receipt of such payments as described herein and in the related
Prospectus Supplement. A Trust Fund may be subject to early termination
under the circumstances described herein and in the related Prospectus
Supplement.
If specified in a Prospectus Supplement, one or more elections may be
made to treat the related Trust Fund or specified portions thereof as a
"real estate mortgage investment conduit" ("REMIC") for federal income tax
purposes. See "Certain Federal Income Tax Consequences".
Until 90 days after the date of each Prospectus Supplement, all dealers
effecting transactions in the securities covered by such Prospectus
Supplement, whether or not participating in the distribution thereof, may
be required to deliver such Prospectus Supplement and this Prospectus.
This is in addition to the obligation of dealers to deliver a Prospectus
and Prospectus Supplement when acting as underwriters and with respect to
their unsold allotments or subscriptions.
PROSPECTUS SUPPLEMENT
The Prospectus Supplement relating to the Certificates of each Series to
be offered hereunder will, among other things, set forth with respect to
such Certificates, as appropriate: (i) a description of the class or
classes of Certificates and the related Pass-Through Rate or method of
determining the amount of interest, if any, to be passed through to each
such class; (ii) the initial aggregate Certificate Balance of each class
of Certificates included in such Series, Distribution Dates relating to
such Series and, if applicable, the initial and final scheduled
Distribution Dates for each class; (iii) information as to the assets
comprising the Trust Fund, including the general characteristics of the
Mortgage Assets included therein and, if applicable, the insurance, surety
bonds, guaranties, letters of credit or other instruments or agreements
included in the Trust Fund, and the amount and source of any Reserve Fund;
(iv) the circumstances, if any, under which the Trust Fund may be subject
to early termination; (v) the method used to calculate the amount of
principal to be distributed with respect to each class of Certificates;
(vi) the order of application of distributions to each of the classes
within such Series, whether sequential, pro rata, or otherwise; (vii) the
Distribution Dates with respect to such Series; (viii) additional
information with respect to the plan of distribution of such Certificates;
(ix) whether one or more REMIC elections will be made and designation of
the regular interests and residual interests; (x) the aggregate original
percentage ownership interest in the Trust Fund to be evidenced by each
class of Certificates; (xi) information as to the nature and extent of
subordination with respect to any class of Certificates that is
subordinate in right of payment to any other class; and (xii) information
as to the Seller, the Master Servicer and the Trustee.
AVAILABLE INFORMATION
The Depositor has filed with the Securities and Exchange Commission (the
"Commission") a Registration Statement under the Securities Act of 1933,
as amended, with respect to the Certificates. This Prospectus, which forms
a part of the Registration Statement, and the Prospectus Supplement
relating to each Series of Certificates contain summaries of the material
terms of the documents referred to herein and therein, but do not contain
all of the information set forth in the Registration Statement pursuant to
the Rules and Regulations of the Commission. For further information,
reference is made to such Registration Statement and the exhibits thereto.
Such Registration Statement and exhibits can be inspected and copied at
prescribed rates at the public reference facilities maintained by the
Commission at its Public Reference Section, 450 Fifth Street, N.W.,
Washington, D.C. 20549, and at its Regional Offices located as follows:
Chicago Regional Office, Northwest Atrium Center, 500 West Madison Street,
Chicago, Illinois 60661; and New York Regional Office, Seven World Trade
Center, New York, New York 10048. The Commission maintains a Web site at
http://www.sec.gov containing reports, proxy and information statements
and other information regarding registrants, including MLCC Mortgage
Investors, Inc., that file electronically with the Commission.
No person has been authorized to give any information or to make any
representation other than those contained in this Prospectus and any
Prospectus Supplement with respect hereto and, if given or made, such
information or representations must not be relied upon. This Prospectus
and any Prospectus Supplement with respect hereto do not constitute an
offer to sell or a solicitation of an offer to buy any securities other
than the Certificates offered hereby and thereby nor an offer of the
Certificates to any person in any state or other jurisdiction in which
such offer would be unlawful. The delivery of this Prospectus at any time
does not imply that information herein is correct as of any time
subsequent to its date.
INCORPORATION OF CERTAIN INFORMATION BY REFERENCE
There are incorporated herein by reference all documents and reports
filed or caused to be filed by the Depositor with respect to a Trust Fund
pursuant to Section 13(a), 13(c), 14 or 15(d) of the Exchange Act, prior
to the termination of an offering of Certificates evidencing interests
therein. The Depositor will provide or cause to be provided without charge
to each person to whom this Prospectus is delivered in connection with the
offering of one or more Classes of Certificates, a list identifying all
filings with respect to the related Trust Fund pursuant to Section 13(a),
13(c), 14 or 15(d) of the Exchange Act, since the Depositor's latest
fiscal year covered by its annual report on Form 10-K and a copy of any or
all documents or reports incorporated herein by reference, in each case to
the extent such documents or reports relate to one or more of such classes
of such Certificates, other than the exhibits to such documents (unless
such exhibits are specifically incorporated by reference in such
documents). Requests to the Depositor should be directed to: MLCC Mortgage
Investors, Inc., 4802 Deer Lake Drive East, Jacksonville, Florida 32246,
telephone number (904) 928-6000.
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 with respect to the Series offered thereby. The
Prospectus Supplement for each Series will specify the extent (if any) to
which the terms of such Series or the related Trust Fund vary from the
general description of the Certificates and Trust Funds which is contained
in this Prospectus. Capitalized terms used herein shall have the
respective meanings assigned them in the "Index to Defined Terms".
Title of Securities Asset Backed Certificates (the "Certificates"),
issuable in series (each, a "Series"). Each Series will be issued under a
separate pooling and servicing agreement (each, an "Agreement") to be entered
into with respect to each such Series.
Depositor MLCC Mortgage Investors, Inc., a Delaware corporation. The
Depositor is a wholly owned, limited purpose subsidiary of Merrill Lynch
Credit Corporation (a wholly-owned indirect subsidiary of Merrill Lynch &
Co., Inc.). Neither Merrill Lynch & Co., Inc. nor any of its affiliates,
including the Depositor, has guaranteed, or is or will be otherwise
obligated with respect to, the Certificates of any Series.
Trustee The trustee (the "Trustee") for each Series of Certificates
will be specified in the related Prospectus Supplement. See "The Pooling and
Servicing Agreement" herein for a description of the Trustee's rights and
obligations.
Master Servicer The entity or entities named as Master Servicer
(the "Master Servicer") in the related Prospectus Supplement, which may be
an affiliate of the Depositor. See "The Pooling and Servicing Agreement--
Certain Matters Regarding the Master Servicer and the Depositor".
Servicer A "Servicer" may be specified in the related Prospectus
Supplement, which may be an affiliate of the Depositor.
Closing Date The date (the "Closing Date") of initial issuance of a
Series of Certificates, as specified in the related Prospectus Supplement.
Trust Fund Assets The Trust Fund for a Series of Certificates will
include certain mortgage related assets (the "Mortgage Assets") consisting
of (a) a pool (a "Mortgage Pool") of Mortgage Loans, (b) Agency Securities
or (c) Private Mortgage-Backed 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.
To the extent provided in the related Prospectus Supplement, the Depositor
will be obligated (subject only to the availability thereof)
to sell at a predetermined price, and the Trust Fund for a Series of
Certificates will be obligated to purchase (subject to the satisfaction of
certain conditions described in the applicable Agreement), additional
Mortgage Assets (the "Subsequent Mortgage Assets") from time to time (as
frequently as daily) within three months after the issuance of the
Certificates having an aggregate principal balance approximately equal to the
amount on deposit in the Pre-Funding Account (the "Pre-Funded Amount")
on such Closing Date.
A. Single Family Loans Unless otherwise specified in the related
Prospectus Supplement, Mortgage Loans will be secured by first, second or
more junior liens on fee simple or leasehold interests in single family
properties. If so specified, the Mortgage Loans may include cooperative
apartment loans ("Cooperative Loans") secured by security interests in
shares issued by private, nonprofit, cooperative housing corporations
("Cooperatives") and in the related proprietary leases or occupancy
agreements granting exclusive rights to occupy specific dwelling units in
such Cooperatives' buildings. If so specified in the related Prospectus
Supplement, the Mortgage Assets of the related Trust Fund may include
mortgage participation certificates evidencing interests in Mortgage Loans.
Such Mortgage Loans may be conventional loans (i.e., loans that are
not insured or guaranteed by any governmental agency), insured by the Federal
Housing Authority ("FHA") or partially guaranteed by the Veterans'
Administration ("VA") as specified in the related Prospectus Supplement.
B. General Attributes of Mortgage Loans The payment terms of the
Mortgage Loans to be included in a Trust Fund will be described in the
related Prospectus Supplement and may include any of the following
features or combinations thereof or other features described in the related
Prospectus Supplement: (a) Interest may be payable at a fixed rate, a rate
adjustable from time to time in relation to an index (which will be specified
in the related Prospectus Supplement), a rate that is fixed for a period of
time or under certain circumstances and is followed by an adjustable rate, a
rate that otherwise varies from time to time, or
a rate that is convertible from an adjustable rate to a fixed rate or to a
different adjustable rate. Changes to an adjustable rate may be subject to
periodic limitations, maximum rates, minimum rates or a combination of such
limitations. Accrued interest may be deferred and added to the principal of a
loan for such periods and under such circumstances as may be specified in the
related Prospectus Supplement. Mortgage Loans may provide for the payment of
interest at a rate lower than the specified Mortgage Rate for a period of
time or for the life of the loan, and the
amount of any difference may be contributed from funds supplied by a third
party.
(b) Principal may be payable on a level debt service basis to fully
amortize the loan over its term, may be calculated on the basis of an
assumed amortization schedule that is significantly longer than the
original term to maturity or on an interest rate that is different from the
interest rate on the Mortgage Loan or may not be amortized during all or a
portion of the original term. Payment of all or a substantial portion
of the principal may be due on maturity ("balloon payments"). Principal may
include interest that has been deferred and added to the principal balance of
the Mortgage Loan.
(c) Monthly payments of principal and interest may be fixed for
the life of the loan, may increase over a specified period of time or may
change from period to period. Mortgage Loans may include limits on periodic
increases or decreases in the amount of monthly payments and may include
maximum or minimum amounts of monthly payments.
(d) The Mortgage Loans generally may be prepaid at any time
without payment of any prepayment fee. If so specified in the related
Prospectus Supplement, prepayments of principal may be subject to a
prepayment fee, which may be fixed for the life of any such Mortgage Loan or
may decline over time, and may be prohibited for the life of any such
Mortgage Loan or for certain periods ("lockout periods"). Certain Mortgage
Loans may permit prepayments after expiration of the applicable lockout
period and may require the payment of a prepayment fee in connection with any
such subsequent prepayment. Other Mortgage Loans may permit prepayments
without payment of a fee unless the prepayment occurs during specified time
periods. The Mortgage Loans may include "due-on-sale" clauses which permit
the mortgagee to demand payment of the entire Mortgage Loan in connection
with the sale or certain transfers of the related Mortgaged Property. Other
Mortgage Loans may be assumable by
persons meeting the then applicable underwriting standards of the Seller.
(e) Certain Mortgage Loans may be originated or acquired in
connection with employee relocation programs. The real property
constituting security for repayment of a Mortgage Loan may be located in any
one of the fifty states, the District of Columbia, Guam, Puerto Rico or any
other territory of the United States. Unless otherwise specified in
the related Prospectus Supplement, all of the Mortgage Loans will be covered
by standard hazard insurance policies insuring against losses due to fire and
various other causes. The Mortgage Loans will be covered by primary mortgage
insurance policies to the extent provided in the related Prospectus
Supplement.
All Mortgage Loans will have been purchased by the Depositor, either
directly or through an affiliate, from one or more Sellers.
C. 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 the Federal Home Loan Mortgage Corporation ("FHLMC
Certificates"), (ii) Guaranteed Mortgage Asset Backed Certificates issued and
guaranteed as to timely payment of principal and interest by the Federal
National Mortgage Association ("FNMA Certificates"), (iii) fully modified
pass-through mortgage-backed certificates guaranteed as to timely payment of
principal and interest by the Government National Mortgage Association ("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 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. No FHLMC or FNMA
Certificates will be backed, directly or indirectly, by the full faith and
credit of the United States.
The Agency Securities may consist of pass-through securities issued
under FHLMC's Cash or Guarantor Program, the GNMA I Program, the GNMA II
Program or another program specified in the related Prospectus Supplement.
The payment characteristics of the Mortgage Loans underlying the Agency
Securities will be described in the related Prospectus Supplement.
D. Private Mortgage-Backed Securities Private Mortgage-Backed Securities
may include (a) mortgage pass-through certificates representing beneficial
interests in a Mortgage Pool or (b) collateralized mortgage obligations
secured by Mortgage Loans. Private Mortgage-Backed Securities may include
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 Mortgage
Loans. Although individual Mortgage Loans underlying a Private Mortgage-
Backed Security may be insured or guaranteed by the United States or an
agency or instrumentality thereof, they need not be, and the Private
Mortgage-Backed Securities themselves will not be so insured or guaranteed.
Private Mortgage-Backed Securities will have been previously offered and sold
pursuant to an effective registration statement under the
Securities Act of 1933, as amended, or were exempt from registration
thereunder. Unless otherwise specified in the related Prospectus Supplement
relating to a Series of Certificates, payments on the Private Mortgage-Backed
Securities will be distributed directly to the Trustee as
registered owner of such Private Mortgage-Backed Securities. See "The Trust
Fund-- Private Mortgage-Backed Securities" herein.
Description of the Certificate Each Certificate will represent a
beneficial ownership interest in a Trust Fund created by the Depositor
pursuant to an Agreement among the Depositor, the Master Servicer and the
Trustee for the related Series. The Certificates of any Series may be issued
in one or more classes as specified in the related Prospectus Supplement. A
Series of Certificates may include one or more classes of
senior Certificates (collectively, the "Senior Certificates") and one or more
classes of subordinate Certificates (collectively, the "Subordinated
Certificates"). Certain Series or classes of Certificates may be covered by
insurance policies or other forms of credit enhancement, in each case as
described herein and in the related Prospectus Supplement.
One or more classes of Certificates of each Series (i) may be
entitled to receive distributions allocable only to principal, only to
interest or to any combination thereof; (ii) may be entitled to receive
distributions only of prepayments of principal throughout the lives of the
Certificates or during specified periods; (iii) may be subordinated in the
right to receive distributions of scheduled payments of principal,
prepayments of principal, interest or any combination thereof to one or more
other classes of Certificates of such Series throughout the lives of the
Certificates or during specified periods; (iv) may be entitled to receive
such distributions only after the occurrence of events specified in the
related Prospectus Supplement; (v) may be entitled to receive distributions
in accordance with a schedule or formula or on the basis of
collections from designated portions of the assets in the related Trust Fund;
(vi) as to Certificates entitled to distributions allocable to interest, may
be entitled to receive interest at a fixed rate or a rate that is subject to
change from time to time; and (vii) as to Certificates entitled to
distributions allocable to interest, may be entitled to distributions
allocable to interest only after the occurrence of events specified in the
related Prospectus Supplement and may accrue interest until such events
occur, in each case as specified in the related Prospectus Supplement. The
timing, amounts, sequential order and priority of such distributions may vary
among classes, over time, or otherwise as specified in the related Prospectus
Supplement.
Distributions on the Certificates Distributions on the Certificates
entitled thereto will be made monthly, quarterly, semi-annually or at such
other intervals and on the dates specified in the related Prospectus
Supplement (each, a "Distribution Date") out of the payments received in
respect of the assets of the related Trust Fund or other assets pledged for
the benefit of the Certificates as specified in the related Prospectus
Supplement. The amount allocable to payments of principal and interest on any
Distribution Date will be determined as specified in the related
Prospectus Supplement. Unless otherwise specified in the related
Prospectus Supplement, all distributions will be made pro rata to
Certificateholders of the class entitled thereto.
Unless otherwise specified in the related Prospectus Supplement, the
aggregate original Certificate Balance of the Certificates will equal the
aggregate distributions allocable to principal that such Certificates will
be entitled to receive. If specified in the related Prospectus Supplement,
the Certificates will have an aggregate original Certificate Balance equal
to the aggregate unpaid principal balance of the Mortgage Assets as of the
first day of the month of creation of the Trust Fund and will bear interest
in the aggregate at a rate equal to the interest rate borne by the underlying
Mortgage Loans (the "Mortgage Rate"), Agency Securities or Private Mortgage-
Backed Securities, net of the aggregate servicing fees and any other amounts
specified in the related Prospectus Supplement (the "Pass-Through Rate").
The rate at which interest will be passed through to holders of each
class of Certificates entitled thereto may be a fixed rate or a rate that is
subject to change from time to time from the time and for the periods, in
each case, as specified in the related Prospectus Supplement. Any such rate
may be calculated on a loan-by-loan, weighted average or other basis,
in each case as described in the related Prospectus Supplement.
Credit Enhancement The assets in a Trust Fund or the Certificates of
one or more classes in the related Series may have the benefit of one or more
types of credit enhancement described herein and in the related
Prospectus Supplement. The protection against losses afforded by any such
credit support may be limited. The type, characteristics and amount of
credit enhancement will be determined based on the characteristics of the
Mortgage Loans underlying or comprising the Mortgage Assets and other factors
and will be established on the basis of requirements of each Rating Agency
rating the Certificates of such Series. One or more forms of
credit enhancement may be provided by an affiliate or affiliates of the
Depositor. See "Credit Enhancement" herein.
A. Subordination A Series of Certificates may consist of one or
more classes of Senior Certificates and one or more classes of Subordinate
Certificates. The rights of the holders of the Subordinated Certificates of a
Series to receive distributions with respect to the assets in the related
Trust Fund will be subordinated to such rights of the holders of the Senior
Certificates of the same Series to the extent described in the related
Prospectus Supplement. This subordination is intended to enhance the
likelihood of regular receipt by holders of Senior Certificates of the
full amount of their scheduled monthly payments of principal and interest.
The protection afforded to the holders of Senior Certificates of
a Series by means of the subordination feature will be accomplished by (i)
the preferential right of such holders to receive, prior to any distribution
being made in respect of the related Subordinated Certificates, the amounts
of principal and interest due them on each Distribution Date out of the funds
available for distribution on such date
in the related Certificate Account and, to the extent described in the
related Prospectus Supplement, by the right of such holders to receive
future distributions on the assets in the related Trust Fund that would
otherwise have been payable to the holders of Subordinated Certificates; (ii)
reducing the ownership interest of the related Subordinated Certificates;
(iii) a combination of clauses (i) and (ii) above; or (iv) as otherwise
described in the related Prospectus Supplement. If so specified in the
related Prospectus Supplement, subordination may apply only in the event of
certain types of losses not covered by other forms of
credit support, such as hazard losses not covered by standard hazard
insurance policies or losses due to the bankruptcy or fraud of the borrower.
The related Prospectus Supplement will set forth information concerning,
among other things, the amount of subordination of a class or classes of
Subordinated Certificates in a Series, the circumstances in which such
subordination will be applicable, and the manner, if any, in
which the amount of subordination will decrease over time.
B. Reserve Fund One or more reserve funds (each, a "Reserve
Fund") may be established and maintained for each Series. The related
Prospectus Supplement will specify whether or not any such Reserve Fund will
be included in the corpus of the Trust Fund for such Series and will also
specify the manner of funding the related Reserve Fund and the
conditions under which the amounts in any such Reserve Fund will be used to
make distributions to holders of Certificates of a particular class or
released from the related Trust Fund.
C. Mortgage Pool Insurance Policy A mortgage pool insurance policy
or policies ("Mortgage Pool Insurance Policy") may be obtained and maintained
for a Series, which shall be limited in scope, covering defaults on the
related Mortgage Loans in an initial amount equal to a specified percentage
of the aggregate principal balance of all Mortgage
Loans included in the Mortgage Pool as of the first day of the month of
issuance of the related Series of Certificates or such other date as is
specified in the related Prospectus Supplement (the "Cut-off Date").
D. Special Hazard Insurance Policy A special hazard insurance policy
or policies ("Special Hazard Insurance Policy"), may be obtained and
maintained for a Series, covering certain physical risks that are not
otherwise insured against by standard hazard insurance policies. Each Special
Hazard Insurance Policy will be limited in scope and will cover
losses pursuant to the provisions of each such Special Hazard Insurance
Policy as described in the related Prospectus Supplement.
E. Bankruptcy Bond A bankruptcy bond or bonds ("Bankruptcy Bonds")
may be obtained covering certain losses resulting from action that may be
taken by a bankruptcy court in connection with a Mortgage Loan. The level of
coverage and the limitations in scope of each Bankruptcy Bond will be
specified in the related Prospectus Supplement.
F. FHA Insurance and VA Guarantee All or a portion of the Mortgage
Loans in a Mortgage Pool may be insured by FHA insurance ("FHA Insurance")
and may be partially guaranteed by the VA ("VA Insurance").
G. Cross Support If specified in the related Prospectus
Supplement, the beneficial ownership of separate groups of assets included
in a Trust Fund may be evidenced by separate classes of the related Series
of Certificates. In such case, credit support may be provided by a cross-
support feature which requires that distributions be made with respect to
Certificates evidencing beneficial ownership of one or more asset groups
prior to distributions to Subordinated Certificates evidencing a beneficial
ownership interest in other asset groups within the same Trust Fund.
H. Limited Guarantee If specified in the related Prospectus
Supplement, credit enhancement may be provided in the form of a limited
financial guarantee ("Limited Guarantee") issued by a guarantor named
therein.
I. Letter of Credit Alternative credit support with respect to a
Series of Certificates may be provided by the issuance of a letter of credit
("Letter of Credit") by the bank or financial institution specified
in the related Prospectus Supplement. The coverage, amount and frequency of
any reduction in coverage provided by a Letter of Credit issued with respect
to a Series of Certificates will be set forth in the related
Prospectus Supplement.
J. Surety Bonds If specified in the related Prospectus
Supplement, credit support with respect to one or more Classes of
Certificates of a Series may be provided by the issuance of a surety bond
("Surety Bond") issued by a financial guarantee insurance company specified
in the related Prospectus Supplement. The coverage, amount and
frequency of any reduction in coverage provided by a Surety Bond will be set
forth in the related Prospectus Supplement.
Advances Unless otherwise specified in the related Prospectus
Supplement, the Master Servicer and, if applicable, each mortgage servicing
institution that services a Mortgage Loan in a Mortgage Pool on behalf of the
Master Servicer (a "Sub-Servicer") will be obligated to advance amounts
(each, an "Advance") corresponding to delinquent principal
and interest payments on such Mortgage Loan (including, in the case of
Cooperative Loans, unpaid maintenance fees or other charges under the related
proprietary lease) until the first day of the month following the date on
which the related Mortgaged Property is sold at a foreclosure sale
or the related Mortgage Loan is otherwise liquidated. Any obligation to make
Advances may be subject to limitations as specified in the related Prospectus
Supplement. Advances will be reimbursable to the extent described herein and
in the related Prospectus Supplement.
Optional Termination The Master Servicer or, if specified in the
related Prospectus Supplement, the holder of the residual interest in a REMIC
may have the option to effect early retirement of a Series of Certificates
through the purchase of the Mortgage Assets and other assets in the related
Trust Fund under the circumstances and in the manner described in "The
Pooling and Servicing Agreement--Termination; Optional Termination" herein
and in the related Prospectus Supplement. In addition,
if the related Prospectus Supplement provides that the property of a Trust
Fund will include a Pre-Funding Account (as such term is defined in the
related Prospectus Supplement, the "Pre-Funding Account"), a portion of a
Series of Certificates will be subject to early retirement on or immediately
following the end of the Funding Period (as such term is
defined in the related Prospectus Supplement, the "Funding Period") in an
amount and manner specified in the related Prospectus Supplement.
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 activities are subject to review by federal or state authorities
should consult with their counsel or the applicable authorities to determine
whether an investment in a particular class of Certificates (whether or not
such class constitutes a "mortgage related security") complies with
applicable guidelines, policy statements or restrictions. See "Legal
Investment".
Certain Federal Income Tax Consequences The federal income tax
consequences to Certificateholders will vary depending on whether one or
more elections are made to treat the Trust Fund or specified portions thereof
as a "real estate mortgage investment conduit" ("REMIC") under the
provisions of the Internal Revenue Code of 1986, as amended (the "Code"). The
Prospectus Supplement for each Series of Certificates will specify
whether such an election will be made. See "Certain Federal Income Tax
Consequences".
ERISA Considerations A fiduciary of any employee benefit plan or
other retirement plan or arrangement subject to the Employee Retirement
Income Security Act of 1974, as amended ("ERISA"), or the Code should
carefully review 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".
Certain classes of Certificates may not be transferred unless the Trustee and
the Depositor are furnished with a letter of representations or an
opinion of counsel to the effect that such transfer will not result in a
violation of the prohibited transaction provisions of ERISA and the Code and
will not subject the Trustee, the Depositor or the Master Servicer to
additional obligations. See "Description of the Certificates--General" and
"ERISA Considerations".
THE TRUST FUND*
The Trust Fund for each Series will be held by the Trustee for the
benefit of the related Certificateholders. Each Trust Fund will consist of
certain mortgage-related assets (the "Mortgage Assets") consisting of (A)
a mortgage pool (a "Mortgage Pool") comprised of Mortgage Loans, (B)
Agency Securities or (C) Private Mortgage-Backed Securities, in each case
as specified in the related Prospectus Supplement, 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.
The Certificates will be entitled to payment from the assets of the
related Trust Fund or Funds or other assets pledged for the benefit of the
Certificateholders as specified in the related Prospectus Supplement and
will not be entitled to payments in respect of the assets of any other
trust fund established by the Depositor. Unless otherwise specified in the
related Prospectus Supplement, the Mortgage Assets of any Trust Fund will
consist of Mortgage Loans, Agency Securities or Private Mortgage-Backed
Securities but not a combination thereof.
The Mortgage Assets may be acquired by the Depositor, either directly or
through affiliates, from originators or sellers that may be affiliates of
the Depositor (the "Sellers") and conveyed by the Depositor to the related
Trust Fund. The Sellers may have originated the Mortgage Assets or
acquired the Mortgage Assets from the originators or other entities. See
"Mortgage Loan Program--Underwriting Standards".
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 at the time the related Series of
Certificates initially is offered, more general information of the nature
described below will be provided in the related Prospectus Supplement, and
final specific information will be set forth in a Current Report on Form
8-K to be available to investors on the date of issuance thereof and to be
filed with the Securities and Exchange Commission within fifteen days
after the initial issuance of such Certificates (the "Detailed
Description"). A schedule of the Mortgage Assets relating to such Series
will be attached to the Agreement delivered to the Trustee upon delivery
of the Certificates.
THE MORTGAGE LOANS--GENERAL
For purposes hereof, the real property that secures repayment of the
Mortgage Loans are collectively referred to as "Mortgaged Properties". The
Mortgaged Properties may be located in any one of the fifty states, the
District of Columbia, Guam, Puerto Rico or any other territory of the
United States. Mortgage Loans with certain Loan-to-Value Ratios and/or
certain principal balances may be covered wholly or partially by primary
mortgage guaranty insurance policies (each, a "Primary Mortgage Insurance
Policy"). The existence, extent and duration of any such coverage will be
described in the applicable Prospectus Supplement.
__________________________
* Whenever the terms "Mortgage Pool" and "Certificates" are used in this
Prospectus, such terms will be deemed to apply, unless the context
indicates otherwise, to one specific Mortgage Pool and the Certificates
representing certain undivided interests, as described below, in a single
trust fund (the "Trust Fund") consisting primarily of the Mortgage Loans
in such Mortgage Pool. Similarly, the term "Pass-Through Rate" will refer
to the Pass-Through Rate borne by the Certificates of one specific Series
and the term "Trust Fund" will refer to one specific Trust Fund.
Unless otherwise specified in the related Prospectus Supplement, all of
the Mortgage Loans in a Mortgage Pool will have monthly payments due on
the first day of each month. The payment terms of the Mortgage Loans to be
included in a Trust Fund will be described in the related Prospectus
Supplement and may include any of the following features or combination
thereof or other features described in the related Prospectus Supplement:
(a) Interest may be payable at a fixed rate, a rate adjustable from
time to time in relation to an index (which will be specified in the
related Prospectus Supplement), a rate that is fixed for a period of time or
under certain circumstances and is followed by an adjustable rate, a rate
that otherwise varies from time to time, or a rate that is convertible from
an adjustable rate to a fixed rate. Changes to an
adjustable rate may be subject to periodic limitations, maximum rates,
minimum rates or a combination of such limitations. Accrued interest may be
deferred and added to the principal of a loan for such periods and under such
circumstances as may be specified in the related Prospectus Supplement.
Mortgage Loans may provide for the payment of interest at a rate lower than
the specified interest rate borne by such Mortgage Loan for a period of time
or for the life of the loan, and the amount of any difference may be
contributed from funds supplied by the seller of the Mortgaged Property or
another source.
(b) Principal may be payable on a level debt service basis to fully
amortize the loan over its term, may be calculated on the basis of an
assumed amortization schedule that is significantly longer than the
original term to maturity or on an interest rate that is different from the
interest rate on the Mortgage Loan or may not be amortized during all or a
portion of the original term. Payment of all or a substantial portion
of the principal may be due on maturity ("balloon payments"). Principal may
include interest that has been deferred and added to the principal balance of
the Mortgage Loan.
(c) Monthly payments of principal and interest may be fixed for the
life of the loan, may increase over a specified period of time or may
change from period to period. Loans may include limits on periodic
increases or decreases in the amount of monthly payments and may include
maximum or minimum amounts of monthly payments.
(d) The Mortgage Loans generally may be prepaid at any time without
the payment of any prepayment fee. If so specified in the related
Prospectus Supplement, some prepayments of principal may be subject to a
prepayment fee, which may be fixed for the life of any such Mortgage Loan or
may decline over time, and may be prohibited for the life of any such
Mortgage Loan or for certain periods ("lockout periods"). Certain Mortgage
Loans may permit prepayments after expiration of the applicable lockout
period and may require the payment of a prepayment fee in connection with any
such subsequent prepayment. Other Mortgage Loans may permit prepayments
without payment of a fee unless the prepayment occurs during specified time
periods. The loans may include "due-on-sale" clauses which permit the
mortgagee to demand payment of the entire mortgage loan in connection with
the sale or certain transfers of the related Mortgaged Property. Other
Mortgage Loans may be assumable by persons meeting the then applicable
underwriting standards of the Seller.
A Trust Fund may contain certain Mortgage Loans ("Buydown Loans"), which
include provisions whereby a third party partially subsidizes the
borrower's monthly payments during the early years of the Mortgage Loan,
the difference to be made up from a fund (a "Buydown Fund") contributed by
such third party at the time of origination of the Mortgage Loan. A
Buydown Fund will be in an amount equal either to the discounted value or
full aggregate amount of future payment subsidies. The underlying
assumption of buydown plans is that the income of the borrower will
increase during the buydown period as a result of normal increases in
compensation and of inflation, so that the borrower will be able to meet
the full mortgage payments at the end of the buydown period. To the extent
that this assumption as to increased income is not fulfilled, the
possibility of defaults on Buydown Loans is increased. The related
Prospectus Supplement will contain information with respect to any Buydown
Loan concerning limitations on the interest rate paid by the borrower
initially, on annual increases in the interest rate and on the length of
the buydown period.
Each Prospectus Supplement will contain information, as of the date of
such Prospectus Supplement and to the extent then specifically known to
the Depositor, with respect to the Mortgage Loans contained in the related
Mortgage Pool, including (i) the aggregate outstanding principal balance
and the average outstanding principal balance of the Mortgage Loans as of
the applicable Cut-off Date, (ii) the type of property securing the
Mortgage Loans (e.g., separate residential properties, individual units in
condominium apartment buildings or in buildings owned by cooperative
housing corporations, vacation and second homes, or other similar real
property), (iii) the original terms to maturity of the Mortgage Loans,
(iv) the largest principal balance and the smallest principal balance of
any of the Mortgage Loans, (v) the earliest origination date and latest
maturity date of any of the Mortgage Loans, (vi) the aggregate principal
balance of Mortgage Loans having Loan-to-Value Ratios at origination
exceeding 80%, (vii) the maximum and minimum per annum rates at which the
related Mortgage Notes accrue interest (the "Mortgage Rate"), and (viii)
the geographical distribution of the Mortgage Loans.
If specific information respecting the Mortgage Loans is not known to
the Depositor at the time the related Certificates are initially offered,
more general information of the nature described above will be provided in
the related Prospectus Supplement, and final specific information will be
set forth in the Detailed Description.
The "Loan-to-Value Ratio" of a Mortgage Loan at any given time is the
fraction, expressed as a percentage, the numerator of which is the
original principal balance of the related Mortgage Loan and the
denominator of which is Collateral Value of the related Mortgaged
Property. Unless otherwise specified in the related Prospectus Supplement,
the "Collateral Value" of a Mortgaged Property is the lesser of (a) the
appraised value determined in an appraisal obtained by the originator at
origination of such Mortgage Loan and (b) the sales price for such
property.
No assurance can be given that values of the Mortgaged Properties have
remained or will remain at their levels on the dates of origination of the
related Mortgage Loans. If the residential real estate market should
experience an overall decline in property values such that the outstanding
principal balances of the Mortgage Loans, and any secondary financing on
the Mortgaged Properties, in a particular Mortgage Pool become equal to or
greater than the value of the Mortgaged Properties, the actual rates of
delinquencies, foreclosures and losses could be higher than those now
generally experienced in the mortgage lending industry. In addition,
adverse economic conditions and other factors (which may or may not affect
real property values) may affect the timely payment by mortgagors of
scheduled payments of principal and interest on the Mortgage Loans and,
accordingly, the actual rates of delinquencies, foreclosures and losses
with respect to any Mortgage Pool. To the extent that such losses are not
covered by subordination provisions or alternative arrangements, such
losses will be borne, at least in part, by the holders of the Certificates
of the related Series.
The Depositor will cause the Mortgage Loans comprising each Mortgage
Pool to be assigned to the Trustee named in the related Prospectus
Supplement for the benefit of the holders of the Certificates of the
related Series. The Master Servicer named in the related Prospectus
Supplement will service the Mortgage Loans, either directly or through
other mortgage servicing institutions (each, a "Sub-Servicer"), pursuant
to a Pooling and Servicing Agreement (each, an "Agreement"), and will
receive a fee for such services. See "Mortgage Loan Program" and "The
Pooling and Servicing Agreement". With respect to Mortgage Loans serviced
by the Master Servicer through a Sub-Servicer, the Master Servicer will
remain liable for its servicing obligations under the related Agreement as
if the Master Servicer alone were servicing such Mortgage Loans.
Unless otherwise specified in the related Prospectus Supplement, the
only obligations of the Depositor with respect to a Series of Certificates
will be to obtain certain representations and warranties from the Sellers
and to assign to the Trustee for such Series of Certificates the
Depositor's rights with respect to such representations and warranties.
See "The Pooling and Servicing Agreement--Assignment of Mortgage Assets".
The obligations of the Master Servicer with respect to the Mortgage Loans
will consist principally of its contractual servicing obligations under
the related Agreement (including its obligation to enforce the obligations
of the Sub-Servicers or Sellers, or both, as more fully described herein
under "Mortgage Loan Program--Representations by Sellers; Repurchases" and
"The Pooling and Servicing Agreement--Assignment of Mortgage Assets") and
its obligation to make certain cash advances in the event of delinquencies
in payments on or with respect to the Mortgage Loans in the amounts
described herein under "Description of the Certificates--Advances". The
obligations of the Master Servicer to make advances may be subject to
limitations, to the extent provided herein and in the related Prospectus
Supplement.
Unless otherwise specified in the related Prospectus Supplement,
Mortgage Loans will consist of mortgage loans, deeds of trust or
participations or other beneficial interests therein, secured by first,
second or more junior liens on single family (i.e., one- to four-family)
residential properties. If so specified, the Mortgage Loans may include
cooperative apartment loans ("Cooperative Loans") secured by security
interests in shares issued by private, non-profit, cooperative housing
corporations ("Cooperatives") and in the related proprietary leases or
occupancy agreements granting exclusive rights to occupy specific dwelling
units in such Cooperatives' buildings. If so specified in the related
Prospectus Supplement, the Mortgage Assets of the related Trust Fund may
include mortgage participation certificates evidencing interests in
Mortgage Loans. Such loans may be conventional loans (i.e., loans that are
not insured or guaranteed by any governmental agency) or loans insured by
the FHA or partially guaranteed by the VA, as specified in the related
Prospectus Supplement.
The Mortgaged Properties relating to single family Mortgage Loans will
consist of detached or semi-detached one-family dwelling units, two- to
four-family dwelling units, townhouses, rowhouses, individual condominium
units, individual units in planned unit developments, and certain other
dwelling units. Such Mortgaged Properties may include vacation and second
homes, investment properties and leasehold interests. In the case of
leasehold interests, the term of the leasehold will exceed the scheduled
maturity of the Mortgage Loan by at least five years, unless otherwise
specified in the related Prospectus Supplement. Certain Mortgage Loans may
be originated or acquired in connection with corporate programs, including
employee relocation programs. In limited instances, a borrower who uses
the dwelling unit as a primary residence may also make some business use
of the property.
AGENCY SECURITIES
Government National Mortgage Association. GNMA is a wholly-owned
corporate instrumentality of the United States with the United States
Department of Housing and Urban Development. Section 306(g) of Title II 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 represent an interest in a pool of mortgage
loans insured by the Federal Housing Authority ("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, or 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 guaranty under this subsection". In
order to meet its obligations under any such guarantee, GNMA may, under
Section 306(d) of the Housing Act, borrow from the United States Treasury
in an unlimited amount which is at any time sufficient to enable GNMA to
perform its obligations under its guarantee.
GNMA Certificates. Each GNMA Certificate held in a Trust Fund (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 or approved by FNMA as a seller-servicer of FHA
Loans and/or VA Loans. The mortgage loans underlying the GNMA Certificates
will consist of FHA Loans and/or VA Loans. Each such mortgage loan is
secured by a one- to four-family residential property. GNMA will approve
the issuance of each such GNMA Certificate in accordance with a guaranty
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 underlying each such GNMA Certificate
are less than the amounts due on each such GNMA Certificate.
The full and timely payment of principal of and interest on each GNMA
Certificate 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 40 years (but may have
original maturities of substantially less than 40 years). Each such GNMA
Certificate will be based on and backed by a pool of FHA Loans or VA Loans
secured by one- to four-family residential properties and 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 registered holder's proportionate interest in the
aggregate amount of the monthly principal and interest payment on each FHA
Loan or VA Loan underlying such GNMA Certificate, less the applicable
servicing and guarantee fee which together equal the difference between
the interest on the FHA Loan or VA Loan and the pass-through rate on the
GNMA Certificate. In addition, each payment will include proportionate
pass-through payments of any prepayments of principal on the FHA Loans or
VA Loans underlying such GNMA Certificate and liquidation proceeds in the
event of a foreclosure or other disposition of any such FHA Loans or VA
Loans.
If a GNMA Issuer is unable to make the payments on a GNMA Certificate 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
directly 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 held in a
Trust Fund, 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.
All mortgage loans underlying a particular GNMA I Certificate must have
the same interest rate (except for pools of mortgage loans secured by
manufactured homes) over the term of the loan. The interest rate on such
GNMA I Certificate will equal the interest rate on the mortgage loans
included in the pool of mortgage loans underlying such GNMA I Certificate,
less one-half percentage point per annum of the unpaid principal balance
of the mortgage loans.
Mortgage loans underlying a particular GNMA II Certificate may have per
annum interest rates that vary from each other by up to one percentage
point. The interest rate on each GNMA II Certificate will be between one-half
percentage point and one and one-half percentage points lower than
the highest interest rate on the mortgage loans included in the pool of
mortgage loans underlying such GNMA II Certificate (except for pools of
mortgage loans secured by manufactured homes).
Regular monthly installment payments on each GNMA Certificate held in a
Trust Fund 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 installments on such GNMA Certificate are
due. Such regular monthly installments on each such GNMA Certificate are
required to be paid to the Trustee as registered holder 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 held in a Trust Fund 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 other 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 of a GNMA Issuer
will be the same irrespective of whether the GNMA 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.
As described above, the GNMA Certificates included in a Trust Fund, and
the related underlying mortgage loans, may have characteristics and terms
different from those described above. Any such different characteristics
and terms will be described in the related Prospectus Supplement.
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"). The
common stock of FHLMC is owned by the Federal Home Loan Banks and its
preferred stock is owned by stockholders of the 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
mortgage loans or participation interests in such mortgage loans and the
sale of the mortgage loans or participations so purchased in the form of
mortgage securities, primarily FHLMC Certificates. FHLMC is confined to
purchasing, so far as practicable, mortgage loans that 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 first lien
conventional loans, FHA Loans or VA Loans (a "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 held by a Trust Fund
will consist of mortgage loans with original terms to maturity of between
10 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
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 related Prospectus
Supplement for a Series of Certificates, guarantee the timely payment of
scheduled principal. Under FHLMC's Gold PC Program, FHLMC guarantees the
timely payment of principal based on the difference between the pool
factor, published in the month preceding the month of distribution and the
pool factor published in such month of distribution. 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 guaranty 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 that 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,
or 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 repayments of principal and principal received
by FHLMC by virtue of condemnation, insurance, liquidation or foreclosure,
and repurchases of the mortgage loans by FHLMC or the seller thereof.
FHLMC is required to remit each registered FHLMC Certificateholder's 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. 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.
FHLMC Certificates duly presented for registration of ownership on or
before the last business day of a month are registered effective as of the
first day of the month. The first remittance to a registered holder of a
FHLMC Certificate will be distributed 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 Certificates. Thereafter, such
remittance will be distributed 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 principal and interest each month to the registered holders thereof in
accordance with such holders' instructions.
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
mortgage loans from lenders, thereby replenishing their funds for
additional lending. FNMA acquires funds to purchase mortgage loans from
many capital market investors that may not ordinarily invest in mortgages,
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.
FNMA Certificates. FNMA Certificates are Guaranteed Mortgage Asset
Backed Certificates representing 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 held by a Trust Fund 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 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 each 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 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 55 basis points and 255 basis points
greater than the annual FNMA Certificate pass-through rate. If specified
in the related Prospectus Supplement, FNMA Certificates may be backed by
adjustable rate mortgages.
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, or 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 Banks (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.
As described above, the FNMA Certificates included in a Trust Fund, and
the related underlying mortgage loans, may have characteristics and terms
different from those described above. Any such different characteristics
and terms will be described in the related Prospectus Supplement.
Stripped Mortgage-Backed Securities. Agency Securities may consist of
one or more stripped mortgage-backed securities, each as described herein
and in the related Prospectus Supplement. Each such Agency Security will
represent an undivided interest in all or 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 GNMA Certificates. The underlying
securities will be held under a trust agreement by FHLMC, FNMA or GNMA,
each as trustee, or by another trustee named in the related Prospectus
Supplement. FHLMC, FNMA or GNMA will guaranty each stripped Agency
Security to the same extent as such entity guarantees the underlying
securities backing such stripped Agency Security, unless otherwise
specified in the related Prospectus Supplement.
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.
PRIVATE MORTGAGE-BACKED SECURITIES
General. Private Mortgage-Backed Securities may consist of (a) mortgage
pass-through certificates or participation certificates evidencing an
undivided interest in a Mortgage Pool or (b) collateralized mortgage
obligations secured by Mortgage Loans. Private Mortgage-Backed Securities
may include 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
Mortgage Loans. Private Mortgage-Backed Securities will have been publicly
issued pursuant to a pooling and servicing agreement, an indenture or
similar agreement (a "PMBS Agreement"). Unless otherwise specified in the
related Prospectus Supplement, the seller/servicer of the underlying
Mortgage Loans will have entered into the PMBS Agreement with the trustee
under such PMBS Agreement (the "PMBS Trustee"). The PMBS Trustee or its
agent, or a custodian, will possess the Mortgage Loans underlying such
Private Mortgage-Backed Securities. Mortgage Loans underlying a Private
Mortgage-Backed Security will be serviced by a servicer (the "PMBS
Servicer") directly or by one or more subservicers who may be subject to
the supervision of the PMBS Servicer.
The issuer of the Private Mortgage-Backed Securities (the "PMBS Issuer")
will be a financial institution or other entity engaged generally in the
business of mortgage lending, a public agency or instrumentality of a
state, local or federal government, or a limited purpose corporation
organized for the purpose of, among other things, establishing trusts and
acquiring and selling housing loans to such trusts and selling beneficial
interests in such trusts. If so specified in the related Prospectus
Supplement, the PMBS Issuer may be an affiliate of the Depositor. The
obligations of the PMBS Issuer will generally be limited to certain
representations and warranties with respect to the assets conveyed by it
to the related trust. Unless otherwise specified in the related Prospectus
Supplement, the PMBS Issuer will not have guaranteed any of the assets
conveyed to the related trust or any of the Private Mortgage-Backed
Securities issued under the PMBS Agreement. Additionally, although the
Mortgage Loans underlying the Private Mortgage-Backed Securities may be
guaranteed by an agency or instrumentality of the United States, the
Private Mortgage-Backed Securities themselves will not be so guaranteed.
Distributions of principal and interest will be made on the Private
Mortgage-Backed Securities on the dates specified in the related
Prospectus Supplement. The Private Mortgage-Backed Securities may be
entitled to receive nominal or no principal distributions or nominal or no
interest distributions. Principal and interest distributions will be made
on the Private Mortgage-Backed Securities by the PMBS Trustee or the PMBS
Servicer. The PMBS Issuer or the PMBS Servicer may have the right to
repurchase assets underlying the Private Mortgage-Backed Securities after
a certain date or under other circumstances specified in the related
Prospectus Supplement.
Underlying Loans. The Mortgage Loans underlying the Private Mortgage-
Backed Securities may consist of fixed rate, level payment, fully amortizing
loans or graduated payment mortgage loans, Buydown Loans,
adjustable rate mortgage loans, or loans having balloon or other special
payment features. Such Mortgage Loans may be secured by single family
property or by an assignment of the proprietary lease or occupancy
agreement relating to a specific dwelling within a Cooperative and the
related shares issued by such Cooperative.
Additional Information. The Prospectus Supplement for a Series for
which the Trust Fund includes Private Mortgage-Backed Securities will
specify (i) the aggregate approximate principal amount and type of the
Private Mortgage-Backed Securities to be included in the Trust Fund, (ii)
certain characteristics of the Mortgage Loans which comprise the
underlying assets for the Private Mortgage-Backed Securities including (A)
the payment features of such Mortgage Loans, (B) the approximate aggregate
principal balance, if known, of underlying Mortgage Loans insured or
guaranteed by a governmental entity, (C) the servicing fee or range of
servicing fees with respect to the Mortgage Loans and (D) the minimum and
maximum stated maturities of the underlying Mortgage Loans at origination,
(iii) the maximum original term-to-stated maturity of the Private
Mortgage-Backed Securities, (iv) the weighted average term-to-stated
maturity of the Private Mortgage-Backed Securities, (v) the pass-through
or certificate rate of the Private Mortgage-Backed Securities, (vi) the
weighted average pass-through or certificate rate of the Private Mortgage-
Backed Securities, (vii) the PMBS Issuer, the PMBS Servicer (if other than
the PMBS Issuer) and the PMBS Trustee for such Private Mortgage-Backed
Securities, (viii) certain characteristics of credit support, if any, such
as reserve funds, insurance policies, surety bonds, letters of credit or
guaranties relating to the Mortgage Loans underlying the Private Mortgage-
Backed Securities or to such Private Mortgage-Backed Securities
themselves, (ix) the term on which the underlying Mortgage Loans for such
Private Mortgage-Backed Securities may, or are required to, be purchased
prior to their stated maturity or the stated maturity of the Private
Mortgage-Backed Securities and (x) the terms on which Mortgage Loans may
be substituted for those originally underlying the Private Mortgage-Backed
Securities.
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.
USE OF PROCEEDS
Unless otherwise specified in the applicable Prospectus Supplement,
substantially all of the net proceeds from the sale of each Series of
Certificates will be used by the Depositor for the purchase of the
Mortgage Assets represented by the Certificates of such Series or to
reimburse amounts previously used to effect such a purchase, the costs of
carrying the related Mortgage Assets until the sale of the Certificates
and other expenses connected with pooling the related Mortgage Assets and
issuing the Certificates. The Depositor expects to sell Certificates in
Series from time to time, but the timing and amount of offerings of
Certificates will depend on a number of factors, including the volume of
Mortgage Assets acquired by the Depositor, prevailing interest rates,
availability of funds and general market conditions.
THE DEPOSITOR
MLCC Mortgage Investors, Inc. (the "Depositor") was incorporated in the
State of Delaware on April 4, 1994 as a wholly-owned, limited purpose
finance subsidiary of Merrill Lynch Credit Corporation (a wholly-owned
indirect subsidiary of Merrill Lynch & Co., Inc.). The Depositor maintains
its principal office at 4802 Deer Lake Drive East, Jacksonville, Florida
32246. Its telephone number is (904) 928-6000.
As described herein under "Mortgage Loan Program--Representations by
Sellers; Repurchases", the only obligations, if any, of the Depositor 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 under certain circumstances. The Depositor will
have no ongoing servicing obligations or responsibilities with respect to
any Mortgage Pool. The Depositor 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 Depositor. As described under
"The Trust Fund--The Mortgage Loans--General", "--Agency Securities" and
"--Private Mortgage-Backed Securities", the Depositor anticipates that it
will acquire Mortgage Loans, Agency Securities and Private Mortgage-Backed
Securities in the open market or in privately negotiated transactions,
which may be through or from an affiliate.
Neither the Depositor nor Merrill Lynch Credit Corporation nor any of
its affiliates, including Merrill Lynch, Pierce, Fenner & Smith
Incorporated and Merrill Lynch & Co., Inc., will insure or guarantee the
Certificates of any Series.
MORTGAGE LOAN PROGRAM
The Mortgage Loans will have been purchased by the Depositor, either
directly or through affiliates, from one or more Sellers, which may be
affiliates of the Depositor. Unless otherwise specified in the related
Prospectus Supplement, the Mortgage Loans so acquired by the Depositor
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 Depositor 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 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 or obligor. These types of Mortgage Loans are underwritten on
the basis of a judgment that mortgagors or obligors will have the ability
to make monthly payments required initially. In some instances, however, a
mortgagor's or obligor'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 "FDIC"). 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.
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, that (i) immediately prior to the transfer and assignment of
the Mortgage Loans, the seller had good title to, and was the sole owner
of, each Mortgage Loan and there had been no other sale or assignment
thereof, (ii) as of the date of such transfer, the Mortgage Loans are
subject to no offsets, defenses or counterclaims, (iii) each Mortgage Loan
at the time it was made complied in all material respects with applicable
state and federal laws, including usury, equal credit opportunity and
disclosure laws, (iv) a lender's policy of title insurance was issued on
the date of the origination of each Mortgage Loan and each such policy is
valid and remains in full force and effect, (v) as of the date of such
transfer, each Mortgage subject to the Agreement is a valid first lien on
the related Mortgaged Property (subject only to (a) the lien of current
real property taxes and assessments, (b) covenants, conditions and
restrictions, rights of way, easements and other matters of public record
as of the date of the recording of such Mortgage, such exceptions
appearing of record and either being acceptable to mortgage lending
institutions generally or specifically reflected in the appraisal made in
connection with the origination of the related Mortgage Loan and (c) other
matters to which like properties are commonly subject which do not
materially interfere with the benefits of the security intended to be
provided by the Mortgage) and such property is free of material damage and
is in good repair, (vi) as of the date of such transfer, no Mortgage Loan
is more than 30 days delinquent in payment and there are no delinquent tax
or assessment liens against the related Mortgaged Property, and (vii) with
respect to each Mortgage Loan, if the Mortgaged Property is located in an
area identified by the Federal Emergency Management Agency as having
special flood hazards and subject in certain circumstances to the
availability of flood insurance under the National Flood Insurance Act of
1968, as amended, such Mortgaged Property is covered by flood insurance,
if applicable regulations at the time such Mortgage Loan was originated
required that such flood insurance coverage be obtained.
If so 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 Depositor 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 Depositor or its affiliates. However, the Depositor will not include
any Mortgage Loan in the Trust Fund for any Series of Certificates if
anything has come to the Depositor's attention that would cause it to
believe that the representations and warranties 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 a 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 which
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
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 which may arise in connection with any such repurchase.
The Master Servicer, unless otherwise specified in the related Prospectus
Supplement, will be entitled to 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".
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 holders of the
Certificates, 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 holders of
Certificates or the Trustee for a breach of representation by a Seller.
Neither the Depositor 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. However, to the extent that a breach of a
representation and warranty of a Seller may also constitute a breach of a
representation made by the Master Servicer, the Master Servicer may have a
repurchase obligation as described below under "The Pooling and Servicing
Agreement--Assignment of Mortgage Assets".
DESCRIPTION OF THE CERTIFICATES
Each Series of Certificates will be issued pursuant to an Agreement,
dated as of the related Cut-off Date, among the Depositor, the Master
Servicer and the Trustee for the benefit of the holders of the
Certificates of such Series. The provisions of each Agreement will vary
depending upon the nature of the Certificates to be issued thereunder and
the nature of the related Trust Fund. A form of an Agreement is an exhibit
to the Registration Statement of which this Prospectus is a part. The
following summaries describe certain provisions that may appear in each
Agreement. The Prospectus Supplement for a Series of Certificates will
describe any provision of the Agreement relating to such Series that
materially differs from the description thereof contained in this
Prospectus. The summaries do not purport to be complete and are subject
to, and are qualified in their entirety by reference to, all of the
provisions of the Agreement for each Series of Certificates and the
applicable Prospectus Supplement. The Depositor will provide a copy of the
Agreement (without exhibits) relating to any Series without charge upon
written request of a holder of record of a Certificate of such Series
addressed to MLCC Mortgage Investors, Inc., 4802 Deer Lake Drive East,
Jacksonville, Florida 32246.
GENERAL
Unless otherwise specified in the Prospectus Supplement, the
Certificates of each Series will be issued in either fully registered or
book-entry form, in the authorized denominations specified in the related
Prospectus Supplement, will evidence specified beneficial ownership
interests in the related Trust Fund created pursuant to each Agreement and
will not be entitled to payments in respect of the assets included in any
other Trust Fund established by the Depositor. The Certificates will not
represent obligations of the Depositor or any affiliate of the Depositor.
The Mortgage Loans will not be insured or guaranteed by any governmental
entity or other person, unless otherwise specified in the related
Prospectus Supplement. Each Trust Fund will consist of, to the extent
provided in the Agreement, (i) the Mortgage Assets, that from time to time
are subject to the related Agreement (exclusive of any amounts specified
in the related Prospectus Supplement ("Retained Interest")); (ii) such
assets as from time to time are required to be deposited in the related
Certificate Account, as defined below under "The Pooling and Servicing
Agreement--Payments on Mortgage Loans; Deposits to Certificate Account";
(iii) property which secured a Mortgage Loan and which is acquired on
behalf of the Certificateholders by foreclosure or deed in lieu of
foreclosure; and (iv) any Primary Mortgage Insurance Policies, FHA
Insurance and VA Guarantees, and any other insurance policies or other
forms of credit enhancement required to be maintained pursuant to the
Agreement. If so specified in the related Prospectus Supplement, a Trust
Fund may also include one or more of the following: reinvestment income on
payments received on the Mortgage Assets, a reserve fund, a mortgage pool
insurance policy, a special hazard insurance policy, a bankruptcy bond,
one or more letters of credit, a surety bond, guaranties or similar
instruments or other agreements.
Each Series of Certificates will be issued in one or more classes. Each
class of Certificates of a Series will evidence beneficial ownership of a
specified percentage (which may be 0%) or portion of future interest
payments and a specified percentage (which may be 0%) or portion of future
principal payments on the Mortgage Assets in the related Trust Fund. A
Series of Certificates may include one or more classes that are senior or
subordinate in right to payment to one or more other classes of
Certificates of such Series. Certain Series or classes of Certificates may
be covered by insurance policies, surety bonds or other forms of credit
enhancement, in each case as described herein and in the related
Prospectus Supplement. One or more classes of Certificates of a Series may
be entitled to receive principal, distributions, with disproportionate,
nominal or no interest distributions or to interest distributions, with
disproportionate, nominal or no principal distributions or any combination
thereof. Distributions on one or more classes of a Series of Certificates
may be made prior to one or more other classes, after the occurrence of
specified events, in accordance with a schedule or formula, on the basis
of collections from designated portions of the Mortgage Assets in the
related Trust Fund, or on a different basis, in each case as specified in
the related Prospectus Supplement. The timing, amounts, sequential order
and priority of payment of such distributions may vary among classes or
over time as specified in the related Prospectus Supplement.
Unless otherwise specified in the related Prospectus Supplement,
distributions of principal and interest (or, where applicable, of
principal only or interest only) on the related Certificates will be made
by the Trustee on each Distribution Date (i.e., monthly, quarterly, semi-
annually or at such other intervals and on the dates as are specified in
the Prospectus Supplement) in proportion to the percentages specified in
the related Prospectus Supplement. Distributions will be made to the
persons in whose names the Certificates are registered at the close of
business on the dates specified in the related Prospectus Supplement
(each, a "Record Date"). Distributions will be made by check or money
order mailed to the persons entitled thereto at the address appearing in
the register maintained for holders of Certificates (the "Certificate
Register") or, if specified in the related Prospectus Supplement, in the
case of Certificates that are of a certain minimum denomination, upon
written request by the Certificateholder, by wire transfer or by such
other means as are described therein; provided, however, that the final
distribution in retirement of the Certificates will be made only upon
presentation and surrender of the Certificates at the office or agency of
the Trustee or other person specified in the notice to Certificateholders
of such final distribution.
The Certificates will be freely transferable and exchangeable at the
Corporate Trust Office of the Trustee as set forth in the related
Prospectus Supplement. No service charge will be made for any registration
of exchange or transfer of Certificates of any Series but the Trustee may
require payment of a sum sufficient to cover any related tax or other
governmental charge.
Under current law the purchase and holding by or on behalf of any
employee benefit plan or other retirement arrangement (including
individual retirement accounts and annuities, Keogh plans and collective
investment funds in which such plans, accounts or arrangements are
invested) subject to provisions of ERISA or the Code of a class of
Certificates entitled only to a specified percentage of payments of either
interest or principal or a notional amount of either interest or principal
on the related Mortgage Loans or a class of Certificates entitled to
receive payments of interest and principal on the Mortgage Loans only
after payments to other classes or after the occurrence of certain
specified events may result in "prohibited transactions" within the
meaning of ERISA and the Code. See "ERlSA Considerations". Unless
otherwise specified in the related Prospectus Supplement, transfer of
Certificates of such a class will not be registered unless the transferee
(i) represents that it is not, and is not purchasing on behalf of, any
such plan, account or arrangement or (ii) provides an opinion of counsel
satisfactory to the Trustee and the Depositor that the purchase of
Certificates of such a class by or on behalf of such plan, account or
arrangement is permissible under applicable law and will not subject the
Trustee, the Master Servicer or the Depositor to any obligation or
liability in addition to those undertaken in the Agreement.
As to each Series, an election may be made to treat the related Trust
Fund or designated portions thereof as a "real estate mortgage investment
conduit" or "REMIC" as defined in the Code. The related Prospectus
Supplement will specify whether a REMIC election is to be made.
Alternatively, the Agreement for a Series may provide that a REMIC
election may be made at the discretion of the Depositor or the Master
Servicer and may be made only if certain conditions are satisfied. As to
any such Series, the terms and provisions applicable to the making of a
REMIC election, as well as any material federal income tax consequences to
Certificateholders not otherwise described herein, will be set forth in
the related Prospectus Supplement. If such an election is made with
respect to a Series, one of the classes will be designated as evidencing
the sole class of "residual interests" in the related REMIC, as defined in
the Code. All other classes of Certificates in such a Series will
constitute "regular interests" in the related REMIC, as defined in the
Code. As to each Series with respect to which a REMIC election is to be
made, the Master Servicer or a holder of the related residual certificate
will be obligated to take all actions required in order to comply with
applicable laws and regulations and will be obligated to pay any
prohibited transaction taxes. The Master Servicer, unless otherwise
specified in the related Prospectus Supplement, will be entitled to
reimbursement for any such payment from the assets of the Trust Fund or
from any holder of the related residual certificate.
Unless otherwise specified in the related Prospectus Supplement, upon
notification from a Mortgagor of such Mortgagor's intent to convert from
an adjustable interest rate to a fixed interest rate, and prior to the
conversion of such Mortgage Loan, the Master Servicer or its successor
will be obligated to purchase such related Mortgage Loan from the related
Trust Fund.
DISTRIBUTIONS ON CERTIFICATES
General. In general, the method of determining the amount of
distributions on a particular Series of Certificates will depend on the
type of credit support, if any, that is used with respect to such Series.
See "Credit Enhancement". Set forth below are descriptions of various
methods that may be used to determine the amount of distributions on the
Certificates of a particular Series. The Prospectus Supplement for each
Series of Certificates will describe the method to be used in determining
the amount of distributions on the Certificates of such Series.
Distributions allocable to principal of and interest on the Certificates
will be made by the Trustee out of, and only to the extent of, funds in
the related Certificate Account, including any funds transferred from any
Reserve Fund. As between Certificates of different classes and as between
distributions of principal (and, if applicable, between distributions of
Principal Prepayments, as defined below, and scheduled payments of
principal) and interest, distributions made on any Distribution Date will
be applied as specified in the related Prospectus Supplement. Unless
otherwise specified in the related Prospectus Supplement, distributions to
any class of Certificates will be made pro rata to all Certificateholders
of that class.
Available Distribution Amount. Unless otherwise specified in the
related Prospectus Supplement, all distributions on the Certificates of
each Series on each Distribution Date will be made from the Available
Distribution Amount described below, in accordance with the terms
described in the related Prospectus Supplement and specified in the
Agreement. Unless otherwise provided in the related Prospectus Supplement,
the "Available Distribution Amount" for each Distribution Date will equal
the sum of the following amounts:
(i) the aggregate of all previously undistributed payments on account of
principal (including Principal Prepayments, if any, and prepayment
penalties, if so provided in the related Prospectus Supplement) and
interest on the Mortgage Loans in the related Trust Fund (including
Liquidation Proceeds and Insurance Proceeds and amounts drawn under letters
of credit or other credit enhancement instruments as permitted thereunder
and as specified in the related Agreement) received by the Master Servicer
after the Cut-off Date and on or prior to the day of the month of the
related Distribution Date specified in the related Prospectus Supplement
(the "Determination Date") except:
(a) all payments that were due on or before the Cut-off Date;
(b) all Liquidation Proceeds and all Insurance Proceeds, all Principal
Prepayments and all other proceeds of any Mortgage Loan purchased by the
Depositor, Master Servicer, any Sub-Servicer or any Seller pursuant to the
Agreement that were received after the prepayment period specified in the
related Prospectus Supplement and all related payments of interest
representing interest for any period after such prepayment
period;
(c) all scheduled payments of principal and interest due on a date or
dates subsequent to the first day of the month of distribution;
(d) amounts received on particular Mortgage Loans as late payments of
principal or interest or other amounts required to be paid by Mortgagors,
but only to the extent of any unreimbursed advance in respect thereof made
by the Master Servicer (including the related Sub-Servicers);
(e) amounts representing reimbursement, to the extent permitted by the
Agreement and as described under "Advances" below, for advances made by the
Master Servicer or Sub-Servicers that were deposited into the Certificate
Account, and amounts representing reimbursement for certain other losses
and expenses incurred by the Master Servicer or the Depositor and described
below;
(f) that portion of each collection of interest on a particular Mortgage
Loan in such
Trust Fund that represents credit enhancement fees or servicing compensation
payable to the Master Servicer or any Sub-servicer or Retained Interest that
is to be retained from such collection or is permitted to be retained from
related Insurance Proceeds, Liquidation Proceeds or proceeds of Mortgage
Loans purchased pursuant to the Agreement;
(ii) the amount of any advance made by the Master Servicer or Sub-
Servicer as described under "Advances" below and deposited by it in the
Certificate Account; and
(iii) if applicable, amounts withdrawn from a Reserve Fund.
Distributions of Interest. Unless otherwise specified in the related
Prospectus Supplement, interest will accrue on the aggregate Certificate
Balance (or, in the case of Certificates entitled only to distributions
allocable to interest, the aggregate notional amount) of each class of
Certificates entitled to interest from the date, at the Pass-Through Rate
(which may be a fixed rate or rate adjustable as specified in such
Prospectus Supplement) and for the periods specified in such Prospectus
Supplement. To the extent funds are available therefor, interest accrued
during each such specified period on each class of Certificates entitled
to interest (other than a class of Certificates that provides for interest
that accrues, but is not currently payable, referred to hereafter as
"Accrual Certificates") will be distributable on the Distribution Dates
specified in the related Prospectus Supplement until the aggregate
Certificate Balance of the Certificates of such class has been distributed
in full or, in the case of Certificates entitled only to distributions
allocable to interest, until the aggregate notional amount of such
Certificates is reduced to zero or for the period of time designated in
the related Prospectus Supplement. The original Certificate Balance of
each Certificate will equal the aggregate distributions allocable to
principal to which such Certificate is entitled. Unless otherwise
specified in the related Prospectus Supplement, distributions allocable to
interest on each Certificate that is not entitled to distributions
allocable to principal will be calculated based on the notional amount of
such Certificate. The notional amount of a Certificate will not evidence
an interest in or entitlement to distributions allocable to principal but
will be used solely for convenience in expressing the calculation of
interest and for certain other purposes.
With respect to any class of Accrual Certificates, if specified in the
related Prospectus Supplement, any interest that has accrued but is not
paid on a given Distribution Date will be added to the aggregate
Certificate Balance of such class of Certificates on that Distribution
Date. Unless otherwise specified in the related Prospectus Supplement,
distributions of interest on each class of Accrual Certificates will
commence only after the occurrence of the events specified in such
Prospectus Supplement. Unless otherwise specified in the related
Prospectus Supplement, prior to such time, the beneficial ownership
interest of such class of Accrual Certificates in the Trust Fund, as
reflected in the aggregate Certificate Balance of such class of Accrual
Certificates, will increase on each Distribution Date by the amount of
interest that accrued on such class of Accrual Certificates during the
preceding interest accrual period but that was not required to be
distributed to such class on such Distribution Date. Any such class of
Accrual Certificates will thereafter accrue interest on its outstanding
Certificate Balance as so adjusted.
Distributions of Principal. Unless otherwise specified in the related
Prospectus Supplement, the aggregate "Certificate Balance" of any class of
Certificates entitled to distributions of principal will be the aggregate
original Certificate Balance of such class of Certificates specified in
such Prospectus Supplement, reduced by all distributions reported to the
holders of such Certificates as allocable to principal and (i) in the case
of Accrual Certificates, if so specified in the related Prospectus
Supplement, increased by all interest accrued but not then distributable
on such Accrual Certificates and (ii) in the case of adjustable rate
Certificates, if so specified in the related Prospectus Supplement,
subject to the effect of negative amortization. The related Prospectus
Supplement will specify the method by which the amount of principal to be
distributed on the Certificates on each Distribution Date will be
calculated and the manner in which such amount will be allocated among the
classes of Certificates entitled to distributions of principal.
If so provided in the related Prospectus Supplement, one or more classes
of Senior Certificates will be entitled to receive all or a
disproportionate percentage of the payments of principal that are received
from borrowers in advance of their scheduled due dates and are not
accompanied by amounts representing scheduled interest due after the month
of such payments ("Principal Prepayments") in the percentages and under
the circumstances or for the periods specified in such Prospectus
Supplement. Any such allocation of Principal Prepayments to such class or
classes of Certificateholders will have the effect of accelerating the
amortization of such Senior Certificates while increasing the interests
evidenced by the Subordinated Certificates in the Trust Fund. Increasing
the interests of the Subordinated Certificates relative to that of the
Senior Certificates is intended to preserve the availability of the
subordination provided by the Subordinated Certificates. See "Credit
Enhancement--Subordination".
Unscheduled Distributions. To the extent specified in the related
Prospectus Supplement relating to a Series of Certificates which have less
frequent than monthly Distribution Dates, the Certificates will be subject
to receipt of distributions before the next scheduled Distribution Date
under the circumstances and in the manner described below and in such
Prospectus Supplement. If applicable, the Trustee will be required to make
such unscheduled distributions on the day and in the amount specified in
the related Prospectus Supplement if, due to substantial payments of
principal (including Principal Prepayments) on the Mortgage Assets, the
Trustee or the Master Servicer determines that the funds available or
anticipated to be available from the Certificate Account and, if
applicable, any Reserve Fund, may be insufficient to make required
distributions on the Certificates on such Distribution Date. Unless
otherwise specified in the related Prospectus Supplement, the amount of
any such unscheduled distribution that is allocable to principal will not
exceed the amount that would otherwise have been required to be
distributed as principal on the Certificates on the next Distribution
Date. Unless otherwise specified in the related Prospectus Supplement, all
unscheduled distributions will include interest at the applicable Pass-
Through Rate (if any) on the amount of the unscheduled distribution
allocable to principal for the period and to the date specified in such
Prospectus Supplement. See "Yield and Prepayment Considerations".
Unless otherwise specified in the related Prospectus Supplement, all
distributions allocable to principal in any unscheduled distribution will
be made in the same priority and manner as distributions of principal on
the Certificates would have been made on the next Distribution Date, and
with respect to Certificates of the same class, unscheduled distributions
of principal will be made on a pro rata basis.
Notice of any unscheduled distribution will be given by the Trustee
prior to the date of such distribution.
ADVANCES
Unless otherwise provided in the related Prospectus Supplement, the
Master Servicer will be required to advance on or before each Distribution
Date (from its own funds, funds advanced by Sub-Servicers or funds held in
the Certificate Account for future distributions to the holders of such
Certificates), an amount equal to the aggregate of payments of principal
and interest that were delinquent on the related Determination Date,
subject to the Master Servicer's determination that such advances will be
recoverable out of late payments by Mortgagors, Liquidation Proceeds,
Insurance Proceeds or otherwise. In the case of Cooperative Loans, the
Master Servicer also will be required to advance any unpaid maintenance
fees and other charges under the related proprietary leases as specified
in the related Prospectus Supplement.
In making Advances, the Master Servicer will endeavor to maintain a
regular flow of scheduled interest and principal payments to holders of
the Certificates, rather than to guarantee or insure against losses. If
Advances are made by the Master Servicer from cash being held for future
distribution to Certificateholders, the Master Servicer will replace such
funds on or before any future Distribution Date to the extent that funds
in the applicable Certificate Account on such Distribution Date would be
less than the amount required to be available for distributions to
Certificateholders on such date. Any Master Servicer funds advanced will
be reimbursable to the Master Servicer out of recoveries on the specific
Mortgage Loans with respect to which such Advances were made (e.g., late
payments made by the related Mortgagor, any related Insurance Proceeds,
Liquidation Proceeds or proceeds of any Mortgage Loan purchased by a Sub-
Servicer or a Seller under the circumstances described hereinabove). In
addition, Advances by the Master Servicer (and any advances by a Sub-
Servicer) also will be reimbursable to the Master Servicer (or Sub-Servicer)
from cash otherwise distributable to Certificateholders
(including the holders of Senior Certificates) to the extent that the
Master Servicer determines that any such Advances previously made are not
ultimately recoverable as described in the immediately preceding sentence.
The Master Servicer also will be obligated to make Advances, to the extent
recoverable out of Insurance Proceeds, Liquidation Proceeds or otherwise,
in respect of certain taxes and insurance premiums not paid by Mortgagors
on a timely basis. Funds so advanced are reimbursable to the Master
Servicer to the extent permitted by the Agreement. If specified in the
related Prospectus Supplement, the obligations of the Master Servicer to
make advances may be supported by a cash advance reserve fund, a surety
bond or other arrangement, in each case as described in such Prospectus
Supplement.
REPORTS TO CERTIFICATEHOLDERS
Prior to or concurrently with each distribution on a Distribution Date
and except as otherwise set forth in an applicable Prospectus Supplement,
the Master Servicer or the Trustee will furnish to each Certificateholder
of record of the related Series a statement setting forth, to the extent
applicable to such Series of Certificates, among other things:
(i) the amount of such distribution allocable to principal,
separately identifying the aggregate amount of any Principal Prepayments and
if so specified in the related Prospectus Supplement, prepayment penalties
included therein;
(ii) the amount of such distribution allocable to interest;
(iii) the amount of any Advance;
(iv) the outstanding Certificate Balance or notional amount of each
class of the related Series after giving effect to the distribution of
principal on such Distribution Date;
(v) the related amount of the servicing compensation retained or
withdrawn from the Certificate Account by the Master Servicer, and the amount
of additional servicing compensation received by the Master Servicer
attributable to penalties, fees, excess Liquidation Proceeds and other
similar charges and items;
(vi) the number and aggregate principal balances of Mortgage Loans
(A) delinquent (exclusive of Mortgage Loans in foreclosure) and (B) in
foreclosure as of the close of business on the last day of the calendar month
preceding such Distribution Date;
(vii) the book value of any real estate acquired through
foreclosure or grant of a deed in lieu of foreclosure;
(viii) if applicable, the amount remaining in any Reserve Fund at
the close of business on the Distribution Date;
(ix) the Pass-Through Rate as of the day prior to the immediately
preceding Distribution Date; and
(x) any amounts remaining under letters of credit, pool policies or
other forms of credit enhancement.
Where applicable, any amount set forth above may be expressed as a
dollar amount per single Certificate of the relevant class having the
Percentage Interest specified in the related Prospectus Supplement. The
report to Certificateholders for any Series of Certificates may include
additional or other information of a similar nature to that specified
above.
In addition, within a reasonable period of time after the end of each
calendar year, the Master Servicer or the Trustee will mail to each
Certificateholder of record at any time during such calendar year a report
(a) as to the aggregate of amounts reported pursuant to (i) and (ii) for
such calendar year or, in the event such person was a Certificateholder of
record during a portion of such calendar year, for the applicable portion
of such year and (b) such other customary information as may be deemed
necessary or desirable for Certificateholders to prepare their tax
returns.
BOOK-ENTRY REGISTRATION
If so specified in the related Prospectus Supplement, a class of
Certificates initially may be represented by one or more certificates
registered in the name of Cede & Co. ("Cede"), the nominee for The
Depository Trust Company ("DTC"). DTC is a limited purpose trust company
organized under the laws of the State of New York, a member of the Federal
Reserve System, a "clearing corporation" within the meaning of the New
York Uniform Commercial Code ("UCC") and a "clearing agency" registered
pursuant to the provisions of Section 17A of the Securities Exchange Act
of 1934, as amended. DTC was created to hold securities for its
participating organizations ("Participants") and facilitate the clearance
and settlement of securities transactions between Participants through
electronic book-entry changes in their accounts, thereby eliminating the
need for physical movement of certificates. Participants include
securities brokers and dealers, banks, trust companies and clearing
corporations and may include certain other organizations. Indirect access
to the DTC system also is available to others such as brokers, dealers,
banks and trust companies that clear through or maintain a custodial
relationship with a Participant, either directly or indirectly ("Indirect
Participant").
Certificateholders that are not Participants or Indirect Participants
but desire to purchase, sell or otherwise transfer ownership of
Certificates registered in the name of Cede, as nominee of DTC, may do so
only through Participants and Indirect Participants. In addition, such
Certificateholders will receive all distributions of principal of and
interest on the Certificates from the Trustee through DTC and its
Participants. Under a book-entry format, Certificateholders will receive
payments after the related Distribution Date because, while payments are
required to be forwarded to Cede, as nominee for DTC, on each such date,
DTC will forward such payments to its Participants which thereafter will
be required to forward them to Indirect Participants or
Certificateholders. Under a book-entry format, it is anticipated that the
only Certificateholder will be Cede, as nominee of DTC, and that the
beneficial holders of Certificates will not be recognized by the Trustee
as Certificateholders under the Agreement. The beneficial holders of such
Certificates will only be permitted to exercise the rights of
Certificateholders under the Agreement indirectly through DTC and its
Participants who in turn will exercise their rights through DTC.
Under the rules, regulations and procedures creating and affecting DTC
and its operations, DTC is required to make book-entry transfers among
Participants on whose behalf it acts with respect to the Certificates and
is required to receive and transmit payments of principal of and interest
on the Certificates. Participants and Indirect Participants with which
Certificateholders have accounts with respect to the Certificates
similarly are required to make book-entry transfers and receive and
transmit such payments on behalf of their respective Certificateholders.
Because DTC can only act on behalf of Participants, who in turn act on
behalf of Indirect Participants and certain banks, the ability of a
Certificateholder to pledge Certificates to persons or entities that do
not participate in the DTC system, or otherwise take actions in respect of
such Certificates may be limited due to the lack of a physical certificate
for such Certificates.
DTC in general advises that it will take any action permitted to be
taken by a Certificateholder under an Agreement only at the direction of
one or more Participants to whose account with DTC the Certificates are
credited. Additionally, DTC in general advises that it will take such
actions with respect to specified percentages of the Certificateholders
only at the direction of and on behalf of Participants whose holdings
include current principal amounts of outstanding Certificates that satisfy
such specified percentages. DTC may take conflicting actions with respect
to other current principal amounts of outstanding Certificates to the
extent that such actions are taken on behalf of Participants whose
holdings include such current principal amounts of outstanding
Certificates.
Any Certificates initially registered in the name of Cede, as nominee of
DTC, will be issued in fully registered, certificated form to
Certificateholders or their nominees ("Definitive Certificates"), rather
than to DTC or its nominee only under the events specified in the related
Agreement. Such events may include the following: (i) the Depositor
advises the Trustee in writing that DTC is no longer willing or able to
properly discharge its responsibilities as Depository with respect to the
Certificates, and the Trustee or the Depositor is unable to locate a
qualified successor, (ii) the Depositor, at its option, elects to
terminate the book-entry system through DTC, or (iii) after the occurrence
of an Event of Default (defined herein), Certificateholders representing
not less than 50% of the aggregate Current Principal Amount of the
Certificates advise the Trustee and DTC through Participants in writing
that the continuation of a book-entry system through DTC (or a successor
thereto) is no longer in the best interest of the Certificateholders. Upon
the occurrence of any of the events specified in the related Agreement,
DTC will be required to notify all Participants of the availability
through DTC of Definitive Certificates. Upon surrender by DTC of the
certificates representing the Certificates and instruction for re-
registration, the Trustee will issue the Certificates in the form of
Definitive Certificates, and thereafter the Trustee will recognize the
holders of such Definitive Certificates as Certificateholders. Thereafter,
payments of principal of and interest on the Certificates will be made by
the Trustee directly to Certificateholders in accordance with the
procedures set forth herein and in the Agreement. The final distribution
of any Certificate (whether Definitive Certificates or Certificates
registered in the name of Cede), however, will be made only upon
presentation and surrender of such Certificates on the final Distribution
Date at such office or agency as is specified in the notice of final
payment to Certificateholders.
CREDIT ENHANCEMENT
GENERAL
Credit enhancement may be provided with respect to one or more classes
of a Series of Certificates or with respect to the Mortgage Assets in the
related Trust Fund. Credit enhancement may be in the form of a limited
financial guaranty policy issued by an entity named in the related
Prospectus Supplement, the subordination of one or more classes of the
Certificates of such Series, the establishment of one or more reserve
funds, the use of a cross-support feature, use of a mortgage pool
insurance policy, bankruptcy bond, special hazard insurance policy, surety
bond or letters of credit described herein and in the related Prospectus
Supplement, or any combination of the foregoing. Unless otherwise
specified in the related Prospectus Supplement, any credit enhancement
will not provide protection against all risks of loss and will not
guarantee repayment of the entire principal balance of the Certificates
and interest thereon. If losses occur which exceed the amount covered by
credit enhancement or which are not covered by the credit enhancement,
Certificateholders will bear their allocable share of deficiencies.
SUBORDINATION
If so specified in the related Prospectus Supplement, protection
afforded to holders of one or more classes of Certificates of a Series
(the "Subordinated Certificates") by means of the subordination feature
will be accomplished by the preferential right of holders of one or more
other classes of such Series (the "Senior Certificates") to distributions
in respect of scheduled principal, Principal Prepayments, interest or any
combination thereof that otherwise would have been payable to holders of
Subordinated Certificates under the circumstances and to the extent
specified in the related Prospectus Supplement. If specified in the
related Prospectus Supplement, delays in receipt of scheduled payments on
the Mortgage Loans and losses on defaulted Mortgage Loans will be borne
first by the various classes of Subordinated Certificates and thereafter
by the various classes of Senior Certificates, in each case under the
circumstances and subject to the limitations specified in such related
Prospectus Supplement. The aggregate distributions in respect of
delinquent payments on the Mortgage Loans over the lives of the
Certificates or at any time, the aggregate losses in respect of defaulted
Mortgage Loans which must be borne by the Subordinated Certificates by
virtue of subordination and the amount of the distributions otherwise
distributable to the Subordinated Certificateholders that will be
distributable to Senior Certificateholders on any Distribution Date may be
limited as specified in the related Prospectus Supplement. If aggregate
distributions in respect of delinquent payments on the Mortgage Loans or
aggregate losses in respect of such Mortgage Loans were to exceed an
amount specified in the related Prospectus Supplement, holders of Senior
Certificates would experience losses on the Certificates.
In addition to or in lieu of the foregoing, if so specified in the
related Prospectus Supplement, all or any portion of distributions
otherwise payable to holders of Subordinated Certificates on any
Distribution Date may instead be deposited into one or more Reserve Funds
established with the Trustee. If so specified in the related Prospectus
Supplement, such deposits may be made on each Distribution Date, for
specified periods or until the balance in the Reserve Funds has reached a
specified amount and, following payments from the Reserve Fund to holders
of Senior Certificates or otherwise, thereafter to the extent necessary to
restore the balance in the Reserve Fund to required levels, in each case
as specified in the related Prospectus Supplement. If so specified in the
related Prospectus Supplement, amounts on deposit in the Reserve Fund may
be released to the holders of the class of Certificates specified in such
Prospectus Supplement at the times and under the circumstances specified
in such Prospectus Supplement.
If specified in the related Prospectus Supplement, various classes of
Senior Certificates and Subordinated Certificates may themselves be
subordinate in their right to receive certain distributions to other
classes of Senior and Subordinated Certificates, respectively, through a
cross support mechanism or otherwise.
As between classes of Senior Certificates and as between classes of
Subordinated Certificates, distributions may be allocated among such
classes (i) in the order of their scheduled final distribution dates, (ii)
in accordance with a schedule or formula, (iii) in relation to the
occurrence of events, or (iv) otherwise, in each case as specified in the
related Prospectus Supplement. As between classes of Subordinated
Certificates, payments to holders of Senior Certificates on account of
delinquencies or losses and payments to any Reserve Fund will be allocated
as specified in the related Prospectus Supplement.
MORTGAGE POOL INSURANCE POLICIES
If specified in the related Prospectus Supplement relating to a Mortgage
Pool, a separate mortgage pool insurance policy ("Mortgage Pool Insurance
Policy") will be obtained for the Mortgage Pool and issued by the insurer
(the "Pool Insurer") named in such Prospectus Supplement. Each Mortgage
Pool Insurance Policy will, subject to the limitations described below,
cover loss by reason of default in payment on Mortgage Loans in the
Mortgage Pool in an amount equal to a percentage specified in such
Prospectus Supplement of the aggregate principal balance of such Mortgage
Loans on the Cut-off Date which are not covered as to their entire
outstanding principal balances by Primary Mortgage Insurance Policies. As
more fully described below, the Master Servicer will present claims
thereunder to the Pool Insurer on behalf of itself, the Trustee and the
holders of the Certificates. The Mortgage Pool Insurance Policies,
however, are not blanket policies against loss, since claims thereunder
may be made only respecting particular defaulted Mortgage Loans and only
upon satisfaction of certain conditions precedent described below. Unless
otherwise specified in the related Prospectus Supplement, the Mortgage
Pool Insurance Policies will not cover losses due to a failure to pay or
denial of a claim under a Primary Mortgage Insurance Policy.
Unless otherwise specified in the related Prospectus Supplement, each
Mortgage Pool Insurance Policy will provide that no claims may be validly
presented unless (i) any required Primary Mortgage Insurance Policy is in
effect for the defaulted Mortgage Loan and a claim thereunder has been
submitted and settled; (ii) hazard insurance on the related Mortgaged
Property has been kept in force and real estate taxes and other protection
and preservation expenses have been paid; (iii) if there has been physical
loss or damage to the Mortgaged Property, it has been restored to its
physical condition (reasonable wear and tear excepted) at the time of
issuance of the policy; and (iv) the insured has acquired good and
merchantable title to the Mortgaged Property free and clear of liens
except certain permitted encumbrances. Upon satisfaction of these
conditions, the Pool Insurer will have the option either (a) to purchase
the property securing the defaulted Mortgage Loan at a price equal to the
principal balance thereof plus accrued and unpaid interest at the Mortgage
Rate to the date of purchase and certain expenses incurred by the Master
Servicer on behalf of the Trustee and Certificateholders or (b) to pay the
amount by which the sum of the principal balance of the defaulted Mortgage
Loan plus accrued and unpaid interest at the Mortgage Rate to the date of
payment of the claim and the aforementioned expenses exceeds the proceeds
received from an approved sale of the Mortgaged Property, in either case
net of certain amounts paid or assumed to have been paid under the related
Primary Mortgage Insurance Policy. If any property securing a defaulted
Mortgage Loan is damaged and proceeds, if any, from the related 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 property unless it determines that (i) such restoration will
increase the proceeds to Certificateholders on liquidation of the Mortgage
Loan after reimbursement of the Master Servicer for its expenses and (ii)
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 Mortgage Insurance Policy.
Unless otherwise specified in the related Prospectus Supplement, no
Mortgage Pool Insurance Policy will insure (and many Primary Mortgage
Insurance Policies do not insure) against loss sustained by reason of a
default arising from, among other things, (i) fraud or negligence in the
origination or servicing of a Mortgage Loan, including misrepresentation
by the Mortgagor, the originator or persons involved in the origination
thereof or (ii) failure to construct a Mortgaged Property in accordance
with plans and specifications. A failure of coverage attributable to one
of the foregoing events might result in a breach of the related Seller's
representations described above and, in such event, might give rise to an
obligation on the part of such Seller to purchase the defaulted Mortgage
Loan if the breach cannot be cured by such Seller. No Mortgage Pool
Insurance Policy will cover (and many Primary Mortgage Insurance Policies
do not cover) a claim in respect of a defaulted Mortgage Loan occurring
when the servicer of such Mortgage Loan, at the time of default or
thereafter, was not approved by the applicable insurer.
Unless otherwise specified in the related Prospectus Supplement, the
original amount of coverage under each Mortgage Pool Insurance Policy will
be reduced over the life of the related Certificates by the aggregate
dollar amount of claims paid less the aggregate of the net amounts
realized by the Pool Insurer upon disposition of all foreclosed
properties. The amount of claims paid will include certain expenses
incurred by the Master Servicer as well as accrued interest on delinquent
Mortgage Loans to the date of payment of the claim, unless otherwise
specified in the related Prospectus Supplement. Accordingly, if aggregate
net claims paid under any Mortgage Pool Insurance Policy reach the
original policy limit, coverage under that Mortgage Pool Insurance Policy
will be exhausted and any further losses will be borne by the
Certificateholders.
SPECIAL HAZARD INSURANCE POLICIES
If specified in the related Prospectus Supplement, a separate Special
Hazard Insurance Policy will be obtained for the Mortgage Pool and will be
issued by the insurer (the "Special Hazard Insurer") named in such
Prospectus Supplement. Each Special Hazard Insurance Policy will, subject
to limitations described below, protect holders of the related
Certificates from (i) loss by reason of damage to Mortgaged Properties
caused by certain hazards (including earthquakes and, to a limited extent,
tidal waves and related water damage or as otherwise specified in the
related Prospectus Supplement) not insured against under the standard form
of hazard insurance policy for the respective states in which the
Mortgaged Properties are located or under a flood insurance policy if the
Mortgaged Property is located in a federally designated flood area, and
(ii) loss caused by reason of the application of the coinsurance clause
contained in hazard insurance policies. See "The Pooling and Servicing
Agreement--Hazard Insurance". Each Special Hazard Insurance Policy will
not cover losses occasioned by fraud or conversion by the Trustee or
Master Servicer, war, insurrection, civil war, certain governmental
action, errors in design, faulty workmanship or materials (except under
certain circumstances), nuclear or chemical reaction, flood (if the
Mortgaged Property is located in a federally designated flood area),
nuclear or chemical contamination and certain other risks. The amount of
coverage under any Special Hazard Insurance Policy will be specified in
the related Prospectus Supplement. Each Special Hazard Insurance Policy
will provide that no claim may be paid unless hazard and, if applicable,
flood insurance on the property securing the Mortgage Loan have been kept
in force and other protection and preservation expenses have been paid.
Subject to the foregoing limitations, and unless otherwise specified in
the related Prospectus Supplement, each Special Hazard Insurance Policy
will provide that where there has been damage to property securing a
foreclosed Mortgage Loan (title to which has been acquired by the insured)
and to the extent such damage is not covered by the hazard insurance
policy or flood insurance policy, if any, maintained by the Mortgagor or
the Master Servicer, the Special Hazard Insurer will pay the lesser of (i)
the cost of repair or replacement of such property or (ii) upon transfer
of the property to the Special Hazard Insurer, the unpaid principal
balance of such Mortgage Loan at the time of acquisition of such property
by foreclosure or deed in lieu of foreclosure, plus accrued interest to
the date of claim settlement and certain expenses incurred by the Master
Servicer with respect to such property. If the unpaid principal balance of
a Mortgage Loan plus accrued interest and certain expenses is paid by the
Special Hazard Insurer, the amount of further coverage under the related
Special Hazard Insurance Policy will be reduced by such amount less any
net proceeds from the sale of the property. Any amount paid as the cost of
repair of the property will further reduce coverage by such amount. So
long as a Mortgage Pool Insurance Policy remains in effect, the payment by
the Special Hazard Insurer of the cost of repair or of the unpaid
principal balance of the related Mortgage Loan plus accrued interest and
certain expenses will not affect the total insurance proceeds paid to
Certificateholders, but will affect the relative amounts of coverage
remaining under the related Special Hazard Insurance Policy and Mortgage
Pool Insurance Policy.
To the extent specified in an applicable Prospectus Supplement, the
Master Servicer may deposit cash, an irrevocable letter of credit or any
other instrument acceptable to each nationally recognized rating agency
rating the Certificates of the related Series in a special trust account
to provide protection in lieu of or in addition to that provided by a
Special Hazard Insurance Policy. The amount of any Special Hazard
Insurance Policy or of the deposit to the special trust account relating
to such Certificates in lieu thereof may be reduced so long as any such
reduction will not result in a downgrading of the rating of such
Certificates by any such rating agency.
BANKRUPTCY BONDS
If specified in the related Prospectus Supplement, a bankruptcy bond
("Bankruptcy Bond") for proceedings under the federal Bankruptcy Code will
be issued by an insurer named in such Prospectus Supplement. Each
Bankruptcy Bond will cover, to the extent specified in the related
Prospectus Supplement, certain losses resulting from a reduction by a
bankruptcy court of scheduled payments of principal and interest on a
Mortgage Loan or a reduction by such court of the principal amount of a
Mortgage Loan and will cover certain unpaid interest on the amount of such
a principal reduction from the date of the filing of a bankruptcy
petition. The required amount of coverage under each Bankruptcy Bond will
be set forth in the related Prospectus Supplement. Coverage under a
Bankruptcy Bond may be cancelled or reduced by the Master Servicer if such
cancellation or reduction would not adversely affect the then current
rating or ratings of the related Certificates. See "Certain Legal Aspects
of the Mortgage Loans--Anti-Deficiency Legislation and Other Limitations
on Lenders".
To the extent specified in an applicable Prospectus Supplement, the
Master Servicer may deposit cash, an irrevocable letter of credit or any
other instrument acceptable to each nationally recognized rating agency
rating the Certificates of the related Series in a special trust account
to provide protection in lieu of or in addition to that provided by a
Bankruptcy Bond. The amount of any Bankruptcy Bond or of the deposit to
the special trust account relating to such Certificates in lieu thereof
may be reduced so long as any such reduction will not result in a
downgrading of the rating of such Certificates by any such rating agency.
RESERVE FUNDS
If so specified in the related Prospectus Supplement, credit support
with respect to a Series of Certificates may be provided by the
establishment and maintenance with the Trustee for such Series of
Certificates, in trust, of one or more Reserve Funds for such Series. The
related Prospectus Supplement will specify whether or not such Reserve
Funds will be included in the Trust Fund for such Series.
The Reserve Fund for a Series will be funded (i) by the deposit therein
of cash, U.S. Treasury securities, instruments evidencing ownership of
principal or interest payments thereon, letters of credit, demand notes,
certificates of deposit or a combination thereof in the aggregate amount
specified in the related Prospectus Supplement, (ii) by the deposit
therein from time to time of certain amounts, as specified in the related
Prospectus Supplement to which the Subordinated Certificateholders, if
any, would otherwise be entitled or (iii) in such other manner as may be
specified in the related Prospectus Supplement.
Any amounts on deposit in the Reserve Fund and the proceeds of any other
instrument upon maturity will be held in cash or will be invested in
Permitted Investments which, unless otherwise specified in the related
Prospectus Supplement, will include obligations of the United States and
certain agencies thereof, certificates of deposit, certain commercial
paper, time deposits and bankers acceptances sold by eligible commercial
banks and certain repurchase agreements of United States government
securities with eligible commercial banks. If a letter of credit is
deposited with the Trustee, such letter of credit will be irrevocable.
Unless otherwise specified in the related Prospectus Supplement, any
instrument deposited therein will name the Trustee, in its capacity as
trustee for the holders of the Certificates, as beneficiary and will be
issued by an entity acceptable to each rating agency that rates the
Certificates. Additional information with respect to such instruments
deposited in the Reserve Funds will be set forth in the related Prospectus
Supplement.
Any amounts so deposited and payments on instruments so deposited will
be available for withdrawal from the Reserve Account for distribution to
the holders of Certificates for the purposes, in the manner and at the
times specified in the related Prospectus Supplement.
CROSS SUPPORT
If specified in the related Prospectus Supplement, the beneficial
ownership of separate groups of assets included in a Trust Fund may be
evidenced by separate classes of the related Series of Certificates. In
such case, credit support may be provided by a cross support feature which
requires that distributions be made with respect to Certificates
evidencing a beneficial ownership interest in other asset groups within
the same Trust Fund. The related Prospectus Supplement for a Series which
includes a cross-support feature will describe the manner and conditions
for applying such cross support feature.
If specified in the related Prospectus Supplement, the coverage provided
by one or more forms of credit support may apply concurrently to two or
more related Trust Funds. If applicable, the related Prospectus Supplement
will identify the Trust Funds to which such credit support relates and the
manner of determining the amount of the coverage provided thereby and of
the application of such coverage to the identified Trust Funds.
LIMITED GUARANTEE
If specified in the Prospectus Supplement with respect to a Series of
Certificates, credit enhancement may be provided in the form of a Limited
Guarantee issued by a guarantor named therein. If specified in the related
Prospectus Supplement, a Limited Guarantee may be provided by an affiliate
or affiliates of the Depositor.
LETTER OF CREDIT
Alternative credit support with respect to a Series of Certificates may
be provided by the issuance of a Letter of Credit by the bank or financial
institution specified in the applicable Prospectus Supplement. The
coverage, amount and frequency of any reduction in coverage provided by a
Letter of Credit issued with respect to a Series of Certificates will be
set forth in the related Prospectus Supplement.
SURETY BONDS
If specified in the Prospectus Supplement relating to a Series of
Certificates, credit support with respect to one or more Classes of
Certificates of a Series may be provided by the issuance of a Surety Bond
issued by a financial guarantee insurance company specified in the
applicable Prospectus Supplement. The coverage, amount and frequency of
any reduction in coverage provided by a Surety Bond will be set forth in
the related Prospectus Supplement.
YIELD AND PREPAYMENT CONSIDERATIONS
The yields to maturity and weighted average lives of the Certificates
will be affected primarily by the amount and timing of principal payments
received on or in respect of the Mortgage Assets included in the related
Trust Fund. The original terms to maturity of the Mortgage Loans in a
given Mortgage Pool will vary depending upon the type of Mortgage Loans
included therein. Each Prospectus Supplement will contain information with
respect to the type and maturities of the Mortgage Loans in the related
Mortgage Pool. Unless otherwise specified in the related Prospectus
Supplement, Mortgage Loans may be prepaid without penalty in full or in
part at any time. The prepayment experience on the Mortgage Loans in a
Mortgage Pool will affect the life of the related Series of Certificates.
A number of factors, including homeowner mobility, economic conditions,
the presence and enforceability of due-on-sale clauses, mortgage market
interest rates and the availability of mortgage funds, may affect
prepayment experience of Mortgage Loans.
Unless otherwise provided in the related Prospectus Supplement, all
conventional Mortgage Loans will contain due-on-sale provisions permitting
the mortgagee to accelerate the maturity of the loan upon sale or certain
transfers by the mortgagor of the underlying Mortgaged Property. Mortgage
Loans insured by the FHA, and Mortgage Loans partially guaranteed by the
VA, are assumable with the consent of the FHA and the VA, respectively.
Thus, the rate of prepayments on such Mortgage Loans may be lower than
that of conventional Mortgage Loans bearing comparable interest rates.
Unless otherwise provided in the related Prospectus Supplement, the Master
Servicer generally will enforce any due-on-sale or due-on-encumbrance
clause, to the extent it has knowledge of the conveyance or further
encumbrance or the proposed conveyance or proposed further encumbrance of
the Mortgaged Property and reasonably believes that it is entitled to do
so under applicable law; provided, however, that the Master Servicer will
not take any enforcement action that would impair or threaten to impair
any recovery under any related insurance policy. See "The Pooling and
Servicing Agreement--Collection Procedures" and "Certain Legal Aspects of
the Mortgage Loans" for a description of certain provisions of each
Agreement and certain legal developments that may affect the prepayment
experience on the Mortgage Loans.
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 Mortgage Rates borne by the Mortgage Loans,
such Mortgage Loans are likely to be subject to higher prepayment rates
than if prevailing interest rates remain at or above such Mortgage Rates.
Conversely, if prevailing interest rates rise appreciably above the
Mortgage Rates borne by the Mortgage Loans, such Mortgage Loans are likely
to experience a lower prepayment rate than if prevailing rates remain at
or below such Mortgage Rates. However, there can be no assurance that such
will be the case.
When a full prepayment is made on a Mortgage Loan, the Mortgagor is
charged interest on the principal amount of the Mortgage Loan so prepaid
only for the number of days in the month actually elapsed up to the date
of the prepayment rather than for a full month. Unless otherwise specified
in the related Prospectus Supplement, the effect of prepayments in full
will be to reduce the amount of interest passed through in the following
month to holders of Certificates because interest on the principal amount
of any Mortgage Loan so prepaid will be paid only to the date of
prepayment. Partial prepayments in a given month may be applied to the
outstanding principal balances of the Mortgage Loans so prepaid on the
first day of the month of receipt or the month following receipt. In the
latter case, partial prepayments will not reduce the amount of interest
passed through in such month. Unless otherwise specified in the related
Prospectus Supplement, both full and partial prepayments will not be
passed through until the month following receipt.
The effective yield to Certificateholders will be slightly lower than
the yield otherwise produced by the applicable Pass-Through Rate and
purchase price because while interest will accrue on each Mortgage Loan
from the first day of the month (unless otherwise provided in the related
Prospectus Supplement), the distribution of such interest will not be made
earlier than the month following the month of accrual.
Under certain circumstances, the Master Servicer or the holders of the
residual interests in a REMIC may have the option to purchase the assets
of a Trust Fund thereby effecting earlier retirement of the related Series
of Certificates. See "The Pooling and Servicing Agreement--Termination;
Optional Termination".
If so specified in the related Prospectus Supplement, upon notification
from a Mortgagor of such Mortgagor's intent to convert from an adjustable
interest rate to a fixed interest rate, and prior to the conversion of
such Mortgage Loan, the Master Servicer or its successor will be obligated
to purchase such related Mortgage Loan. Any such purchase of a Mortgage
Loan would have the effect of a prepayment in full of the Mortgage Loan.
From time to time, Merrill Lynch Credit Corporation may solicit the
refinancing of loans (including the Mortgage Loans) by offering a new loan
to the borrower. Any such refinancing of a Mortgage Loan would have the
effect of a prepayment in full of the Mortgage Loan.
Factors other than those identified herein and in the related Prospectus
Supplement could significantly affect principal prepayments at any time
and over the lives of the Certificates. The relative contribution of the
various factors affecting prepayment may also vary from time to time.
There can be no assurance as to the rate of payment of principal of the
Mortgage Assets at any time or over the lives of the Certificates.
The Prospectus Supplement relating to a Series of Certificates will
discuss in greater detail the effect of the rate and timing of principal
payments (including prepayments), delinquencies and losses on the yield,
weighted average lives and maturities of such Certificates.
THE POOLING AND SERVICING AGREEMENT
Set forth below is a summary of certain provisions of each Agreement
which are not described elsewhere in this Prospectus. Where particular
provisions or terms used in the Agreements are referred to, such
provisions or terms are as specified in the Agreements.
ASSIGNMENT OF MORTGAGE ASSETS
Assignment of the Mortgage Loans. At the time of issuance of the
Certificates of a Series, the Depositor will cause the Mortgage Loans
comprising the related Trust Fund to be assigned to the Trustee, together
with all principal and interest received by or on behalf of the Depositor
on or with respect to such Mortgage Loans after the Cut-off Date, other
than principal and interest due on or before the Cut-off Date and other
than any Retained Interest specified in the related Prospectus Supplement.
The Trustee will, concurrently with such assignment, deliver the
Certificates to the Depositor in exchange for the Mortgage Loans. Each
Mortgage Loan will be identified in a schedule appearing as an exhibit to
the related Agreement. Such schedule will include information as to the
outstanding principal balance of each Mortgage Loan after application of
payments due on the Cut-off Date, as well as information regarding the
Mortgage Rate, the current scheduled monthly payment of principal and
interest, the maturity of the loan, the Loan-to-Value Ratio at origination
and certain other information. If specified in the related Prospectus
Supplement, the Depositor will deliver or cause to be delivered to the
Trustee loans at a predetermined price for inclusion in the Trust Fund
within three months after the issuance of the Certificates. The related
Prospectus Supplement for the Trust Fund will specify whether, and the
terms, conditions and manner under which Subsequent Mortgage Assets will
be sold to the Trust Fund within such three month period.
In addition, the Depositor will deliver or cause to be delivered to the
Trustee (or to the custodian hereinafter referred to) as to each Mortgage
Loan, among other things, (i) the mortgage note (the "Mortgage Note")
endorsed without recourse in blank or to the order of the Trustee, (ii)
the mortgage, deed of trust or similar instrument (a "Mortgage") with
evidence of recording indicated thereon (except for any Mortgage not
returned from the public recording office, in which case the Depositor
will unless otherwise specified in the related Prospectus Supplement,
deliver or cause to be delivered a copy of such Mortgage together with a
certificate that the original of such Mortgage was delivered to such
recording office), (iii) an assignment of the Mortgage to the Trustee,
which assignment will be in recordable form, and (iv) such other security
documents as may be specified in the related Prospectus Supplement or the
related Agreement. Unless otherwise specified in the related Prospectus
Supplement, the Depositor will promptly cause the assignments of the
related loans to be recorded in the appropriate public office for real
property records, except in states in which, in the opinion of counsel
acceptable to the Trustee, such recording is not required to protect the
Trustee's interest in such loans against the claim of any subsequent
transferee or any successor to or creditor of the Depositor or the
originator of such loans.
With respect to any Mortgage Loans which are Cooperative Loans, the
Depositor will cause to be delivered to the Trustee, the related original
cooperative note endorsed without recourse in blank or to the order of the
Trustee, the original security agreement, the proprietary lease or
occupancy agreement, the recognition agreement, an executed financing
agreement and the relevant stock certificate, related blank stock powers
and any other document specified in the related Prospectus Supplement. The
Depositor will cause to be filed in the appropriate office an assignment
and a financing statement evidencing the Trustee's security interest in
each Cooperative Loan.
The Trustee (or the custodian hereinafter referred to) will review such
Mortgage Loan documents within the time period specified in the related
Prospectus Supplement after receipt thereof, and the Trustee will hold
such documents in trust for the benefit of the Certificateholders. Unless
otherwise specified in the related Prospectus Supplement, if any such
document is found to be missing or defective in any material respect, the
Trustee (or such custodian) will notify the Master Servicer and the
Depositor, and the Master Servicer will notify the related Seller. If the
Seller cannot cure the omission or defect within the time period specified
in the related Prospectus Supplement after receipt of such notice, the
Seller will be obligated to purchase the related Mortgage Loan from the
Trustee at the Purchase Price or, if so specified in the related
Prospectus Supplement, replace such Mortgage Loan with another mortgage
loan that meets certain requirements set forth therein. There can be no
assurance that a Seller will fulfill this purchase obligation. Although
the Master Servicer may be obligated to enforce such obligation to the
extent described above under "Mortgage Loan Program--Representations by
Sellers; Repurchases", neither the Master Servicer nor the Depositor will
be obligated to purchase such Mortgage Loan if the Seller defaults on its
purchase obligation, unless such breach also constitutes a breach of the
representations or warranties of the Master Servicer or the Depositor, as
the case may be. Unless otherwise specified in the related Prospectus
Supplement, this purchase obligation constitutes the sole remedy available
to the Certificateholders or the Trustee for omission of, or a material
defect in, a constituent document.
The Trustee will be authorized to appoint a custodian pursuant to a
custodial agreement to maintain possession of and, if applicable, to
review the documents relating to the Mortgage Loans as agent of the
Trustee.
Notwithstanding the foregoing provisions, with respect to a Trust Fund
for which a REMIC election is to be made, unless the related Prospectus
Supplement otherwise provides, no purchase of a Mortgage Loan will be made
if such purchase would result in a prohibited transaction tax under the
Code.
Assignment of Agency Securities. The Depositor will cause the Agency
Securities to be registered in the name of the Trustee or its nominee, and
the Trustee concurrently will execute, countersign and deliver the
Certificates. Each Agency Security will be identified in a schedule
appearing as an exhibit to the Agreement, 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 (if any) and
the maturity date.
Assignment of Private Mortgage-Backed Securities. The Depositor will
cause Private Mortgage-Backed Securities to be registered in the name of
the Trustee. The Trustee (or the custodian) will have possession of any
certificated Private Mortgage-Backed Securities. Unless otherwise
specified in the related Prospectus Supplement, the Trustee will not be in
possession of or be assignee of record of any underlying assets for a
Private Mortgage-Backed Security. See "The Trust Fund--Private Mortgage-
Backed Securities" herein. Each Private Mortgage-Backed Security will be
identified in a schedule appearing as an exhibit to the related Agreement
which will specify the original principal amount, outstanding principal
balance as of the Cut-off Date, annual pass-through rate or interest rate
and maturity date and certain other pertinent information for each Private
Mortgage-Backed Security conveyed to the Trustee.
PAYMENTS ON MORTGAGE LOANS; DEPOSITS TO CERTIFICATE ACCOUNT
The Master Servicer will establish and maintain or cause to be
established and maintained with respect to the related Trust Fund a
separate account or accounts for the collection of payments on the related
Mortgage Assets in the Trust Fund (the "Certificate Account"), which
unless otherwise specified in the related Prospectus Supplement, must be
either (i) maintained with a depository institution the short-term debt
obligations of which (or in the case of a depository institution that is
the principal subsidiary of a holding company, the short-term debt
obligations of which) are rated in the highest short-term rating category
by the nationally recognized statistical rating organization(s) that rated
one or more classes of the related Series of Certificates (each, a "Rating
Agency"), (ii) an account or accounts the deposits in which are fully
insured by either the BIF or SAIF, (iii) an account or accounts the
deposits in which are insured by the BIF or SAIF (to the limits
established by the FDIC), and 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, (iv) a trust account or
accounts maintained with the trust department of a federal or a state
chartered depository institution or trust company, acting in a fiduciary
capacity or (v) an account or accounts otherwise acceptable to each Rating
Agency. The collateral eligible to secure amounts in the Certificate
Account is limited to United States government securities and other high-
quality investments ("Eligible Investments"). A Certificate Account may be
maintained as an interest bearing account or the funds held therein may be
invested pending each succeeding Distribution Date in Eligible
Investments. Unless otherwise specified 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 and will be obligated to
deposit in the Certificate Account the amount of any loss immediately as
realized. The Certificate Account may be maintained with the Master
Servicer or with a depository institution that is an affiliate of the
Master Servicer, provided it meets the standards set forth above.
The Master Servicer will deposit or cause to be deposited in the
Certificate Account for each Trust Fund on a daily basis, to the extent
applicable and unless otherwise specified in the related Prospectus
Supplement and provided in the Agreement, the following payments and
collections received or advances made by or on behalf of it subsequent to
the Cut-off Date (other than payments due on or before the Cut-off Date
and exclusive of any amounts representing Retained Interest):
(i) all payments on account of principal, including Principal
Prepayments and, if specified in the related Prospectus Supplement,
prepayment penalties, on the Mortgage Loans;
(ii) all payments on account of interest on the Mortgage Loans, net
of applicable servicing compensation;
(iii) all proceeds (net of unreimbursed payments of property taxes,
insurance premiums and similar items ("Insured Expenses") incurred, and
unreimbursed advances made, by the Master Servicer, if any) of the hazard
insurance policies and any Primary Mortgage Insurance Policies, to the extent
such proceeds are not applied to the restoration of the property or
released to the Mortgagor in accordance with the Master Servicer's normal
servicing procedures (collectively, "Insurance Proceeds") and all other cash
amounts (net of unreimbursed expenses incurred in connection with liquidation
or foreclosure ("Liquidation Expenses") and unreimbursed advances made, by
the Master Servicer, if any) received and retained in connection with the
liquidation of defaulted Mortgage Loans, by foreclosure or otherwise
("Liquidation Proceeds"), together with any net proceeds received on a
monthly basis with respect to any properties acquired on behalf of the
Certificateholders by foreclosure or deed in lieu of foreclosure;
(iv) all proceeds of any Mortgage Loan or property in respect
thereof purchased by the Master Servicer, the Depositor or any Seller as
described under "Mortgage Loan Program--Representations by Sellers;
Repurchases" or "--Assignment of Mortgage Assets" above and all proceeds of
any Mortgage Loan repurchased as described under "--Termination; Optional
Termination" below;
(v) all payments required to be deposited in the Certificate
Account with respect to any deductible clause in any blanket insurance policy
described under "--Hazard Insurance" below;
(vi) any amount required to be deposited by the Master Servicer in
connection with losses realized on investments for the benefit of the
Master Servicer of funds held in the Certificate Account and, to the
extent specified in the related Prospectus Supplement, any payments
required to be made by the Master Servicer in connection with prepayment
interest shortfalls; and
(vii) all other amounts required to be deposited in the Certificate
Account pursuant to the Agreement.
The Master Servicer (or the Depositor, as applicable) may from time to
time direct the institution which maintains the Certificate Account to
withdraw funds from the Certificate Account for the following purposes:
(i) to pay to the Master Servicer the servicing fees described in
the related Prospectus Supplement, the Master Servicing Fee (subject to
reduction) and, as additional servicing compensation, earnings on or
investment income with respect to funds in the amounts in the Certificate
Account credited thereto;
(ii) to reimburse the Master Servicer for Advances, such right of
reimbursement with respect to any Mortgage Loan being limited to amounts
received that represent late recoveries of payments of principal and/or
interest on such Mortgage Loan (or Insurance Proceeds or Liquidation Proceeds
with respect thereto) with respect to which such Advance was made;
(iii) to reimburse the Master Servicer for any Advances previously
made which the Master Servicer has determined to be nonrecoverable;
(iv) to reimburse the Master Servicer from Insurance Proceeds for
expenses incurred by the Master Servicer and covered by the related
insurance policies;
(v) to reimburse the Master Servicer for unpaid Master Servicing
Fees and unreimbursed out-of-pocket costs and expenses incurred by the Master
Servicer in the performance of its servicing obligations, such right of
reimbursement being limited to amounts received representing late
recoveries of the payments for which such advances were made;
(vi) to pay to the Master Servicer, with respect to each Mortgage
Loan or property acquired in respect thereof that has been purchased by the
Master Servicer pursuant to the Pooling and Servicing Agreement, all amounts
received thereon and not taken into account in determining the related
Principal Balance of such repurchased Mortgage Loan;
(vii) to reimburse the Master Servicer or the Depositor for
expenses incurred and reimbursable pursuant to the Pooling and Servicing
Agreement;
(viii) to withdraw any amount deposited in the Certificate Account
and not required to be deposited therein; and
(ix) to clear and terminate the Certificate Account upon
termination of the Pooling and Servicing Agreement.
In addition, unless otherwise specified in the related Prospectus
Supplement, on or prior to the Business Day immediately preceding each
Distribution Date, the Master Servicer shall withdraw from the Certificate
Account the amount of Available Distribution Amount, to the extent on
deposit, for deposit in an account maintained by the Trustee for the
related Series of Certificates.
COLLECTION PROCEDURES
The Master Servicer, directly or through one or more Sub-Servicers, will
make reasonable efforts to collect all payments called for under the
Mortgage Loans and will, consistent with each Agreement and any Mortgage
Pool Insurance Policy, Primary Mortgage Insurance Policy, FHA Insurance,
VA Guaranty Policy and Bankruptcy Bond or alternative arrangements, follow
such collection procedures as are customary with respect to mortgage loans
that are comparable to the Mortgage Loans. Consistent with the above, the
Master Servicer may, in its discretion, (i) waive any assumption fee, late
payment or other charge in connection with a Mortgage Loan and (ii) to the
extent not inconsistent with the coverage of such Mortgage Loan by a
Mortgage Pool Insurance Policy, Primary Mortgage Insurance Policy, FHA
Insurance, VA Guaranty or Bankruptcy Bond or alternative arrangements, if
applicable, arrange with a Mortgagor a schedule for the liquidation of
delinquencies running for no more than 180 days after the applicable due
date for each payment. Arrangements may be made with a Mortgagor to cure
delinquencies that exceed 180 days if such arrangements are determined by
the Master Servicer to be reasonable and consistent with its then current
practices with respect to comparable mortgage loans held in its own
portfolio. To the extent the Master Servicer is obligated to make or to
cause to be made Advances, such obligation will remain during the period
of any such arrangement.
Unless otherwise specified in the related Prospectus Supplement, in any
case in which property securing a conventional Mortgage Loan has been, or
is about to be, conveyed by the mortgagor or obligor, the Master Servicer
will, to the extent it has knowledge of such conveyance or proposed
conveyance, exercise or cause to be exercised its rights to accelerate the
maturity of such Mortgage Loan under any due-on-sale clause applicable
thereto, but only if the exercise of such rights is permitted by
applicable law and will not impair or threaten to impair any recovery
under any related Primary Mortgage Insurance Policy. If these conditions
are not met or if the Master Servicer reasonably believes it is unable
under applicable law to enforce such due-on-sale clause, or if such
Mortgage Loan is insured by the FHA or partially guaranteed by the VA, the
Master Servicer will enter into or cause to be entered into an assumption
and modification agreement with the person to whom such property has been
or is about to be conveyed, pursuant to which such person becomes liable
for repayment of the Mortgage Loan and, to the extent permitted by
applicable law, the mortgagor remains liable thereon.
Any fee collected by or on behalf of the Master Servicer for entering
into an assumption agreement will be retained by or on behalf of the
Master Servicer as additional servicing compensation. See "Certain Legal
Aspects of the Mortgage Loans--Due-on-Sale Clauses". In connection with
any such assumption, the terms of the related Mortgage Loan may not be
changed.
With respect to Cooperative Loans, any prospective purchaser will
generally have to obtain the approval of the board of directors of the
relevant Cooperative before purchasing the shares and acquiring rights
under the related proprietary lease or occupancy agreement. See "Certain
Legal Aspects of the Mortgage Loans" herein. This approval is usually
based on the purchaser's income and net worth and numerous other factors.
Although the Cooperative's approval is unlikely to be unreasonably
withheld or delayed, the necessity of acquiring such approval could limit
the number of potential purchasers for those shares and otherwise limit
the Trust Fund's ability to sell and realize the value of those shares.
In general, a "tenant-stockholder" (as defined in Code Section
216(b)(2)) of a corporation that qualifies as a "cooperative housing
corporation" within the meaning of Code Section 216(b)(1) is allowed a
deduction for amounts paid or accrued within his taxable year to the
corporation representing his proportionate share of certain interest
expenses and certain real estate taxes allowable as a deduction under Code
Section 216(a) to the corporation under Code Sections 163 and 164. In
order for a corporation to qualify under Code Section 216(b)(1) for its
taxable year in which such items are allowable as a deduction to the
corporation, such Section requires, among other things, that at least 80%
of the gross income of the corporation be derived from its tenant-
stockholders (as defined in Code Section 216(b)(2)). By virtue of this
requirement, the status of a corporation for purposes of Code Section
216(b)(1) must be determined on a year-to-year basis. Consequently, there
can be no assurance that Cooperatives relating to the Cooperative Loans
will qualify under such Section for any particular year. In the event that
such a Cooperative fails to qualify for one or more years, the value of
the collateral securing any related Cooperative Loans could be
significantly impaired because no deduction would be allowable to tenant-
stockholders under Code Section 216(a) with respect to those years. In
view of the significance of the tax benefits accorded tenant-stockholders
of a corporation that qualifies under Code Section 216(b)(1), the
likelihood that such a failure would be permitted to continue over a
period of years appears remote.
HAZARD INSURANCE
The Master Servicer will require the mortgagor or obligor on each
Mortgage Loan to maintain a hazard insurance policy providing for no less
than the coverage of the standard form of fire insurance policy with
extended coverage customary for the type of Mortgaged Property in the
state in which such Mortgaged Property is located. Such coverage will be
in an amount not less than the replacement value of the improvements
securing such Mortgage Loan or the principal balance owing on such
Mortgage Loan, whichever is less. All amounts collected by the Master
Servicer under any hazard policy (except for amounts to be applied to the
restoration or repair of the Mortgaged Property or released to the
mortgagor or obligor in accordance with the Master Servicer's normal
servicing procedures) will be deposited in the related Certificate
Account. In the event that the Master Servicer maintains a blanket policy
insuring against hazard losses on all the Mortgage Loans comprising part
of a Trust Fund, it will conclusively be deemed to have satisfied its
obligation relating to the maintenance of hazard insurance. Such blanket
policy may contain a deductible clause, in which case the Master Servicer
will be required to deposit from its own funds into the related
Certificate Account the amounts which would have been deposited therein
but for such clause.
In general, the standard form of fire and extended coverage policy
covers physical damage to or destruction of the improvements securing a
Mortgage Loan by fire, lightning, explosion, smoke, windstorm and hail,
riot, strike and civil commotion, subject to the conditions and exclusions
particularized in each policy. Although the policies relating to the
Mortgage Loans may have been underwritten by different insurers under
different state laws in accordance with different applicable forms and
therefore may not contain identical terms and conditions, the basic terms
thereof are dictated by respective state laws, and most such policies
typically do not cover any physical damage resulting from the following:
war, revolution, governmental actions, floods and other water-related
causes, earth movement (including earthquakes, landslides and mud flows),
nuclear reactions, wet or dry rot, vermin, rodents, insects or domestic
animals, theft and, in certain cases, vandalism. The foregoing list is
merely indicative of certain kinds of uninsured risks and is not intended
to be all inclusive. If the Mortgaged Property securing a Mortgage Loan is
located in a federally designated special flood area at the time of
origination, the Master Servicer will require the mortgagor or obligor to
obtain and maintain flood insurance, to the extent such insurance is
available.
The hazard insurance policies covering properties securing the Mortgage
Loans typically contain a clause which in effect requires the insured at
all times to carry insurance of a specified percentage (generally 80% to
90%) of the full replacement value of the insured property in order to
recover the full amount of any partial loss. If the insured's coverage
falls below this specified percentage, then the insurer's liability in the
event of partial loss will not exceed the larger of (i) the actual cash
value (generally defined as replacement cost at the time and place of
loss, less physical depreciation) of the improvements damaged or destroyed
or (ii) such proportion of the loss as the amount of insurance carried
bears to the specified percentage of the full replacement cost of such
improvements. Since the amount of hazard insurance the Master Servicer may
cause to be maintained on the improvements securing the Mortgage Loans
declines as the principal balances owing thereon decrease, and since
improved real estate generally has appreciated in value over time in the
past, the effect of this requirement in the event of partial loss may be
that hazard insurance proceeds will be insufficient to restore fully the
damaged property. If specified in the related Prospectus Supplement, a
special hazard insurance policy will be obtained to insure against certain
of the uninsured risks described above. See "Credit Enhancement--Special
Hazard Insurance Policies".
The Master Servicer will not require that a standard hazard or flood
insurance policy be maintained on the cooperative dwelling relating to any
Cooperative Loan. Generally, the Cooperative itself is responsible for
maintenance of hazard insurance for the property owned by the Cooperative
and the tenant-stockholders of that Cooperative do not maintain individual
hazard insurance policies. To the extent, however, that a Cooperative and
the related borrower on a Cooperative Loan do not maintain such insurance
or do not maintain adequate coverage or any insurance proceeds are not
applied to the restoration of damaged property, any damage to such
borrower's cooperative dwelling or such Cooperative's building could
significantly reduce the value of the collateral securing such Cooperative
Loan to the extent not covered by other credit support.
REALIZATION UPON DEFAULTED MORTGAGE LOANS
Primary Mortgage Insurance Policies. The Master Servicer will maintain
or cause to be maintained, as the case may be, in full force and effect,
to the extent specified in the related Prospectus Supplement, a Primary
Mortgage Insurance Policy with regard to each Mortgage Loan for which such
coverage is required. The Master Servicer will not cancel or refuse to
renew any such Primary Mortgage Insurance Policy in effect at the time of
the initial issuance of a Series of Certificates that is required to be
kept in force under the applicable Agreement unless the replacement
Primary Mortgage Insurance Policy for such cancelled or nonrenewed policy
is maintained with an insurer whose claims-paying ability is sufficient to
maintain the current rating of the classes of Certificates of such Series
that have been rated.
Although the terms and conditions of primary mortgage insurance vary,
the amount of a claim for benefits under a Primary Mortgage Insurance
Policy covering a Mortgage Loan will consist of the insured percentage of
the unpaid principal amount of the covered Mortgage Loan and accrued and
unpaid interest thereon and reimbursement of certain expenses, 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 issuer of the related Primary Mortgage
Insurance Policy (the "Primary Insurer"), (iv) claim payments previously
made by the Primary Insurer and (v) unpaid premiums.
Primary Mortgage Insurance Policies reimburse certain losses sustained
by reason of defaults in payments by borrowers. Primary Mortgage Insurance
Policies will not insure against, and exclude from coverage, a loss
sustained by reason of a default arising from or involving certain
matters, including (i) fraud or negligence in origination or servicing of
the Mortgage Loans, including misrepresentation by the originator,
borrower or other persons involved in the origination of the Mortgage
Loan; (ii) failure to construct the Mortgaged Property subject to the
Mortgage Loan in accordance with specified plans; (iii) physical damage to
the Mortgaged Property; and (iv) the related Servicer not being approved
as a servicer by the Primary Insurer.
Recoveries Under a Primary Mortgage Insurance Policy. As conditions
precedent to the filing of or payment of a claim under a Primary Mortgage
Insurance Policy covering a Mortgage Loan, the insured will be required to
(i) advance or discharge (a) all hazard insurance policy premiums and (b)
as necessary and approved in advance by the Primary Insurer, (1) real
estate property taxes, (2) all expenses required to maintain the related
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) Mortgaged Property sales expenses, (4) any
outstanding liens (as defined in such Primary Mortgage Insurance Policy)
on the Mortgaged Property and (5) foreclosure costs, including court costs
and reasonable attorneys' fees; (ii) in the event of any physical loss or
damage to the Mortgaged Property, have the Mortgaged Property restored and
repaired 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 Primary Insurer good and merchantable
title to and possession of the Mortgaged Property.
The Master Servicer, on behalf of itself, the Trustee and the
Certificateholders, will present claims to the insurer under each Primary
Mortgage Insurance Policy, and will take such reasonable steps as are
necessary to receive payment or to permit recovery thereunder with respect
to defaulted Mortgage Loans. As set forth above, all collections by or on
behalf of the Master Servicer under any Primary Mortgage Insurance Policy
and, when the Mortgaged Property has not been restored, the hazard
insurance policy, are to be deposited in the Certificate Account, subject
to withdrawal as heretofore described.
If the Mortgaged Property securing a defaulted Mortgage Loan is damaged
and proceeds, if any, from the related hazard insurance policy are
insufficient to restore the damaged Mortgaged Property to a condition
sufficient to permit recovery under the related Primary Mortgage Insurance
Policy, if any, the Master Servicer is not required to expend its own
funds to restore the damaged Mortgaged Property unless it determines (i)
that such restoration will increase the proceeds to Certificateholders on
liquidation of the Mortgage Loan after reimbursement of the Master
Servicer for its expenses and (ii) that such expenses will be recoverable
by it from related Insurance Proceeds or Liquidation Proceeds.
If recovery on a defaulted Mortgage Loan under any related Primary
Mortgage Insurance Policy is not available for the reasons set forth in
the preceding paragraph, or if the defaulted Mortgage Loan is not covered
by a Primary Mortgage Insurance Policy, the Master Servicer will be
obligated to follow or cause to be followed 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 securing the defaulted Mortgage Loan are less than the
principal balance of such Mortgage Loan plus interest accrued thereon that
is payable to Certificateholders, the 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 unlikely 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
such Mortgage Loan plus interest accrued thereon that is payable to
Certificateholders, the Master Servicer will be entitled to withdraw or
retain from the Certificate Account amounts representing its normal
servicing compensation with respect to such Mortgage Loan and, unless
otherwise specified in the related Prospectus Supplement, amounts
representing the balance of such excess, exclusive of any amount required
by law to be forwarded to the related Mortgagor, as additional servicing
compensation.
If the Master Servicer or its designee recovers Insurance Proceeds
which, when added to any related Liquidation Proceeds and after deduction
of certain expenses reimbursable to the Master Servicer, exceed the
principal balance of such Mortgage Loan plus interest accrued thereon that
is payable to Certificateholders, the Master Servicer will be entitled to
withdraw or retain from the Certificate Account amounts representing its
normal servicing compensation with respect to such Mortgage Loan. In the
event that the Master Servicer has expended its own funds to restore the
damaged Mortgaged Property and such funds have not been reimbursed under
the related hazard insurance policy, it will be entitled to withdraw from
the Certificate Account out of related Liquidation Proceeds or Insurance
Proceeds an amount equal to such expenses incurred by it, in which event
the Trust Fund may realize a loss up to the amount so charged. Since
Insurance Proceeds cannot exceed deficiency claims and certain expenses
incurred by the Master Servicer, no such payment or recovery will result
in a recovery to the Trust Fund which exceeds the principal balance of the
defaulted Mortgage Loan together with accrued interest thereon. See
"Credit Enhancement".
FHA Insurance; VA Guarantees. Mortgage Loans designated in the related
Prospectus Supplement as insured by the FHA will be insured by the FHA as
authorized under 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.
These programs generally limit the principal amount and interest rates of
the mortgage loans insured. Mortgage Loans insured by the FHA generally
require a minimum down payment of approximately 5% of the original
principal amount of the loan. No FHA-insured Mortgage Loans 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 loan.
The insurance premiums for Mortgage Loans insured by the FHA are
collected by lenders approved by the Department of Housing and Urban
Development ("HUD") 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-insured 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. Currently, 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 debentures interest rate. The Master Servicer of any Sub-Servicer of
each FHA-insured Mortgage Loan will be obligated to purchase any such
debenture issued in satisfaction of such Mortgage Loan upon default 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 assignment date. The insurance payment itself,
upon foreclosure of an FHA-insured Mortgage Loan, bears interest from a
date 30 days after the mortgagor's first uncorrected failure to perform
any obligation to make any payment due under the Mortgage 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.
Mortgage Loans designated in the related Prospectus Supplement as
guaranteed by the VA will be partially guaranteed by the VA under the
Serviceman's Readjustment Act of 1944, as amended (a "VA Guaranty
Policy"). The Serviceman'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 Mortgage Loan guaranteed by
the VA will have an original principal amount greater than five times the
partial VA guarantee for such Mortgage Loan.
The maximum guarantee 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 guarantee 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 guarantee 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 guarantee exceed the amount of the
original guarantee. The VA may, at its option and without regard to the
guarantee, make full payment to a mortgage holder of unsatisfied
indebtedness on a mortgage upon its assignment to the VA.
With respect to a defaulted VA guaranteed 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-
insured 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.
SERVICING AND OTHER COMPENSATION AND PAYMENT OF EXPENSES
The principal servicing compensation to be paid to the Master Servicer
in respect of its master servicing activities for each series of
Certificates will be equal to the percentage per annum described in the
related Prospectus Supplement (which may vary under certain circumstances)
of the outstanding principal balance of each Mortgage Loan, and such
compensation will be retained by it from collections of interest on such
Mortgage Loan in the related Trust Fund (the "Master Servicing Fee").
Unless otherwise specified in the related Prospectus Supplement, as
compensation for its servicing duties, a Sub-Servicer or, if there is no
Sub-Servicer, the Master Servicer will be entitled to a monthly servicing
fee as described in the related Prospectus Supplement. In addition, the
Master Servicer or a Sub-Servicer will retain all prepayment charges,
assumption fees and late payment charges, to the extent collected from
Mortgagors, and any benefit which may accrue as a result of the investment
of funds in the applicable Certificate Account (unless otherwise specified
in the related Prospectus Supplement).
The Master Servicer will pay or cause to be paid certain ongoing
expenses associated with each Trust Fund and incurred by it in connection
with its responsibilities under the related Agreement, including, without
limitation, payment of any fee or other amount payable in respect of any
credit enhancement arrangements, payment of the fees and disbursements of
the Trustee, any custodian appointed by the Trustee, the Certificate
Registrar and any Paying Agent, and payment of expenses incurred in
enforcing the obligations of Sub- servicers and Sellers. The Master
Servicer will be entitled to reimbursement of expenses incurred in
enforcing the obligations of Sub-Servicers and Sellers under certain
limited circumstances. In addition, as indicated in the preceding section,
the Master Servicer will be entitled to reimbursements for certain
expenses incurred by it in connection with Liquidated Mortgage Loans and
in connection with the restoration of Mortgaged Properties, such right of
reimbursement being prior to the rights of Certificateholders to receive
any related Liquidation Proceeds (including Insurance Proceeds).
EVIDENCE AS TO COMPLIANCE
Each Agreement will provide that on or before a specified date in each
year, a firm of independent public accountants will furnish a report to
the Trustee to the effect that all loans serviced by the Master Servicer
under such Agreement were included in the total population which was
subject to selection for testing in such firm's examination of certain
documents and records and that such examination, which has been conducted
substantially in compliance with the Uniform Single Attestation Program
for Mortgage Bankers (or such other audit or review program applicable to
the Master Servicer), has disclosed no items of material noncompliance
with the provisions of the Uniform Single Attestation Program for Mortgage
Bankers (or such other program), except for such items of noncompliance as
shall be set forth in such report. In rendering its report such firm may
rely, as to matters relating to the direct servicing of Mortgage Loans,
private mortgage-backed securities or agency securities, by Sub-Servicers,
upon comparable statements for examinations conducted substantially in
compliance with the audit program applicable to such Sub-Servicer
(rendered within one year of such statement) of firms of independent
public accountants with respect to the related Sub-Servicer.
Each Agreement will also provide for delivery to the Trustee, on or
before a specified date in each year, of an annual statement signed by an
officer or officers of the Master Servicer to the effect that the Master
Servicer has fulfilled its obligations under the Agreement in all material
respects throughout the preceding year or specifying any known failure to
do so.
Copies of the annual accountants' statement and the statement of
officers of the Master Servicer may be obtained by Certificateholders of
the related Series without charge upon written request to the Master
Servicer at the address set forth in the related Prospectus Supplement.
CERTAIN MATTERS REGARDING THE MASTER SERVICER AND THE DEPOSITOR
The Master Servicer under each Agreement will be named in the related
Prospectus Supplement. If so specified in the related Prospectus
Supplement, the obligations and duties of the Master Servicer may be
performed by the Servicer named in the related Prospectus Supplement. The
entity serving as Master Servicer or Servicer may have normal business
relationships with the Depositor or the Depositor's affiliates.
Each Agreement will provide that, subject to the Master Servicer's right
to assign its rights and delegate its duties as described below, the
Master Servicer may not resign from its obligations and duties under the
Agreement unless its duties thereunder are no longer permissible under
applicable law or are in material conflict by reason of applicable law
with any other activities of a type and nature presently carried on by it,
except in connection with a permitted transfer of servicing. No such
resignation will become effective until the Trustee or a successor
servicer has assumed the Master Servicer's obligations and duties under
the Agreement.
Each Agreement will further provide that neither the Master Servicer,
the Depositor nor any director, officer, employee, or agent of the Master
Servicer or the Depositor will be under any liability to the related Trust
Fund or 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,
the Depositor nor any such person will be protected against any liability
which would otherwise be imposed by reason of any such breach of the terms
and conditions of the Agreement. Each Agreement will further provide that
the Master Servicer, the Depositor and any director, officer, employee or
agent of the Master Servicer or the Depositor will be entitled to
indemnification by the related Trust Fund and will be held harmless
against any loss, liability or expense incurred in connection with any
legal action relating to the Agreement or the Certificates, other than any
loss, liability or expense related to any specific Mortgage Loan or
Mortgage Loans (except any such loss, liability or expense otherwise
reimbursable pursuant to the Agreement) and any loss, liability or expense
incurred by reason of any breach of the terms and conditions of the
Agreement. In addition, each Agreement will provide that neither the
Master Servicer nor the Depositor will be under any obligation to appear
in, prosecute or defend any legal action which is not incidental to its
respective responsibilities under the Agreement and which in its opinion
may involve it in any expense or liability. The Master Servicer or the
Depositor may, however, 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 or the Depositor, as the case may
be, will be entitled to be reimbursed therefor out of funds otherwise
distributable to Certificateholders.
Any person into which the Master Servicer may be merged or consolidated,
or any person resulting from any merger or consolidation to which the
Master Servicer is a party, or any person succeeding to the business of
the Master Servicer, will be the successor of the Master Servicer under
each Agreement, provided that such person is qualified to sell mortgage
loans to, and service mortgage loans on behalf of, FNMA or FHLMC and
further provided that such merger, consolidation or succession does not
adversely affect the then current rating or ratings of the class or
classes of Certificates of such Series that have been rated. In addition,
the Master Servicer may assign its rights, and delegate its duties, under
the Agreement to a person qualified to sell mortgage loans to, and service
mortgage loans on behalf of, FNMA or FHLMC so long as the applicable
Rating Agency or Rating Agencies confirm that their ratings of the related
Certificates in effect prior to such assignment and delegation will not be
reduced or qualified as a result of such assignment and delegation.
EVENTS OF DEFAULT
Unless otherwise specified in the related Prospectus Supplement, Events
of Default under each Agreement will generally consist of (i) any failure
by the Master Servicer to distribute or cause to be distributed to
Certificateholders of any class any required payment (other than an
Advance) which continues unremedied for five business days after the
giving of written notice of such failure to the Master Servicer by the
Trustee or the Depositor, or to the Master Servicer, the Depositor and the
Trustee by the holders of Certificates of such class evidencing not less
than 25% of the related Trust Fund (based on the outstanding principal
balances of the Certificates); (ii) any failure by the Master Servicer to
make an Advance as required under the Agreement, unless cured as specified
therein; (iii) any failure by the Master Servicer duly to observe or
perform in any material respect any of its other covenants or agreements
in the Agreement which continues unremedied for sixty days after the
giving of written notice of such failure to the Master Servicer by the
Trustee or the Depositor, or to the Master Servicer, the Depositor and the
Trustee by the holders of Certificates evidencing not less than 25% of the
related Trust Fund (based on the outstanding principal balances of the
Certificates); and (iv) certain events of insolvency, readjustment of
debt, marshalling of assets and liabilities or similar proceeding and
certain actions by or on behalf of the Master Servicer indicating its
insolvency, reorganization or inability to pay its obligations.
If specified in the related Prospectus Supplement, the Agreement will
permit the Trustee to sell the Mortgage Assets and the other assets of the
Trust Fund in the event that payments in respect thereto are insufficient
to make payments required in the Agreement. The assets of the Trust Fund
will be sold only under the circumstances and in the manner specified in
the related Prospectus Supplement.
RIGHTS UPON EVENT OF DEFAULT
So long as an Event of Default under an Agreement remains unremedied,
the Depositor or the Trustee may, and at the direction of holders of
Certificates having not less than 25% of the related Trust Fund (based on
the outstanding principal balances of the Certificates) and under such
other circumstances as may be specified in such Agreement, the Trustee
shall, terminate all of the rights and obligations of the Master Servicer
under the Agreement relating to such Trust Fund and in and to the Mortgage
Loans, whereupon the Trustee will succeed to all of the responsibilities,
duties and liabilities of the Master Servicer under the Agreement,
including, if specified in the related Prospectus Supplement, the
obligation to make advances, and will be entitled to similar compensation
arrangements. In the event that the Trustee is unwilling or unable so to
act, it may appoint, or petition a court of competent jurisdiction for the
appointment of, a Mortgage Loan servicing institution with a net worth of
at least $10,000,000 to act as successor to the Master Servicer under the
Agreement. Pending such appointment, the Trustee is obligated to act in
such capacity. The Trustee and any such successor may agree upon the
servicing compensation to be paid, which in no event may be greater than
the compensation payable to the Master Servicer under the Agreement.
No Certificateholder, solely by virtue of such holder's status as a
Certificateholder, will have any right under any Agreement to institute
any proceeding with respect to such Agreement, unless such holder
previously has given to the Trustee written notice of default and unless
the holders of Certificates of any Class of such Series evidencing not
less than 25% of the related Trust Fund (based on the outstanding
principal balances of the Certificates) have made written request upon the
Trustee to institute such proceeding in its own name as Trustee thereunder
and have offered to the Trustee reasonable indemnity, and the Trustee for
60 days has neglected or refused to institute any such proceeding.
AMENDMENT
Unless otherwise specified in the related Prospectus Supplement, each
Agreement may be amended by the Depositor, the Master Servicer and the
Trustee, without the consent of any of the Certificateholders, (i) to cure
any ambiguity or mistake; (ii) to correct or supplement any provision
therein which may be defective or inconsistent with any other provision
therein or with the related Prospectus Supplement or Prospectus or to
correct any error or mistake; (iii) to obtain, maintain or improve the
rating of any class of Certificates (it being understood that after
obtaining any rating required at the initial issuance of the related
Series, none of the Depositor, Master Servicer or Trustee is obligated to
obtain, maintain or improve the rating of any class of Certificates of
such Series); or (iv) to make any other revisions with respect to matters
or questions arising under the Agreement which are not materially
inconsistent with the provisions thereof, provided that, in the case of
clause (iv), such action will not adversely affect in any material respect
the interests of any Certificateholder. An amendment will be deemed not to
adversely affect in any material respect the interests of the
Certificateholders if the person requesting such amendment obtains a
letter from each rating agency requested to rate the class or classes of
Certificates of such Series stating that such amendment will not result in
the downgrading or withdrawal of the respective ratings then assigned to
such Certificates. In addition, to the extent provided in the related
Agreement, an Agreement may be amended without the consent of any of the
Certificateholders, to change the manner in which the Certificate Account
is maintained, provided that any such change does not adversely affect the
then current rating on the class or classes of Certificates of such Series
that have been rated. In addition, if a REMIC election is made with
respect to a Trust Fund, the related Agreement may be amended to modify,
eliminate or add to any of its provisions to such extent as may be
necessary to maintain the qualification of the related Trust Fund as a
REMIC, provided that the Trustee has received an opinion of counsel to the
effect that such action is necessary or helpful to maintain such
qualification. Unless otherwise specified in the related Prospectus
Supplement, each Agreement may also be amended by the Depositor, the
Master Servicer and the Trustee with consent of holders of Certificates of
such Series evidencing not less than 66% of the aggregate Percentage
Interests of each class affected thereby for the purpose of adding any
provisions to or changing in any manner or eliminating any of the
provisions of the Agreement or of modifying in any manner the rights of
the holders of the related Certificates; provided, however, that no such
amendment may (i) reduce in any manner the amount of or delay the timing
of, payments received on Mortgage Loans which are required to be
distributed on any Certificate without the consent of the holder of such
Certificate, or (ii) reduce the aforesaid percentage of Certificates of
any class of holders which are required to consent to any such amendment
without the consent of the holders of all Certificates of such class
covered by such Agreement then outstanding. If a REMIC election is made
with respect to a Trust Fund, the Trustee will not be entitled to consent
to an amendment to the related Agreement without having first received an
opinion of counsel to the effect that such amendment will not cause such
Trust Fund to fail to qualify as a REMIC.
TERMINATION; OPTIONAL TERMINATION
Unless otherwise specified in the related Agreement, the obligations
created by each Agreement for each Series of Certificates will terminate
upon the payment to the related Certificateholders of all amounts held in
the Certificate Account or by the Master Servicer and required to be paid
to them pursuant to such Agreement following the later of (i) the final
payment or other liquidation of the last of the Mortgage Assets subject
thereto or the disposition of all property acquired upon foreclosure of
any such Mortgage Assets remaining in the Trust Fund and (ii) the purchase
by the Master Servicer, the Depositor or, if REMIC treatment has been
elected and if specified in the related Prospectus Supplement, by the
holder of the residual interest in the REMIC (see "Certain Federal Income
Tax Consequences" below), from the related Trust Fund of all of the
remaining Mortgage Assets and all property acquired in respect of such
Mortgage Assets.
Unless otherwise specified in the related Prospectus Supplement, any
such purchase of Mortgage Assets and property acquired in respect of
Mortgage Assets evidenced by a Series of Certificates will be made at the
option of the Master Servicer, the Depositor or, if applicable, such
holder of the REMIC residual interest, at a price, and in accordance with
the procedures, specified in the related Prospectus Supplement. The
exercise of such right will effect early retirement of the Certificates of
that Series, but the right of the Master Servicer, the Depositor or, if
applicable, such holder of the REMIC residual interest, to so purchase is
subject to the principal balance of the related Mortgage Assets being less
than the percentage specified in the related Prospectus Supplement of the
aggregate principal balance of the Mortgage Assets at the Cut-off Date for
the Series. The foregoing is subject to the provision that if a REMIC
election is made with respect to a Trust Fund, any repurchase pursuant to
clause (ii) above will be made only in connection with a "qualified
liquidation" of the REMIC within the meaning of Section 860F(g)(4) of the
Code.
THE TRUSTEE
The Trustee under each Agreement will be named in the applicable
Prospectus Supplement. The commercial bank or trust company serving as
Trustee may have normal banking relationships with the Depositor, the
Master Servicer and any of their respective affiliates.
CERTAIN LEGAL ASPECTS OF THE MORTGAGE LOANS
The following discussion contains summaries, which are general in
nature, of certain legal matters relating to the Mortgage Loans. Because
such legal aspects are governed primarily by applicable state law (which
laws may differ substantially), the summaries do not purport to be
complete 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 appropriate laws of the states in which Mortgage Loans may be
originated.
GENERAL
The Mortgage Loans will be secured by deeds of trust, mortgages,
security deeds or deeds to secure debt, depending upon the prevailing
practice in the state in which the property subject to the loan is
located. Deeds of trust are used almost exclusively in California instead
of mortgages. A mortgage creates a lien upon the real property encumbered
by the mortgage, which lien is generally not prior to the lien for real
estate taxes and assessments. Priority between mortgages depends on their
terms and generally on the order of recording with a state or county
office. There are two parties to a mortgage, the mortgagor, who is the
borrower and owner of the mortgaged property, and the mortgagee, who is
the lender. Under the mortgage instrument, the mortgagor delivers to the
mortgagee a note or bond and the mortgage. Although a deed of trust is
similar to a mortgage, a deed of trust formally has three parties, the
borrower-property owner called the trustor (similar to a mortgagor), a
lender (similar to a mortgagee) called the beneficiary, and a third-party
grantee called the trustee. Under a deed of trust, the borrower grants the
property, irrevocably until the debt is paid, in trust, generally with a
power of sale, to the trustee to secure payment of the obligation. A
security deed and a deed to secure debt are special types of deeds which
indicate on their face that they are granted to secure an underlying debt.
By executing a security deed or deed to secure debt, the grantor conveys
title to, as opposed to merely creating a lien upon, the subject property
to the grantee until such time as the underlying debt is repaid. The
trustee's authority under a deed of trust, the mortgagee's authority under
a mortgage and the grantee's authority under a security deed or deed to
secure debt are governed by law and, with respect to some deeds of trust,
the directions of the beneficiary.
Cooperatives. Certain of the Mortgage Loans may be Cooperative Loans.
The Cooperative owns all the real property that comprises the project,
including the land, separate dwelling units and all common areas. The
Cooperative is directly responsible for project management and, in most
cases, payment of real estate taxes and hazard and liability insurance. If
there is a blanket mortgage on the Cooperative and/or underlying land, as
is generally the case, the Cooperative, as project mortgagor, is also
responsible for meeting these mortgage obligations. A blanket mortgage is
ordinarily incurred by the Cooperative in connection with the construction
or purchase of the Cooperative's apartment building. The interest of the
occupant under proprietary leases or occupancy agreements to which that
Cooperative is a party are generally subordinate to the interest of the
holder of the blanket mortgage in that building. If the Cooperative is
unable to meet the payment obligations arising under its blanket mortgage,
the mortgagee holding the blanket mortgage could foreclose on that
mortgage and terminate all subordinate proprietary leases and occupancy
agreements. In addition, the blanket mortgage on a Cooperative may provide
financing in the form of a mortgage that does not fully amortize with a
significant portion of principal being due in one lump sum at final
maturity. The inability of the Cooperative to refinance this mortgage and
its consequent inability to make such final payment could lead to
foreclosure by the mortgagee providing the financing. A foreclosure in
either event by the holder of the blanket mortgage could eliminate or
significantly diminish the value of any collateral held by the lender who
financed the purchase by an individual tenant-stockholder of Cooperative
shares or, in the case of a Trust Fund including Cooperative Loans, the
collateral securing the Cooperative Loans.
The Cooperative is owned by tenant-stockholders who, through ownership
of stock, shares or membership certificates in the corporation, receive
proprietary leases or occupancy agreements which confer exclusive rights
to occupy specific units. Generally, a tenant-stockholder of a Cooperative
must make a monthly payment to the Cooperative representing such tenant-
stockholder's pro rata share of the Cooperative's payments for its blanket
mortgage, real property taxes, maintenance expenses and other capital or
ordinary expenses. An ownership interest in a Cooperative and accompanying
rights is financed through a Cooperative share loan evidenced by a
promissory note and secured by a security interest in the occupancy
agreement or proprietary lease and in the related Cooperative shares. The
lender takes possession of the share certificate and a counterpart of the
proprietary lease or occupancy agreement and a financing statement
covering the proprietary lease or occupancy agreement and the Cooperative
shares is filed in the appropriate state and local offices to perfect the
lender's interest in its collateral. Subject to the limitations discussed
below, upon default of the tenant-stockholder, the lender may sue for
judgment on the promissory note, dispose of the collateral at a public or
private sale or otherwise proceed against the collateral or tenant-
stockholder as an individual as provided in the security agreement
covering the assignment of the proprietary lease or occupancy agreement
and the pledge of Cooperative shares.
FORECLOSURE/REPOSSESSION
Deed of Trust. Foreclosure of a deed of trust is generally accomplished
by a non-judicial sale under a specific provision in the deed of trust
which authorizes the trustee to sell the property at public auction 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, such as California, the trustee must record a notice of default
and send a copy to the borrower-trustor, to any person who has recorded a
request for a copy of any notice of default and notice of sale. 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 lienholder. 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, including California, published for a specified
period of time in one or more newspapers. In addition, these notice
provisions 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 California, the entire process from recording a notice of
default to a non-judicial sale usually takes four to five months.
In some states, including California, 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 attorney's fees,
which may be recoverable by a lender.
Mortgages. Foreclosure of a mortgage is generally accomplished by
judicial action. The action is initiated by the service of legal pleadings
upon all parties having an interest in the real property. Delays in
completion of the foreclosure may occasionally result from difficulties in
locating necessary parties. Judicial foreclosure proceedings are often not
contested by any of the parties. When the mortgagee's right to foreclosure
is contested, the legal proceedings necessary to resolve the issue can be
time consuming. After the completion of a judicial foreclosure proceeding,
the court generally issues a judgment of foreclosure and appoints a
referee or other court officer to conduct the sale of the property. In
general, the borrower, or any other person having a junior encumbrance on
the real estate, may, during a statutorily prescribed reinstatement
period, cure a monetary default by paying the entire amount in arrears
plus other designated costs and expenses incurred in enforcing the
obligation. Generally, state law controls the amount of foreclosure
expenses and costs, including attorney's fees, which may be recovered by a
lender. After the reinstatement period has expired without the default
having been cured, the borrower or junior lienholder no longer has the
right to reinstate the loan and must pay the loan in full to prevent the
scheduled foreclosure sale. If the deed of trust is not reinstated, a
notice of sale must be posted in a public place and, in most states,
published for a specific period of time in one or more newspapers. In
addition, some state laws require that a copy of the notice of sale be
posted on the property and sent to all parties having an interest in the
real property.
Although foreclosure sales are typically public sales, frequently no
third party purchaser bids in excess of the lender's lien because of the
difficulty of determining the exact status of title to the property, the
possible deterioration of the property during the foreclosure proceedings
and a requirement that the purchaser pay for the property in cash or by
cashier's check. Thus the foreclosing lender often purchases the property
from the trustee or referee for an amount equal to the principal amount
outstanding under the loan, accrued and unpaid interest and the expenses
of foreclosure. Thereafter, the lender will assume the burden of
ownership, including obtaining hazard insurance and making such repairs at
its own expense as are necessary to render the property suitable for sale.
The lender will commonly obtain the services of a real estate broker and
pay the broker's commission in connection with the sale of the property.
Depending upon market conditions, the ultimate proceeds of the sale of the
property may not equal the lender's investment in the property.
Courts have imposed general equitable principles upon foreclosure, which
are generally designed to mitigate the legal consequences to the borrower
of the borrower's defaults under the loan documents. Some courts have been
faced with the issue of whether federal or state constitutional provisions
reflecting due process concerns for fair notice require that borrowers
under deeds of trust receive notice longer than that prescribed by
statute. For the most part, these cases have upheld the notice provisions
as being reasonable or have found that the sale by a trustee under a deed
of trust does not involve sufficient state action to afford constitutional
protection to the borrower.
Cooperative Loans. The Cooperative shares owned by the tenant-stockholder
and pledged to the lender are, in almost all cases, subject to
restrictions on transfer as set forth in the Cooperative's Certificate of
Incorporation and By-laws, as well as the proprietary lease or occupancy
agreement, and may be cancelled by the Cooperative for failure by the
tenant-stockholder to pay rent or other obligations or charges owed by
such tenant-stockholder, including mechanics' liens against the
cooperative apartment building incurred by such tenant-stockholder. The
proprietary lease or occupancy agreement generally permits the Cooperative
to terminate such lease or agreement in the event an obligor fails to make
payments or defaults in the performance of covenants required thereunder.
Typically, the lender and the Cooperative enter into a recognition
agreement which establishes the rights and obligations of both parties in
the event of a default by the tenant-stockholder on its obligations under
the proprietary lease or occupancy agreement. A default by the tenant-
stockholder under the proprietary lease or occupancy agreement will
usually constitute a default under the security agreement between the
lender and the tenant-stockholder.
The recognition agreement generally provides that, in the event that the
tenant-stockholder has defaulted under the proprietary lease or occupancy
agreement, the Cooperative will take no action to terminate such lease or
agreement until the lender has been provided with an opportunity to cure
the default. The recognition agreement typically provides that if the
proprietary lease or occupancy agreement is terminated, the Cooperative
will recognize the lender's lien against proceeds from the sale of the
Cooperative apartment, subject, however, to the Cooperative's right to
sums due under such proprietary lease or occupancy agreement. The total
amount owed to the Cooperative by the tenant-stockholder, which the lender
generally cannot restrict and does not monitor, could reduce the value of
the collateral below the outstanding principal balance of the Cooperative
Loan and accrued and unpaid interest thereon.
Recognition agreements also provide that in the event of a foreclosure
on a Cooperative Loan, the lender must obtain the approval or consent of
the Cooperative as required by the proprietary lease before transferring
the Cooperative shares or assigning the proprietary lease. Generally, the
lender is not limited in any rights it may have to dispossess the tenant-
stockholders.
In some states, foreclosure on the Cooperative shares is accomplished by
a sale in accordance with the provisions of Article 9 of the UCC and the
security agreement relating to those shares. Article 9 of the UCC requires
that a sale be conducted in a "commercially reasonable" manner. Whether a
foreclosure sale has been conducted in a "commercially reasonable" manner
will depend on the facts in each case. In determining commercial
reasonableness, a court will look to the notice given the debtor and the
method, manner, time, place and terms of the foreclosure. Generally, a
sale conducted according to the usual practice of banks selling similar
collateral will be considered reasonably conducted.
Article 9 of the UCC provides that the proceeds of the sale will be
applied first to pay the costs and expenses of the sale and then to
satisfy the indebtedness secured by the lender's security interest. The
recognition agreement, however, generally provides that the lender's right
to reimbursement is subject to the right of the Cooperative to receive
sums due under the proprietary lease or occupancy agreement. If there are
proceeds remaining, the lender must account to the tenant-stockholder for
the surplus. Conversely, if a portion of the indebtedness remains unpaid,
the tenant-stockholder is generally responsible for the deficiency. See
"Anti-Deficiency Legislation and Other Limitations on Lenders" below.
In the case of foreclosure on a building which was converted from a
rental building to a building owned by a Cooperative under a non-eviction
plan, some states require that a purchaser at a foreclosure sale take the
property subject to rent control and rent stabilization laws which apply
to certain tenants who elected to remain in the building but who did not
purchase shares in the Cooperative when the building was so converted.
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, including California, this right of
redemption applies only to sales following judicial foreclosure, and not
to sales pursuant to a non-judicial 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 retain the property and pay the expenses of ownership
until the redemption period has run.
ANTI-DEFICIENCY LEGISLATION AND OTHER LIMITATIONS ON LENDERS
Certain states have imposed statutory restrictions that limit the
remedies of a beneficiary under a deed of trust or a mortgagee under a
mortgage. In some states, including California, 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
current fair market value of the property at the time of the foreclosure
sale. As a result of these prohibitions, it is anticipated that in most
instances the Master Servicer will utilize the non-judicial foreclosure
remedy and will not seek deficiency judgments against defaulting
Mortgagors.
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.
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.
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 the secured mortgage lender to realize upon its security. For
example, in a proceeding under the federal Bankruptcy Code, a lender may
not foreclose on the Mortgaged Property without the permission of the
bankruptcy court. The rehabilitation plan proposed by the debtor may
provide, if the Mortgaged Property is not the debtor's principal residence
and the court determines that the value of the Mortgaged Property is less
than the principal balance of the mortgage loan, for the reduction of the
secured indebtedness to the value of the Mortgaged Property as of the date
of the commencement of the bankruptcy, rendering the lender a general
unsecured creditor for the difference, and also may reduce the monthly
payments due under such mortgage loan, change the rate of interest and
alter the mortgage loan repayment schedule. The effect of any such
proceedings under the federal Bankruptcy Code, including but not limited
to any automatic stay, could result in delays in receiving payments on the
Mortgage Loans underlying a Series of Certificates and possible reductions
in the aggregate amount of such payments.
The federal tax laws provide priority to certain tax liens over the lien
of a mortgage or secured party. Numerous federal and state consumer
protection laws impose substantive requirements upon mortgage lenders in
connection with the origination, servicing and 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 and state laws impose specific statutory
liabilities upon lenders who fail to comply with the provisions of the
law. In some cases, this liability may affect assignees of the loans or
contracts.
Generally, Article 9 of the UCC governs foreclosure on Cooperative
shares and the related proprietary lease or occupancy agreement. Some
courts have interpreted section 9-504 of the UCC to prohibit a deficiency
award unless the creditor establishes that the sale of the collateral
(which, in the case of a Cooperative Loan, would be the shares of the
Cooperative and the related proprietary lease or occupancy agreement) was
conducted in a commercially reasonable manner.
ENVIRONMENTAL RISKS
Real property pledged as security to a lender may be subject to
unforeseen environmental risks. Under the laws of certain states,
contamination of a property may give rise to a lien on the property to
assure the payment of the costs of clean-up. In several states such a lien
has priority over the lien of an existing mortgage against such property.
In addition, under the federal Comprehensive Environmental Response,
Compensation and Liability Act of 1980 ("CERCLA"), the United States
Environmental Protection Agency ("EPA") may impose a lien on property
where EPA has incurred clean-up costs. However, a CERCLA lien is
subordinate to pre-existing, perfected security interests.
Under the laws of some states, and under CERCLA, it is conceivable that
a lender may be held liable, as an "owner" or "operator", for costs of
addressing releases or threatened releases of hazardous substances at a
Mortgaged Property, regardless of whether or not the environmental damage
or threat was caused by a prior owner or operator. CERCLA imposes
liability on any and all "responsible parties" (which includes, inter
alia, the property owner and operator) for the cost of clean-up of
releases of hazardous substances. However, CERCLA excludes from the
definition of "owner or operator" secured creditors who hold indicia of
ownership for the purpose of protecting their security interest, but
"without participating in the management of the facility". That exclusion
was substantially narrowed by a May 1990 decision of the United States
Court of Appeals for the Eleventh Circuit in United States v. Fleet
Factors Corp., which held that a lender need not have involved itself in
the day-to-day operations of the facility or participated in decisions
relating to hazardous waste management in order to be liable; rather,
liability could attach to the lender if its involvement with the
management of the facility is broad enough to support the inference that
the lender could affect hazardous waste management practices if it so
chose. The court added that a lender's capacity to influence such
decisions could be inferred from the extent of its involvement in the
facility's financial management. In response to Fleet Factors, EPA
promulgated regulations designed to clarify the range of activities a
lender may engage in without losing the benefit of the statutory
exclusion. Under the regulations, which took effect in April 1992, a
lender is permitted to monitor the borrower's environmental practices in
order to determine if the facility is in compliance with applicable law,
and to require the borrower to take measures necessary to achieve or
maintain compliance or conduct necessary clean-ups. The lender may not,
however, exercise control over or assume responsibility for the borrower's
environmental practices. Such actions would be considered "participation
in the management of the facility". Also, if the lender takes title to or
possession of the property, it might be deemed to have obviated the
security interest exclusion and to be liable for clean-up costs pursuant
to CERCLA. The EPA regulations allow lenders to take certain actions with
respect to foreclosure, without losing the benefit of the statutory
exclusion. Essentially, the regulations allow the lender to take actions
consistent with protecting its security interest, but not actions which
demonstrate an intent to exercise long-term ownership interest in the
property. While the EPA regulations offer some protection to lenders, it
must be noted that such protection may not be available under applicable
state law. Furthermore, the regulations are binding only on EPA with
respect to EPA's enforcement powers and cost recovery rights. It has not
yet been determined whether the federal courts will apply the regulations
in cost recovery actions brought against lenders by other responsible
parties, although the regulations may well be considered persuasive by the
courts. (Two judicial challenges have been brought against the EPA
regulations in the United States Court of Appeals for the District of
Columbia Circuit. The challenges both allege that the regulations are
inconsistent with the statutory requirements of CERCLA and, therefore,
should be invalidated. The challenges were filed on July 28, 1992 and are
still pending.) If a lender is or becomes liable, it can bring an action
for contribution against any other "responsible parties", including a
previous owner or operator, who created the environmental hazard, but
those persons or entities may be bankrupt or otherwise judgment proof. The
costs associated with environmental clean-up may be substantial. It is
conceivable that such remedial costs arising from the circumstances set
forth above would become a liability of the Trust Fund and occasion a loss
to Certificateholders.
Except as otherwise specified in the applicable Prospectus Supplement,
at the time the Mortgage Loans were originated, no environmental
assessment or a very limited environmental assessment of the Mortgaged
Properties was conducted.
DUE-ON-SALE CLAUSES
Unless otherwise provided in the related Prospectus Supplement, each
conventional Mortgage Loan will contain a due-on-sale clause which will
generally provide that if the mortgagor or obligor sells, transfers or
conveys the Mortgaged Property, the loan may be accelerated by the
mortgagee. In recent years, court decisions and legislative actions placed
substantial restriction on the right of lenders to enforce such clauses in
many states. For instance, the California Supreme Court in August 1978
held that due-on-sale clauses were generally unenforceable. However, the
Garn-St Germain Depository Institutions Act of 1982 (the "Garn-St Germain
Act"), subject to certain exceptions, preempts state constitutional,
statutory and case law prohibiting the enforcement of due-on-sale clauses.
As to loans secured by an owner-occupied residence, the Garn-St Germain
Act sets forth nine specific instances in which a mortgagee covered by the
Act may not exercise its rights under a due-on-sale clause,
notwithstanding the fact that a transfer of the property may have
occurred. The inability to enforce a due-on-sale clause may result in
transfer of the related Mortgaged Property to an uncreditworthy person,
which could increase the likelihood of default or may result in a mortgage
bearing an interest rate below the current market rate being assumed by a
new home buyer, which may affect the average life of the Mortgage Loans
and the number of Mortgage Loans which may extend to maturity.
PREPAYMENT CHARGES
Under certain state laws, prepayment charges may not be imposed after a
certain period of time following the origination of Mortgage Loans with
respect to prepayments on loans secured by liens encumbering owner-occupied
residential properties. Since many of the Mortgaged Properties
will be owner-occupied, it is anticipated that prepayment charges may not
be imposed with respect to many of the Mortgage Loans. The absence of such
a restraint on prepayment, particularly with respect to fixed rate
Mortgage Loans having higher Mortgage Rates or APRs, may increase the
likelihood of refinancing or other early retirement of such loans or
contracts.
APPLICABILITY OF USURY LAWS
Title V of the Depository Institutions Deregulation and Monetary Control
Act of 1980, enacted in March 1980 ("Title V"), provides that state usury
limitations shall not apply to certain types of residential first mortgage
loans originated by certain lenders after March 31, 1980. The Office of
Thrift Supervision, as successor to the Federal Home Loan Bank Board, is
authorized to issue rules and regulations and to publish interpretations
governing implementation of Title V. The statute authorized the states to
reimpose interest rate limits by adopting, before April 1, 1983, a law or
constitutional provision which expressly rejects an application of the
federal law. In addition, even where Title V is not so rejected, any state
is authorized by the law to adopt a provision limiting discount points or
other charges on mortgage loans covered by Title V. Certain states have
taken action to reimpose interest rate limits and/or to limit discount
points or other charges.
SOLDIERS' AND SAILORS' CIVIL RELIEF ACT
Generally, under the terms of the Soldiers' and Sailors' Civil Relief
Act of 1940, as amended (the "Relief Act"), a borrower who enters military
service after the origination of such borrower's Mortgage Loan (including
a borrower who is a member of the National Guard or is in reserve status
at the time of the origination of the Mortgage Loan and is later called to
active duty) may not be charged interest above an annual rate of 6% during
the period of such borrower's active duty status, unless a court orders
otherwise upon application of the lender. It is possible that such
interest rate limitation could have an effect, for an indeterminate period
of time, on the ability of the Master Servicer to collect full amounts of
interest on certain of the Mortgage Loans. Unless otherwise provided in
the applicable Prospectus Supplement, any shortfall in interest
collections resulting from the application of the Relief Act could result
in losses to the holders of the Certificates. 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 borrower's period of
active duty status. Thus, in the event that such a Mortgage Loan goes into
default, there may be delays and losses occasioned by the inability to
realize upon the mortgaged property in a timely fashion.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The following summary represents the advice of Brown & Wood LLP, counsel
to the Depositor, as to the anticipated material federal income tax
consequences of the purchase, ownership and disposition of Certificates.
This summary is based on laws, regulations, including the REMIC
regulations promulgated by the Treasury Department on December 23, 1992,
and generally effective for REMICs with start-up dates on or after
November 12, 1991 (the "REMIC Regulations"), rulings and decisions now in
effect or (with respect to regulations) proposed, all of which are subject
to change either prospectively or retroactively. This summary does not
address the federal income tax consequences of an investment in
Certificates applicable to all categories of investors, some of which (for
example, banks and insurance companies) may be subject to special rules.
Prospective investors should consult their tax advisors regarding the
federal, state, local and any other tax consequences to them of the
purchase, ownership and disposition of Certificates.
GENERAL
The federal income tax consequences to Certificateholders will vary
depending on whether an election is made to treat the Trust Fund relating
to a particular Series of Certificates as a REMIC under the Code. The
Prospectus Supplement for each Series of Certificates will specify whether
a REMIC election will be made.
NON-REMIC CERTIFICATES
If a REMIC election is not made, Brown & Wood LLP will deliver its
opinion that the Trust Fund will not be classified as an association
taxable as a corporation, and that each such Trust Fund will be classified
as a grantor trust under subpart E, Part I of subchapter J of the Code. In
this case, owners of Certificates will be treated for federal income tax
purposes as owners of a portion of the Trust Fund's assets as described
below.
SINGLE CLASS OF SENIOR CERTIFICATES
Characterization. The Trust Fund may be created with one class of
Senior Certificates and one class of Subordinated Certificates. In this
case, each Senior Certificateholder will be treated as the owner of a pro
rata undivided interest in the interest and principal portions of the
Trust Fund represented by that Senior Certificate and will be considered
the equitable owner of a pro rata undivided interest in each of the
Mortgage Loans in the Pool. Any amounts received by a Senior
Certificateholder in lieu of amounts due with respect to any Mortgage Loan
because of a default or delinquency in payment will be treated for federal
income tax purposes as having the same character as the payments they
replace.
Each holder of a Senior Certificate will be required to report on its
federal income tax return its pro rata share of the entire income from the
Mortgage Loans in the Trust Fund represented by that Senior Certificate,
including interest, original issue discount, if any, prepayment fees,
assumption fees, any gain recognized upon an assumption and late payment
charges received by the Master Servicer in accordance with such Senior
Certificateholder's method of accounting. Under Code Section 162 or 212
each Senior Certificateholder will be entitled to deduct its pro rata
share of servicing fees, prepayment fees, assumption fees, any loss
recognized upon an assumption and late payment charges retained by the
Master Servicer, provided that such amounts are reasonable compensation
for services rendered to the Trust Fund. Senior Certificateholders that
are individuals, estates or trusts will be entitled to deduct their share
of expenses only to the extent such expenses plus all other Code Section
212 expenses exceed two percent of its adjusted gross income. A Senior
Certificateholder using the cash method of accounting must take into
account its pro rata share of income and deductions as and when collected
by or paid to the Master Servicer. A Senior Certificateholder using an
accrual method of accounting must take into account its pro rata share of
income and deductions as they become due or are paid to the Master
Servicer, whichever is earlier. If the Servicing Fees paid to the Master
Servicer were deemed to exceed reasonable servicing compensation, the
amount of such excess could be considered as a retained ownership interest
by the Master Servicer (or any person to whom the Master Servicer assigned
for value all or a portion of the Servicing Fees) in a portion of the
interest payments on the Mortgage Loans. The Mortgage Loans may then be
subject to the "coupon stripping" rules of the Code discussed below.
Unless otherwise specified in the related Prospectus Supplement, as to
each Series of Certificates Brown & Wood LLP will have advised the
Depositor that:
(i) a Senior Certificate owned by a "domestic building and loan
association" within the meaning of Code Section 7701(a)(19) representing
principal and interest payments on Mortgage Loans will be considered to
represent "loans . . . secured by an interest in real property which is . . .
residential property" within the meaning of Code
Section 7701(a)(19)(C)(v); to the extent that the Mortgage Loans represented
by that Senior Certificate are of a type described in such Code section;
(ii) a Senior Certificate owned by a financial institution described in
Code Section 593(a) representing principal and interest payments on Mortgage
Loans will be considered to represent "qualifying real property loans" within
the meaning of Code
Section 593(d) and the Treasury regulations under Code Section 593; to the
extent that the Mortgage Loans represented by that Senior Certificate are of
a type described in such
Code section;
(iii) a Senior Certificate owned by a real estate investment
trust representing an interest in Mortgage Loans will be considered to
represent "real estate assets" within the meaning of Code Section
856(c)(5)(A), and interest income on the Mortgage Loans will be considered
"interest on obligations secured by mortgages on real property" within the
meaning of Code Section 856(c)(3)(B); to the extent that the Mortgage
Loans represented by that Senior Certificate are of a type described in
such Code section; and
(iv) a Senior Certificate owned by a REMIC will be an "obligation . .
. which is principally secured, directly or indirectly, by an interest in
real property" within the meaning of Code Section 860G(a)(3).
Buydown Mortgage Loans. The assets constituting certain Trust Funds may
include Buydown Mortgage Loans. The characterization of any investment in
Buydown Mortgage Loans will depend upon the precise terms of the related
Buydown Agreement, but to the extent that such Buydown Mortgage Loans are
secured in part by a bank account or other personal property, they may not
be treated in their entirety as assets described in the foregoing sections
of the Code. There are no directly applicable precedents with respect to
the federal income tax treatment or the characterization of investments in
Buydown Mortgage Loans. Accordingly, holders of Senior Certificates should
consult their own tax advisors with respect to characterization of
investments in Senior Certificates representing an interest in a Trust
Fund that includes Buydown Mortgage Loans.
Premium. The price paid for a Senior Certificate by a holder will be
allocated to such holder's undivided interest in each Mortgage Loan based
on each Mortgage Loan's relative fair market value, so that such holder's
undivided interest in each Mortgage Loan will have its own tax basis. A
Senior Certificateholder that acquires an interest in Mortgage Loans at a
premium may elect to amortize such premium under a constant interest
method, provided that such Mortgage Loan was originated after September
27, 1985. Premium allocable to a Mortgage Loan originated on or before
September 27, 1985 should be allocated among the principal payments on the
Mortgage Loan and allowed as an ordinary deduction as principal payments
are made. Amortizable bond premium will be treated as an offset to
interest income on such Senior Certificate. The basis for such Senior
Certificate will be reduced to the extent that amortizable premium is
applied to offset interest payments.
It is not clear whether a reasonable prepayment assumption should be
used in computing amortization of premium allowable under Code Section
171.
If a premium is not subject to amortization using a reasonable
prepayment assumption, the holder of a Senior Certificate acquired at a
premium should recognize a loss, if a Mortgage Loan prepays in full, equal
to the difference between the portion of the prepaid principal amount of
the Mortgage Loan that is allocable to the Certificate and the portion of
the adjusted basis of the Certificate that is allocable to the Mortgage
Loan. If a reasonable prepayment assumption is used to amortize such
premium, it appears that such a loss would be available, if at all, only
if prepayments have occurred at a rate faster than the reasonable assumed
prepayment rate. It is not clear whether any other adjustments would be
required to reflect differences between an assumed prepayment rate and the
actual rate of prepayments.
Original Issue Discount. The Internal Revenue Service (the "IRS") has
stated in published rulings that, in circumstances similar to those
described herein, the special rules of the Code relating to "original
issue discount"(currently Code Sections 1271 through 1273 and 1275) will
be applicable to a Senior Certificateholder's interest in those Mortgage
Loans meeting the conditions necessary for these sections to apply. Rules
regarding periodic inclusion of original issue discount income are
applicable to mortgages of corporations originated after May 27, 1969,
mortgages of noncorporate mortgagors (other than individuals) originated
after July 1, 1982, and mortgages of individuals originated after March 2,
1984. Such original issue discount could arise by the financing of points
or other charges by the originator of the mortgages in an amount greater
than a statutory de minimis exception to the extent that the points are
not currently deductible under applicable Code provisions or are not for
services provided by the lender. Original issue discount generally must be
reported as ordinary gross income as it accrues under a constant interest
method. See "Accrual of Original Issue Discount" under "Multiple Classes
of Senior Certificates" below.
Market Discount. A Senior Certificateholder that acquires an undivided
interest in Mortgage Loans may be subject to the market discount rules of
Code Sections 1276 through 1278 to the extent an undivided interest in a
Mortgage Loan is considered to have been purchased at a "market discount".
Generally, it is equal to the excess of the portion of the principal
amount of such Mortgage Loan allocable to such holder's undivided interest
over such holder's tax basis in such interest. Market discount with
respect to a Senior Certificate will be considered to be zero if the
amount allocable to the Senior Certificate is less than 0.25% of the
Senior Certificate's stated redemption price at maturity multiplied by the
weighted average maturity remaining after the date of purchase. Treasury
regulations implementing the market discount rules have not yet been
issued; therefore, investors should consult their own tax advisors
regarding the application of these rules and the advisability of making
any of the elections allowed under Code Sections 1276 through 1278.
The Code provides that any principal payment (whether a scheduled
payment or a prepayment) or any gain on disposition of a market discount
bond acquired by the taxpayer after October 22, 1986 shall be treated as
ordinary income to the extent that it does not exceed the accrued market
discount at the time of such payment. The amount of accrued market
discount for purposes of determining the tax treatment of subsequent
principal payments or dispositions of the market discount bond is to be
reduced by the amount so treated as ordinary income.
The Code also grants the Treasury Department authority to issue
regulations providing for the computation of accrued market discount on
debt instruments, the principal of which is payable in more than one
installment. While the Treasury Department has not yet issued regulations,
rules described in the relevant legislative history will apply. Under
those rules, the holder of a market discount bond may elect to accrue
market discount either on the basis of a constant interest rate or
according to one of the following methods. If a Senior Certificate is
issued with original issue discount, the amount of market discount that
accrues during any accrual period would be equal to the product of (i) the
total remaining market discount, multiplied by (ii) a fraction, the
numerator of which is the original issue discount accruing during the
period and the denominator of which is the total remaining original issue
discount at the beginning of the accrual period. For Offered Certificates
issued without original issue discount, the amount of market discount that
accrues during a period is equal to the product of (i) the total remaining
market discount, multiplied by (ii) a fraction, the numerator of which is
the amount of stated interest paid during the accrual period and the
denominator of which is the total amount of stated interest remaining to
be paid at the beginning of the accrual period. For purposes of
calculating market discount under any of the above methods in the case of
instruments (such as the Senior Certificates) which provide for payments
which may be accelerated by reason of prepayments of other obligations
securing such instruments, the same prepayment assumption applicable to
calculating the accrual of original issue discount will apply. Because the
regulations described above have not been issued, it is impossible to
predict what effect those regulations might have on the tax treatment of a
Senior Certificate purchased at a discount or premium in the secondary
market.
A holder who acquired a Senior Certificate at a market discount also may
be required to defer, until the maturity date of such Senior Certificate
or its earlier disposition in a taxable transaction, the deduction of a
portion of the amount of interest that the holder paid or accrued during
the taxable year on indebtedness incurred or maintained to purchase or
carry the Senior Certificate in excess of the aggregate amount of interest
(including original issue discount) includible in such holder's gross
income for the taxable year with respect to such Senior Certificate. The
amount of such net interest expense deferred in a taxable year may not
exceed the amount of market discount accrued on the Senior Certificate for
the days during the taxable year on which the holder held the Senior
Certificate and, in general, would be deductible when such market discount
is includible in income. The amount of any remaining deferred deduction is
to be taken into account in the taxable year in which the Senior
Certificate matures or is disposed of in a taxable transaction. In the
case of a disposition in which gain or loss is not recognized in whole or
in part, any remaining deferred deduction will be allowed to the extent of
gain recognized on the disposition. This deferral rule does not apply if
the Senior Certificateholder elects to include such market discount in
income currently as it accrues on all market discount obligations acquired
by such Senior Certificateholder in that taxable year or thereafter.
MULTIPLE CLASSES OF SENIOR CERTIFICATES
A. STRIPPED BONDS AND STRIPPED COUPONS
Pursuant to Code Section 1286, the separation of ownership of the right
to receive some or all of the interest payments on an obligation from
ownership of the right to receive some or all of the principal payments
results in the creation of "stripped bonds" with respect to principal
payments and "stripped coupons" with respect to interest payments. For
purposes of Code Sections 1271 through 1288, Code Section 1286 treats a
stripped bond or a stripped coupon as an obligation issued on the date
that such stripped interest is created. If a Trust Fund is created with
two classes of Senior Certificates, one class of Senior Certificates will
represent the right to principal and interest, or principal only, on all
or a portion of the Loans (the "Stripped Bond Certificates"), while the
second class of Offered Certificates will represent the right to some or
all of the interest on such portion (the "Stripped Coupon Certificates").
Recently issued IRS additional guidance suggests that a servicing fee in
excess of reasonable servicing ("excess servicing") will be treated under
the stripped bond rules. It appears to require that reasonable servicing
be calculated on a Mortgage Loan by Mortgage Loan basis which could result
in some Mortgage Loans being treated as having more than 100 basis points
of interest (i.e., 1% interest on the Mortgage Loan principal balance)
stripped off. However, if the Certificates are initially sold with a de
minimis discount (assuming no prepayment assumption is required), any non-de
minimis discount arising from a subsequent transfer of the Certificates
should be treated as market discount. See "Certain Federal Income Tax
Consequences--Non-REMIC Certificates", "--Multiple Classes of Senior
Certificates" and "--Stripped Bonds and Stripped Coupons" herein.
Under the Treasury Regulations issued December 28, 1992, a Stripped Bond
Certificate is generally treated as a single debt instrument issued on the
day it is purchased for purposes of calculating any original issue
discount. Generally, if the discount on a Stripped Bond Certificate is
larger than a de minimis amount (as calculated for purposes of the
original issue discount rules) a purchaser of such a certificate will be
required to accrue the discount under the original issue discount rules of
the Code. See "Non-REMIC Certificates" and "Single Class of Senior
Certificates--Original Issue Discount" herein. However, a purchaser of a
Stripped Bond Certificate will be required to account for any discount on
the certificate as market discount rather than original issue discount if
either (i) the amount of original issue discount with respect to the
certificate was treated as zero under the original issue discount de
minimis rule when the certificate was stripped or (ii) no more than 100
basis points (including any amount of servicing in excess of reasonable
servicing) is stripped off of the Trust Fund's Mortgage Loans. Pursuant to
Revenue Procedure 91-49, issued on August 8, 1991, purchasers of Stripped
Bond Certificates using an inconsistent method of accounting must change
their method of accounting and request the consent of the IRS to the
change in their accounting method on a statement attached to their first
timely tax return filed after August 8, 1991.
The precise tax treatment of Stripped Coupon Certificates is
substantially uncertain. The Code could be read literally to require that
original issue discount computations be made on a Loan by Loan basis.
However, based on the recent IRS guidance, it appears that a Stripped
Coupon Certificate should be treated as a single installment obligation
subject to the original issue discount rules of the Code. As a result, all
payments on a Stripped Coupon Certificate would be included in the
certificate's stated redemption price at maturity for purposes of
calculating income on such certificate under the original issue discount
rules of the Code.
It is unclear under what circumstances, if any, the prepayment of
Mortgage Loans will give rise to a loss to the holder of a Stripped Bond
Certificate purchased at a premium or a Stripped Coupon Certificate. If
such Certificate is treated as a single instrument (rather than an
interest in discrete mortgage loans) and the effect of prepayments is
taken into account in computing yield with respect to such Senior
Certificate, it appears that no loss may be available as a result of any
particular prepayment unless prepayments occur at a rate faster than the
assumed prepayment rate. However, if such Certificate is treated as an
interest in discrete Mortgage Loans, or if no prepayment assumption is
used, then when a Mortgage Loan is prepaid, the holder of such Certificate
should be able to recognize a loss equal to the portion of the adjusted
issue price of such Certificate that is allocable to such Mortgage Loan.
Holders of Stripped Bond Certificates and Stripped Coupon Certificates
are urged to consult with their own tax advisors regarding the proper
treatment of these Certificates for federal income tax purposes.
Treatment of Certain Owners. Several Code sections provide beneficial
treatment to certain taxpayers that invest in mortgage loans of the type
that make up the Trust Fund. With respect to these Code sections, no
specific legal authority exists regarding whether the character of the
Senior Certificates, for federal income tax purposes, will be the same as
that of the underlying Mortgage Loans. While Code Section 1286 treats a
stripped obligation as a separate obligation for purposes of the Code
provisions addressing original issue discount, it is not clear whether
such characterization would apply with regard to these other Code
sections. Although the issue is not free from doubt, based on policy
considerations, each class of Senior Certificates should be considered to
represent "qualifying real property loans" within the meaning of Code
Section 593(d), "real estate assets" within the meaning of Code Section
856(c)(5)(A) and "loans . . . secured by, an interest in real property
which is . . . residential real property" within the meaning of Code
Section 7701(a)(19)(C)(v), and interest income attributable to Senior
Certificates should be considered to represent "interest on obligations
secured by mortgages on real property" within the meaning of Code Section
856(c)(3)(B), provided that in each case the underlying Mortgage Loans and
interest on such Mortgage Loans qualify for such treatment. Prospective
purchasers to which such characterization of an investment in Senior
Certificates is material should consult their own tax advisors regarding
the characterization of the Senior Certificates and the income therefrom.
Senior Certificates will be "obligation(s) (including any participation or
certificate of beneficial ownership therein) which (are) principally
secured, directly or indirectly, by an interest in real property" within
the meaning of Code Section 860G(a)(3).
B. OFFERED CERTIFICATES REPRESENTING INTERESTS IN LOANS OTHER THAN ARMS
Original issue discount on each Senior Certificate must be included in
the owner's ordinary income for federal income tax purposes as it accrues,
in accordance with a constant interest method that takes into account the
compounding of interest, in advance of receipt of the cash attributable to
such income. The amount of original issue discount required to be included
in an owner's income in any taxable year with respect to a Senior
Certificate representing an interest in Mortgage Loans other than ARMs
likely will be computed as described below under "Accrual of Original
Issue Discount". The following discussion is based in part on Treasury
regulations under Code Sections 1271 through 1273 and 1275 (the "OID
Regulations") and in part on the provisions of the Tax Reform Act of 1986
(the "1986 Act"). The holder of a Regular Certificate should be aware,
however, that the OID Regulations do not adequately address certain issues
relevant to prepayable securities, such as the Regular Certificates.
Under the Code, each Senior Certificate will be treated as having been
issued on the date it was purchased with an amount of original issue
discount equal to the excess of such Certificate's stated redemption price
at maturity over its issue price. The issue price of a Senior Certificate
as to any purchaser is equal to the price paid by such purchaser for the
Senior Certificate. The stated redemption price at maturity of a Senior
Certificate is the sum of all payments to be made on such Certificate
other than payments that are treated as qualified stated interest
payments. The accrual of this original issue discount, as described below
under "Accrual of Original Issue Discount", will, unless otherwise
specified in the related Prospectus Supplement, utilize the original yield
to maturity of the Senior Certificate, calculated based on a reasonable
assumed prepayment rate for the Mortgage Loans underlying the Senior
Certificate (the "Prepayment Assumption"), and will take into account
events that occur during the calculation period. The Prepayment Assumption
will be determined in the manner prescribed by regulations which have not
yet been issued. The legislative history of the 1986 Act (the "Legislative
History") provides, however, that the regulations will require that the
Prepayment Assumption be the prepayment assumption that is used in
determining the offering price of such Certificate. No representation is
made that such Certificate will prepay at the Prepayment Assumption or at
any other rate. Although the existing authority literally only apply to
debt instruments collateralized by mortgages that are subject to
prepayment rather than direct ownership interests in such mortgages,
because no other legal authority provides guidance with regard to the
proper method for accruing original issue discount on obligations that are
subject to prepayment, until Treasury regulations or other legal authority
instructs otherwise, the Master Servicer intends to calculate, and report
original issue discount under the method described below.
Accrual of Original Issue Discount. Generally, the owner of a Senior
Certificate must include in gross income the sum of the "daily portions",
as defined below, of the original issue discount on such Senior
Certificate for each day on which it owns a Senior Certificate, including
the date of purchase but excluding the date of disposition. In the case of
an original owner, the daily portions of original issue discount with
respect to each component generally will be determined as follows under
the existing authority. A calculation will be made by the Master Servicer
or such other entity specified in the related Prospectus Supplement of the
portion of original issue discount that accrues during each successive
monthly accrual period (or shorter period from the date of original issue)
that ends on the day in the calendar year corresponding to each of the
Distribution Dates on the Senior Certificate (or the day prior to each
such date). This will be done, in the case of each full month accrual
period, by adding (i) the present value at the end of the accrual period
(determined by using as a discount factor the original yield to maturity
of the respective component, under the Prepayment Assumption) of all
remaining payments to be received under the Prepayment Assumption on the
respective component, and (ii) any payments received during such accrual
period, and subtracting from that total the "adjusted issue price" of the
respective component at the beginning of such accrual period. The
"adjusted issue price" of a Senior Certificate at the beginning of the
first accrual period is its issue price; the "adjusted issue price" of a
Senior Certificate at the beginning of a subsequent accrual period is the
"adjusted issue price" at the beginning of the immediately preceding
accrual period plus the amount of original issue discount allocable to
that accrual period reduced by the amount of any payment made at the end
of or during that accrual period. The original issue discount accruing
during such accrual period will then be divided by the number of days in
the period to determine the daily portion of original issue discount for
each day in the period. With respect to an initial accrual period shorter
than a full monthly accrual period, the daily portions of original issue
discount must be determined according to an appropriate allocation under
any reasonable method.
C. SENIOR CERTIFICATES REPRESENTING INTERESTS IN ARM LOANS
The OID Regulations do not address the treatment of instruments, such as
the Senior Certificates, which represent interests in Mortgage Loans with
Mortgage Rates which adjust periodically ("ARM Loans"). Additionally, the
IRS has not issued guidance under the Code's coupon stripping rules with
respect to such instruments. In the absence of any authority the Master
Servicer will report original issue discount on Senior Certificates
attributable to ARM Loans ("Stripped ARM Obligations") to holders in a
manner it believes is consistent with the rules described above under the
heading "Senior Certificates Representing Interests in Loans Other Than
ARM Loans" and with the OID Regulations. In general, application of these
rules may require inclusion of income on a Stripped ARM Obligation in
advance of the receipt of cash attributable to such income. Further, the
addition of interest deferred by reason of negative amortization
("Deferred Interest") to the principal balance of an ARM Loan may require
the inclusion of such amount in the income of the Senior Certificateholder
when such amount accrues. Furthermore, the addition of Deferred Interest
to the Senior Certificate's principal balance will result in additional
income (including possibly original issue discount income) to the Senior
Certificateholder over the remaining life of such Senior Certificates.
Because the treatment of Stripped ARM Obligations is uncertain,
investors are urged to consult their tax advisors regarding how income
will be includible with respect to such Certificates.
POSSIBLE APPLICATION OF CONTINGENT PAYMENT RULES TO CERTAIN NON-REMIC
CERTIFICATES
The regulations under Section 1275 of the Code include rules for
obligations that provide for one or more contingent payments. Rights to
interest payments on a mortgage loan might be considered to be contingent
within the meaning of the OID Regulations if such interest would not be
paid if the borrower exercised its right to prepay the mortgage loan.
However, in the case of an investor having a right to shares of the
interest and principal payments on such a mortgage loan when the share of
interest is not substantially greater than the share of principal, the
possibility of prepayment should not be considered to characterize
otherwise noncontingent interest payments as contingent payments; the
absence of interest payments following a prepayment would be the normal
consequence of the return of such investor's capital in the form of a
principal payment. On the other hand, a right to interest on such a
mortgage loan is more likely to be regarded as contingent if held by an
investor that does not also hold a right to the related principal; such an
investor would not recover its capital through receipt of a principal
payment at the time of the prepayment of the mortgage loan.
Applying these principles to the Senior Certificates, because the
Mortgage Loans are subject to prepayment at any time, payments on a Class
of Senior Certificates representing a right to interest on the Mortgage
Loans could be considered to be contingent within the meaning of the OID
Regulations, at least if such Senior Certificate was issued at a premium.
The likelihood that such payments will be considered contingent increases
the greater the amount of such premium.
The IRS recently issued proposed regulations (the "Proposed Contingent
Regulations") governing the calculation of OID on instruments having
contingent interest payments. The Proposed Contingent Regulations,
although not effective until 60 days after finalized, represent the only
guidance regarding the views of the IRS with respect to contingent
interest instruments and specifically do not apply for purposes of
calculating OID on debt instruments subject to Code Section 1272(a)(6),
such as the Regular Certificates. Additionally, Treasury regulations
issued on January 27, 1994 which provide rules for calculating OID (the
"OID Regulations"), do not contain provisions specifically interpreting
Code Section 1272(a)(6). Until the Treasury issues guidance to the
contrary, the authority cited above represents the only guidance regarding
the current views of the IRS with respect to contingent payment
instruments.
In the event that payments on a Senior Certificate in respect of
interest on the Mortgage Loans are considered contingent, the holder would
generally report income or loss as described above under "Stripped Bonds
and Stripped Coupons", except that the yield that would be used in
calculating interest income would not be the actual yield but would
instead equal the "applicable Federal rate" (the "AFR", generally, an
average of current yields of Treasury securities computed and published
monthly by the IRS), in effect at the time of purchase of such Senior
Certificate by such holder. In addition, once such Holder's adjusted basis
in such Senior Certificate has been reduced (by prior distributions or
losses) to an amount equal to the aggregate amount of the remaining
noncontingent payments of the Mortgage Loans that are allocable to such
Senior Certificate (or to zero if such Senior Certificate does not share
in principal payments), then such holder would recognize income in each
subsequent month equal to the full amount of interest on the Mortgage
Loans that accrues in that month and is allocable to such Senior
Certificate. It is uncertain whether, under the contingent payment rules,
any other adjustments would be made to take account of prepayments of the
Mortgage Loans.
SALE OR EXCHANGE OF A SENIOR CERTIFICATE
Sale or exchange of a Senior Certificate prior to its maturity will
result in gain or loss equal to the difference, if any, between the amount
received, and the owner's adjusted basis in the Senior Certificate. Such
adjusted basis generally will equal the seller's purchase price for the
Senior Certificate, increased by the original issue discount included in
the seller's gross income with respect to the Senior Certificate, and
reduced by principal payments on the Senior Certificate previously
received by the seller. Such gain or loss will be capital gain or loss to
an owner for which a Senior Certificate is a "capital asset" within the
meaning of Code Section 1221, and will be long-term or short-term
depending on whether the Senior Certificate has been owned for the long-term
capital gain holding period (currently more than one year).
Senior Certificates will be "evidences of indebtedness" within the
meaning of Code Section 582(c)(1), so that gain or loss recognized from
the sale of a Senior Certificate by a bank or a thrift institution to
which such section applies will be ordinary income or loss.
NON-U.S. PERSONS
Generally, to the extent that a Senior Certificate evidences ownership
in Mortgage Loans that are issued on or before July 18, 1984, interest or
original issue discount paid by the person required to withhold tax under
Code Section 1441 or 1442 to (i) an owner that is not a U.S. Person (as
defined below), or (ii) a Senior Certificateholder holding on behalf of an
owner that is not a U.S. Person, will be subject to federal income tax,
collected by withholding, at a rate of 30% or such lower rate as may be
provided for interest by an applicable tax treaty. Accrued original issue
discount recognized by the owner on the sale or exchange of such a Senior
Certificate also will be subject to federal income tax at the same rate.
Generally, such payments would not be subject to withholding to the extent
that a Senior Certificate evidences ownership in Mortgage Loans issued
after July 18, 1984, if (i) such Senior Certificateholder does not
actually or constructively own 10 percent or more of the combined voting
power of all classes of equity in the issuer (which for purposes of this
discussion may be defined as the Trust Fund (the "Issuer")); (ii) such
Senior Certificateholder is not a controlled foreign corporation (within
the meaning of Code Section 957) related to the Issuer; and (iii) such
Senior Certificateholder complies with certain identification requirements
(including delivery of a statement, signed by the Senior Certificateholder
under penalties of perjury, certifying that such Senior Certificateholder
is not a U.S. Person and providing the name and address of such Senior
Certificateholder).
A "U.S. Person" means a citizen or resident of the United States, a
corporation or a 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, from sources outside the United States, is includible in
gross income for federal income tax purposes regardless of its connection
with the conduct of a trade or business within the United States.
INFORMATION REPORTING AND BACKUP WITHHOLDING
The Master Servicer will furnish or make available, within a reasonable
time after the end of each calendar year, to each Certificateholder at any
time during such year, such information as may be deemed necessary or
desirable to assist Certificateholders in preparing their federal income
tax returns, or to enable holders to make such information available to
owners or other financial intermediaries of holders that hold such
Certificates as nominees. If a holder, owner or other recipient of a
payment on behalf of an owner fails to supply a certified taxpayer
identification number or if the Secretary of the Treasury determines that
such person has not reported all interest and dividend income required to
be shown on its federal income tax return, 31% backup withholding may be
required with respect to any payments. Any amounts deducted and withheld
from a distribution to a recipient would be allowed as a credit against
such recipient's federal income tax liability.
REMIC CERTIFICATES
The Trust Fund relating to a Series of Certificates may elect to be
treated as a REMIC. Qualification as a REMIC requires ongoing compliance
with certain conditions. Although a REMIC is not generally subject to
federal income tax (see, however, "Residual Certificates--Prohibited
Transactions and Other Taxes"), if a Trust Fund with respect to which a
REMIC election is made fails to comply with one or more of the ongoing
requirements of the Code for REMIC status during any taxable year,
including the implementation of restrictions on the purchase and transfer
of the residual interest in a REMIC as described below under "Residual
Certificates", the Code provides that a Trust Fund will not be treated as
a REMIC for such year and thereafter. In that event, such entity may be
taxable as a separate corporation, and the related REMIC Certificates may
not be accorded the status or given the tax treatment described below.
While the Code authorizes the Treasury Department to issue regulations
providing relief in the event of an inadvertent termination of status as a
REMIC, no such regulations have been issued. Any such relief, moreover,
may be accompanied by sanctions, such as the imposition of a corporate tax
on all or a portion of the REMIC's income for the period in which the
requirements for such status are not satisfied. With respect to each such
Trust Fund that elects REMIC status, Brown & Wood LLP will deliver its
opinion generally to the effect that, under then existing law and assuming
compliance with all provisions of the related Agreement, such Trust Fund
will qualify as a REMIC and the related Certificates will be considered to
be regular interests ("Regular Certificates") or residual interests
("Residual Certificates") in the REMIC. The related Prospectus Supplement
for each Series of Certificates will indicate whether the Trust Fund will
make a REMIC election and whether a class of Certificates will be treated
as a regular or residual interest in the REMIC.
In general, with respect to each Series of Certificates for which a
REMIC election is made, (i) Certificates held by a thrift institution
taxed as a "mutual savings bank" or "domestic building and loan
association" will represent interests in "qualifying real property loans"
within the meaning of Code Section 593(d)(1); (ii) Certificates held by a
thrift institution taxed as a "domestic building and loan association"
will constitute assets described in Code Section 7701(a)(19)(C); (iii)
Certificates held by a real estate investment trust will constitute "real
estate assets" within the meaning of Code Section 856(c)(5)(A); and (iv)
interest on Certificates held by a real estate investment trust will be
considered "interest on obligations secured by mortgages on real property"
within the meaning of Code Section 856(c)(3)(B). If less than 95% of the
REMIC's assets are assets qualifying under any of the foregoing Code
sections, the Certificates will be qualifying assets only to the extent
that the REMIC's assets are qualifying assets. In addition, payments on
Mortgage Loans held pending distribution on the REMIC Certificates will be
considered to be qualifying real property loans for purposes of Code
Section 593(d)(1) and real estate assets for purposes of Code Section
856(c).
In some instances the Mortgage Loans may not be treated entirely as
assets described in the foregoing sections. See, in this regard, the
discussion of Buydown Mortgage Loans contained in "Non-REMIC Certificates"
and "Single Class of Senior Certificates" above. REMIC Certificates held
by a real estate investment trust will not constitute "Government
Securities" within the meaning of Code Section 856(c)(5)(A), and REMIC
Certificates held by a regulated investment company will not constitute
"Government Securities" within the meaning of Code Section
851(b)(4)(A)(ii). REMIC Certificates held by certain financial
institutions will constitute "evidences of indebtedness' within the
meaning of Code Section 582(c)(1).
A "qualified mortgage" for REMIC purposes is any obligation (including
certificates of participation in such an obligation) that is principally
secured by an interest in real property and that is transferred to the
REMIC within a prescribed time period in exchange for regular or residual
interests in the REMIC. The REMIC Regulations provide that manufactured
housing or mobile homes (not including recreational vehicles, campers or
similar vehicles) which are "single family residences" under Code Section
25(e)(10) will qualify as real property without regard to state law
classifications. Under Code Section 25(e)(10), a single family residence
includes any manufactured home which has a minimum of 400 square feet of
living space and a minimum width in excess of 102 inches and which is of a
kind customarily used at a fixed location.
Tiered REMIC Structures. For certain Series of Certificates, two
separate elections may be made to treat designated portions of the related
Trust Fund as REMICs (respectively, the "Subsidiary REMIC" and the "Master
REMIC") for federal income tax purposes. Upon the issuance of any such
Series of Certificates, Brown & Wood LLP, counsel to the Depositor, will
deliver its opinion generally to the effect that, assuming compliance with
all provisions of the related Agreement, the Master REMIC as well as any
Subsidiary REMIC will each qualify as a REMIC and the REMIC Certificates
issued by the Master REMIC and the Subsidiary REMICs, respectively, will
be considered to evidence ownership of Regular Certificates or Residual
Certificates in the related REMIC within the meaning of the REMIC
provisions.
Only REMIC Certificates issued by the Master REMIC will be offered
hereunder. The Subsidiary REMIC and the Master REMIC will be treated as
one REMIC solely for purposes of determining whether the REMIC
Certificates will be (i) "qualifying real property loans" under Section
593(d) of the Code; (ii) "real estate assets" within the meaning of
Section 856(c)(5)(A) of the Code; (iii) "loans secured by an interest in
real property" under Section 7701(a)(19)(C) of the Code; and (iv) whether
the income on such Certificates is interest described in Section
856(c)(3)(B) of the Code.
REGULAR CERTIFICATES
General. Except as otherwise stated in this discussion, Regular
Certificates will be treated for federal income tax purposes as debt
instruments issued by the REMIC and not as ownership interests in the
REMIC or its assets. Moreover, holders of Regular Certificates that
otherwise report income under a cash method of accounting will be required
to report income with respect to Regular Certificates under an accrual
method.
Original Issue Discount and Premium. The Regular Certificates may be
issued with "original issue discount" within the meaning of Code Section
1273(a). Generally, such original issue discount, if any, will equal the
difference between the "stated redemption price at maturity" of a Regular
Certificate and its "issue price". Holders of any class of Certificates
issued with original issue discount will be required to include such
original issue discount in gross income for federal income tax purposes as
it accrues, in accordance with a constant interest method based on the
compounding of interest, in advance of receipt of the cash attributable to
such income. The following discussion is based in part on the OID
Regulations and the 1986 Act. The holder of a Regular Certificate should
be aware, however, that the OID Regulations do not adequately address
certain issues relevant to prepayable securities, such as the Regular
Certificates.
Rules governing original issue discount are set forth in Code Sections
1271 through 1273 and 1275. These rules require that the amount and rate
of accrual of original issue discount be calculated based on a Prepayment
Assumption and prescribe a method for adjusting the amount and rate of
accrual of such discount where the actual prepayment rate differs from the
Prepayment Assumption. Under the Code, the Prepayment Assumption must be
determined in the manner prescribed by regulations which have not yet been
issued. The Legislative History provides, however, that Congress intended
the regulations to require that the Prepayment Assumption be the
prepayment assumption that is used in determining the initial offering
price of such Regular Certificates. The Prospectus Supplement for each
Series of Regular Certificates will specify the Prepayment Assumption to
be used for the purpose of determining the amount and rate of accrual of
original issue discount. No representation is made that the Regular
Certificates will prepay at the Prepayment Assumption or at any other
rate.
In general, each Regular Certificate will be treated as a single
installment obligation issued with an amount of original issue discount
equal to the excess of its "stated redemption price at maturity" over its
"issue price". The issue price of a Regular Certificate is the first price
at which a substantial amount of Regular Certificates of that class are
first sold to the public (excluding bond houses, brokers, underwriters or
wholesalers). The issue price of a Regular Certificate also includes the
amount paid by an initial Regular Certificateholder for accrued interest
that relates to a period prior to the issue date of the Regular
Certificate. The stated redemption price at maturity of a Regular
Certificate includes the original principal amount of the Regular
Certificate, but generally will not include distributions of interest if
such distributions constitute "qualified stated interest". Under the OID
Regulations, qualified stated interest generally means interest payable at
a single fixed rate or qualified variable rate (as described below)
provided that such interest payments are unconditionally payable at
intervals of one year or less during the entire term of the Regular
Certificate. Interest is payable at a single fixed rate only if the rate
appropriately takes into account the length of the interval between
payments. Distributions of interest on Regular Certificates, with respect
to which deferred interest will accrue, will not constitute qualified
stated interest payments, in which case the stated redemption price at
maturity of such Regular Certificates includes all distributions of
interest as well as principal thereon. Where the interval between the
issue date and the first Distribution Date on a Regular Certificate is
either longer or shorter than the interval between subsequent Distribution
Dates, all or part of the interest foregone, in the case of the longer
interval, and all of the additional interest, in the case of the shorter
interval, will be included in the stated redemption price at maturity and
tested under the de minimis rule described below. The OID Regulations
suggest that all interest on a long first period Regular Certificate that
is issued with non-de minimis OID may be treated as OID. Regular
Certificateholders should consult their own tax advisors to determine the
issue price and stated redemption price at maturity of a Regular
Certificate.
Under the de minimis rule, original issue discount on a Regular
Certificate will be considered to be zero if such original issue discount
is less than 0.25% of the stated redemption price at maturity of the
Regular Certificate multiplied by the weighted average maturity of the
Regular Certificate. For this purpose, the weighted average maturity of
the Regular Certificate is computed as the sum of the amounts determined
by multiplying the number of full years (i.e., rounding down partial
years) from the issue date until each distribution in reduction of stated
redemption price at maturity is scheduled to be made by a fraction, the
numerator of which is the amount of each distribution included in the
stated redemption price at maturity of the Regular Certificate and the
denominator of which is the stated redemption price at maturity of the
Regular Certificate. Although currently unclear, it appears that the
schedule of such distributions should be determined in accordance with the
Prepayment Assumption. The Prepayment Assumption with respect to a Series
of Regular Certificates will be set forth in the related Prospectus
Supplement. Holders generally must report de minimis OID pro rata as
principal payments are received, and such income will be capital gain if
the Regular Certificate is held as a capital asset. However, accrual
method holders may elect to accrue all de minimis OID as well as market
discount under a constant interest method.
Certain Regular Certificates may be issued at prices significantly
exceeding their principal amounts (the "Super-Premium Certificates") if
that is how they are defined in this deal. Under the REMIC Regulations,
however, if the issue price of a Regular Certificate does not exceed 125%
of its specified principal amount, such Regular Certificate will not be
treated as a Super-Premium Regular Certificate and the rules described
below under "Regular Certificates--Premium" will apply. The income tax
treatment of such Regular Certificates is not entirely certain. For
information reporting purposes, the Trust Fund intends to take the
position that the stated redemption price at maturity of such Regular
Certificates is the sum of all payments to be made on such Regular
Certificates determined under the Prepayment Assumption, with the result
that such Regular Certificates would be issued with original issue
discount. The Service might contend, however, that the stated redemption
price at maturity of such Regular Certificates should be limited to their
principal amount (subject to the discussion below under "Accrued Interest
and Long First Period Certificates"), so that such Regular Certificates
would be considered for federal income tax purposes to be issued at a
premium. If such a position were to prevail, the rules described below
under "Regular Certificates -- Premium" would apply.
Generally, a Regular Certificateholder must include in gross income the
"daily portions", as determined below, of the original issue discount that
accrues on a Regular Certificate for each day the Regular
Certificateholder holds the Regular Certificate, including the purchase
date but excluding the disposition date. In the case of an original holder
of a Regular Certificate, a calculation will be made of the portion of the
original issue discount that accrues during each successive period (an
"accrual period") that ends on the day in the calendar year corresponding
to a Distribution Date (or if Distribution Dates are on the first day or
first business day of the immediately preceding month, interest may be
treated as payable on the last day of the immediately preceding month) and
begins on the day after the end of the immediately preceding accrual
period (or on the issue date in the case of the first accrual period).
This will be done, in the case of each full accrual period, by (i) adding
(a) the present value at the end of the accrual period (determined by
using as a discount factor the original yield to maturity of the Regular
Certificates as calculated under the Prepayment Assumption) of all
remaining payments to be received on the Regular Certificate under the
Prepayment Assumption, and (b) any payments included in the stated
redemption price at maturity received during such accrual period, and (ii)
subtracting from that total the "adjusted issue price" of the Regular
Certificates at the beginning of such accrual period. The "adjusted issue
price" of a Regular Certificate at the beginning of the first accrual
period is its issue price; the "adjusted issue price" of a Regular
Certificate at the beginning of a subsequent accrual period is the
"adjusted issue price" at the beginning of the immediately preceding
accrual period plus the amount of original issue discount allocable to
that accrual period and reduced by the amount of any payment other than a
payment of stated periodic interest made at the end of or during that
accrual period. The original issue discount accrued during an accrual
period will then be divided by the number of days in the period to
determine the daily portion of original issue discount for each day in the
accrual period. The calculation of original issue discount under the
method described above will cause the accrual of original issue discount
to either increase or decrease (but never below zero) in a given accrual
period to reflect the fact that prepayments are occurring faster or slower
than under the Prepayment Assumption. With respect to an initial accrual
period shorter than a full accrual period, the daily portions of original
issue discount may be determined according to an appropriate allocation
under any reasonable method.
A subsequent purchaser of a Regular Certificate issued with original
issue discount who purchases the Regular Certificate at a cost less than
the remaining stated redemption price at maturity will also be required to
include in gross income the sum of the daily portions of original issue
discount on that Regular Certificate. In computing the daily portions of
original issue discount for such a purchaser (as well as an initial
purchaser that purchases at a price higher than the adjusted issue price
but less than the stated redemption price at maturity), however, the daily
portion is reduced by the amount that would be the daily portion for such
day (computed in accordance with the rules set forth above) multiplied by
a fraction, the numerator of which is the amount, if any, by which the
price paid by such holder for that Regular Certificate exceeds the
following amount: (a) the sum of the issue price plus the aggregate amount
of original issue discount that would have been includible in the gross
income of an original Regular Certificateholder (who purchased the Regular
Certificate at its issue price), less (b) any prior payments included in
the stated redemption price at maturity, and the denominator of which is
the sum of the daily portions for that Regular Certificate for all days
beginning on the date after the purchase date and ending on the maturity
date computed under the Prepayment Assumption.
Variable Rate Regular Certificate. Regular Certificates may provide for
interest based on a variable rate. Under the OID Regulations, interest is
treated as payable at a variable rate and not as contingent interest if,
generally, (i) the issue price does not exceed the original principal
balance, and (ii) the interest compounds or is payable at least annually
at current values of certain objective rates matured by or based on
lending rates for newly borrowed funds or the price of actively traded
property or an index of the prices of such property where such rate is
subject to a multiple of not less than zero nor more than 1.35. The
variable interest generally will be qualified stated interest to the
extent it is unconditionally payable at least annually and, to the extent
successive variable rates are used, interest is not significantly
accelerated or deferred.
The amount of original issue discount with respect to a Regular
Certificate bearing a variable rate of interest will accrue in the manner
described above under "Original Issue Discount", with the yield to
maturity and future payments on such Regular Certificate generally to be
determined by assuming that interest will be payable on the Certificate
based on the initial rate for the relevant class (or, if different, the
value of the applicable variable rate as of the pricing date). Ordinary
income reportable for any period will be adjusted based on subsequent
changes in the applicable interest rate index.
Although unclear at present, the Depositor intends to treat Regular
Certificates bearing an interest rate that is a weighted average of the
net interest rates on Mortgage Loans having adjustable rates ("weighted
average rate") as having qualified stated interest. In such case, the
applicable index used to compute interest on the Mortgage Loans in effect
on the issue date (or possibly the pricing date) will be deemed to be in
effect beginning with the period in which the first weighted average
adjustment date occurring after the issue date occurs. If the Pass-Through
Rate for one or more periods is less than it would be based upon the fully
indexed rate, the excess of the interest payments projected at the assumed
index over interest projected at such initial rate will be tested under
the de minimis rules as described above. Adjustments will be made in each
accrual period either increasing or decreasing the amount of ordinary
income reportable to reflect the actual Pass-Through Rate on the Regular
Certificate. It is possible, however, that the IRS may treat some or all
of the interest on Regular Certificates with a weighted average rate as
taxable under the rules relating to obligations providing for contingent
payments. Such treatment may affect the timing of income accruals on such
Regular Certificates.
Market Discount. A purchaser of a Regular Certificate may also be
subject to the market discount provisions of Code Sections 1276 through
1278. Under these provisions and the OID Regulations, "market discount"
equals the excess, if any, of (i) the Regular Certificate's stated
principal amount or, in the case of a Regular Certificate with original
issue discount, the adjusted issue price (determined for this purpose as
if the purchaser had purchased such Regular Certificate from an original
holder) over (ii) the price for such Regular Certificate paid by the
purchaser. A Certificateholder that purchases a REMIC Regular Certificate
at a market discount will recognize income upon receipt of each
distribution representing stated redemption price. In particular, under
Section 1276 of the Code such a holder generally will be required to
allocate each such principal distribution first to accrued market discount
not previously included in income, and to recognize ordinary income to
that extent. A Certificateholder may elect to include market discount in
income currently as it accrues rather than including it on a deferred
basis in accordance with the foregoing. If made, such election will apply
to all market discount bonds acquired by such Certificateholder on or
after the first day of the first taxable year to which such election
applies. In addition, the OID Regulations permit a Certificateholder using
the accrual method of accounting to elect to accrue all interest, discount
(including de minimis market or original issue discount) and premium in
income as interest, based on a constant yield method. If such an election
were made with respect to a REMIC Regular Certificate with market
discount, the Certificateholder is deemed to have made an election to
include in income currently market discount with respect to all other debt
instruments having market discount that such Certificateholder acquires
during the year of the election or thereafter. Similarly, a
Certificateholder that makes this election for a Certificate that is
acquired at a premium is deemed to have made an election to amortize bond
premium with respect to all debt instruments having amortizable bond
premium that such Certificateholder owns or acquires. See "Regular
Certificates--Premium". The election to accrue interest, discount and
premium on a constant yield method with respect to a Certificate is
irrevocable.
Market discount with respect to a Regular Certificate will be considered
to be zero if the amount allocable to the Regular Certificate is less than
0.25% of the Regular Certificate's stated redemption price at maturity
multiplied by the Regular Certificate's weighted average maturity
remaining after the date of purchase. If market discount on a Regular
Certificate is considered to be zero under this rule, the actual amount of
market discount must be allocated to the remaining principal payments on
the Regular Certificate, and gain equal to such allocated amount will be
recognized when the corresponding principal payment is made. Treasury
regulations implementing the market discount rules have not yet been
issued; therefore, investors should consult their own tax advisors
regarding the application of these rules and the advisability of making
any of the elections allowed under Code Sections 1276 through 1278.
The Code provides that any principal payment (whether a scheduled
payment or a prepayment) or any gain on disposition of a market discount
bond shall be treated as ordinary income to the extent that it does not
exceed the accrued market discount at the time of such payment. The amount
of accrued market discount for purposes of determining the tax treatment
of subsequent principal payments or dispositions of the market discount
bond is to be reduced by the amount so treated as ordinary income.
The Code also grants authority to the Treasury Department to issue
regulations providing for the computation of accrued market discount on
debt instruments, the principal of which is payable in more than one
installment. Until such time as regulations are issued by the Treasury,
rules described in the Legislative History will apply. Under those rules,
the holder of a market discount bond may elect to accrue market discount
either on the basis of a constant interest rate or according to one of the
following methods. For Regular Certificates issued with original issue
discount, the amount of market discount that accrues during a period is
equal to the product of (i) the total remaining market discount,
multiplied by (ii) a fraction, the numerator of which is the original
issue discount accruing during the period and the denominator of which is
the total remaining original issue discount at the beginning of the
period. For Regular Certificates issued without original issue discount,
the amount of market discount that accrues during a period is equal to the
product of (a) the total remaining market discount and (b) a fraction, the
numerator of which is the amount of stated interest paid during the
accrual period and the denominator of which is the total amount of stated
interest remaining to be paid at the beginning of the period. For purposes
of calculating market discount under any of the above methods in the case
of instruments (such as the Regular Certificates) which provide for
payments which may be accelerated by reason of prepayments of other
obligations securing such instruments, the same Prepayment Assumption
applicable to calculating the accrual of original issue discount will
apply.
A holder of a Regular Certificate that acquires such Regular Certificate
at a market discount also may be required to defer, until the maturity
date of such Regular Certificate or its earlier disposition in a taxable
transaction, the deduction of a portion of the amount of interest that the
holder paid or accrued during the taxable year on indebtedness incurred or
maintained to purchase or carry the Regular Certificate in excess of the
aggregate amount of interest (including original issue discount)
includible in such holder's gross income for the taxable year with respect
to such Regular Certificate. The amount of such net interest expense
deferred in a taxable year may not exceed the amount of market discount
accrued on the Regular Certificate for the days during the taxable year on
which the holder held the Regular Certificate and, in general, would be
deductible when such market discount is includible in income. The amount
of any remaining deferred deduction is to be taken into account in the
taxable year in which the Regular Certificate matures or is disposed of in
a taxable transaction. In the case of a disposition in which gain or loss
is not recognized in whole or in part, any remaining deferred deduction
will be allowed to the extent of gain recognized on the disposition. This
deferral rule does not apply if the Regular Certificateholder elects to
include such market discount in income currently as it accrues on all
market discount obligations acquired by such Regular Certificateholder in
that taxable year or thereafter.
Premium. A purchaser of a Regular Certificate that purchases the
Regular Certificate at a cost (not including accrued qualified stated
interest) greater than its remaining stated redemption price at maturity
will be considered to have purchased the Regular Certificate at a premium,
and may elect to amortize such premium under a constant yield method. It
is not clear whether the Prepayment Assumption would be taken into account
in determining the life of the Regular Certificate for this purpose.
However, the Legislative History states that the same rules that apply to
accrual of market discount (which rules require use of a Prepayment
Assumption in accruing market discount with respect to Regular
Certificates without regard to whether such Certificates have original
issue discount) will also apply in amortizing bond premium under Code
Section 171. The Code provides that amortizable bond premium will be
allocated among the interest payments on such Regular Certificates and
will be applied as an offset against such interest payment.
Deferred Interest. Certain classes of Regular Certificates will provide
for the accrual of interest when one or more ARM Loans are adding interest
to their principal balance by reason of negative amortization ("Deferred
Interest"). Any Deferred Interest that accrues with respect to a class of
Regular Certificates will constitute income to the holders of such
Certificates prior to the time distributions of cash with respect to such
Deferred Interest are made. It is unclear, under the OID Regulations,
whether any of the interest on such Certificates will constitute qualified
stated interest or whether all or a portion of the interest payable on the
Certificates must be included in the stated redemption price at maturity
of the Certificate and accounted for as original issue discount (which
could accelerate such inclusion). Interest on Regular Certificates must in
any event be accounted for under an accrual method by the holders of such
Certificates and, therefore, applying the latter analysis may result only
in a slight difference in the timing of the inclusion in income of
interest on such Regular Certificates.
Effects of Defaults and Delinquencies. Certain Series of Certificates
may contain one or more Classes of Subordinate Certificates, and in the
event there are defaults or delinquencies on the Mortgage Loans, amounts
that would otherwise be distributed on the Subordinate Certificates may
instead be distributed on the Senior Certificates. Holders of Subordinate
Certificates nevertheless will be required to report income with respect
to such Certificates under an accrual method without giving effect to
delays and reductions in distributions on such Subordinate Certificates
attributable to defaults and delinquencies on the Mortgage Loans, except
to the extent that it can be established that such amounts are
uncollectible. As a result, the amount of income reported by a holder of a
Subordinate Certificate in any period could significantly exceed the
amount of cash distributed to such holder in that period. The holder will
eventually be allowed a loss (or will be allowed to report a lesser amount
of income) to the extent that the aggregate amount of distributions on the
Subordinate Certificate is reduced as a result of defaults and
delinquencies on the Mortgage Loans. However, the timing and character of
such losses or reductions in income are uncertain, and, accordingly,
holders of Subordinate Certificates should consult their own tax advisors
on this point.
Sale, Exchange or Redemption. If a Regular Certificate is sold,
exchanged, redeemed or retired, the seller will recognize gain or loss
equal to the difference between the amount realized on the sale, exchange,
redemption, or retirement and the seller's adjusted basis in the Regular
Certificate. Such adjusted basis generally will equal the cost of the
Regular Certificate to the seller, increased by any original issue
discount and market discount included in the seller's gross income with
respect to the Regular Certificate, and reduced (but not below zero) by
payments included in the stated redemption price at maturity previously
received by the seller and by any amortized premium. Similarly, a holder
who receives a payment which is part of the stated redemption price at
maturity of a Regular Certificate will recognize gain equal to the excess,
if any, of the amount of the payment over the holder's adjusted basis in
the Regular Certificate. A holder of a Regular Certificate who receives a
final payment which is less than the holder's adjusted basis in the
Regular Certificate will generally recognize a loss. Except as provided in
the following paragraph and as provided under "Market Discount" above, any
such gain or loss will be capital gain or loss, provided that the Regular
Certificate is held as a "capital asset" (generally, property held for
investment) within the meaning of Code Section 1221.
Gain from the sale or other disposition of a Regular Certificate that
might otherwise be capital gain will be treated as ordinary income to the
extent that such gain does not exceed the excess, if any, of (i) the
amount that would have been includible in such holder's income with
respect to the Regular Certificate had income accrued thereon at a rate
equal to 110% of the AFR as defined in Code Section 1274(d) determined as
of the date of purchase of such Regular Certificate, over (ii) the amount
actually includible in such holder's income.
Regular Certificates will be "evidences of indebtedness" within the
meaning of Code Section 582(c)(1), so that gain or loss recognized from
the sale of a Regular Certificate by a bank or a thrift institution to
which such section applies will be ordinary income or loss.
The Regular Certificate information reports will include a statement of
the adjusted issue price of the Regular Certificate at the beginning of
each accrual period. In addition, the reports will include information
necessary to compute the accrual of any market discount that may arise
upon secondary trading of Regular Certificates. Because exact computation
of the accrual of market discount on a constant yield method would require
information relating to the holder's purchase price which the REMIC may
not have, it appears that the information reports will only require
information pertaining to the appropriate proportionate method of accruing
market discount.
Accrued Interest Certificates. Certain of the Regular Certificates
("Payment Lag Certificates") may provide for payments of interest based on
a period that corresponds to the interval between Distribution Dates but
that ends prior to each such Distribution Date. The period between the
Closing Date for Payment Lag Certificates and their first Distribution
Date may or may not exceed such interval. Purchasers of Payment Lag
Certificates for which the period between the Closing Date and the first
Distribution Date does not exceed such interval could pay upon purchase of
the Regular Certificates accrued interest in excess of the accrued
interest that would be paid if the interest paid on the Distribution Date
were interest accrued from Distribution Date to Distribution Date. If a
portion of the initial purchase price of a Regular Certificate is
allocable to interest that has accrued prior to the issue date ("pre-issuance
accrued interest") and the Regular Certificate provides for a
payment of stated interest on the first payment date (and the first
payment date is within one year of the issue date) that equals or exceeds
the amount of the pre-issuance accrued interest, then the Regular
Certificate's issue price may be computed by subtracting from the issue
price the amount of pre-issuance accrued interest, rather than as an
amount payable on the Regular Certificate. However, it is unclear under
this method how the OID Regulations treat interest on Payment Lag
Certificates as described above. Therefore, in the case of a Payment Lag
Certificate, the REMIC intends to include accrued interest in the issue
price and report interest payments made on the first Distribution Date as
interest to the extent such payments represent interest for the number of
days which the Certificateholder has held such Payment Lag Certificate
during the first Accrual Period.
Investors should consult their own tax advisors concerning the treatment
for federal income tax purposes of Payment Lag Certificates.
Non-Interest Expenses of the REMIC. Under the REMIC regulations, if the
REMIC is considered to be a "single-class REMIC", a portion of the REMIC's
servicing, administrative and other non-interest expenses will be
allocated as a separate item to those Regular Certificateholders that are
"pass-through interest holders". Certificateholders that are "pass-through
interest holders" should consult their own tax advisors about the impact
of these rules on an investment in the Regular Certificates. See "Pass-
Through of Non-Interest Expenses of the REMIC" under "Residual
Certificates" below.
Non-U.S. Persons. Generally, payments of interest (including any
payment with respect to accrued original issue discount) on the Regular
Certificates to a Regular Certificateholder who is a non-U.S. Person not
engaged in a trade or business within the United States, will not be
subject to federal withholding tax if (i) such Regular Certificateholder
does not actually or constructively own 10 percent or more of the combined
voting power of all classes of equity in the issuer (which for purposes of
this discussion may be defined as the Trust Fund or the beneficial owners
of the related Residual Certificates (the "Issuer")); (ii) such Regular
Certificateholder is not a controlled foreign corporation (within the
meaning of Code Section 957), related to the Issuer; and (iii) such
Regular Certificateholder complies with certain identification
requirements (including delivery of a statement, signed by the Regular
Certificateholder under penalties of perjury, certifying that such Regular
Certificateholder is a foreign person and providing the name and address
of such Regular Certificateholder). If a Regular Certificateholder is not
exempt from withholding, distributions of interest, including
distributions in respect of accrued original issue discount, such holder
may be subject to a 30% withholding tax, subject to reduction under any
applicable tax treaty.
Further, it appears that a REMIC Regular Certificate would not be
included in the estate of a non-resident alien individual and would not be
subject to United States estate taxes. However, Certificateholders who are
non-resident alien individuals should consult their tax advisors
concerning this question.
Regular Certificateholders who are non-U.S. Persons and persons related
to such holders should not acquire any Residual Certificates, and Residual
Certificateholders and persons related to Residual Certificateholders
should not acquire any Regular Certificates without consulting their tax
advisors as to the possible adverse tax consequences of doing so.
Information Reporting and Backup Withholding. The Master Servicer will
furnish or make available, within a reasonable time after the end of each
calendar year, to each Regular Certificateholder at any time during such
year, such information as may be deemed necessary or desirable to assist
Regular Certificateholders in preparing their federal income tax returns,
or to enable holders to make such information available to owners or other
financial intermediaries of holders that hold such Regular Certificates.
If a holder, owner or other recipient of a payment on behalf of an owner
fails to supply a certified taxpayer identification number or if the
Secretary of the Treasury determines that such person has not reported all
interest and dividend income required to be shown on its federal income
tax return, 31% backup withholding may be required with respect to any
payments. Any amounts deducted and withheld from a distribution to a
recipient would be allowed as a credit against such recipient's federal
income tax liability.
RESIDUAL CERTIFICATES
Allocation of the Income of the REMIC to the Residual Certificates. The
REMIC will not be subject to federal income tax except with respect to
income from prohibited transactions and certain other transactions. See
"Prohibited Transactions and Other Taxes" herein. Instead, each original
holder of a Residual Certificate will report on its federal income tax
return, as ordinary income, its share of the taxable income of the REMIC
for each day during the taxable year on which such holder owns any
Residual Certificates. The taxable income of the REMIC for each day will
be determined by allocating the taxable income of the REMIC for each
calendar quarter ratably to each day in the quarter. Such a holder's share
of the taxable income of the REMIC for each day will be based on the
portion of the outstanding Residual Certificates that such holder owns on
that day. The taxable income of the REMIC will be determined under an
accrual method and will be taxable to the Residual Certificateholders
without regard to the timing or amounts of cash distributions by the
REMIC. Ordinary income derived from Residual Certificates will be
"portfolio income" for purposes of the taxation of taxpayers subject to
the limitations on the deductibility of "passive losses". As residual
interests, the Residual Certificates will be subject to tax rules,
described below, that differ from those that would apply if the Residual
Certificates were treated for federal income tax purposes as direct
ownership interests in the Certificates, or as debt instruments issued by
the REMIC.
A Residual Certificateholder may be required to include taxable income
from the Residual Certificate in excess of the cash distributed. For
example, a structure where principal distributions are made serially on
regular interests (that is, a fast-pay, slow-pay structure) may generate
such a mismatching of income and cash distributions (that is, "phantom
income"). This mismatching may be caused by the use of certain required
tax accounting methods by the REMIC, variations in the prepayment rate of
the underlying Mortgage Loans and certain other factors. Depending upon
the structure of a particular transaction, the aforementioned factors may
significantly reduce the after-tax yield of a Residual Certificate to a
Residual Certificateholder. Investors should consult their own tax
advisors concerning the federal income tax treatment of a Residual
Certificate and the impact of such tax treatment on the after-tax yield of
a Residual Certificate.
A subsequent Residual Certificateholder also will report on its federal
income tax return amounts representing a daily share of the taxable income
of the REMIC for each day that such Residual Certificateholder owns such
Residual Certificate. Those daily amounts generally would equal the
amounts that would have been reported for the same days by an original
Residual Certificateholder, as described above. The Legislative History
indicates that certain adjustments may be appropriate to reduce (or
increase) the income of a subsequent holder of a Residual Certificate that
purchased such Residual Certificate at a price greater than (or less than)
the adjusted basis such Residual Certificate would have in the hands of an
original Residual Certificateholder. See "Sale or Exchange of Residual
Certificates" below. It is not clear, however, whether such adjustments
will in fact be permitted or required and, if so, how they would be made.
The REMIC Regulations do not provide for any such adjustments.
Taxable Income of the REMIC Attributable to Residual Interests. The
taxable income of the REMIC will reflect a netting of (i) the income from
the Mortgage Loans and the REMIC's other assets and (ii) the deductions
allowed to the REMIC for interest and original issue discount on the
Regular Certificates and, except as described below under "Pass-Through of
Non-Interest Expenses of the REMIC", other expenses.
For purposes of determining its taxable income, the REMIC will have an
initial aggregate tax basis in its assets equal to the sum of the issue
prices of the Regular and Residual Certificates (or, if a class of
Certificates is not sold initially, their fair market values). Such
aggregate basis will be allocated among the Mortgage Loans and other
assets of the REMIC in proportion to their respective fair market values.
A Mortgage Loan will be deemed to have been acquired with discount or
premium to the extent that the REMIC's basis therein is less than or
greater than its principal balance, respectively. Any such discount
(whether market discount or original issue discount) will be includible in
the income of the REMIC as it accrues, in advance of receipt of the cash
attributable to such income, under a method similar to the method
described above for accruing original issue discount on the Regular
Certificates. The REMIC expects to elect under Code Section 171 to
amortize any premium on the Mortgage Loans. Premium on any Mortgage Loan
to which such election applies would be amortized under a constant yield
method. It is not clear whether the yield of a Mortgage Loan would be
calculated for this purpose based on scheduled payments or taking account
of the Prepayment Assumption. Additionally, such an election would not
apply to any Mortgage Loan originated on or before September 27, 1985.
Instead, premium on such a Mortgage Loan would be allocated among the
principal payments thereon and would be deductible by the REMIC as those
payments become due.
The REMIC will be allowed a deduction for interest and original issue
discount on the Regular Certificates. The amount and method of accrual of
original issue discount will be calculated for this purpose in the same
manner as described above with respect to Regular Certificates except that
the 0.25% per annum de minimis rule and adjustments for subsequent holders
described therein will not apply.
A Residual Certificateholder will not be permitted to amortize the cost
of the Residual Certificate as an offset to its share of the REMIC's
taxable income. However, that taxable income will not include cash
received by the REMIC that represents a recovery of the REMIC's basis in
its assets, and, as described above, the issue price of the Residual
Certificates will be added to the issue price of the Regular Certificates
in determining the REMIC's initial basis in its assets. See "Sale or
Exchange of Residual Certificates" herein. For a discussion of possible
adjustments to income of a subsequent holder of a Residual Certificate to
reflect any difference between the actual cost of such Residual
Certificate to such holder and the adjusted basis such Residual
Certificate would have in the hands of an original Residual
Certificateholder, see "Allocation of the Income of the REMIC to the
Residual Certificates" above.
Net Losses of the REMIC. The REMIC will have a net loss for any
calendar quarter in which its deductions exceed its gross income. Such net
loss would be allocated among the Residual Certificateholders in the same
manner as the REMIC's taxable income. The net loss allocable to any
Residual Certificate will not be deductible by the holder to the extent
that such net loss exceeds such holder's adjusted basis in such Residual
Certificate. Any net loss that is not currently deductible by reason of
this limitation may only be used by such Residual Certificateholder to
offset its share of the REMIC's taxable income in future periods (but not
otherwise). The ability of Residual Certificateholders that are
individuals or closely held corporations to deduct net losses may be
subject to additional limitations under the Code.
Pass-Through of Non-Interest Expenses of the REMIC. As a general rule,
all of the fees and expenses of a REMIC will be taken into account by
holders of the Residual Interests. In the case of a "single class REMIC",
however, the expenses and a matching amount of additional income will be
allocated, under the Treasury regulations, among the holders of the
Regular Certificates and the holders of the Residual Interests on a daily
basis in proportion to the relative amounts of income accruing to each
Certificateholder on that day. In general terms, a single class REMIC is
one that either (i) would qualify, under existing Treasury regulations, as
a grantor trust if it were not a REMIC (treating all interests as
ownership interests, even if they would be classified as debt for federal
income tax purposes) or (ii) is similar to such a trust and is structured
with the principal purpose of avoiding the single class REMIC rules.
Unless otherwise stated in the applicable Prospectus Supplement, the
expenses of the REMIC will be allocated to holders of the related Residual
Interests in their entirety and not to holders of the related Regular
Certificates.
In the case of individuals (or trusts, estates, or other persons who
compute their income in the same manner as individuals) who own an
interest in a Regular or Residual Certificate directly or through a pass-
through interest holder which is required to pass miscellaneous itemized
deductions through to its owners or beneficiaries (e.g., a partnership, an
S corporation, or a grantor trust), such expenses will be deductible under
Code Section 67 only to the extent that such expenses, plus other
"miscellaneous itemized deductions" of the individual, exceed 2% of such
individual's adjusted gross income. In addition, Code Section 68 provides
that the amount of itemized deductions otherwise allowable for an
individual whose adjusted gross income exceeds a certain amount (the
"Applicable Amount") will be reduced by the lesser of (i) 3% of the excess
of the individual's adjusted gross income over the Applicable Amount or
(ii) 80% of the amount of itemized deductions otherwise allowable for the
taxable year. The amount of additional taxable income recognized by
Residual Certificateholders who are subject to the limitations of either
Code Section 67 or Code Section 68 may be substantial. Further, holders
(other than corporations) subject to the alternative minimum tax may not
deduct miscellaneous itemized deductions in determining such holders'
alternative minimum taxable income. The REMIC is required to report to
each pass-through interest holder and to the IRS such holder's allocable
share, if any, of the REMIC's non-interest expenses. The term "pass-through
interest holder" generally refers to individuals, entities taxed
as individuals and certain pass-through entities, but does not include
real estate investment trusts. Residual Certificateholders that are "pass-
through interest holders" should consult their own tax advisors about the
impact of these rules on an investment in the Residual Certificates.
Excess Inclusions. A portion of the income on a Residual Certificate
(referred to in the Code as an "excess inclusion") for any calendar
quarter will, with an exception discussed below for certain thrift
institutions, be subject to federal income tax in all events. Thus, for
example, an excess inclusion (i) may not, except as described below, be
offset by any unrelated losses, deductions or loss carryovers of a
Residual Certificateholder; (ii) will be treated as "unrelated business
taxable income" within the meaning of Code Section 512 if the Residual
Certificateholder is a pension fund or any other organization that is
subject to tax only on its unrelated business taxable income (see "Tax-Exempt
Investors" below); and (iii) is not eligible for any reduction in
the rate of withholding tax in the case of a Residual Certificateholder
that is a foreign investor. See "Non-U.S. Persons" below. The exception
for thrift institutions is available only to the institution holding the
Residual Certificate, and not to any affiliate of the institution, unless
the affiliate is a subsidiary all the stock of which, and substantially
all the indebtedness of which, is held by the institution, and which is
organized and operated exclusively in connection with the organization and
operation of one or more REMICs.
Except as discussed in the following paragraph, with respect to any
Residual Certificateholder, the excess inclusions for any calendar quarter
is the excess, if any, of (i) the income of such Residual
Certificateholder for that calendar quarter from its Residual Certificate
over (ii) the sum of the "daily accruals" (as defined below) for all days
during the calendar quarter on which the Residual Certificateholder holds
such Residual Certificate. For this purpose, the daily accruals with
respect to a Residual Certificate are determined by allocating to each day
in the calendar quarter its ratable portion of the product of the
"adjusted issue price" (as defined below) of the Residual Certificate at
the beginning of the calendar quarter and 120 percent of the "Federal
long-term rate" in effect at the time the Residual Certificate is issued.
For this purpose, the "adjusted issue price" of a Residual Certificate at
the beginning of any calendar quarter equals the issue price of the
Residual Certificate, increased by the amount of daily accruals for all
prior quarters, and decreased (but not below zero) by the aggregate amount
of payments made on the Residual Certificate before the beginning of such
quarter. The "Federal long-term rate" is an average of current yields on
Treasury securities with a remaining term of greater than nine years,
computed and published monthly by the IRS.
As an exception to the general rule described above, the Treasury
Department has authority to issue regulations that would treat the entire
amount of income accruing on a Residual Certificate as excess inclusions
if the Residual Certificates in the aggregate are considered not to have
"significant value". Under the REMIC Regulations, Residual
Certificateholders that are thrift institutions described in Code Section
593 can offset excess inclusions with unrelated deductions, losses and
loss carryovers provided the Residual Certificates have "significant
value". For purposes of applying this rule, thrift institutions that are
members of an affiliated group filing a consolidated return, together with
their subsidiaries formed to issue REMICs, are treated as separate
corporations. Residual Certificates have "significant value" if: (i) the
Residual Certificates have an aggregate issue price that is at least equal
to 2% of the aggregate issue price of all Residual Certificates and
Regular Certificates with respect to the REMIC and (ii) the anticipated
weighted average life of the Residual Certificates is at least 20% of the
anticipated weighted average life of the REMIC based on the anticipated
principal payments to be received with respect thereto (using the
Prepayment Assumption and any required or permitted clean up calls or
required liquidation provided for in the REMIC's organizational
documents), except that all anticipated distributions are to be used if
the Residual Certificate is not entitled to any principal payments or is
entitled to a disproportionately small portion relative to interest
payments thereon. The principal amount will be considered
disproportionately small if the issue price of the Residual Certificates
exceeds 125% of their initial principal amount. Finally, an ordering rule
under the REMIC Regulations provides that a thrift institution may only
offset its excess inclusion income with deductions after it has first
applied its deductions against income that is not excess inclusion income.
In the case of any Residual Certificates held by a real estate
investment trust, the aggregate excess inclusions with respect to such
Residual Certificates, reduced (but not below zero) by the real estate
investment trust taxable income (within the meaning of Code Section
857(b)(2), excluding any net capital gain), will be allocated among the
shareholders of such trust in proportion to the dividends received by such
shareholders from such trust, and any amount so allocated will be treated
as an excess inclusion with respect to a Residual Certificate as if held
directly by such shareholder. Regulated investment companies, common trust
funds, and certain cooperatives are subject to similar rules.
Payments. Any distribution made on a Residual Certificate to a Residual
Certificateholder will be treated as a non-taxable return of capital to
the extent it does not exceed the Residual Certificateholder's adjusted
basis in such Residual Certificate. To the extent a distribution exceeds
such adjusted basis, it will be treated as gain from the sale of the
Residual Certificate.
Sale or Exchange of Residual Certificates. If a Residual Certificate is
sold or exchanged, the seller will generally recognize gain or loss equal
to the difference between the amount realized on the sale or exchange and
its adjusted basis in the Residual Certificate (except that the
recognition of loss may be limited under the "wash sale" rules described
below). A holder's adjusted basis in a Residual Certificate generally
equals the cost of such Residual Certificate to such Residual
Certificateholder, increased by the taxable income of the REMIC that was
included in the income of such Residual Certificateholder with respect to
such Residual Certificate, and decreased (but not below zero) by the net
losses that have been allowed as deductions to such Residual
Certificateholder with respect to such Residual Certificate and by the
distributions received thereon by such Residual Certificateholder. In
general, any such gain or loss will be capital gain or loss provided the
Residual Certificate is held as a capital asset. However, Residual
Certificates will be "evidences of indebtedness" within the meaning of
Code Section 582(c)(1), so that gain or loss recognized from sale of a
Residual Certificate by a bank or thrift institution to which such section
applies would be ordinary income or loss.
Except as provided in Treasury regulations yet to be issued, if the
seller of a Residual Certificate reacquires such Residual Certificate, or
acquires any other Residual Certificate, any residual interest in another
REMIC or similar interest in a "taxable mortgage pool" (as defined in Code
Section 7701(i)) during the period beginning six months before, and ending
six months after, the date of such sale, such sale will be subject to the
"wash sale" rules of Code Section 1091. In that event, any loss realized
by the Residual Certificateholder on the sale will not be deductible, but,
instead, will increase such Residual Certificateholder's adjusted basis in
the newly acquired asset.
PROHIBITED TRANSACTIONS AND OTHER TAXES
The REMIC is subject to a tax at a rate equal to 100 percent of the net
income derived from "prohibited transactions". In general, a prohibited
transaction means the disposition of a Mortgage Loan other than pursuant
to certain specified exceptions, the receipt of investment income from a
source other than a Mortgage Loan or certain other permitted investments
or the disposition of an asset representing a temporary investment of
payments on the Mortgage Loans pending payment on the Residual
Certificates or Regular Certificates. In addition, the assumption of a
Mortgage Loan by a subsequent purchaser could cause the REMIC to recognize
gain, which would also be subject to the 100 percent tax on prohibited
transactions.
In addition, certain contributions to a REMIC made after the Closing
Date could result in the imposition of a tax on the REMIC equal to 100% of
the value of the contributed property.
It is not anticipated that the REMIC will engage in any prohibited
transactions or receive any contributions subject to the contributions
tax. However, in the event that the REMIC is subject to any such tax,
unless otherwise disclosed in the related Prospectus Supplement, such tax
would be borne first by the Residual Certificateholders, to the extent of
amounts distributable to them and then by the Master Servicer.
LIQUIDATION AND TERMINATION
If the REMIC adopts a plan of complete liquidation, within the meaning
of Code Section 860F(a)(4)(A)(i), which may be accomplished by designating
in the REMICs final tax return a date on which such adoption is deemed to
occur, and sells all of its assets (other than cash) within a 90-day
period beginning on such date, the REMIC will not be subject to any
prohibited transaction tax, provided that the REMIC credits or distributes
in liquidation all of the sale proceeds plus its cash (other than the
amounts retained to meet claims) to holders of Regular and Residual
Certificates within the 90-day period.
The REMIC will terminate shortly following the retirement of the Regular
Certificates. If a Residual Certificateholder's adjusted basis in the
Residual Certificate exceeds the amount of cash distributed to such
Residual Certificateholder in final liquidation of its interest, then it
would appear that the Residual Certificateholder would be entitled to a
loss equal to the amount of such excess. It is unclear whether such a
loss, if allowed, will be a capital loss or an ordinary loss.
ADMINISTRATIVE MATTERS
Solely for the purpose of the administrative provisions of the Code, the
REMIC will be treated as a partnership and the Residual Certificateholders
will be treated as the partners thereof; however, under the Treasury
regulations if there is at no time during the taxable year more than one
Residual Certificateholder, a REMIC shall not be subject to the rules of
Subchapter C of Chapter 63 of the Code relating to the treatment of
Partnership items for a taxable year. Accordingly, the REMIC will file an
annual tax return on Form 1066, U.S. Real Estate Mortgage Investment
Conduit Income Tax Return. In addition, certain other information will be
furnished quarterly to each Residual Certificateholder who held such
Residual Certificate on any day in the previous calendar quarter.
Each Residual Certificateholder is required to treat items on its return
consistently with their treatment on the REMIC's return, unless the
Residual Certificateholder either files a statement identifying the
inconsistency or establishes that the inconsistency resulted from
incorrect information received from the REMIC. The IRS may assert a
deficiency resulting from a failure to comply with the consistency
requirement without instituting an administrative proceeding at the REMIC
level. The REMIC does not intend to register as a tax shelter pursuant to
Code Section 6111 because it is not anticipated that the REMIC will have a
net loss for any of the first five taxable years of its existence. Any
person that holds a Residual Certificate as a nominee for another person
may be required to furnish the REMIC, in a manner to be provided in
Treasury regulations, with the name and address of such person and other
information.
TAX-EXEMPT INVESTORS
Any Residual Certificateholder that is a pension fund or other entity
that is subject to federal income taxation only on its "unrelated business
taxable income" within the meaning of Code Section 512 will be subject to
such tax on that portion of the distributions received on a Residual
Certificate that is considered an "excess inclusion". See "Residual
Certificates--Excess Inclusions" herein.
NON-U.S. PERSONS
Amounts paid to Residual Certificateholders who are not U.S. persons
(see "Regular Certificates--Non-U.S. Persons") are treated as interest for
purposes of the 30% (or lower treaty rate) United States withholding tax.
Under the Treasury regulations, amounts distributed to Residual Holders
should qualify as "portfolio interest", subject to the conditions
described in "Regular Certificates" above, but only to the extent that the
Mortgage Loans were originated after July 18, 1984. Furthermore, the rate
of withholding on any income on a Residual Certificate that is excess
inclusion income will not be subject to reduction under any applicable tax
treaties. See "Residual Certificates--Excess Inclusions". If the portfolio
interest exemption is unavailable, such amount will be subject to United
States withholding tax when paid or otherwise distributed (or when the
Residual Certificate is disposed of) under rules similar to those for
withholding upon disposition of debt instruments that have original issue
discount. The Code, however, grants the Treasury Department authority to
issue regulations requiring that those amounts be taken into account
earlier than otherwise provided where necessary to prevent avoidance of
tax (for example, where the Residual Certificates do not have significant
value). See "Residual Certificates--Excess Inclusions". If the amounts
paid to Residual Certificateholders that are not U.S. Persons are
effectively connected with their conduct of a trade or business within the
United States, the 30% (or lower treaty rate) withholding will not apply.
Instead, the amounts paid to such non-U.S. Person will be subject to U.S.
federal income taxation at regular graduated rates. For special
restrictions on the transfer of Residual Certificates, see "Tax-Related
Restrictions on Transfers of Residual Certificates" below.
Regular Certificateholders and persons related to such holders should
not acquire any Residual Certificates, and Residual Certificateholders and
persons related to Residual Certificateholders should not acquire any
Regular Certificates without consulting their tax advisors as to the
possible adverse tax consequences of such acquisition.
TAX-RELATED RESTRICTIONS ON TRANSFERS OF RESIDUAL CERTIFICATES
Disqualified Organizations. An entity may not qualify as a REMIC unless
there are reasonable arrangements designed to ensure that residual
interests in such entity are not held by "disqualified organizations" (as
defined below). Further, a tax is imposed on the transfer of a residual
interest in a REMIC to a "disqualified organization". The amount of the
tax equals the product of (A) an amount (as determined under the REMIC
regulations) equal to the present value of the total anticipated "excess
inclusions" with respect to such interest for periods after the transfer
and (ii) the highest marginal federal income tax rate applicable to
corporations. The tax is imposed on the transferor unless the transfer is
through an agent (including a broker or other middlemen) for a
disqualified organization, in which event the tax is imposed on the agent.
The person otherwise liable for the tax shall be relieved of liability for
the tax if the transferee furnished to such person an affidavit that the
transferee is not a disqualified organization and, at the time of the
transfer, such person does not have actual knowledge that the affidavit is
false. A "disqualified organization" means (A) the United States, any
State, possession, or political subdivision thereof, any foreign
government, any international organization, or any agency or
instrumentality of any of the foregoing (provided that such term does not
include an instrumentality if all its activities are subject to tax and,
except for FHLMC, a majority of its board of directors is not selected by
any such governmental agency), (B) any organization (other than certain
farmers' cooperatives) generally exempt from federal income taxes unless
such organization is subject to the tax on "unrelated business taxable
income" and (C) a rural electric or telephone cooperative.
A tax is imposed on a "pass-through entity" (as defined below) holding a
residual interest in a REMIC if at any time during the taxable year of the
pass-through entity a disqualified organization is the record holder of an
interest in such entity. The amount of the tax is equal to the product of
(A) the amount of excess inclusions for the taxable year allocable to the
interest held by the disqualified organization, and (B) the highest
marginal federal income tax rate applicable to corporations. The pass-through
entity otherwise liable for the tax, for any period during which
the disqualified organization is the record holder of an interest in such
entity, will be relieved of liability for the tax if such record holder
furnishes to such entity an affidavit that such record holder is not a
disqualified organization and, for such period, the pass-through entity
does not have actual knowledge that the affidavit is false. For this
purpose, a "pass-through entity" means (i) a regulated investment company,
real estate investment trust or common trust fund, (ii) a partnership,
trust or estate and (iii) certain cooperatives. Except as may be provided
in Treasury regulations not yet issued, any person holding an interest in
a pass-through entity as a nominee for another will, with respect to such
interest, be treated as a pass-through entity.
In order to comply with these rules, the Agreement will provide that no
record or beneficial ownership interest in a Residual Certificate may be,
directly or indirectly, purchased, transferred or sold without the express
written consent of the Master Servicer. The Master Servicer will grant
such consent to a proposed transfer only if it receives the following: (i)
an affidavit from the proposed transferee to the effect that it is not a
disqualified organization and is not acquiring the Residual Certificate as
a nominee or agent for a disqualified organization, and (ii) a covenant by
the proposed transferee to the effect that the proposed transferee agrees
to be bound by and to abide by the transfer restrictions applicable to the
Residual Certificate.
Noneconomic Residual Certificates. The REMIC Regulations disregard, for
federal income tax purposes, any transfer of a Noneconomic Residual
Certificate to a "U.S. Person", as defined below, unless no significant
purpose of the transfer is to enable the transferor to impede the
assessment or collection of tax. A Noneconomic Residual Certificate is any
Residual Certificate (including a Residual Certificate with a positive
value at issuance) unless, at the time of transfer, taking into account
the Prepayment Assumption and any required or permitted clean up calls or
required liquidation provided for in the REMIC's organizational documents,
(i) the present value of the expected future distributions on the Residual
Certificate at least equals the product of the present value of the
anticipated excess inclusions and the highest corporate income tax rate in
effect for the year in which the transfer occurs and (ii) the transferor
reasonably expects that the transferee will receive distributions from the
REMIC at or after the time at which taxes accrue on the anticipated excess
inclusions in an amount sufficient to satisfy the accrued taxes. A
significant purpose to impede the assessment or collection of tax exists
if the transferor, at the time of the transfer, either knew or should have
known that the transferee would be unwilling or unable to pay taxes due on
its share of the taxable income of the REMIC. A transferor is presumed not
to have such knowledge if (i) the transferor conducted a reasonable
investigation of the transferee and (ii) the transferee acknowledges to
the transferor that the residual interest may generate tax liabilities in
excess of the cash flow and the transferee represents that it intends to
pay such taxes associated with the residual interest as they become due.
If a transfer of a Noneconomic Residual Certificate is disregarded, the
transferor would continue to be treated as the owner of the Residual
Certificate and would continue to be subject to tax on its allocable
portion of the net income of the REMIC.
Mark to Market Rules. Prospective purchasers of a Residual Certificate
should be aware that on January 3, 1995, the IRS released proposed
regulations under Section 475 (the "Proposed Regulations"). The Proposed
Regulations provide that any Residual Certificate acquired after January
3, 1995 cannot be marked to market, regardless of the value of such
Residual Certificate. The Proposed Regulations change temporary
regulations under Section 475 (the "Temporary Regulations") which were
issued on December 28, 1993 and which allowed securities dealers to mark
to market securities held for sale to customers, including Residual
Certificates which did not have "negative value." In general, a Residual
Certificate has 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 generates 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
Section 1272(a)(6), or that would have been adopted had the REMIC's
regular interests been issued with original issue discount, (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 Section
1274(d)(1), that would apply to a debt instrument issued on the date of
acquisition of the Residual Certificate. The Proposed Regulations still
apply to any REMIC residual interest acquired on or prior to January 3,
1995. Thus, holders of positive value REMIC residual interests acquired on
or prior to January 3, 1995 may continue to mark such residual interests
to market for the entire economic life of such interests. Prospective
purchasers of a Residual Certificate should consult their tax advisors
regarding the possible application of the Proposed Regulations.
Foreign Investors. The REMIC Regulations provide that the transfer of a
Residual Certificate that has a "tax avoidance potential" to a "foreign
person" will be disregarded for federal income tax purposes. This rule
appears to apply to a transferee who is not a "U.S. Person", unless such
transferee's income in respect of the Residual Certificate is effectively
connected with the conduct of a United States trade or business. A
Residual Certificate is deemed to have a tax avoidance potential unless,
at the time of transfer, the transferor reasonably expects that the REMIC
will distribute to the transferee amounts that will equal at least 30
percent of each excess inclusion, and that such amounts will be
distributed at or after the time the excess inclusion accrues and not
later than the end of the calendar year following the year of accrual. If
the non-U.S. Person transfers the Residual Certificate to a U.S. Person,
the transfer will be disregarded, and the foreign transferor will continue
to be treated as the owner, if the transfer has the effect of allowing the
transferor to avoid tax on accrued excess inclusions. The Pooling and
Servicing Agreement will provide that no record or beneficial ownership
interest in a Residual Certificate may be, directly or indirectly,
transferred to a non-U.S. Person unless such person provides the Trustee
with a duly completed I.R.S. Form 4224 and the Trustee consents to such
transfer in writing.
Any attempted transfer or pledge in violation of the transfer
restrictions shall be absolutely null and void and shall vest no rights in
any purported transferee. Investors in Residual Certificates are advised
to consult their own tax advisors with respect to transfers of the
Residual Certificates and, in addition, pass-through entities are advised
to consult their own tax advisors with respect to any tax which may be
imposed on a pass-through entity.
STATE TAX CONSIDERATIONS
In addition to the federal income tax consequences described in "Certain
Federal Income Tax Considerations", potential investors should consider
the state and local income tax consequences of the acquisition, ownership,
and disposition of the Certificate. State and local income tax law may
differ substantially from the corresponding federal law, and this
discussion does not purport to describe any aspect of the income tax laws
of any state or locality. Therefore, potential investors should consult
their own tax advisors with respect to the various tax consequences of
investments in the Certificates.
ERISA CONSIDERATIONS
The following describes certain considerations under ERISA and the Code,
which apply only to Certificates of a Series that are not divided into
subclasses. If Certificates are divided into subclasses the related
Prospectus Supplement will contain information concerning considerations
relating to ERISA and the Code that are applicable to such Certificates.
ERISA imposes requirements on employee benefit plans subject to ERISA
(and on certain other retirement plans and arrangements, including
individual retirement accounts and annuities, Keogh plans and collective
investment funds and separate accounts in which such plans, accounts or
arrangements are invested subject to the requirement of ERISA and/or the
Code) (collectively "Plans") and on persons who are fiduciaries with
respect to such Plans. Generally, ERISA applies to investments made by
Plans. Among other things, ERISA requires that the assets of Plans be held
in trust and that the trustee, or other duly authorized fiduciary, have
exclusive authority and discretion to manage and control the assets of
such Plans. ERISA also imposes certain duties on persons who are
fiduciaries of Plans. Under ERISA, any person who exercises any authority
or control respecting the management or disposition of the assets of a
Plan is considered to be a fiduciary of such Plan (subject to certain
exceptions not here relevant). Certain employee benefit plans, such as
governmental plans (as defined in ERISA Section 3(32)) and, if no election
has been made under Section 410(d) of the Code, church plans (as defined
in ERISA Section 3(33)), are not subject to ERISA requirements.
Accordingly, assets of such plans may be invested in Senior Certificates
without regard to the ERISA considerations described above and below,
subject to the provisions of applicable state law. Any such plan which is
qualified and exempt from taxation under Code Sections 401(a) and 501(a),
however, is subject to the prohibited transaction rules set forth in Code
Section 503.
On November 13, 1986, the United States Department of Labor ("Labor")
issued final regulations concerning the definition of what constitutes the
assets of a Plan. (Labor Reg. Section 2510.3-101) Under this regulation,
the underlying assets and properties of corporations, partnerships and
certain other entities in which a Plan makes an "equity" investment could
be deemed for purposes of ERISA to be assets of the investing Plan in
certain circumstances. However, the regulation provides that, generally,
the assets of a corporation or partnership in which a Plan invests will
not be deemed for purposes of ERISA to be assets of such Plan if the
equity interest acquired by the investing Plan is a publicly-offered
security. A publicly-offered security, as defined in the Labor Reg.
Section 2510.3-101, is a security that is widely held, freely transferable
and registered under the Securities Exchange Act of 1934, as amended.
In addition to the imposition of general fiduciary standards of
investment prudence and diversification, ERISA prohibits a broad range of
transactions involving Plan assets and persons ("Parties in Interest")
having certain specified relationships to a Plan and imposes additional
prohibitions where Parties in Interest are fiduciaries with respect to
such Plan. Because the Mortgage Loans may be deemed Plan assets of each
Plan that purchases Certificates, an investment in the Certificates by a
Plan might be a prohibited transaction under ERISA Sections 406 and 407
and subject to an excise tax under Code Section 4975 unless a statutory or
administrative exemption applies.
PTE 83-1
In Prohibited Transaction Exemption 83-1 ("PTE 83-1"), which amended
Prohibited Transaction Exemption 81-7, Labor exempted from ERISA's
prohibited transaction rules certain transactions relating to the
operation of residential mortgage pool investment trusts and the purchase,
sale and holding of "mortgage pool pass-through certificates" in the
initial issuance of such certificates. PTE 83-1 permits, subject to
certain conditions, transactions that might otherwise be prohibited
between Plans and Parties in Interest with respect to those Plans related
to the origination, maintenance and termination of mortgage pools
consisting of mortgage loans secured by first or second mortgages or deeds
of trust on single-family residential property, and the acquisition and
holding of certain mortgage pool pass-through certificates representing an
interest in such mortgage pools by Plans. If the general conditions
(discussed below) of PTE 83-1 are satisfied, investments by a Plan in
Certificates that represent interests in a Mortgage Pool consisting of
Mortgage Loans representing loans for single family homes ("Single Family
Certificates") will be exempt from the prohibitions of ERISA Sections
406(a) and 407 (relating generally to transactions with Parties in
Interest who are not fiduciaries) if the Plan purchases the Single Family
Certificates at no more than fair market value and will be exempt from the
prohibitions of ERISA Sections 406(b)(1) and (2) (relating generally to
transactions with fiduciaries) if, in addition, the purchase is approved
by an independent fiduciary, no sales commission is paid to the pool
sponsor, the Plan does not purchase more than 25% of all Single Family
Certificates, and at least 50% of all Single Family Certificates are
purchased by persons independent of the pool sponsor or pool trustee. PTE
83-1 does not provide an exemption for transactions involving Subordinate
Certificates. Accordingly, unless otherwise provided in the related
Prospectus Supplement, no transfer of a Subordinate Certificate may be
made to a Plan.
The discussion in this and the next succeeding paragraph applies only to
Single Family Certificates. The Depositor believes that, for purposes of
PTE 83-1, the term "mortgage pass-through certificate" would include: (i)
Certificates issued in a Series consisting of only a single class of
Certificates; and (ii) Offered Certificates issued in a Series in which
there is only one class of Offered Certificates; provided that the
Certificates in the case of clause (i), or the Offered Certificates in the
case of clause (ii), evidence the beneficial ownership of both a specified
percentage of future interest payments (greater than 0%) and a specified
percentage (greater than 0%) of future principal payments on the Mortgage
Loans. It is not clear whether a class of Certificates that evidences the
beneficial ownership in a Trust Fund divided into Mortgage Loan Groups,
beneficial ownership of a specified percentage of interest payments only
or principal payments only, or a notional amount of either principal or
interest payments, or a class of Certificates entitled to receive payments
of interest and principal on the Mortgage Loans only after payments to
other classes or after the occurrence of certain specified events would be
a "mortgage pass-through certificate" for purposes of PTE 83-1.
PTE 83-1 sets forth three general conditions which must be satisfied for
any transaction to be eligible for exemption: (i) the maintenance of a
system of insurance or other protection for the pooled mortgage loans and
property securing such loans, and for indemnifying Certificateholders
against reductions in pass-through payments due to property damage or
defaults in loan payments in an amount not less than the greater of one
percent of the aggregate principal balance of all covered pooled mortgage
loans or the principal balance of the largest covered pooled mortgage
loan; (ii) the existence of a pool trustee who is not an affiliate of the
pool sponsor; and (iii) a limitation on the amount of the payment retained
by the pool sponsor, together with other funds inuring to its benefit, to
not more than adequate consideration for selling the mortgage loans plus
reasonable compensation for services provided by the pool sponsor to the
Mortgage Pool. The Depositor believes that the first general condition
referred to above will be satisfied with respect to the Certificates in a
Series issued without a subordination feature, or the Senior Certificates
only in a Series issued with a subordination feature, provided that the
subordination and Reserve Fund, subordination by shifting of interests,
the pool insurance or other form of credit enhancement described herein
(such subordination, pool insurance or other form of credit enhancement
being the system of insurance or other protection referred to above) with
respect to a Series of Certificates is maintained in an amount not less
than the greater of one percent of the aggregate principal balance of the
Mortgage Loans or the principal balance of the largest Mortgage Loan. See
"Description of the Certificates" herein. In the absence of a ruling that
the system of insurance or other protection with respect to a Series of
Certificates satisfies the first general condition referred to above,
there can be no assurance that these features will be so viewed by Labor.
The Trustee will not be affiliated with the Depositor.
Each Plan fiduciary who is responsible for making the investment
decisions whether to purchase or commit to purchase and to hold Single
Family Certificates must make its own determination as to whether the
first and third general conditions, and the specific conditions described
briefly in the preceding paragraph, of PTE 83-1 have been satisfied, or as
to the availability of any other prohibited transaction exemptions. Each
Plan fiduciary should also determine whether, under the general fiduciary
standards of investment prudence and diversification, an investment in the
Certificates is appropriate for the Plan, taking into account the overall
investment policy of the Plan and the composition of the Plan's investment
portfolio.
UNDERWRITER EXEMPTIONS
Labor has issued to various underwriters substantially similar
individual exemptions (collectively, the "Underwriter Exemptions") which
apply to certain sales and servicing of "certificates" that are
obligations of a "trust" with respect to which such underwriters are the
underwriter, manager or co-manager of an underwriting syndicate. The
Underwriter Exemptions provide relief which is generally similar to that
provided by PTE 83-1, but is broader in several respects.
The Underwriter Exemptions contain several requirements, some of which
differ from those in PTE 83-1. The Underwriter Exemptions contain an
expanded definition of "certificate", which includes an interest which
entitles the holder to pass-through payments of principal, interest and/or
other payments. The Underwriter Exemptions contain an expanded definition
of "trust" which permits the trust corpus to consist of secured consumer
receivables, including obligations secured by shares issued by a
cooperative housing association. The definition of "trust", however, does
not include private mortgage-backed securities like the Private Mortgage-
Backed Securities, and does not include any other investment pool unless,
inter alia: (i) the investment pool consists only of assets of the type
which have been included in other investment pools; (ii) certificates
evidencing interests in such other investment pools have been purchased by
investors other than Plans for at least one year prior to the Plan's
acquisition of certificates pursuant to the Underwriter Exemptions; and
(iii) certificates in such other investment pools have been rated in one
of the three highest generic rating categories of the four credit rating
agencies noted below. Generally, the Underwriter Exemptions hold that the
acquisition of certificates by a Plan must be on terms (including the
price for the certificates) that are at least as favorable to the Plan as
they would be in an arm's-length transaction with an unrelated party. The
Underwriter Exemptions require that the rights and interests evidenced by
the certificates held by a Plan not be "subordinated" to the rights and
interests evidenced by other certificates of the same trust. Further, the
Underwriter Exemptions require that certificates acquired by a Plan have
received a rating at the time of their acquisition that is in one of the
three highest generic rating categories of Standard and Poor's Ratings
Group, Moody's Investors Service, Inc., Duff & Phelps Inc. or Fitch
Investors Service, Inc. The Underwriter Exemptions also specify that the
pool trustee must not be an affiliate of the pool sponsor, nor an
affiliate of the underwriter, the pool servicer, any obligor with respect
to mortgage loans included in the trust constituting more than five
percent of the aggregate unamortized principal balance of the assets in
the trust, or any affiliate of such entities. Finally, the Underwriter
Exemptions stipulate that any Plan investing in the certificates must be
an "accredited investor", as defined in Rule 501(a)(1) of Regulation D of
the Securities and Exchange Commission under the Securities Act of 1933.
Any Plan fiduciary which proposes to cause a Plan to purchase
Certificates should consult with their counsel concerning the impact of
ERISA and the Code, the applicability of PTE 83-1, and the potential
consequences in their specific circumstances, prior to making such
investment. Moreover, each Plan fiduciary should determine whether under
the general fiduciary standards of investment procedure 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.
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 persons, trusts, corporations, partnerships, associations, business
trusts and business entities (including depository institutions, life
insurance companies and pension funds) created pursuant to or existing
under the laws of the United States or of any state (including the
District of Columbia and Puerto Rico) whose authorized investments are
subject to state regulation to the same extent as, under applicable law,
obligations issued by or guaranteed as to principal and interest by the
United States or any such entities. Under SMMEA, if a state enacts
legislation prior to October 4, 1991 specifically limiting the legal
investment authority of any such entities with respect to "mortgage
related securities", the Certificates that qualify as mortgage related
securities will constitute legal investments for entities subject to such
legislation only to the extent provided therein. Approximately twenty-one
states adopted such legislation prior to the October 4, 1991 deadline.
SMMEA provides, however, that in no event will the enactment of any such
legislation affect the validity of any contractual commitment to purchase,
hold or invest in Certificates that qualify as mortgage related
securities, or require the sale or other disposition of such Certificates,
so long as such contractual commitment was made or such Certificates
acquired prior to the enactment of 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
Certificates without limitations as to the percentage of their assets
represented thereby, federal credit unions may invest in mortgage related
securities, and national banks may purchase Certificates for their own
account without regard to the limitations generally applicable to
investment securities set forth in 12 U.S.C. SS24 (Seventh), subject in
each case to such regulations as the applicable federal 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, and the NCUA's regulation "Investment and
Deposit Activities" (12 C.F.R. Part 703), (whether or not the Class of
Certificates under consideration for purchase constitutes a "mortgage
related security").
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 the Securities Activities (to the extent adopted by their
respective regulators) (the "Policy Statement"), setting forth, in
relevant part, certain securities trading and sales practices deemed
unsuitable for an institution's investment portfolio, and guidelines for
(and restrictions on) investing in mortgage derivative products, including
mortgage related securities, which are "high-risk mortgage securities" as
defined in the Policy Statement. According to the Policy Statement, such
"high-risk mortgage securities" include securities such as Certificates
not entitled to distributions allocated to principal or interest, or
Subordinated Certificates. 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.
The foregoing does not take into consideration the applicability of
statutes, rules, regulations, orders, guidelines, or agreements generally
governing investments made by a particular investor, including, but not
limited to, "prudent investor" provisions, percentage-of-assets limits and
provisions that may restrict or prohibit investment in securities that are
not "interest bearing" or "income paying".
There may be other restrictions on the ability of certain investors,
including depository institutions, either to purchase Certificates or to
purchase Certificates representing more than a specified percentage of the
investor's assets. Investors should consult their own legal advisors in
determining whether and to what extent the Certificates constitute legal
investments for such investors.
METHOD OF DISTRIBUTION
The Certificates offered hereby and by the Prospectus Supplements will
be offered in Series. The distribution of the Certificates may be effected
from time to time in one or more transactions, including negotiated
transactions, at a fixed public offering price or at varying prices to be
determined at the time of sale or at the time of commitment therefor. If
so specified in the related Prospectus Supplement, the Certificates will
be distributed in a firm commitment underwriting, subject to the terms and
conditions of the underwriting agreement, by Merrill Lynch, Pierce, Fenner
& Smith Incorporated, an affiliate of the Depositor, acting as underwriter
with other underwriters, if any, named therein. In such event, the
Prospectus Supplement may also specify that the underwriters will not be
obligated to pay for any Certificates agreed to be purchased by purchasers
pursuant to purchase agreements acceptable to the Depositor. In connection
with the sale of the Certificates, underwriters may receive compensation
from the Depositor or from purchasers of the Certificates in the form of
discounts, concessions or commissions. The Prospectus Supplement will
describe any such compensation paid by the Depositor.
Alternatively, the Prospectus Supplement may specify that the
Certificates will be distributed by Merrill Lynch, Pierce, Fenner & Smith
Incorporated acting as agent or in some cases as principal with respect to
Certificates that it has previously purchased or agreed to purchase. If
Merrill Lynch, Pierce, Fenner & Smith Incorporated acts as agent in the
sale of Certificates, Merrill Lynch, Pierce, Fenner & Smith Incorporated
will receive a selling commission with respect to each Series of
Certificates, depending on market conditions, expressed as a percentage of
the aggregate principal balance of the Certificates sold hereunder as of
the Cut-off Date. The exact percentage for each Series of Certificates
will be disclosed in the related Prospectus Supplement. To the extent that
Merrill Lynch, Pierce, Fenner & Smith Incorporated elects to purchase
Certificates as principal, Merrill Lynch, Pierce, Fenner & Smith
Incorporated may realize losses or profits based upon the difference
between its purchase price and the sales price. The Prospectus Supplement
with respect to any Series offered other than through underwriters will
contain information regarding the nature of such offering and any
agreements to be entered into between the Depositor and purchasers of
Certificates of such Series.
The Depositor will indemnify Merrill Lynch, Pierce, Fenner & Smith
Incorporated and any underwriters against certain civil liabilities,
including liabilities under the Securities Act of 1933, or will contribute
to payments Merrill Lynch, Pierce, Fenner & Smith Incorporated and any
underwriters may be required to make in respect thereof.
In the ordinary course of business, Merrill Lynch, Pierce, Fenner &
Smith Incorporated and the Depositor may engage in various securities and
financing transactions, including repurchase agreements to provide interim
financing of the Depositor's Mortgage Loans pending the sale of such
Mortgage Loans or interests therein, including the Certificates.
The Depositor anticipates that the Certificates will be sold primarily
to institutional investors. Purchasers of Certificates, including dealers,
may, depending on the facts and circumstances of such purchases, be deemed
to be 'underwriters' within the meaning of the Securities Act of 1933 in
connection with reoffers and sales by them of Certificates. Holders of
Certificates should consult with their legal advisors in this regard prior
to any such reoffer or sale.
LEGAL MATTERS
The validity of the Certificates, including certain federal income tax
consequences with respect thereto, will be passed upon for the Depositor
by Brown & Wood LLP, One World Trade Center, New York, New York 10048.
FINANCIAL INFORMATION
A new Trust Fund will be formed with respect to each Series of
Certificates and no Trust Fund will engage in any business activities or
have any assets or obligations prior to the issuance of the related Series
of Certificates. Accordingly, no financial statements with respect to any
Trust Fund will be included in this Prospectus or in the related
Prospectus Supplement.
RATING
It is a condition to the issuance of the Certificates of each Series
offered hereby and by the Prospectus Supplement that they shall have been
rated in one of the four highest rating categories by the nationally
recognized statistical rating agency or agencies specified in the related
Prospectus Supplement.
Ratings on mortgage pass-through certificates address the likelihood of
receipt by certificateholders of all distributions on the underlying
mortgage loans. These ratings address the structural, legal and issuer-
related aspects associated with such certificates, the nature of the
underlying mortgage loans and the credit quality of the credit enhancer or
guarantor, if any. Ratings on mortgage pass-through certificates do not
represent any assessment of the likelihood of principal prepayments by
mortgagors or of the degree by which such prepayments might differ from
those originally anticipated. As a result, certificateholders might suffer
a lower than anticipated yield, and, in addition, holders of stripped
pass-through certificates in extreme cases might fail to recoup their
underlying investments.
A security rating is not a recommendation to buy, sell or hold
securities and may be subject to revision or withdrawal at any time by the
assigning rating organization. Each security rating should be evaluated
independently of any other security rating.
INDEX TO DEFINED TERMS
PAGE
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Accrual Certificates . . . . . . . . . . . . . . . . . . . . . . . . . -30-
Accrual period . . . . . . . . . . . . . . . . . . . . . . . . . . . . -73-
Adjusted issue price . . . . . . . . . . . . . . . . . . . -67-, -73-, -81-
Advance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -12-
AFR . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -68-
Agency Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . Cover
Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -4-, -16-
Applicable Amount . . . . . . . . . . . . . . . . . . . . . . . . . . . -81-
ARM Loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -67-
Available Distribution Amount . . . . . . . . . . . . . . . . . . . . . -29-
Balloon payments . . . . . . . . . . . . . . . . . . . . . . . . . -6-, -15-
Bankruptcy Bond . . . . . . . . . . . . . . . . . . . . . . . . . . . . -38-
Bankruptcy Bonds . . . . . . . . . . . . . . . . . . . . . . . . . . . -11-
Buydown Fund . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -15-
Buydown Loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -15-
Capital asset . . . . . . . . . . . . . . . . . . . . . . . . . . -69-, -77-
Cede . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -33-
CERCLA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -59-
Certificate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -89-
Certificate Account . . . . . . . . . . . . . . . . . . . . . . . . . . -43-
Certificate Balance . . . . . . . . . . . . . . . . . . . . . . . . . . -30-
Certificate Register . . . . . . . . . . . . . . . . . . . . . . . . . -28-
Certificates . . . . . . . . . . . . . . . . . . . . . . . Cover, -4-, -14-
Charter Act . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -21-
Closing Date . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -4-
Code . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -13-
Collateral Value . . . . . . . . . . . . . . . . . . . . . . . . . . . -16-
Cooperative Loans . . . . . . . . . . . . . . . . . . . . . . . . . -5-, -17-
Cooperatives . . . . . . . . . . . . . . . . . . . . . . . . . . . -5-, -17-
Cut-off Date . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -11-
Deferred Interest . . . . . . . . . . . . . . . . . . . . . . . . -68-, -76-
Definitive Certificates . . . . . . . . . . . . . . . . . . . . . . . . -34-
Depositor . . . . . . . . . . . . . . . . . . . . . . . . . . . . Cover, -24-
Detailed Description . . . . . . . . . . . . . . . . . . . . . . . . . -14-
Determination Date . . . . . . . . . . . . . . . . . . . . . . . . . . -29-
Disqualified organization . . . . . . . . . . . . . . . . . . . . . . . -85-
Distribution Date . . . . . . . . . . . . . . . . . . . . . . . . . . . . -9-
DTC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -34-
Due-on-sale . . . . . . . . . . . . . . . . . . . . . . . . . . . . -6-, -15-
Eligible Investments . . . . . . . . . . . . . . . . . . . . . . . . . -43-
EPA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -59-
ERISA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -13-
Excess inclusion . . . . . . . . . . . . . . . . . . . . . . . . -81-, -84-
Excess servicing . . . . . . . . . . . . . . . . . . . . . . . . . . . -65-
FDIC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -25-
Federal long-term rate . . . . . . . . . . . . . . . . . . . . . . . . -82-
FHA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -5-, -17-
FHA Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -11-
FHA Loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -17-
FHLMC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Cover
FHLMC Act . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -19-
FHLMC Certificate group . . . . . . . . . . . . . . . . . . . . . . . . -19-
FHLMC Certificates . . . . . . . . . . . . . . . . . . . . . . . . . . . -7-
FNMA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Cover
FNMA Certificates . . . . . . . . . . . . . . . . . . . . . . . . . . . . -7-
Funding Period . . . . . . . . . . . . . . . . . . . . . . . . . . . . -12-
Garn-St Germain Act . . . . . . . . . . . . . . . . . . . . . . . . . . -60-
GNMA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Cover
GNMA Certificates . . . . . . . . . . . . . . . . . . . . . . . . . . . . -7-
GNMA Issuer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -17-
Guaranty Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . -17-
Housing Act . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -17-
HUD . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -49-
Indirect Participant . . . . . . . . . . . . . . . . . . . . . . . . . -34-
Insurance Proceeds . . . . . . . . . . . . . . . . . . . . . . . . . . -44-
Insured Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . -43-
IRS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -63-
Issuer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -69-, -78-
Labor . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -87-
Legislative History . . . . . . . . . . . . . . . . . . . . . . . . . . -67-
Letter of Credit . . . . . . . . . . . . . . . . . . . . . . . . . . . -11-
Limited Guarantee . . . . . . . . . . . . . . . . . . . . . . . . . . . -11-
Liquidation Expenses . . . . . . . . . . . . . . . . . . . . . . . . . -44-
Liquidation Proceeds . . . . . . . . . . . . . . . . . . . . . . . . . -44-
Loan-to-Value Ratio . . . . . . . . . . . . . . . . . . . . . . . . . . -16-
Lockout periods . . . . . . . . . . . . . . . . . . . . . . . . . . -6-, -15-
Master REMIC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -71-
Master Servicer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -4-
Master Servicing Fee . . . . . . . . . . . . . . . . . . . . . . . . . -50-
Mortgage . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -42-
Mortgage Assets . . . . . . . . . . . . . . . . . . . . . . Cover, -4-, -14-
Mortgage Loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . Cover
Mortgage Note . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -41-
Mortgage pass-through certificate . . . . . . . . . . . . . . . . . . . -88-
Mortgage Pool . . . . . . . . . . . . . . . . . . . . . . . . . . . -4-, -14-
Mortgage Pool Insurance Policy . . . . . . . . . . . . . . . . . -11-, -36-
Mortgage Rate . . . . . . . . . . . . . . . . . . . . . . . . . . . -9-, -16-
Mortgage related securities . . . . . . . . . . . . . . . . . . . -13-, -90-
Mortgaged Properties . . . . . . . . . . . . . . . . . . . . . . . . . -14-
NCUA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -90-
OID Regulations . . . . . . . . . . . . . . . . . . . . . . . . . -66-, -68-
Participants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -34-
Parties in Interest . . . . . . . . . . . . . . . . . . . . . . . . . . -88-
Pass-through entity . . . . . . . . . . . . . . . . . . . . . . . . . . -85-
Pass-through interest holder . . . . . . . . . . . . . . . . . . . . . -81-
Pass-Through Rate . . . . . . . . . . . . . . . . . . . . . . . . . -9-, -14-
Payment Lag Certificates . . . . . . . . . . . . . . . . . . . . . . . -77-
Phantom income . . . . . . . . . . . . . . . . . . . . . . . . . . . . -79-
Plans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -87-
PMBS Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . -22-
PMBS Issuer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -22-
PMBS Servicer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -22-
PMBS Trustee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -22-
Policy Statement . . . . . . . . . . . . . . . . . . . . . . . . . . . -91-
Pool Insurer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -36-
Pre-Funded Amount . . . . . . . . . . . . . . . . . . . . . . . . . . . . -5-
Pre-Funding Account . . . . . . . . . . . . . . . . . . . . . . . Cover, -12-
Pre-issuance accrued interest . . . . . . . . . . . . . . . . . . . . . -77-
Prepayment Assumption . . . . . . . . . . . . . . . . . . . . . . . . . -67-
Primary Insurer . . . . . . . . . . . . . . . . . . . . . . . . . . . . -47-
Primary Mortgage Insurance Policy . . . . . . . . . . . . . . . . . . . -14-
Principal Prepayments . . . . . . . . . . . . . . . . . . . . . . . . . -31-
Private Mortgage-Backed Securities . . . . . . . . . . . . . . . . . . Cover
PTE 83-1 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -88-
Purchase Price . . . . . . . . . . . . . . . . . . . . . . . . . . . . -26-
Qualified mortgage . . . . . . . . . . . . . . . . . . . . . . . . . . -71-
Qualified stated interest . . . . . . . . . . . . . . . . . . . . . . . -72-
Rating Agency . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -43-
Record Date . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -28-
Regular Certificates . . . . . . . . . . . . . . . . . . . . . . . . . -70-
Regular interests . . . . . . . . . . . . . . . . . . . . . . . . . . . -28-
Relief Act . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -61-
REMIC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -2-, -13-
REMIC Regulations . . . . . . . . . . . . . . . . . . . . . . . . . . . -61-
Reserve Fund . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -10-
Residual Certificates . . . . . . . . . . . . . . . . . . . . . . . . . -70-
Residual interests . . . . . . . . . . . . . . . . . . . . . . . . . . -28-
Retained Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . -27-
Seller . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Cover
Sellers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -14-
Senior Certificates . . . . . . . . . . . . . . . . . . . . . . . . -8-, -35-
Series . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Cover, -4-
Servicer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -4-
Single Family Certificates . . . . . . . . . . . . . . . . . . . . . . -88-
SMMEA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -13-
Special Hazard Insurance Policy . . . . . . . . . . . . . . . . . . . . -11-
Special Hazard Insurer . . . . . . . . . . . . . . . . . . . . . . . . -37-
Stripped ARM Obligations . . . . . . . . . . . . . . . . . . . . . . . -67-
Stripped Bond Certificates . . . . . . . . . . . . . . . . . . . . . . -65-
Stripped bonds . . . . . . . . . . . . . . . . . . . . . . . . . . . . -65-
Stripped Coupon Certificates . . . . . . . . . . . . . . . . . . . . . -65-
Stripped coupons . . . . . . . . . . . . . . . . . . . . . . . . . . . -65-
Sub-Servicer . . . . . . . . . . . . . . . . . . . . . . . . . . -12-, -16-
Subordinated Certificates . . . . . . . . . . . . . . . . . . . . . -8-, -35-
Subsequent Mortgage Assets . . . . . . . . . . . . . . . . . . . Cover, -5-
Subsidiary REMIC . . . . . . . . . . . . . . . . . . . . . . . . . . . -71-
Super-Premium Certificates . . . . . . . . . . . . . . . . . . . . . . -72-
Surety Bond . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -12-
Temporary Regulations . . . . . . . . . . . . . . . . . . . . . . . . . -86-
Title V . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -60-
Trust . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -89-
Trust Fund . . . . . . . . . . . . . . . . . . . . . . . . . . . Cover, -14-
Trustee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -4-
U.S. Person . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -69-
UCC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -34-
Underwriter Exemptions . . . . . . . . . . . . . . . . . . . . . . . . -89-
VA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -5-
VA Guaranty Policy . . . . . . . . . . . . . . . . . . . . . . . . . . -50-
VA Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -11-
VA Loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -17-
Weighted average rate . . . . . . . . . . . . . . . . . . . . . . . . . -74-
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS SUPPLEMENT
OR THE PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR
REPRESENTATIONS MUST 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 CERTIFICATES OFFERED HEREBY,
NOR AN OFFER OF THE CERTIFICATES IN ANY STATE OR JURISDICTION IN WHICH, OR
TO ANY PERSON TO WHOM, SUCH OFFER WOULD BE UNLAWFUL. THE DELIVERY OF THIS
PROSPECTUS SUPPLEMENT OR THE PROSPECTUS AT ANY TIME DOES NOT IMPLY THAT
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.
_______________
TABLE OF CONTENTS
PROSPECTUS SUPPLEMENT
Page
----
Incorporation of Certain Documents by Reference S-3
Summary of Terms of the Certificates S-4
Special Considerations S-19
Certain Legal Considerations S-20
The Mortgage Pool S-20
MLCC and Its Mortgage Programs S-34
Prepayment and Yield Considerations S-42
Description of the Certificates S-47
The Certificate Insurance Policy and the
Certificate Insurer S-61
Certain Federal Income Tax Consequences S-64
ERISA Considerations S-65
Use of Proceeds S-66
Underwriting S-66
Experts S-67
Legal Matters S-67
Certificate Rating S-67
Index of Principal Terms S-69
Annex I: Global Clearance, Settlement and Tax
Documentation Procedures I-1
Appendix A and Appendix B--Audited Financial
Statements of AMBAC
PROSPECTUS
Prospectus Supplement 2
Available Information 3
Incorporation of Certain Information by
Reference 3
Summary of Terms 4
The Trust Fund 14
Use of Proceeds 23
135
The Depositor 24
Mortgage Loan Program 24
Description of the Certificates 27
Credit Enhancement 35
Yield and Prepayment Considerations 40
The Pooling and Servicing Agreement 41
Certain Legal Aspects of the Mortgage Loans 54
Certain Federal Income Tax Consequences 61
State Tax Considerations 87
ERISA Considerations 87
Legal Investment 90
Method of Distribution 91
Legal Matters 92
Financial Information 92
Rating 92
Index to Defined Terms 93
$___________
(APPROXIMATE)
MLCC
MORTGAGE INVESTORS, INC.,
SELLER
(ML REVOLVING HOME EQUITY LOAN
ASSET BACKED CERTIFICATES,
SERIES 1996-_)
(MORTGAGE LOAN ASSET BACKED
PASS-THROUGH CERTIFICATES
SERIES 199 - , CLASS A)
-- --
MERRILL LYNCH
CREDIT CORPORATION,
SERVICER
_______________
PROSPECTUS SUPPLEMENT
_______________
MERRILL LYNCH & CO.
________, 1996
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 14. Other Expenses of Issuance and Distribution.
The following table sets forth the estimated expenses in connection with
the offering of the Certificates being registered under this Registration
Statement, other than underwriting discounts and commissions:
SEC Registration Fee $_________
Printing and Engraving $_________
Legal Fees and Expenses $_________
Trustee Fees and Expenses $_________
Blue Sky Fees and Expenses $_________
Rating Agency Fees $_________
Miscellaneous $_________
Total $___________
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICER.
The Registrant's By-Laws provide for indemnification of directors and
officers of the Registrant to the full extent permitted by Delaware law.
Section 145 of the Delaware General Corporation Law provides, in
substance, that Delaware corporations shall have the power, under
specified circumstances, to indemnify their directors, officers, employees
and agents in connection with actions, suits or proceedings brought
against them by a third party or in the right of the corporation, by
reason of the fact that they were or are such directors, officers,
employees or agents, against expenses incurred in any such action, suit or
proceeding. The Delaware General Corporation Law also provides that the
Registrant may purchase insurance on behalf of any such director, officer,
employee or agent.
ITEM 16. EXHIBITS.
1.1* Form of Underwriting Agreement.
3.1** Certificate of Incorporation of MLCC Mortgage Investors, Inc.
3.2*** By-laws of MLCC Mortgage Investors, Inc. as currently in
effect.
4.1 Form of Pooling and Servicing Agreement for Adjustable Rate
Single Family Mortgages Loans.
4.2 Form of Pooling and Servicing Agreement for Revolving Home
Equity Mortgage Loans.
5.1 Opinion of Brown & Wood LLP as to legality of the
Certificates (including consent of such firm).
8.1 Opinion of Brown & Wood LLP as to certain tax matters
(including consent of such firm).
23.1 Consent of Brown & Wood LLP (included in exhibits 5.1 and
8.1 hereof).
23.2 Consent of KPMG Peat Marwick LLP
23.3 Consent of Coopers & Lybrand LLP
24.1 Power of Attorney (included at Page II-3).
_____________
* Form of Underwriting Agreement incorporated by reference from
Exhibit 1.1 of the Registration Statement on Form S-3 to Form S-11 (File No.
33-77642).
** Certificate of Incorporation of MLCC Mortgage Investors, Inc.
incorporated by reference from Exhibit 3.1 of the Registration Statement on
Form S-3 (File No. 33-84894).
*** By-Laws of MLCC Mortgage Investors, Inc. incorporated by
reference from Exhibit 3.2 of the Registration Statement on Form S-3 (File
No. 33-84894).
ITEM 17. UNDERTAKINGS.
(a) Undertaking pursuant to Rule 415.
The Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being
made, a post-effective amendment to this Registration Statement:
(i) To include any prospectus required by Section 10(a)(3) of
the Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising
after the effective date of the Registration Statement (or the most recent
post-effective amendment thereof) which, individually or in the aggregate,
represent a fundamental change in the information set forth in the
Registration Statement; and
(iii) To include any material information with respect to the
plan of distribution not previously disclosed in the Registration
Statement or any material change of such information in the Registration
Statement.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933 each such post-effective amendment shall be deemed to
be a new registration statement relating to the securities offered therein,
and the offering of such securities at that time shall be deemed to be the
initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective
amendment any of the securities being registered which remain unsold at the
termination of the offering.
(b) Undertaking in respect of incorporation of reference.
The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of
the registrant's annual report pursuant to Section 13(a) or 15(d) of the
Securities Exchange Act of 1934 (and, where applicable, each filing of an
employee benefit plan's annual report pursuant to Section 15(d) of the
Securities Exchange Act of 1934) that is incorporated by reference in the
registration statement shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such
securities at that time shall be deemed to be the initial bona fide
offering thereof.
(c) Undertaking in respect of indemnification.
The undersigned registrant hereby agrees to provide to the
underwriter at the closing specified in the underwriting agreement,
certificates in such denominations and registered in such names as
required by the underwriter to permit prompt delivery to each purchaser.
Insofar as indemnification for liabilities arising under the Act may
be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the
registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as
expressed in the Act and is, therefore, unenforceable. In the event that
a claim for indemnification against such liabilities (other than the
payment by the registrant of expenses incurred or paid by a director,
officer or controlling person in connection with the securities being
registered) the registrant will, unless in the opinion of its counsel the
matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question of whether such indemnification by
it is against public policy as expressed in the Act and will be governed
by the final adjudication of such issue.
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as
amended, the Registrant certifies that it has reasonable grounds to
believe that it meets all of the requirements for filing on Form S-3 and
has duly caused this Registration Statement to be signed on its behalf by
the undersigned, thereunto duly authorized, in the City of Jacksonville,
State of Florida on the 14th day of October, 1996.
MLCC MORTGAGE INVESTORS, INC.
By: /s/ Robert J. Smith
------------------------
Name: Robert J. Smith
Title: Senior Vice President
POWER OF ATTORNEY
KNOW ALL MEN BY THERE PRESENTS, that each person whose signature
appears below constitutes and appoints each of Michael A. Johnston, Kevin
O'Hanlon, Robert J. Smith, John J. Donlon, Thomas O. McConnell, Earle C.
Traynhem, George T. Morrison, Francis X. Ervin, Jr., and Jeffrey S.
Alexander, or any of them, his true and lawful attorneys-in-fact and
agents, with full power of substitution and resubstitution, for him and
his name, place and stead, in any and all capacities, to sign any and all
amendments (including post-effective amendments) to this Registration
Statement, and to file the same, with all exhibits thereto, and any other
documents in connection therewith, with the Securities and Exchange
Commission, granting unto said attorneys-in-fact and agents, and each of
them, full power and authority to do and perform each and every act and
thing requisite and necessary to be done in and about the premises, as
fully to all intents and purposes as he might or could do in person,
hereby ratifying and confirming all that said attorneys-in-fact and
agents, or any of them, or their or his substitutes, may lawfully do or
cause to be done by virtue thereof.
Pursuant to the requirements of the Securities Act of 1933, as
amended, this Registration Statement has been signed by the following
persons in the capacities indicated on October 15, 1996.
Signature Title
--------- -----
/s/ Michael A. Johnston President, Chairman of the
-------------------------------- the Board of
(Michael A. Johnston) Directors (Chief Executive
Officer)
Senior Vice President,
/s/ Kevin O'Hanlon Director
--------------------------------
(Kevin O'Hanlon)
Senior Vice President,
/s/ Rober J. Smith
-------------------------------- Director
(Robert J. Smith)
Senior Vice President
/s/ John H. Donlon
-------------------------------- and Secretary,
(John J. Donlon) Director
Director
/s/ Thomas O. McConnell
--------------------------------
(Thomas O. McConnell)
Director
/s/ Earle C. Traynhem
--------------------------------
(Earle C. Traynhem)
Senior Vice President
/s/ Francis X. Ervin, Jr.
--------------------------------
and Treasurer
(Francis X. Ervin, Jr.) (Principal Financial Officer
and Principal Accounting
Officer)
MLCC MORTGAGE INVESTORS, INC.,
COMPANY,
MERRILL LYNCH CREDIT CORPORATION,
MASTER SERVICER,
and
BANKERS TRUST COMPANY OF CALIFORNIA, N.A.,
TRUSTEE
POOLING AND SERVICING AGREEMENT
Dated as of _____ 1, 199_
$________________
Mortgage Loan Asset Backed Pass-Through Certificates
Series 199_-_
TABLE OF CONTENTS
Page
----
ARTICLE I
DEFINITIONS
Section 1.01. Definitions . . . . . . . . . . . . . . . . . . . . . . . 1
Section 1.02. Interest Calculations . . . . . . . . . . . . . . . . . . 24
ARTICLE II
CONVEYANCE OF MORTGAGE LOANS; TRUST FUND
Section 2.01. Conveyance of Mortgage Loans . . . . . . . . . . . . . . . 25
Section 2.02. Acceptance by Trustee . . . . . . . . . . . . . . . . . . 29
Section 2.03. Trust Fund; Authentication of Certificates . . . . . . . . 31
Section 2.04. REMIC Election . . . . . . . . . . . . . . . . . . . . . . 31
Section 2.05. REMIC Tax Matters . . . . . . . . . . . . . . . . . . . . 32
Section 2.06. REMIC Certificate Maturity Date . . . . . . . . . . . . . 32
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE MASTER
SERVICER; REPURCHASE OF MORTGAGE LOANS;
REPRESENTATION AND WARRANTY OF THE COMPANY
Section 3.01. Representations and Warranties of the Master Servicer . . 33
Section 3.02. Option to Substitute . . . . . . . . . . . . . . . . . . . 46
Section 3.03. Representation and Warranty of the Company . . . . . . . . 47
Section 3.04. Converting Mortgage Loans; Certain Procedures and
Purchases . . . . . . . . . . . . . . . . . . . . . . 47
ARTICLE IV
THE CERTIFICATES
Section 4.01. The Certificates . . . . . . . . . . . . . . . . . . . . . 49
Section 4.02. Registration of Transfer and Exchange of Certificates . . 50
Section 4.03. Mutilated, Destroyed, Lost or Stolen Certificates . . . . 55
Section 4.04. Persons Deemed Owners . . . . . . . . . . . . . . . . . . 55
Section 4.05. Appointment of Paying Agent . . . . . . . . . . . . . . . 56
ARTICLE V
ADMINISTRATION AND SERVICING OF MORTGAGE LOANS
Section 5.01. Master Servicer to Service Mortgage Loans . . . . . . . . 57
Section 5.02. Sub-Servicing Agreements Between Master Servicer and Sub-
Servicers; Enforcement of Sub-Servicer's
Obligations . . . . . . . . . . . . . . . . . . . . . 58
Section 5.03. Successor Sub-Servicers . . . . . . . . . . . . . . . . . 59
Section 5.04. Liability of the Master Servicer . . . . . . . . . . . . . 59
Section 5.05. No Contractual Relationship Between Sub- Servicer and
Trustee, the Certificateholders, the Certificate
Insurer or the Surety . . . . . . . . . . . . . . . . 60
Section 5.06. (Omitted) . . . . . . . . . . . . . . . . . . . . . . . . 60
Section 5.07. Collection of Mortgage Loan Payments . . . . . . . . . . . 60
Section 5.08. Establishment of Certificate Account; Deposits in
Certificate Account . . . . . . . . . . . . . . . . . 61
Section 5.09. Permitted Withdrawals from the Certificate Account . . . . 63
Section 5.10. Establishment of Escrow Account; Deposits in Escrow
Account . . . . . . . . . . . . . . . . . . . . . . . 64
Section 5.11. Permitted Withdrawals from Escrow Account . . . . . . . . 65
Section 5.12. Payment of Taxes, Insurance and Other Charges . . . . . . 65
Section 5.13. Transfer of Accounts . . . . . . . . . . . . . . . . . . . 66
Section 5.14. (Omitted) . . . . . . . . . . . . . . . . . . . . . . . . 66
Section 5.15. (Omitted) . . . . . . . . . . . . . . . . . . . . . . . . 66
Section 5.16. Maintenance of Standard Hazard Policies . . . . . . . . . 66
Section 5.17. (Omitted) . . . . . . . . . . . . . . . . . . . . . . . . 67
Section 5.18. (Omitted) . . . . . . . . . . . . . . . . . . . . . . . . 67
Section 5.19. Fidelity Bond and Errors and Omissions Insurance . . . . . 67
Section 5.20. Collections under Insurance Policies; Enforcement of Due-
on-Sale Clauses; Assumption Agreements . . . . . . . 68
Section 5.21. Income and Realization from Defaulted Mortgage Loans . . . 69
Section 5.22. Trustee to Cooperate; Release of Mortgage Files . . . . . 71
Section 5.23. Servicing and Other Compensation . . . . . . . . . . . . . 72
Section 5.24. File Review Rights of the Certificate Insurer and the
Surety . . . . . . . . . . . . . . . . . . . . . . . 73
Section 5.25. Annual Statement as to Compliance . . . . . . . . . . . . 73
Section 5.26. Annual Independent Public Accountants' Servicing Report . 73
Section 5.27. Access to Certain Documentation; Rights of the Company in
Respect of the Master Servicer . . . . . . . . . . . 74
Section 5.28. REMIC-Related Covenants . . . . . . . . . . . . . . . . . 75
Section 5.29. Prohibited Transactions and Other Taxes . . . . . . . . . 76
ARTICLE VI
PAYMENTS TO THE CERTIFICATEHOLDERS
Section 6.01. Distributions . . . . . . . . . . . . . . . . . . . . . . 77
Section 6.02. Statements to the Certificateholders . . . . . . . . . . . 79
Section 6.03. Advances by the Master Servicer . . . . . . . . . . . . . 82
Section 6.04. The Certificate Insurance Policy . . . . . . . . . . . . . 85
Section 6.05. The Certificate Guaranty Surety Bond . . . . . . . . . . . 86
ARTICLE VII
REPORTS TO BE PREPARED BY MASTER SERVICER
Section 7.01. Master Servicer Shall Provide Information as Reasonably
Required . . . . . . . . . . . . . . . . . . . . . . 87
Section 7.02. Federal Information Returns and Reports to
Certificateholders . . . . . . . . . . . . . . . . . 87
ARTICLE VIII
THE COMPANY AND THE MASTER SERVICER
Section 8.01. Indemnification; Third Party Claims . . . . . . . . . . . 89
Section 8.02. Merger or Consolidation of the Company or the Master
Servicer; Status of Master Servicer . . . . . . . . . 90
Section 8.03. Limitation on Liability of the Company, the Master
Servicer, the Trustee and Others . . . . . . . . . . 91
Section 8.04. Company and Master Servicer Not to Resign . . . . . . . . 91
Section 8.05. Successor to the Master Servicer . . . . . . . . . . . . . 92
Section 8.06. Maintenance of Ratings . . . . . . . . . . . . . . . . . . 94
ARTICLE IX
DEFAULT
Section 9.01. Events of Default . . . . . . . . . . . . . . . . . . . . 95
Section 9.02. Waiver of Defaults . . . . . . . . . . . . . . . . . . . . 97
Section 9.03. Trustee or Company to Act; Appointment of Successor . . . 97
Section 9.04. Notification to Certificateholders . . . . . . . . . . . . 97
ARTICLE X
CONCERNING THE TRUSTEE
Section 10.01. Duties of Trustee . . . . . . . . . . . . . . . . . . . . 98
Section 10.02. Certain Matters Affecting the Trustee . . . . . . . . . . 99
Section 10.03. Trustee Not Liable for Certificates or Mortgage Loans . . 100
Section 10.04. Trustee May Own Certificates . . . . . . . . . . . . . . . 100
Section 10.05. Master Servicer to Pay Trustee's Fees and Expenses . . . . 100
Section 10.06. Eligibility Requirements for Trustee . . . . . . . . . . . 101
Section 10.07. Resignation and Removal of the Trustee . . . . . . . . . . 101
Section 10.08. Successor Trustee . . . . . . . . . . . . . . . . . . . . 103
Section 10.09. Merger or Consolidation of Trustee . . . . . . . . . . . . 103
Section 10.10. Appointment of Co-Trustee or Separate Trustee . . . . . . 104
Section 10.11. Appointment of Office or Agency . . . . . . . . . . . . . 105
ARTICLE XI
TERMINATION
Section 11.01. Termination . . . . . . . . . . . . . . . . . . . . . . . 106
Section 11.02. Additional Termination Requirements . . . . . . . . . . . 108
Section 11.03. Termination By Certificate Insurer or Surety . . . . . . . 108
ARTICLE XII
MISCELLANEOUS PROVISIONS
Section 12.01. Severability of Provisions . . . . . . . . . . . . . . . . 109
Section 12.02. Limitation on Rights of Certificateholders . . . . . . . . 109
Section 12.03. Amendment . . . . . . . . . . . . . . . . . . . . . . . . 110
Section 12.04. The Certificate Insurer; Surety . . . . . . . . . . . . . 111
Section 12.05. Recordation of Agreement; Counterparts. . . . . . . . . . 112
Section 12.06. Duration of Agreement . . . . . . . . . . . . . . . . . . 112
Section 12.07. Governing Law . . . . . . . . . . . . . . . . . . . . . . 112
Section 12.08. Notices . . . . . . . . . . . . . . . . . . . . . . . . . 112
EXHIBITS
A. Mortgage Loan Schedule A-1
B. Contents of Mortgage File B-1
C. Form of Class A Certificates C-1
D. Form of Class B Certificates D-1
E. (Reserved) E-1
F. Form of Class R Certificate F-1
G. (Reserved) G-1
H. Certificate Account Certification H-1
I. (Reserved) I-1
J. Distribution Account Certification J-1
K. (Reserved) K-1
L. Form of Investment Letter L-1
M. Form of Transfer Affidavit M-1
N. ERISA Representation Letter N-1
O. (Reserved) O-1
P. Sale Agreement P-1
Q. Form of Notice for Certificate Insurance Policy Q-1
R. Form of Notice for Certificate Guaranty Surety Bond R-1
This Pooling and Servicing Agreement, dated as of _____ 1, 199_, is
executed among MLCC Mortgage Investors, Inc., as seller (together with its
permitted successors and assigns, the "Company"), Merrill Lynch Credit
Corporation, as master servicer (together with its permitted successors and
assigns, the "Master Servicer"), and Bankers Trust Company of California,
N.A., as trustee (together with its permitted successors and assigns, the
"Trustee").
In consideration of the premises and the mutual agreements hereinafter
set forth, the Company, the Master Servicer and the Trustee agree as follows:
ARTICLE I
DEFINITIONS
-----------
Section 1.01. Definitions. Whenever used herein, the following words
-----------
and phrases, unless the context otherwise requires, shall have the following
meanings:
ACCRUAL PERIOD: As to the first Distribution Date, the period from and
--------------
including the Closing Date to and including _____________, 199_; and as to
any Distribution Date thereafter, the period from and including the 15th day
of the month preceding the month of such Distribution Date to and including
the 14th day of the month of such Distribution Date.
ADDITIONAL COLLATERAL: (i) With respect to any Mortgage 100 Loan, the
---------------------
marketable securities subject to a security interest pursuant to the related
Mortgage 100 Pledge Agreement, or (ii) with respect to any Parent Power
Mortgage Loan, the related Parent Power Agreement.
ADDITIONAL COLLATERAL MORTGAGE LOAN: Each Mortgage Loan that is either
-----------------------------------
a Mortgage 100 Loan or Parent Power Mortgage Loan as to which the Additional
Collateral is still required to be provided.
ADDITIONAL COLLATERAL MORTGAGE LOAN LIQUIDATION SHORTFALL: The amount,
---------------------------------------------------------
if any, by which the then outstanding principal balance of a defaulted
Additional Collateral Mortgage Loan exceeds the Liquidation Proceeds
(including those from the related Additional Collateral) allocable to
principal realized with respect to such Mortgage Loan.
ADVANCE: The aggregate of the advances made by the Master Servicer or
-------
the Trustee with respect to a particular Distribution Date pursuant to
Section 6.03.
ADVANCE DEPOSIT DATE: As to any Distribution Date, the Business Day
--------------------
preceding such Distribution Date.
AGGREGATE NET PRINCIPAL LIQUIDATION LOSSES: With respect to each
------------------------------------------
Distribution Date, the amount, if any, by which (a) the aggregate of the
outstanding principal balances of those Mortgage Loans that became Liquidated
Mortgage Loans during the month ending prior to the month of such
Distribution Date exceeds (b) the aggregate Net Liquidation Proceeds for such
Mortgage Loans that are allocable to principal in accordance with the terms
thereof.
AGREEMENT: This Pooling and Servicing Agreement and all amendments
---------
hereof and supplements hereto.
ALTERNATE CERTIFICATE RATE: As to any Distribution Date, the weighted
--------------------------
average of the Net Mortgage Rates of all Mortgage Loans applicable as of the
Due Date of the month preceding the month of such Distribution Date, weighted
on the basis of their outstanding Principal Balances (after giving effect to
the Monthly Payments due on or before such Due Date and Principal Prepayments
received prior to such Due Date) at such time.
ASSIGNMENT OF MORTGAGE: An assignment of the Mortgage, notice of
----------------------
transfer or equivalent instrument, in recordable form, sufficient under the
laws of the jurisdiction where the related Mortgaged Property is located to
reflect of record the sale and assignment of the Mortgage Loan to the
Trustee, which assignment, notice of transfer or equivalent instrument may,
if permitted by law, be in the form of one or more blanket assignments
covering Mortgages secured by Mortgaged Properties located in the same
county.
AVAILABLE DISTRIBUTION AMOUNT: With respect to any Distribution Date,
-----------------------------
an amount equal to the amount on deposit in the Certificate Account as of the
close of business on the related Determination Date, plus Advances and other
amounts deposited to the Distribution Account pursuant to Section 6.03,
except:
(a) previously unreimbursed amounts received on particular
Mortgage Loans as late payments or other recoveries of principal or
interest (including Liquidation Proceeds, Insurance Proceeds and
condemnation awards) that were part of a prior Advance;
(b) amounts representing the reimbursement for Nonrecoverable
Advances and other amounts permitted to be withdrawn by the Master
Servicer from, or not required to be deposited in, the Certificate
Account pursuant to Section 5.09;
(c) amounts representing all or part of a Monthly Payment due
after the immediately preceding Due Date;
(d) all Repurchase Proceeds, Principal Prepayments, Liquidation
Proceeds, Insurance Proceeds and condemnation awards with respect to the
Mortgage Loans received after the related Principal Prepayment Period,
and all related payments of interest representing interest for any
period of time after the last day of the related Due Period for such
Mortgage Loans; and
(e) all income from Eligible Investments held in the Certificate
Account for the account of the Master Servicer.
BOOK-ENTRY CERTIFICATE: Any Class A Certificate registered in the name
----------------------
of the Depository or its nominee ownership of which is reflected on the books
of the Depository or on the books of a person maintaining an account with
such Depository (directly or as an indirect participant in accordance with
the rules of such Depository).
BUSINESS DAY: Any day other than (a) a Saturday or Sunday, or (b) a
------------
legal holiday in the State of Florida or the State of New York, or (c) a day
on which banking or savings and loan institutions in the State of Florida,
the State of New York or the State in which the Corporate Trust Office is
located are authorized or obligated by law or executive order to be closed.
CASH LIQUIDATION: Recovery of all cash proceeds by the Master Servicer
----------------
with respect to the termination of any defaulted Mortgage Loan, including
Insurance Proceeds and other payments or recoveries (whether made at one time
or over a period of time) which the Master Servicer deems to be finally
recoverable, in connection with the sale or assignment of such Mortgage Loan,
trustee's sale, foreclosure sale, deed in lieu of foreclosure or otherwise,
but only if title to the related Mortgaged Property was not acquired by
foreclosure or deed in lieu of foreclosure by the Master Servicer pursuant to
Section 5.21.
CERTIFICATE: Any Class A, Class B or Class R Certificate.
-----------
CERTIFICATE ACCOUNT: The account created and maintained pursuant to
-------------------
Section 5.08.
CERTIFICATE GUARANTY SURETY BOND: The Limited Purpose Surety Bond No.
--------------------------------
__________ dated ___________, 199_ issued by the Surety.
CERTIFICATEHOLDER or HOLDER: The person in whose name a Certificate is
----------------- ------
registered in the Certificate Register, except that, solely for the purposes
of giving any consent, waiver, request or demand pursuant to this Agreement,
any Certificate registered in the name of the Company, the Master Servicer,
any Sub-Servicer, or any of their respective affiliates shall be deemed not
to be outstanding and the undivided Percentage Interest evidenced thereby
shall not be taken into account in determining whether the requisite amount
of Percentage Interests necessary to effect any such consent, waiver, request
or demand has been obtained, unless such Person owns the entire Class of
which such Certificate is a part. The Trustee shall be provided with an
Officer's Certificate by the Company, the Master Servicer or any Sub-Servicer
if any Certificate is owned by any affiliate thereof and shall be entitled to
conclusively rely upon the certificate of the Company or the Master Servicer
or any Sub-Servicer as to the determination of the aggregate Percentage
Interests evidenced by Certificates registered to the Company, the Master
Servicer, any Sub-Servicer or their affiliates.
CERTIFICATE INSURANCE POLICY: The certificate guaranty insurance policy
----------------------------
dated the Closing Date issued by the Certificate Insurer to the Trustee for
the benefit of the Holders of the Class A Certificates.
CERTIFICATE INSURER: ____________________________, or any successor
-------------------
thereto, as issuer of the Certificate Insurance Policy.
CERTIFICATE OWNER: With respect to a Class A Certificate that is a
-----------------
Book-Entry Certificate, the person who is the beneficial owner of a Book-
Entry Certificate.
CERTIFICATE REGISTER: The register maintained pursuant to Section 4.02.
--------------------
CLASS A, CLASS B or CLASS R: Pertaining to Class A, Class B or Class
---------------------------
R Certificates, as the case may be.
CLASS A CERTIFICATE: Any one of the Certificates designated as a Class
-------------------
A Certificate substantially in the form set forth in Exhibit C hereto and
executed by the Company and authenticated by the Trustee.
CLASS A DISTRIBUTION AMOUNT: As to any Distribution Date, the aggregate
---------------------------
amount distributed on the Class A Certificates pursuant to Section 6.01.
CLASS A FORMULA PRINCIPAL DISTRIBUTION AMOUNT: With respect to any
---------------------------------------------
Distribution Date, the sum of (i) the Class A Percentage of the Scheduled
Formula Principal Distribution Amount and (ii) the Class A Prepayment
Percentage of the Unscheduled Formula Principal Distribution Amount.
CLASS A INTEREST FORMULA DISTRIBUTION AMOUNT: As to any Distribution
--------------------------------------------
Date, an amount equal to the sum of (a) interest for the related Accrual
Period at the Class A Pass-Through Rate on the Class A Principal Balance as
of such Distribution Date (before giving effect to the distribution on such
Distribution Date), net of Net Interest Shortfall, if any, allocated to the
Class A Certificates pursuant to Section 6.01 in respect of such Distribution
Date, and (b) any Class A Unpaid Interest Shortfall for such Distribution
Date.
CLASS A INTEREST SHORTFALL: As to any Distribution Date, the amount
--------------------------
equal to (a) the Class A Interest Formula Distribution Amount for such
Distribution Date less (b) the amount of interest distributed to the Class A
Certificateholders on such Distribution Date.
CLASS A PASS-THROUGH RATE: As to any Distribution Date, the per annum
-------------------------
rate equal to the lesser of (i) LIBOR plus ____% (or, as to any Distribution
Date occurring at least 120 days after the first Distribution Date in respect
of which the option to purchase the Mortgage Loans in Section 11.01(a) may
first be exercised, LIBOR plus ____%) and (ii) the Alternate Certificate
Rate.
CLASS A PERCENTAGE: As to any Distribution Date, the percentage (which
-------------------
shall in no event be greater than 100%) derived from dividing the Class A
Principal Balance (before giving effect to the distributions for such
Distribution Date) by the Pool Principal Balance (before giving effect to the
Formula Principal Distribution Amount for such Distribution Date).
CLASS A PREPAYMENT PERCENTAGE: The Class A Prepayment Percentage for
-----------------------------
a Distribution Date on or before the Distribution Date in ______ 2006 will be
100%. The Class A Prepayment Percentage for a Distribution Date after the
Distribution Date in ______ 2006 will be as follows: for any Distribution
Date subsequent to ______ 2006 to and including the Distribution Date in
______ 2007, the Class A Percentage for such Distribution Date plus 70% of
the Subordinated Percentage for such Distribution Date; for any Distribution
Date subsequent to ______ 2007 to and including the Distribution Date in
______ 2008, the Class A percentage for such Distribution Date plus 60% of
the Subordinated Percentage for such Distribution Date; for any
Distribution Date subsequent to ______ 2008 to and including the Distribution
Date in ______ 2009, the Class A Percentage for such Distribution Date plus
40% of the Subordinated Percentage for such Distribution Date; for any
Distribution Date subsequent to ______ 2009 to and including the Distribution
Date in ______ 2010, the Class A Percentage for such Distribution Date plus
20% of the Subordinated Percentage for such Distribution Date; for any
Distribution Date thereafter, the Class A Percentage for such Distribution
Date (unless on any of the foregoing Distribution Dates the Class A
Percentage exceeds the initial Class A Percentage, in which case the Class A
Prepayment Percentage for such Distribution Date will once again be 100%).
Notwithstanding the foregoing, a decrease in the Class A Prepayment
Percentage provided for in the preceding paragraph will not occur if, as of
the first Distribution Date to which such decrease would apply in accordance
with the preceding paragraph, the following criteria are not satisfied: (a)
cumulative Unrecovered Principal Amounts shall not exceed (1) if such
Distribution Date is in the period after ______ 2006 to and including ______
2007, 35% of the Original Class B Principal Balance, (2) if such Distribution
Date is in the period after ______ 2007 to and including ______ 2008, 40% of
the Original Class B Principal Balance, (3) if such Distribution Date is in
the period after ______ 2008 to and including ______ 2009, 45% of the
Original Class B Principal Balance and (4) if such Distribution Date is in
the period after ______ 2009 to and including ______ 2010, 50% of the
Original Class B Principal Balance; and (b) over the prior three months, the
average aggregate outstanding Principal Balance of the Mortgage Loans
delinquent 60 days or more (including for this purpose any Mortgage Loans in
foreclosure and Mortgage Loans with respect to which the related Mortgaged
Property has been acquired by the Trust Fund) has not exceeded ____% of the
average aggregate outstanding Principal Balance of all Mortgage Loans for
such period.
Notwithstanding the foregoing, if on any Distribution Date (i) the
Current Subordination Level equals at least twice the Original Subordination
Level, (ii) cumulative Unrecovered Principal Amounts with respect to the
Mortgage Loans have not exceeded (1) if such Distribution Date is on or
before the fifth anniversary of the first Distribution Date, 35% of the
Original Class B Principal Balance, (2) if such Distribution Date is after
the fifth but on or before the sixth anniversary of the first Distribution
Date, 40% of the Original Class B Principal Balance, (3) if such Distribution
Date is after the sixth but on or before the seventh anniversary date of the
first Distribution Date, 45% of the Original Class B Principal Balance and
(4) if such Distribution Date is after the seventh anniversary date of the
first Distribution Date, 50% of the Original Class B Principal Balance; and
(iii) over the prior three months, the average aggregate outstanding
Principal Balance of the Mortgage Loans delinquent 60 days or more (including
for this purpose any Mortgage Loans in foreclosure and Mortgage Loans with
respect to which the related Mortgaged Property has been acquired by the
Trust Fund) has not exceeded ____% of the average aggregate outstanding
Principal Balance of all Mortgage Loans for such period, then the Class A
Prepayment Percentage for such Distribution Date will be as follows: (A) as
to any Distribution Date prior to the third anniversary of the first
Distribution Date, the Class A Percentage for such Distribution Date plus 50%
of the Subordinated Percentage for such Distribution Date; and (B) as to any
Distribution Date thereafter, the Class A Percentage for such Distribution
Date.
CLASS A PRINCIPAL BALANCE: At any time, the Original Class A Principal
-------------------------
Balance minus the sum of all amounts previously distributed to the Class A
Certificateholders on account of principal pursuant to Section 6.01.
CLASS A UNPAID INTEREST SHORTFALL: As to any Distribution Date, the
---------------------------------
amount of the Class A Interest Shortfall for the immediately preceding
Distribution Date.
CLASS B CERTIFICATE: Any one of the certificates designated as a Class
-------------------
B Certificate, executed by the Company and authenticated by the Trustee
substantially in the form set forth in Exhibit D hereto.
CLASS B DISTRIBUTION AMOUNT: As to any Distribution Date, the aggregate
---------------------------
amount distributed to Class B Certificateholders on such Distribution Date
pursuant to Section 6.01.
CLASS B FORMULA PRINCIPAL DISTRIBUTION AMOUNT: As to any Distribution
---------------------------------------------
Date, the sum of (i) the Subordinated Percentage of the Scheduled Formula
Principal Amount and (ii) the Subordinated Prepayment Percentage of the
Unscheduled Formula Principal Distribution Amount.
CLASS B INTEREST FORMULA DISTRIBUTION AMOUNT: As to any Distribution
--------------------------------------------
Date, an amount equal to the sum of (a) interest for the related Accrual
Period at the Class B Pass-Through Rate on the Class B Principal Balance as
of such Distribution Date (before giving effect to the distribution on such
Distribution Date), net of Net Interest Shortfall, if any, allocated to the
Class B Certificates pursuant to Section 6.01 in respect of such Distribution
Date, and (b) any Class B Unpaid Interest Shortfall for such Distribution
Date.
CLASS B INTEREST SHORTFALL: As to any Distribution Date, the amount
--------------------------
equal to (a) the Class B Interest Formula Distribution Amount for such
Distribution Date less (b) the amount of interest distributed to the Class B
Certificateholders on such Distribution Date.
CLASS B LOSS AMOUNT: As to any Distribution Date, the lesser of (x),
-------------------
the amount, if any, by which (A) the sum of (i) the Formula Principal
Distribution Amount for such Distribution Date and (ii) the aggregate of the
Unrecovered Principal Amounts for such Distribution Date exceeds (B) the
portion of the Available Distribution Amount distributed on account of
principal on such Distribution Date and (y) the Class B Principal Balance
after giving effect to any amount distributed on account of principal to the
Class B Certificateholders on such Distribution Date.
CLASS B PASS-THROUGH RATE: As to any Distribution Date, LIBOR plus
-------------------------
____%; provided, however, that in the event that the Alternate Certificate
Rate is less than LIBOR plus ____%, the Class B Pass-Through Rate for such
Distribution Date shall be the Alternate Certificate Rate.
CLASS B PRINCIPAL BALANCE: At any time, the Original Class B Principal
-------------------------
Balance minus (i) the sum of all amounts previously distributed to the Class
B Certificateholders pursuant to Section 6.01 on account of principal and
(ii) the sum of all Class B Loss Amounts, if any, for prior Distribution
Dates; provided that the Class B Principal Balance shall not be less than
zero.
CLASS B UNPAID INTEREST SHORTFALL: As to any Distribution Date, the
---------------------------------
amount of the Class B Interest Shortfall for the immediately preceding
Distribution Date.
CLASS R CERTIFICATE: Any one of the Certificates executed and delivered
-------------------
by the Company and authenticated by the Trustee substantially in the form set
forth in Exhibit F.
CLASS R DISTRIBUTION AMOUNT: As to any Distribution Date, the aggregate
---------------------------
amount distributed to Class R Certificateholders on such Distribution Date
pursuant to Section 6.01.
CLOSING DATE: _______________, 199_.
------------
CODE: The Internal Revenue Code of 1986, as amended.
----
COMPANY: MLCC Mortgage Investors, Inc., a Delaware corporation, or its
-------
successor in interest or any successor under this Agreement appointed as
herein provided.
CONVERSION PRICE: As to any Converting Mortgage Loan, an amount equal
----------------
to the outstanding principal balance of such Converting Mortgage Loan, plus
accrued and unpaid interest thereon at the applicable Mortgage Rate to the
date of conversion, less any Servicing Fee payable with respect to such
Converting Mortgage Loan.
CONVERTIBLE MORTGAGE LOAN: Any Mortgage Loan as to which the Mortgagor,
-------------------------
at its option in accordance with the terms thereof, may convert its Mortgage
Rate (i) to a different Index and applicable Margin, or (ii) to either a
fixed rate or to a different Index and applicable Margin (and at the
Mortgagor's election, thereafter to a fixed rate).
CONVERTING MORTGAGE LOAN: A Convertible Mortgage Loan as to which the
------------------------
Mortgagor is entitled to give and has properly given notice under the terms
thereof that such Mortgagor is exercising such Mortgagor's option to convert
the related Mortgage Rate to a fixed rate. A Mortgage Loan that converts to
a different Index is not a Converting Mortgage Loan.
CORPORATE TRUST OFFICE: The principal office of the Trustee at which
----------------------
at any particular time its corporate business with respect to this Agreement
shall be administered, which office at the date of execution of this
instrument is located at 3 Park Plaza, Irvine, California 92714, Telecopy
(___) __________.
CURRENT SUBORDINATION LEVEL: With respect to any Distribution Date, the
---------------------------
percentage derived from the fraction the numerator of which is the Class B
Principal Balance (before giving effect to the distributions and the
allocation of the Unrecovered Principal Amounts for such Distribution Date)
and the denominator of which is the Pool Principal Balance (before giving
effect to the Formula Principal Distribution Amount for such Distribution
Date).
CUSTODIAL AGREEMENT: The Master Custodial Agreement, dated as of ____
-------------------
1, 199_ among Bankers Trust Company of California, N.A., as trustee, Merrill
Lynch Mortgage Investors, Inc., MLCC Mortgage Investors, Inc., MLCC and The
Chase Manhattan Bank, N.A., as custodian.
CUSTODIAN: The custodian under the Custodial Agreement.
---------
CUT-OFF DATE: ______ 1, 199_ (or the date of origination, if later).
------------
DEFAULTED MORTGAGE LOAN: Any Mortgage Loan as to which a Monthly
-----------------------
Payment is 90 days or more delinquent.
DEFINITIVE CERTIFICATES: As defined in Section 4.02(l).
-----------------------
DEPOSITORY: The initial Depository shall be The Depository Trust
----------
Company, the nominee of which is CEDE & Co., as the registered Holder of one
or more Class A Certificates evidencing in the aggregate the Original Class A
Principal Balance. The Depository shall at all times be a "clearing
corporation" as defined in Section 8-102(3) of the Uniform Commercial Code of
the State of New York.
DEPOSITORY PARTICIPANT: A broker, dealer, bank or other financial
----------------------
institution or other Person for whom from time to time a Depository effects
book-entry transfers and pledges of securities deposited with the Depository.
DETERMINATION DATE: The fifth day (or if such fifth day is not a
------------------
Business Day, the Business Day immediately preceding such fifth day) of the
month of the related Distribution Date.
DISQUALIFIED ORGANIZATION: As defined in Section 4.02(i).
-------------------------
DISTRIBUTION ACCOUNT: The account created and maintained pursuant to
--------------------
Section 6.01.
DISTRIBUTION ACCOUNT SHORTFALL: With respect to any Distribution Date,
------------------------------
the sum of (a) the amount, if any, by which (x) the aggregate of the full
amounts that are due to be distributed on the Class A Certificates pursuant
to clauses (i) and (ii) of Section 6.01(a) exceeds (y) the amount of the
funds (other than the Insured Payment made in respect of such Distribution
Date) that will be on deposit in the Distribution Account in respect of such
Distribution Date and then available to be distributed on the Class A
Certificates, after taking into account all deposits required to be made to
the Distribution Account on or prior to such Distribution Date, including
without limitation all Advances, funds to be transferred from the Reserve
Fund and payments under the Certificate Guaranty Surety Bond, and (b) if such
Distribution Date is the third Distribution Date succeeding the month in
which there occurs the latest original scheduled maturity date of any
Mortgage Loan that was an Outstanding Mortgage Loan at any time during such
month, the amount, if any, necessary to reduce the Class A Principal Balance
to zero (after giving effect to all other distributions of principal to be
made on such Distribution Date in respect of the Class A Certificates),
without deduction, in the case of either of the foregoing clauses (a) or (b),
of any amounts required to be withheld that are attributable to the liability
of the Trust Fund or the Trustee for withholding taxes (including, without
limitation, interest and penalties in respect thereof).
DISTRIBUTION DATE: The __th day of any month, or if such __th day is
-----------------
not a Business Day, the first Business Day immediately following, beginning
with the First Distribution Date.
DUE DATE: As to any Distribution Date, the first day of the month of
--------
such Distribution Date, which is the day on which each Monthly Payment is due
on a Mortgage Loan, exclusive of any days of grace.
DUE PERIOD: With respect to any Distribution Date, the calendar month
----------
preceding the month of such Distribution Date.
ELIGIBLE ACCOUNT: An account that is (i) maintained with a federal or
----------------
state chartered depository institution the long-term unsecured debt
obligations of which have been rated by each Rating Agency in one of its two
highest rating categories at the time of the deposit therein, or (ii) a trust
account maintained with the corporate trust department of a depository
institution, which institution is acting in its fiduciary capacity, or (iii)
an account or accounts the deposits in which are fully insured by the FDIC,
or (iv) an account or accounts in a depository institution in which such
accounts are insured by the FDIC (to the limits established by the FDIC), the
uninsured deposits in which accounts are otherwise either (a) secured such
that, as evidenced by an Opinion of Counsel delivered to the Trustee and
acceptable to the Rating Agencies, the Certificateholders have a claim with
respect to the funds in such account and a perfected first security interest
against any collateral and the proceeds thereof (which shall be limited to
Eligible Investments) securing such funds that is superior to claims of any
other depositors or creditors of the depository institution with which such
account is maintained or (b) swept at the end of each Business Day into
either (1) Eligible Investments in the name of the Trustee so that the amount
remaining in such account (after giving effect to such sweep) is fully
insured by the FDIC or (2) an account that satisfies clause (ii) above, or
(v) otherwise acceptable to each Rating Agency without reduction or
withdrawal of each rating of the Class A Certificates, as evidenced by a
letter from each Rating Agency.
ELIGIBLE INVESTMENTS: One or more of the following:
--------------------
(a) obligations of, or guaranteed as to principal and interest by,
the United States or obligations of any agency or instrumentality
thereof when such obligations are backed by the full faith and credit of
the United States;
(b) repurchase agreements for obligations specified in clause (a)
maturing not later than the day prior to the Distribution Date on which
such amounts are to be distributed, provided that the long-term
unsecured obligations of the party agreeing to repurchase such
obligations are at the time rated by each Rating Agency in one of its
two highest rating categories and the short-term debt obligations of the
party agreeing to repurchase shall be rated P-1 by Moody's and A-1+ by
Standard & Poor's;
(c) certificates of deposit, time deposits, demand deposits and
bankers' acceptances (which shall each have an original maturity of not
more than 90 days and, in the case of bankers' acceptances, shall in no
event have an original maturity of more than 365 days) of any United
States depository institution or trust company incorporated under the
laws of the United States or any state, provided that the long-term
unsecured debt obligations of such depository institution or trust
company at the date of acquisition thereof have been rated by each
Rating Agency in one of its two highest rating categories and the
short-term obligations of such depository institution or trust company
shall be rated P-1 by Moody's and A-1+ by Standard & Poor's;
(d) commercial paper (having original maturities of not more than
365 days) of any corporation incorporated under the laws of the United
States or any state thereof which on the date of acquisition has been
rated by Moody's and Standard & Poor's in its highest short-term rating
(which is P-1 in the case of Moody's and A-1+ in the case of Standard &
Poor's); provided that such commercial paper shall mature no later than
the day prior to the Distribution Date on which such amounts are to be
distributed;
(e) money market funds with the highest long-term rating assigned
by the Rating Agencies; and
(f) other obligations or securities that are "permitted
investments" within the meaning of Section 860(G)(a)(5) of the Code,
based upon an Opinion of Counsel delivered to the Trustee, the
Certificate Insurer and the Surety, and acceptable to each Rating
Agency, the Certificate Insurer and the Surety as an Eligible Investment
hereunder and will not result in a reduction or withdrawal of the then
current rating of the Class A Certificates, as evidenced by a letter to
such effect from each Rating Agency;
provided that no instrument shall be an Eligible Investment if such
instrument evidences either (a) a right to receive only interest payments
with respect to the obligation underlying such instrument, or (b) a right to
receive both principal and interest payments derived from obligations
underlying such instrument where the interest and principal payments with
respect to such instrument provide a yield to maturity of greater than 120%
of the yield to maturity at par of such underlying obligations.
ERISA: The Employee Retirement Income Security Act of 1974, as amended.
-----
ESCROW ACCOUNT: The account or accounts created and maintained pursuant
--------------
to Section 5.10.
ESCROW PAYMENTS: The amounts constituting applicable ground rents,
---------------
taxes, assessments, water rates and other payments required to be escrowed by
the Mortgagor with the mortgagee pursuant to the Mortgage Loan.
EXCESS PROCEEDS: All amounts (net of the related unreimbursed Servicing
---------------
Advances) received on any Mortgage Loan (whether as regular principal
payments, Principal Prepayments, Repurchase Proceeds, Liquidation Proceeds,
insurance proceeds, condemnation awards, or with respect to a disposition of
a Mortgaged Property which has been acquired by foreclosure or deed in lieu
of foreclosure or otherwise) in excess of the Principal Balance at the
Cut-off Date of such Mortgage Loan and accrued interest thereon, plus amounts
to be paid to the Class R Certificateholder pursuant to Section 5.21.
FDIC: The Federal Deposit Insurance Corporation or any successor
----
organization.
FHLMC: The Federal Home Loan Mortgage Corporation or any successor
-----
organization.
FIDELITY BOND: A fidelity bond to be maintained by the Master Servicer
-------------
pursuant to Section 5.19.
FIRST DISTRIBUTION DATE: _____________, 199_.
-----------------------
FNMA: The Federal National Mortgage Association or any successor
----
organization.
FORMULA EXCESS INTEREST AMOUNT: With respect to any Distribution Date,
------------------------------
the amount, if any, by which one month's interest at the Alternate
Certificate Rate on the Pool Principal Balance at the beginning of the
related Principal Prepayment Period (giving effect to the Monthly Payment due
on such Due Date and Principal Prepayments prior to such Due Date) is in
excess of one month's interest at the weighted average of the Class A and
Class B Pass-Through Rates for such Distribution Date on the aggregate
principal balances of such Certificates (before giving effect to any
distributions or Class B Loss Amounts for such Distribution Date).
FORMULA PRINCIPAL DISTRIBUTION AMOUNT: As to any Distribution Date, an
-------------------------------------
amount equal to the sum of:
(a) the principal portion of all Monthly Payments, whether or not
received, which were due on the related Due Date on Outstanding Mortgage
Loans as of such Due Date;
(b) with respect to each Mortgage Loan, all Principal Prepayments
made by the Mortgagor during the related Principal Prepayment Period;
(c) with respect to each Mortgage Loan not described in (e) below,
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 pursuant to Section 5.08(iv) and
(v), which are allocable to principal and were received during the
related Principal Prepayment Period, net of related unreimbursed
Servicing Advances and net of any portion thereof which, as to such
Mortgage Loan, constitutes Late Collections;
(d) with respect to each Mortgage Loan that has been repurchased
pursuant to Section 11.01 during the related Principal Prepayment
Period, an amount equal to the Principal Balance of the Mortgage Loan as
of the date of repurchase;
(e) with respect to each Mortgage Loan that became a Liquidated
Mortgage Loan during the related Principal Prepayment Period, the amount
allocable to the principal of such Liquidated Mortgage Loan that was
recovered in respect of such Liquidated Mortgage Loan in such Principal
Prepayment Period; and
(f) with respect to each Mortgage Loan repurchased during the
related Principal Prepayment Period by the Master Servicer or the
Mortgage Loan Seller pursuant to Sections 2.01, 2.02, 3.01, 3.04 and
5.01, an amount equal to the principal amount of the Purchase Price
(exclusive of any portion thereof included in clause (a) above).
GNMA: The Government National Mortgage Association or any successor
----
organization.
INDEPENDENT: Of or relating to a Person which (i) is in fact
-----------
independent of the Company and the Master Servicer, (ii) does not have any
direct financial interest or any material indirect financial interest in the
Company and the Master Servicer if different from the Company or an affiliate
thereof and (iii) is not connected with the Company or the Master Servicer as
an officer, employee, director or person performing similar functions.
INDEX: As to each Mortgage Loan, the index for the adjustment of the
-----
Mortgage Rate on the related Mortgage Note, which index is the prime rate
(referred to in Section 3.01 as the "Prime Index"), the London interbank
offered rate for one-month U.S. Dollar deposits (referred to in Section 3.01
as the "One-Month LIBOR Index"), the London interbank offered rate for six-
month U.S. dollar deposits (referred to in Section 3.01 as the "Six-Month
LIBOR Index"), or the one-year U.S. treasury yield (referred to in Section
3.01 as the "Treasury Index"), in each case as defined in such Mortgage Note.
INSURANCE AGREEMENT: The Insurance and Indemnity Agreement, dated as
-------------------
of ______________, 199_, among the Company, the Master Servicer, the
Certificate Insurer and the Trustee.
INSURANCE PROCEEDS: Proceeds paid by any insurer pursuant to any
------------------
insurance policy covering a Mortgage Loan, net of costs of collecting such
proceeds.
INSURED AMOUNT: With respect to any Distribution Date, the sum of (i)
--------------
the Distribution Account Shortfall for such Distribution Date and (ii) any
Preference Amount that has not been previously paid to the Trustee by the
Certificate Insurer.
INSURED EXPENSES: Expenses covered by any insurance policy.
----------------
INSURED PAYMENT: With respect to any Distribution Date, the Insured
---------------
Amount paid to the Trustee by the Certificate Insurer.
INTEREST ADJUSTMENT DATE: The date specified in a Mortgage Note on
------------------------
which its Mortgage Rate is adjusted.
LATE COLLECTIONS: With respect to any Mortgage Loan, all amounts
----------------
received during any Due Period, whether as late payments of Monthly Payments
or as Liquidation Proceeds, condemnation awards, Insurance Proceeds, or with
respect to a disposition of a Mortgaged Property which has been acquired by
foreclosure or deed in lieu of foreclosure or otherwise, any of which
represent late payments or collections of Monthly Payments that were due but
delinquent for a previous Due Date and not previously recovered and with
respect to which delinquent Monthly Payments an Advance has been made by the
Master Servicer or, under the circumstances set forth in Section 6.03(b), by
the Trustee.
LATE PAYMENT RATE: As defined in the Insurance Agreement.
-----------------
LIBOR: As to any Distribution Date as follows:
-----
(i) The arithmetic mean (rounded, if necessary, to the nearest one
sixteenth of a percent, with a one thirty-second of a percent being rounded
upwards) of the offered rates for United States dollar deposits for one month
which appear on the Reuters Screen LIBO Page (as defined below) as of 11:00
A.M., London time, on the second LIBOR business day prior to the immediately
preceding Distribution Date (but as of ____________, 199_ for the First
Distribution Date); provided that at least two such offered rates appear on
the Reuters Screen LIBO Page on such date. If fewer than two offered rates
appear, LIBOR will be determined on such date as described in (ii) below.
"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 inter-bank
offered rates of major banks). A "LIBOR business day" is a day which is both
a Business Day and a day on which banks in London are not required or
authorized by law to be closed.
(ii) If on such date fewer than two offered rates appear on the Reuters
Screen LIBO Page as described in (i) above, the Trustee will request the
principal London office of each of the reference banks (which shall be
National Westminster Bank Plc, Bank of Tokyo Trust Co., Barclays Bank Plc and
Bankers Trust Company, so long as such bank, respectively, is engaged in
transactions in the London inter-bank market; to the extent any such bank is
not so engaged, it shall be replaced as a reference bank by a major bank that
is engaged in transactions in the London inter-bank market, selected by the
Master Servicer) ("Reference Banks") to provide the Trustee with its offered
quotation for United States dollar deposits for one month to prime banks in
the London inter-bank market as of 11:00 A.M., London time, on such date. If
at least two Reference Banks provide the Trustee with such offered
quotations, then LIBOR on such date will be the arithmetic mean (rounded, if
necessary, to the nearest one-sixteenth of a percent, with a one thirty-
second of a percent being rounded upwards) of all such quotations. If on
such date fewer than two of the Reference Banks provide the Trustee with such
an offered quotation, LIBOR on such date will be the arithmetic mean
(rounded, if necessary, to the nearest one-sixteenth of a percent, with a one
thirty-second of a percent being rounded upwards) of the offered per annum
rates which one or more leading banks in the City of New York are quoting as
of 11:00 A.M., New York City time, on such date to leading European banks for
United States dollar deposits for one month (which banks shall be Bankers
Trust Company and Citibank, N.A.; to the extent any such bank is not making
such quotes, it shall be replaced by a bank selected by the Trustee (after
consultation with the Master Servicer) that is making such quotes), provided,
however, that if such banks are not quoting as described above, LIBOR will be
the LIBOR applicable to the immediately preceding Distribution Date.
LIQUIDATED MORTGAGE LOAN: Any defaulted Mortgage Loan (a) as to which
------------------------
the Master Servicer has determined that all amounts which it expects to
recover from or on account of such Mortgage Loan or property acquired in
respect thereof have been recovered, (b) as to which a Cash Liquidation has
taken place or (c) with respect to which the related Mortgaged Property has
been acquired by foreclosure or deed in lieu of foreclosure and a disposition
of such Mortgaged Property has occurred.
LIQUIDATION EXPENSES: Expenses which are incurred by the Master
--------------------
Servicer or any Sub-Servicer in connection with the liquidation of any
defaulted Mortgage Loan or property acquired in respect thereof, including,
without limitation, legal fees and expenses, any unreimbursed amount expended
by the Master Servicer pursuant to Sections 5.16 and 5.21 respecting the
related Mortgage Loan and any related and unreimbursed expenditures for real
estate property taxes or for property restoration or preservation.
LIQUIDATION PROCEEDS: Cash (including Insurance Proceeds) received by
--------------------
the Master Servicer in connection with the liquidation of any defaulted
Mortgage Loan or Mortgaged Property acquired in respect thereof, whether
through the sale or assignment of such Mortgage Loan, trustee's sale,
foreclosure sale or otherwise, or the sale of the Mortgaged Property if the
Mortgaged Property is acquired in satisfaction of the Mortgage Loan other
than amounts required to be paid to the Mortgagor pursuant to law or the
terms of the applicable Mortgage Note plus, with respect to a defaulted
Mortgage Loan that is also an Additional Collateral Mortgage Loan, the amount
realized on the related Additional Collateral with respect to such Mortgage
Loan in accordance with Section 5.21.
LOAN-TO-VALUE RATIO: The fraction, expressed as a percentage, the
-------------------
numerator of which is the outstanding principal amount 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 such time or, in the
case of a Mortgage Loan financing the acquisition of the Mortgaged Property,
the sales price of the Mortgaged Property, if such sales price is less than
such appraised value.
MARGIN: With respect to each Mortgage Loan, the number of basis points
------
which are added to or subtracted from the Index to establish the Mortgage
Rate on the related Mortgage Note.
MASTER SERVICER: Merrill Lynch Credit Corporation, a Delaware
---------------
corporation, or its successor in interest or any successor under this
Agreement as herein provided.
MAXIMUM MORTGAGE RATE: With respect to each Mortgage Loan, the maximum
---------------------
rate of interest set forth as such in the related Mortgage Note.
MLCC: Merrill Lynch Credit Corporation and its successors in interest.
----
MONTHLY PAYMENT: The minimum required monthly payment of principal and
---------------
interest due on a Mortgage Loan as specified in the Mortgage Note for any
month (before any adjustment to such scheduled amount by reason of any
bankruptcy or similar proceeding or any moratorium or similar waiver or grace
period). Monthly Payments shall be deemed due on an Outstanding Mortgage
Loan until such time as it becomes a Liquidated Mortgage Loan.
MOODY'S: Moody's Investors Service, Inc. or its successor in interest.
-------
MORTGAGE: The mortgage, deed of trust or other instrument creating a
--------
first lien or a first priority ownership interest in an estate in fee simple
in real property (or a leasehold that extends at least five years beyond the
maturity of the related Mortgage Loan) securing a Mortgage Note.
MORTGAGE 100(Service Mark) LOAN: A Mortgage Loan having at the time of
-------------------------------
origination a Loan-to-Value Ratio generally in excess of MLCC's maximum
acceptable Loan-to-Value Ratio for such Mortgage Loan, which Mortgage Loan is
secured by additional collateral in the form of a security interest in
marketable securities having a market value, as of the date of such loan's
origination, at least equal to the Original Additional Collateral
Requirement.
MORTGAGE 100(Service Mark) PLEDGE AGREEMENT: With respect to each
-------------------------------------------
Mortgage 100 Loan, the Mortgage 100 Pledge Agreement for Securities Account
between the Mortgagor under such Mortgage 100 Loan and MLCC, pursuant to
which such Mortgagor granted a security interest in various investment
securities.
MORTGAGE FILE: The items referred to in Exhibit B annexed hereto
-------------
pertaining to a particular Mortgage Loan.
MORTGAGE LOAN: An individual mortgage loan and all rights with respect
-------------
thereto, evidenced by a Mortgage and a Mortgage Note, sold and assigned by
the Company to the Trustee and which is the subject of this Agreement and
included in the Trust Fund. The Mortgage Loans originally sold and subject
to this Agreement are identified on the Mortgage Loan Schedule.
MORTGAGE LOAN SCHEDULE: The schedule of Mortgage Loans attached hereto
----------------------
as Exhibit A, setting forth the following information as to each Mortgage
Loan: (i) the Mortgage Loan identifying number; (ii) a code indicating
whether the Mortgaged Property is owner-occupied; (iii) the property type of
the Mortgaged Property; (iv) the original number of months to maturity and
the number of months remaining to maturity from the Cut-off Date; (v) (a) the
appraised value of the Mortgaged Property as set forth in an appraisal which
was delivered at the time of the origination of the Mortgage Loan, or, in the
event the Mortgage Loan was made in connection with the acquisition of the
Mortgaged Property by the Mortgagor, the lesser of such appraised value and
the purchase price of the Mortgaged Property actually paid by the Mortgagor
at the time of the origination of the Mortgage Loan, and (b) the ratio,
expressed as a percentage, of the original principal amount of the Mortgage
Loan to the amount specified in (a) above; (vi) the current Mortgage Rate;
(vii) the current Margin; (viii) the amount of the current Monthly Payment;
(ix) the next Interest Adjustment Date; (x) the original Principal Balance of
the Mortgage Loan; and (xi) the Principal Balance of the Mortgage Loan as of
the close of business on the Cut-off Date.
MORTGAGE LOAN SELLER: Merrill Lynch Credit Corporation, a Delaware
--------------------
corporation, and its successors and assigns.
MORTGAGE NOTE: The note or other evidence of the indebtedness of a
-------------
Mortgagor secured by a Mortgage.
MORTGAGE POOL: The pool of Mortgage Loans held in the Trust Fund.
-------------
MORTGAGE RATE: With respect to each Mortgage Loan, the per annum rate
-------------
of interest for the applicable period borne by the Mortgage Loan, as
determined pursuant to the Mortgage Note.
MORTGAGED PROPERTY: The real property securing a Mortgage Note.
------------------
MORTGAGOR: The obligor on a Mortgage Note.
---------
NET INTEREST SHORTFALL: With respect to any Distribution Date, the sum
----------------------
of (i) the Net Prepayment Interest Shortfall, if any, for such Distribution
Date and (ii) the Relief Act Reduction, if any, for such Distribution Date as
determined in Section 6.01.
NET LIQUIDATION PROCEEDS: As to any Liquidated Mortgage Loan,
------------------------
Liquidation Proceeds net of Liquidation Expenses.
NET MORTGAGE RATE: As to any day and Mortgage Loan, its Mortgage Rate
-----------------
less 0.__% per annum.
NET PREPAYMENT INTEREST SHORTFALL: As to any Distribution Date, the
---------------------------------
aggregate of the Prepayment Interest Shortfalls incurred on the Mortgage
Loans in the preceding Principal Prepayment Period that were not made up by
the application of the Servicing Fees collected by the Master Servicer in
respect of such Principal Prepayment Period pursuant to Section 6.03(c).
NONRECOVERABLE ADVANCE: Any advance previously made or proposed to be
----------------------
made in respect of a Mortgage Loan by the Master Servicer or the Trustee
pursuant to Section 6.03 which, in the good faith judgment of the Master
Servicer or the Trustee, will not be ultimately recoverable by the Master
Servicer or the Trustee from Late Collections, Liquidation Proceeds or
otherwise. The determination by the Master Servicer that it has made, or
would be making, a Nonrecoverable Advance shall be evidenced by a certificate
of a Servicing Officer of the Master Servicer delivered to the Trustee and
the Company and detailing the reasons for such determination.
NON-U.S. PERSON: An individual, corporation, partnership or other
---------------
Person other than a citizen or resident of the United States, a corporation,
partnership or other entity created or organized in or under the laws of the
United States or any political subdivision thereof, or an estate or trust
that is subject to U.S. federal income tax regardless of the source of its
income.
OFFICERS' CERTIFICATE: A certificate signed by two of any of the
---------------------
Chairmen of the Board, Vice Chairman of the Board, the President, a Senior
Vice President or a Vice President, an Assistant Vice President, the
Treasurer or the Secretary or one of the Assistant Treasurers or Assistant
Secretaries or any other duly authorized officer of the Company or the Master
Servicer, and delivered to the Trustee.
OPINION OF COUNSEL: A written opinion of counsel, who may be counsel
------------------
for the Company or the Master Servicer and who is reasonably acceptable to
the Trustee and the Surety and the Certificate Insurer; provided, however
that the Trustee and the Surety and the Certificate Insurer shall receive an
opinion of Independent counsel with respect to any opinion submitted
regarding the qualification of the Trust Fund as a REMIC or compliance with
any of the REMIC Provisions.
ORIGINAL ADDITIONAL COLLATERAL REQUIREMENT: With respect to any
------------------------------------------
Additional Collateral Mortgage Loan, an amount equal to the Additional
Collateral required by the Company at the time of the origination of such
Additional Collateral Mortgage Loan in order to achieve a Loan-to-Value Ratio
for such Additional Collateral Mortgage Loan, generally equal to seventy
percent (70%); for purposes of the Required Surety Payment, in no event shall
the Original Additional Collateral Requirement for an Additional Collateral
Mortgage Loan exceed thirty percent (30%) of its original principal balance.
ORIGINAL CLASS A PRINCIPAL BALANCE: $__________.
----------------------------------
ORIGINAL CLASS B PRINCIPAL BALANCE: $__________.
----------------------------------
ORIGINAL POOL PRINCIPAL BALANCE: $____________.
-------------------------------
ORIGINAL SUBORDINATION LEVEL: The percentage derived from the fraction
----------------------------
the numerator of which is the Original Class B Principal Balance and the
denominator of which is the Original Pool Principal Balance, which percentage
is ____%.
ORIGINATE or ORIGINATION: When used with respect to a Mortgage Loan
--------- -----------
(whether or not used as a capitalized term), the closing and funding of such
Mortgage Loan.
OUTSTANDING MORTGAGE LOAN: As to any Due Date, a Mortgage Loan which
-------------------------
was not the subject of a Principal Prepayment in full prior to such Due Date,
which did not become a Liquidated Mortgage Loan prior to such Due Date and
which was not repurchased under Section 2.01, 2.02, 3.01, 3.04 or 5.01 prior
to such Due Date.
PARENT POWER(Service Mark) AGREEMENT: With respect to each Parent Power
------------------------------------
Mortgage Loan, a Parent Power Guaranty and Security Agreement for Securities
Account or a Parent Power Guaranty Agreement for Real Estate.
PARENT POWER(Service Mark) GUARANTY AGREEMENT FOR REAL ESTATE: With
-------------------------------------------------------------
respect to a Parent Power Mortgage Loan, an agreement between MLCC and a
guarantor on behalf of the Mortgagor under such Parent Power Mortgage Loan
pursuant to which such guarantor guarantees the payment of certain losses
under such Parent Power Mortgage Loan, authorizes MLCC to draw on a home
equity credit line to fund such guaranty and has secured such guaranty with a
lien on residential real estate of the guarantor. The required amount of the
collateral supporting such guaranty is at least equal to the Original
Additional Collateral Requirement for such Parent Power Mortgage Loan. For
purposes of this definition, the Parent Power Guaranty Agreement For Real
Estate shall not include the rights of the mortgagee under the Equity
Access(Registered Trademark) Security Instrument referred to therein, which
rights have been retained by MLCC.
PARENT POWER(Service Mark) GUARANTY AND SECURITY AGREEMENT FOR
--------------------------------------------------------------
SECURITIES ACCOUNT: With respect to a Parent Power Mortgage Loan, an
- ------------------
agreement between MLCC and a guarantor on behalf of the Mortgagor under such
Parent Power Mortgage Loan pursuant to which such guarantor guarantees the
payment of certain losses under such Parent Power Mortgage Loan and has
granted a security interest to MLCC in certain marketable securities to
collateralize such guaranty. The required amount of such collateral is at
least equal to the Original Additional Collateral Requirement for such Parent
Power Mortgage Loan.
PARENT POWER(Service Mark) MORTGAGE LOAN: A Mortgage Loan having at the
----------------------------------------
time of origination a Loan-to-Value Ratio generally in excess of MLCC's
maximum acceptable Loan-to-Value Ratio for such Mortgage Loan, which Mortgage
Loan is supported by a Parent Power Agreement.
PAYING AGENT: The Person appointed by the Master Servicer as Paying
------------
Agent pursuant to Section 4.05. If the Master Servicer has not appointed a
Paying Agent, the Master Servicer shall be the Paying Agent.
PAYMENT ADJUSTMENT DATE: The date specified in a Mortgage Note on which
-----------------------
the Monthly Payment is adjusted.
PERCENTAGE INTEREST: As to any Class A or Class B Certificate, the
-------------------
percentage interest evidenced thereby in distributions required to be made
hereunder, such percentage interest being equal to the percentage obtained by
dividing the denomination of such Certificate by the aggregate of the
denominations of all the Certificates of such Class; and as to the Class R
Certificates, the Percentage Interest specified on the face thereof.
PERSON: Any individual, corporation, partnership, joint venture,
------
association, joint-stock company, trust, unincorporated organization or
government or any agency or political subdivision thereof.
POOL PRINCIPAL BALANCE: The Original Pool Principal Balance less the
----------------------
aggregate of all Formula Principal Distribution Amounts and all Unrecovered
Principal Amounts for, unless otherwise specified, the Distribution Date in
the month of the reference thereto and all prior Distribution Dates.
PREFERENCE AMOUNT: As defined in the Certificate Insurance Policy.
-----------------
PREMIUM AMOUNT: With respect to the Certificate Insurance Policy, the
--------------
amount that is payable as a premium under the terms of the Certificate
Insurance Policy.
PREPAYMENT INTEREST SHORTFALL: With respect to any Distribution Date,
-----------------------------
for each Mortgage Loan that was the subject of a partial Principal Prepayment
or a Principal Prepayment in full during the related Principal Prepayment
Period (other than a Principal Prepayment in full resulting from the purchase
of a Mortgage Loan pursuant to Section 2.02, 3.01, 3.04 or 11.01 hereof), the
amount by which interest paid by the Mortgagor in connection with such
Principal Prepayment of such Mortgage Loan is less than 30 days' interest at
the related Mortgage Rate on the amount paid.
PRINCIPAL BALANCE: At the time of any determination, the principal
-----------------
balance of a Mortgage Loan remaining to be paid at the close of business on
the Cut-off Date (after deduction of all principal payments due on or before
the Cut-off Date whether or not paid but without deducting Monthly Payments
due after the Cut-off Date and received on or before the Cut-off Date)
reduced by all amounts distributed to Certificateholders that are allocable
to principal of such Mortgage Loan (including Advances made pursuant to
Section 6.03).
PRINCIPAL PREPAYMENT: Any payment or other recovery of principal on a
--------------------
Mortgage Loan (other than Liquidation Proceeds) made by a Mortgagor which is
received in advance of its scheduled Due Date, and which is not accompanied
by an amount of interest representing scheduled interest due on any date or
dates in any month or months subsequent to the month of prepayment.
PRINCIPAL PREPAYMENT PERIOD: With respect to any Distribution Date, the
---------------------------
period beginning on the first day of the month preceding the month in which
such Distribution Date occurs and ending on the last day of the month
preceding the month in which such Distribution Date occurs.
PURCHASE PRICE: With respect to any Mortgage Loan required to be
--------------
purchased on any date pursuant to Section 2.01, Section 2.02, Section 3.01,
Section 3.04 or Section 5.01 an amount equal to the sum of (a) 100% of the
Principal Balance thereof plus any unreimbursed Advances of principal thereof
and (b) unpaid accrued interest at the Mortgage Rate thereon from the Due
Date to which interest was last paid by the Mortgagor through the end of the
related Due Period. With respect to any Mortgage Loan purchased by the
Master Servicer pursuant to Section 11.01, the Purchase Price shall be as
calculated in Section 11.01.
RATING AGENCY: Standard & Poor's and Moody's. References herein to the
-------------
highest long-term debt rating category of a Rating Agency shall mean AAA in
the case of Standard & Poor's and Aaa in the case of Moody's, and references
to the second highest long-term rating category of a Rating Agency shall mean
AA in the case of Standard & Poor's and Aa1, Aa2 or Aa3 in the case of
Moody's.
RECORD DATE: As to each Distribution Date, the last Business Day
-----------
preceding the immediately preceding Distribution Date (or the Closing Date in
the case of the first Distribution Date).
REIMBURSEMENT AMOUNT: As to any Distribution Date, the sum of (x)(i)
--------------------
all Insured Payments in respect of the Class A Certificates previously
received by the Trustee and not previously repaid to the Certificate Insurer
pursuant to Section 6.01 plus (ii) interest accrued on each such Insured
Payment not previously repaid, calculated at the Late Payment Rate from the
date the Trustee received the related Insured Payment and (y)(i) any other
amounts then due and owing to the Certificate Insurer under the Insurance
Agreement plus (ii) interest on such amounts at the Late Payment Rate. The
Certificate Insurer shall notify the Trustee and the Master Servicer of the
amount of any Reimbursement Amount.
RELIEF ACT REDUCTION: With respect to any Distribution Date, the
--------------------
aggregate amount of reductions, if any, in the amount of interest due on the
Mortgage Loans on the related Due Date on account of the Soldiers' and
Sailors' Civil Relief Act of 1940, as amended.
REMIC: A "real estate mortgage investment conduit," as such term is
-----
defined in the Code.
REMIC PROVISIONS: Provisions of the federal income tax law relating to
----------------
real estate mortgage investment conduits, which appear at Section 860A
through 860G of Subchapter M of Chapter 1 of the Code, and related
provisions, and regulations promulgated thereunder, as the foregoing may be
in effect from time to time.
REPURCHASE PROCEEDS: All proceeds of any Mortgage Loan or property
-------------------
acquired in respect thereof repurchased by the Master Servicer or Mortgage
Loan Seller pursuant to Section 2.01, 2.02, 3.01, 3.04, 5.01 or 11.01.
REQUIRED SURETY PAYMENT: With respect to any Additional Collateral
-----------------------
Mortgage Loan that becomes a Liquidated Mortgage Loan, the lesser of (i)
related Additional Collateral Mortgage Loan Liquidation Shortfall and (ii)
the excess, if any, of (a) the Original Additional Collateral Requirement
with respect to such Mortgage Loan over (b) the net proceeds realized by MLCC
from the related Additional Collateral as set forth in Section 5.21.
RESERVE FUND: The reserve fund created and maintained pursuant to
------------
Section 6.03(d).
RESPONSIBLE OFFICER: When used with respect to the Trustee, the
-------------------
Chairman or Vice Chairman of the Board of Directors or Trustees, the Chairman
or Vice Chairman of the Executive or Standing Committee of the Board of
Directors or Trustees, the President, the Chairman of the Committee on Trust
Matters, any Vice President, any Assistant Vice President, the Secretary, any
Assistant Secretary, the Treasurer, any Assistant Treasurer, the Cashier, any
Assistant Cashier, any Trust Officer or Assistant Trust Officer, the
Controller and any Assistant Controller or any other officer of the Trustee
customarily performing functions similar to those performed by any of the
above designated officers and, with respect to a particular matter, to whom
such matter is referred because of such officer's knowledge of and
familiarity with the particular subject.
SALE AGREEMENT: The Sale and Seller's Warranties Agreement dated as of
--------------
______ 1, 199_ between the Company and the Mortgage Loan Seller attached
hereto as Exhibit O.
SCHEDULED FORMULA PRINCIPAL DISTRIBUTION AMOUNT: With respect to any
-----------------------------------------------
Distribution Date, the amount specified in clause (a) of the Formula
Principal Distribution Amount.
SERVICING ADVANCES: All customary, reasonable and necessary "out of
------------------
pocket" costs and expenses incurred in the performance by the Master Servicer
of its servicing obligations, including, but not limited to, the cost of (i)
the preservation, restoration and protection of the Mortgaged Property, (ii)
any enforcement or judicial proceedings, including foreclosures, (iii) the
management and liquidation of the Mortgaged Property if the Mortgaged
Property is acquired in satisfaction of the Mortgage, (iv) taxes and
assessments on the Mortgaged Properties subject to the Mortgage Loans and (v)
compliance with the obligations under Section 5.12.
SERVICING FEE: With respect to each Mortgage Loan, the amount of the
-------------
monthly fee paid for the servicing of such Mortgage Loan, equal to 1/12 of
the Servicing Fee Rate of the Principal Balance of such Mortgage Loan. Such
fee shall be payable only at the time of and with respect to those Mortgage
Loans for which payment is in fact made of the entire amount of the Monthly
Payments. The right to receive the Servicing Fee is limited to, and the
Servicing Fee is payable solely from, the interest portion of such Monthly
Payments collected by the Master Servicer, or as otherwise provided under
Section 5.09.
SERVICING FEE RATE: 0.__%.
------------------
SERVICING OFFICER: Any officer of the Master Servicer involved in, or
-----------------
responsible for, the administration and servicing of the Mortgage Loans whose
name and specimen signature appear on a list of servicing officers furnished
to the Trustee by the Master Servicer, as such list may from time to time be
amended.
SINGLE CERTIFICATE: A Certificate of any Class (other than a Class R
------------------
Certificate) that evidences a denomination of $1,000.
STANDARD & POOR'S: Standard & Poor's Ratings Services, a Division of
-----------------
The McGraw-Hill Companies, Inc., or its successor in interest.
STANDARD HAZARD POLICY: Each standard hazard insurance policy or
----------------------
replacement therefor referred to in Section 5.16.
SUBORDINATED PERCENTAGE: As to any Distribution Date, 100% less the
-----------------------
Class A Percentage.
SUBORDINATED PREPAYMENT PERCENTAGE: As to any Distribution Date, 100%
----------------------------------
less the Class A Prepayment Percentage.
SUB-SERVICER: Any Person with whom the Master Servicer enters into a
------------
Sub-Servicing Agreement.
SUB-SERVICING AGREEMENT: Any written contract between the Master
-----------------------
Servicer and any Sub-Servicer, relating to servicing or administration of
certain Mortgage Loans as provided in Section 5.02, in such form as has been
approved by the Master Servicer, the Company, the Trustee, the Certificate
Insurer or the Surety.
SURETY: AMBAC Indemnity Corporation, or any successor thereto, as
------
issuer of the Certificate Guaranty Surety Bond.
SURETY AGREEMENT: The Surety Bond Reimbursement Agreement dated as of
----------------
______________, 199_ between Merrill Lynch Credit Corporation and the Surety.
TRANSFER: A direct or indirect transfer or other assignment of record
--------
or beneficial interest in a Class R Certificate.
TRUST FUND: The corpus of the trust created by this Agreement, to the
----------
extent described herein, consisting of (i) the Mortgage Loans, (ii) such
assets as shall from time to time be identified as deposited in the
Certificate Account, (iii) property which secured a Mortgage Loan and which
has been acquired by foreclosure or deed in lieu of foreclosure, (iv)
Standard Hazard Policies and any other insurance policies, and the proceeds
thereof, (v) certain rights of the Company under the Sale Agreement as more
particularly set forth in the last paragraph of Section 2.01 and as described
in Sections 2.02 and 3.01 hereof, (vi) such amounts as shall from time to
time be deposited in the Distribution Account, (vii) the Certificate
Insurance Policy, (viii) the Certificate Guaranty Surety Bond, (ix) the
Reserve Fund, (x) each Mortgage 100 Pledge Agreement and (xi) each Parent
Power Agreement. The Mortgage 100 Pledge Agreements and the Parent Power
Agreements shall not be part of the REMIC created by this Agreement.
TRUSTEE: Bankers Trust Company of California, N.A., as trustee, or its
-------
successor in interest or any successor or co-trustee under this Agreement
appointed as herein provided.
UNRECOVERED PRINCIPAL AMOUNT: As to any Liquidated Mortgage Loan, the
----------------------------
portion, if any, of the principal of such Liquidated Mortgage Loan that was
not recovered at the time such Liquidated Mortgage Loan became a Liquidated
Mortgage Loan. An Unrecovered Principal Amount in respect of a Distribution
Date is one that was incurred in the immediately preceding Principal
Prepayment Period.
UNSCHEDULED FORMULA PRINCIPAL DISTRIBUTION AMOUNT: With respect to any
-------------------------------------------------
Distribution Date, the sum of the amounts specified in clauses (b), (c), (d),
(e) and (f) of the Formula Principal Distribution Amount.
Section 1.02. Interest Calculations. Interest on the Class A and Class
---------------------
B Certificates shall be calculated on the basis of the actual number of days
in the related Accrual Period divided by 360.
(End of Article I)
ARTICLE II
CONVEYANCE OF MORTGAGE LOANS; TRUST FUND
- ---------------------------------------------------------
Section 2.01. Conveyance of Mortgage Loans. The Company, concurrently
----------------------------
with the execution and delivery hereof, does hereby sell, transfer, assign,
set over and convey to the Trustee without recourse all the right, title and
interest of the Company in and to the Mortgage Loans, including all interest
and principal due after the Cut-off Date on or with respect to the Mortgage
Loans (it being understood that payments of principal and interest first due
on the Mortgage Loans on or before the Cut-off Date shall not be conveyed to
the Trustee pursuant hereto), and each Mortgage 100 Pledge Agreement and each
Parent Power Agreement. The foregoing sale, transfer, assignment, set over
and conveyance of each Parent Power Agreement that is a Parent Power Guaranty
Agreement for Real Estate does not constitute and is not intended to result
in an assumption by the Trustee or the Trust Fund of any obligation or
liability of MLCC under the related Equity Access(Registered Trademark)
Account (as defined in such Parent Power Agreement). MLCC is authorized to
correct any error in any Mortgage 100 Pledge Agreement or Parent Power
Agreement and to terminate any such agreement and release the related
collateral in accordance with the terms thereof.
In connection with such assignment, within 21 days after the Closing
Date, the Master Servicer, on behalf of the Company, shall deliver to, and
deposit with, the Custodian the following documents or instruments with
respect to each Mortgage Loan so assigned (the requirements for a Mortgage
Loan secured by shares in a cooperative corporation are separately specified
in clause (vi)):
(i) Original Mortgage Note endorsed (by facsimile signature if so
authorized by the Mortgage Loan Seller), "Pay to the order of Bankers
Trust Company of California, N.A., as trustee, under that certain Pool-
ing and Servicing Agreement dated as of ______ 1, 199_, for Mortgage
Loan Asset Backed Pass-Through Certificates, Series 199_-_ (MLCC
Mortgage Investors, Inc., Seller) without recourse" and signed in the
name of the Mortgage Loan Seller by an authorized officer;
(ii) Original recorded Mortgage, or if such original has been
delivered to the appropriate recorder's office for recording, a
certified copy thereof certified true and complete by the Mortgage Loan
Seller or the escrow agent acting in connection with the origination of
the Mortgage Loan, with the original to be delivered within 180 days of
the Closing Date;
(iii) Original Assignment of Mortgage in recordable form to "Bankers
Trust Company of California, N.A., as trustee, under that certain
Pooling and Servicing Agreement dated as of ______ 1, 199_, for Mortgage
Loan Asset Backed Pass-Through Certificates, Series 199_-_", executed by
an authorized signatory of the Mortgage Loan Seller. Subject to the
foregoing, such assignments may, if permitted by law, be in the form of
blanket assignments for Mortgage Loans covering Mortgaged Properties
situated within the same county. If the Assignment of Mortgage is in
blanket form, a copy of the Assignment of Mortgage shall be included in
the individual Mortgage File;
(iv) Originals of all assumption and modification agreements, if
any;
(v) Original policies of title insurance, or if the original
policy of title insurance is unavailable, a copy of the preliminary
title report, with the original title policy to be delivered within 150
days of the Closing Date. The policy must affirmatively insure ingress
and egress and insure against encroachments by or upon the Mortgaged
Property or any interest therein; and
(vi) With respect to those Mortgage Loans which are cooperative
loans, the original Mortgage Note, endorsed (by facsimile signature if
so authorized by the Mortgage Loan Seller), "Pay to the order of Bankers
Trust Company of California, N.A., as trustee, under that certain Pool-
ing and Servicing Agreement dated as of ______ 1, 199_, for Mortgage
Loan Asset Backed Pass-Through Certificates, Series 199_-_ (MLCC
Mortgage Investors, Inc., Seller) without recourse" and signed in the
name of the Mortgage Loan Seller by an authorized officer; the original
stock certificate and related stock power executed by the obligor in
blank; the original loan security agreement and the assignment of the
note and loan security agreement, if applicable, assigned to "Bankers
Trust Company of California, N.A. as trustee under that certain Pooling
and Servicing Agreement dated as of ______ 1, 199_ for Mortgage Loan
Asset Backed Pass-Through Certificates, Series 199_-_"; the original
proprietary lease and the assignment of the proprietary lease, if
applicable, executed by the obligor in blank; and any financing
statements relating thereto;
provided that the Master Servicer shall deliver at least 50% of the Mortgage
Notes on or before the Closing Date.
If in connection with any Mortgage Loan the Master Servicer cannot
deliver the Mortgage with evidence of recording thereon as provided above, or
within the 180 days permitted in (ii) above, solely because of a delay caused
by the public recording office to which such Mortgage has been delivered for
recordation, the Master Servicer shall deliver or cause to be delivered to
the Custodian an Officer's Certificate of the Master Servicer, stating that
such mortgage has been delivered to the appropriate public recording official
for recordation. The Master Servicer shall promptly deliver or cause to be
delivered to the Custodian such Mortgage with evidence of recording indicated
thereon upon receipt thereof from the public recording official. Notwith-
standing the above, the Master Servicer shall use all reasonable efforts to
cause each original Mortgage with evidence of recording thereon to be
delivered to the Custodian within 270 days of the Closing Date.
With respect to any Additional Collateral Mortgage Loan in respect of
which there has been filed a UCC-1 financing statement in favor of MLCC as
secured party, the Master Servicer shall, within 180 days after the Closing
Date, cause to be filed in the appropriate recording office a UCC-3 statement
giving notice of the assignment of the related security interest to the Trust
and shall thereafter cause the filing of all necessary continuation
statements.
If the long-term unsecured debt of Merrill Lynch & Co., Inc., if it is
rated by Moody's, is rated below A3 or if it is rated by Standard & Poor's,
is rated below A-, or an Event of Default shall have occurred and is
continuing or if MLCC is no longer the Master Servicer (unless each Rating
Agency confirms that the absence of recordation will not result in the
reduction or withdrawal of its rating of the Class A Certificates), then MLCC
(or the successor Master Servicer in the case of an Event of Default) shall,
within 60 days after such occurrence (unless the long-term unsecured debt of
Merrill Lynch & Co., Inc., if it is rated by Standard & Poor's, is rated
below BBB-, in which case MLCC will have 30 days after such occurrence),
cause to be sent for recording to the appropriate public recording office for
real property records each Assignment of Mortgage referred to in this Section
2.01 except for Mortgage Loans on Mortgaged Properties located in states
where, as evidenced by an opinion of independent counsel acceptable to the
Trustee, the Certificate Insurer, the Surety, the Company and the Rating
Agencies, such recording is not required to protect the interests of the
Trustee in the Mortgage Loan, including the related Mortgage, against the
claim of any other transferee or any successor to or creditor of the Mortgage
Loan Seller or the Originator of such Mortgage Loan. While each Assignment
of Mortgage required to be recorded is being recorded, the Master Servicer
shall leave with the Custodian a photocopy of such Assignment of Mortgage.
If any such Assignment of Mortgage is returned unrecorded to the Master
Servicer because of any defect therein, the Master Servicer shall cause such
defect to be cured and such Assignment of Mortgage to be recorded in
accordance with this paragraph. The Master Servicer shall deliver or cause
to be delivered each original recorded Assignment of Mortgage and
intermediate assignment to the Custodian within 120 days of the occurrence
giving rise to the obligation to record or shall deliver to the Custodian on
or before such date an Officer's Certificate stating that such Assignment of
Mortgage has been delivered to the appropriate public recording office for
recordation, but has not been returned solely because of a delay caused by
such recording office.
If the Master Servicer cannot cause any Mortgage or Assignment of
Mortgage or intermediate assignments, subject to the provisions in this
Section 2.01 regarding recording office delays, to be recorded and evidence
of such recording delivered to the Custodian within 270 days of the
occurrence giving rise to the obligation to record, the Mortgage Loan Seller
shall be required to purchase such Mortgage Loan from the Trustee at the
Purchase Price or the Mortgage Loan Seller shall be required to substitute
another Mortgage Loan for such deficient Mortgage Loan in accordance with the
procedures and subject to the limitations set forth in Section 3.02(i)
through (viii), such repurchase or substitution obligation constituting the
sole remedy available to the Trustee, the Certificateholders, the Certificate
Insurer and the Surety for failure of a Mortgage Loan to be recorded.
The ownership of each Mortgage Note, the Mortgage and the contents of
the related Mortgage File is vested in the Trustee. Mortgage documents
relating to the Mortgage Loan not delivered to the Trustee or the Custodian
under the Custodial Agreement are and shall be held in trust by the Master
Servicer or any Sub-Servicer, for the benefit of the Trustee as the owner
thereof and the Master Servicer's or such Sub-Servicer's possession of the
contents of each Mortgage File so retained is for the sole purpose of
servicing the related Mortgage Loan, and such retention and possession by the
Master Servicer or such Sub-Servicer is in a custodial capacity only. The
Company agrees to take no action inconsistent with the Trustee's ownership of
the Mortgage Loans, to promptly indicate to all inquiring parties that the
Mortgage Loans have been sold and to claim no ownership interest in the
Mortgage Loans.
It is the intention of this Agreement that the conveyance of the
Company's right, title and interest in and to the Trust Fund pursuant to this
Agreement shall constitute a purchase and sale and not a loan. If the
conveyance of the Mortgage Loans from the Mortgage Loan Seller to the Company
to the Trustee is characterized as a pledge and not a sale, then the Company
shall be deemed to have transferred to the Trustee, in addition to the Trust
Fund, all of the Company's right, title and interest in, to and under the
obligation deemed to be secured by said pledge; and it is the intention of
this Agreement that the Mortgage Loan Seller and the Company shall also be
deemed to have granted to the Trustee a first priority security interest in
all of the Mortgage Loan Seller's and the Company's right, title, and
interest in, to, and under the obligation deemed to be secured by said pledge
and that the Trustee and the Custodian shall be deemed to be an independent
custodian for purposes of perfection of such security interest. If the
conveyance of the Mortgage Loans from the Company to the Trustee is
characterized as a pledge, it is the intention of this Agreement that this
Agreement shall constitute a security agreement under applicable law, and
that the Mortgage Loan Seller and the Company shall be deemed to have granted
to the Trustee a first priority security interest in all of Mortgage Loan
Seller's and the Company's right, title and interest in, to and under the
Mortgage Loans, all payments of principal of or interest on such Mortgage
Loans, all other rights relating to and payments made in respect of the Trust
Fund, and all proceeds of any thereof. If the trust created by this
Agreement terminates prior to the satisfaction of the claims of any Person in
any Certificates, the security interest created hereby shall continue in full
force and effect and the Trustee shall be deemed to be the collateral agent
for the benefit of such Person.
In addition to the conveyance made in the first paragraph of this
Section 2.01, the Company does hereby convey, assign and set over to the
Trustee all of its right, title and interest in that portion of the Trust
Fund described in items (ii) through (ix) of the definition thereof and
further assigns to the Trustee for the benefit of the Certificateholders, the
Certificate Insurer and the Surety those representations and warranties of
the Mortgage Loan Seller contained in the Sale Agreement and described in
Section 3.01 hereof and the benefit of the remedies for the breach thereof.
Section 2.02. Acceptance by Trustee. The Trustee acknowledges the
---------------------
assignment to it of the documents referred to in Section 2.01 above and
declares that upon the Custodian's receipt thereof the Custodian will hold
such documents and any other documents constituting a part of the Mortgage
Files delivered to the Custodian in trust for the use and benefit and of all
present and future Certificateholders, the Certificate Insurer and the
Surety. The Mortgage Loan Seller shall repurchase at the Purchase Price, or
substitute new Mortgage Loans (in accordance with Section 3.02(i) through
(viii)) for, all Mortgage Loans to which an exception was taken in the
Custodian's Interim Certification (as defined in the Custodial Agreement),
within 60 days of the date of delivery of the Mortgage Files (the "Delivery
Date") to the Custodian, unless such
-------------
exception is cured to the satisfaction of the Company, the Certificate
Insurer and the Surety within 30 Business Days of the date thereof (or such
other period as is agreed by the Company, the Certificate Insurer and the
Surety and the Trustee but not more than 50 Business Days). Pursuant to the
Custodial Agreement, the Custodian agrees, for the benefit of the Trustee,
the Certificateholders, the Certificate Insurer and the Surety, to review
each Mortgage File delivered to it within 45 days after the Delivery Date to
ascertain that all required documents have been executed and received, and
that such documents relate to the Mortgage Loans identified in Exhibit A,
that have been conveyed to the Trustee. If the Custodian finds any document
or documents constituting a part of a Mortgage File to be missing or
defective (that is, mutilated, damaged, defaced, incomplete, improperly
dated, clearly forged or otherwise physically altered) in any material
respect, the Custodian, pursuant to the Custodial Agreement, shall promptly
so notify the Trustee, each Rating Agency, the Master Servicer, the
Certificate Insurer, the Surety and the Company by delivering the Interim
Certification to them within 45 days after the Delivery Date. The Mortgage
Loan Seller shall correct or cure such omission, defect or other irregularity
within 60 days from the date the Mortgage Loan Seller was notified of such
omission or defect and, if the Mortgage Loan Seller does not correct or cure
such omission or defect within such period, then the Mortgage Loan Seller,
within 90 days from the date the Custodian notified the Mortgage Loan Seller
of such omission or defect, shall either (i) repurchase such Mortgage Loan
from the Trustee at the Purchase Price of such Mortgage Loan or (ii)
substitute a new Mortgage Loan for such deficient Mortgage Loan in accordance
with the provisions of Section 3.02(i) through (viii). The Purchase Price
for the purchased Mortgage Loan shall be paid to the Master Servicer and
deposited by the Master Servicer in the Certificate Account and, upon receipt
by the Trustee and the Custodian of written notification of such deposit
signed by a Servicing Officer, the Custodian, pursuant to the Custodial
Agreement, shall promptly execute and deliver such instruments of transfer or
assignment, without recourse, as shall be necessary to vest in the Mortgage
Loan Seller or its designee, as the case may be, the interest of the Trustee
in any Mortgage Loan released pursuant hereto, and the Trustee shall have no
further responsibility with regard to such Mortgage Loan. It is understood
and agreed that the obligation of the Mortgage Loan Seller to purchase or
substitute for any Mortgage Loan as to which a material defect in or omission
of a constituent document exists shall constitute the sole remedy respecting
such defect or omission available to the Trustee on behalf of Certificate-
holders, the Certificate Insurer or the Surety. Notwithstanding anything
herein to the contrary, the Trustee and the Custodian shall be under no duty
or obligation to inspect, review and examine such documents, instruments,
certificates or other papers to determine that they are genuine, enforceable
or appropriate to the represented purpose, or that they have actually been
recorded, or that they are other than what they purport to be on their face
or to determine that all items described in clause (iv) of Section 2.01 have
been delivered or to determine whether the title policy affirmatively insures
against encroachments as described in clause (v) of Section 2.01.
The Custodian, pursuant to the Custodial Agreement, shall deliver to the
Company, the Trustee, the Certificate Insurer, the Surety and the Master
Servicer the Interim and Final Certification. If (i) within 90 days of the
Closing Date, the Custodian has not received an Officer's Certificate or a
certificate of the Master Servicer stating that the Mortgage has been
delivered to the appropriate public recording official for recordation or
(ii) if within 270 days of the Closing Date the Custodian finds that any
Mortgage has not been recorded, the Custodian, pursuant to the Custodial
Agreement, shall promptly notify the Trustee, the Certificate Insurer, the
Surety and the Master Servicer and the Master Servicer shall be required,
within 30 days of receipt of such notice, to repurchase such Mortgage Loan or
to substitute a new Mortgage Loan for such deficient Mortgage Loan in
accordance with Section 3.02(i) through (viii) hereof.
Section 2.03. Trust Fund; Authentication of Certificates. Subject to
------------------------------------------
the provisions of Section 2.01, the Trustee acknowledges and accepts the
assignment to it of the Trust Fund created pursuant to this Agreement in
trust for the use and benefit of all present and future Certificateholders,
the Certificate Insurer and the Surety. The Trustee acknowledges the
assignment to it of the Mortgage Loans, the Mortgage 100 Pledge Agreements
and the Parent Power Agreements and has caused to be authenticated and
delivered to or upon the order of the Company, in exchange therefor,
Certificates duly authenticated by the Trustee in authorized denominations
evidencing ownership of the entire Trust Fund.
Section 2.04. REMIC Election. The Company hereby directs the Trustee
--------------
to sign an initial tax return to be provided by the Master Servicer which
shall cause the Trust Fund (exclusive of the Mortgage 100 Pledge Agreements
and the Parent Power Agreements) to elect to be treated as a REMIC on its
return for the Trust Fund's first taxable year. This Agreement shall be
construed so as to carry out the intention of this Agreement that the Trust
Fund (exclusive of the Mortgage 100 Pledge Agreements and the Parent Power
Agreements) be treated as a REMIC at all times prior to the date on which
final payment is made (or made available on demand) to the Holders of any
Class A and Class B Certificates. The Closing Date is hereby designated as
the "startup day" of such REMIC within the meaning of Section 860G(a)(9) of
the Code. The "regular interests" (within the meaning of Section 860G(a)(1)
of the Code) in such REMIC shall consist of the Class A Certificates and the
Class B Certificates. The Class R Certificate shall be designated as the
"residual interest" (within the meaning of Section 860G(a)(2) of the Code) in
such REMIC.
Section 2.05. REMIC Tax Matters. The tax year of the Trust Fund shall
-----------------
be the calendar year, and the Trust Fund shall use the accrual method of
reporting income and loss.
Section 2.06. REMIC Certificate Maturity Date. Solely for purposes
-------------------------------
of satisfying Section 1.860G-1(a)(4)(iii) of the Treasury Regulations, and
based upon certain assumptions, the "latest possible maturity date" of the
Class A and Class B Certificates is the Distribution Date in December 2021.
(End of Article II)
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE MASTER
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SERVICER; REPURCHASE OF MORTGAGE LOANS;
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REPRESENTATION AND WARRANTY OF THE COMPANY
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Section 3.01. Representations and Warranties of the Master Servicer.
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The Master Servicer hereby represents and warrants to the Trustee that on the
Closing Date it has entered into the Sale Agreement with the Company, wherein
in its capacity as the Mortgage Loan Seller, the Master Servicer has made the
following representations and warranties, and in its capacity as Master
Servicer, hereby further represents and warrants to the Trustee, the
Certificate Insurer, the Surety and the Company as of the Closing Date, as
follows:
(a) With respect to the Master Servicer in this Section 3.01 and
Section 3.02, Master Servicer means both Master Servicer and Mortgage
Loan Seller for as long as the Master Servicer and the Mortgage Loan
Seller are the same Person, and means Mortgage Loan Seller only when the
Mortgage Loan Seller and the Master Servicer are different Persons:
(i) The Master Servicer is a corporation duly organized,
validly existing and in good standing under the laws of the State
of Delaware and is qualified to transact business in each state in
which any Mortgaged Property is located or is not required under
applicable law from such qualification and no demand for such
qualification has been made upon the Master Servicer by any such
state. The Master Servicer is or will be in compliance with the
laws of any such state to the extent necessary to ensure the
enforceability of each Mortgage Loan and the servicing of the
Mortgage Loans by it in accordance with the terms of this
Agreement;
(ii) The Master Servicer has the full power and authority to
hold each Mortgage Loan, to sell each Mortgage Loan and execute,
deliver and perform, and to enter into and consummate all
transactions contemplated by this Agreement and the Sale Agreement
and to conduct its business as presently conducted, has duly
authorized the execution, delivery and performance of this
Agreement and the Sale Agreement, has duly executed and delivered
this Agreement and the Sale Agreement, and this Agreement, the Sale
Agreement and each Assignment of Mortgage to the Company
constitutes a legal, valid and binding obligation of the Master
Servicer, enforceable against it in accordance with its terms;
(iii) None of the execution and delivery of this Agreement or
the Sale Agreement, the origination or acquisition of the Mortgage
Loans by the Master Servicer, the sale of the Mortgage Loans to the
Company, the consummation of the transactions contemplated thereby,
or the fulfillment of or compliance with the terms and conditions
of this Agreement or the Sale Agreement will materially conflict
with or result in a material breach of any of the terms, conditions
or provisions of the Master Servicer's certificate of incorporation
or bylaws or any material legal restriction or any agreement or
instrument to which the Master Servicer is now a party or by which
it is bound, or constitute a material default or result in an
acceleration under any of the foregoing, or result in the material
violation of any law, rule, regulation, order, judgment or decree
to which the Master Servicer or its property is subject;
(iv) The Master Servicer is an approved conventional
seller/servicer for FNMA or FHLMC in good standing;
(v) With respect to each Mortgage Loan, the Master Servicer
is in possession of a complete Mortgage File in compliance with
this Agreement, except for such documents as have been delivered to
the Company or its assignee and except for the Mortgages submitted
for recordation as set forth in Section 2.01 hereof;
(vi) Immediately prior to the transfer of the Mortgage Loans
to the Company, the Master Servicer had good title to and is the
sole owner of record of each Mortgage and the indebtedness
evidenced by each Mortgage Note;
(vii) There is no litigation pending or, to the Master
Servicer's knowledge, threatened to which the Master Servicer is a
party and which is reasonably likely to adversely affect the sale
of the Mortgage Loans, the execution, delivery or enforceability of
this Agreement or the Sale Agreement, or the ability of the Master
Servicer to service the Mortgage Loans under this Agreement in
accordance with the terms hereof, or which is reasonably likely to
have a material adverse effect on the financial condition of the
Master Servicer;
(viii) No consent, approval, authorization or order of any court
or governmental agency or body is required for the execution,
delivery and performance by the Master Servicer of or compliance by
the Master Servicer with this Agreement or the Sale Agreement, the
sale of the Mortgage Loans or the consummation of the transactions
contemplated by this Agreement or the Sale Agreement except for
consents,approvals, authorizationsand orderswhichhave beenobtained;
(ix) The consummation of the transactions contemplated by this
Agreement and the Sale Agreement is in the ordinary course of
business of the Master Servicer, and the transfer, assignment and
conveyance of the Mortgage Notes and the Mortgages by the Master
Servicer pursuant to this Agreement and the Sale Agreement are not
subject to the bulk transfer or any similar statutory provisions in
effect in any applicable jurisdiction;
(x) The origination, acquisition and collection practices
used by the Master Servicer and, to the best knowledge of the
Master Servicer, by the originator of the Mortgage Loan, with
respect to each Mortgage Note and Mortgage, have been in all
material respects legal and proper and, with respect to collection
practices, customary in the mortgage origination and servicing
business. With respect to escrow deposits and payments that the
Master Servicer collects, to the extent such payments are in the
possession of, or under the control of, the Master Servicer, there
exist no deficiencies in connection therewith for which customary
arrangements for repayment thereof have not been made. No escrow
deposits or other charges or payments due the Master Servicer have
been capitalized under any Mortgage or the related Mortgage Note;
(xi) The Master Servicer used no selection procedures that
identified the Mortgage Loans as being less desirable or valuable
than other comparable outstanding conventional mortgage loans in
the Master Servicer's portfolio at the Cut-off Date;
(xii) No statement, report or other document furnished or to be
furnished on or before the Closing Date by the Master Servicer
pursuant to this Agreement or the Sale Agreement or in connection
with the transactions contemplated hereby or thereby contains any
untrue statement of a material fact or omits to
state a material fact necessary to make the statements contained
therein not misleading;
(xiii) The information supplied to the Company with respect to
the Mortgage Loans, the Master Servicer and the Master Servicer's
loan portfolio, including, but not limited to, the information
contained in the Prospectus Supplement relating to the offering of
the Class A Certificates relating to the Mortgage Loans and the
Master Servicer, particularly the information under the caption
"The Mortgage Pool", is true and correct in all material respects
and does not omit to state a material fact necessary to make such
information, in light of the circumstances under which given, not
misleading; and
(xiv) The Master Servicer will treat the sale of the Mortgage
Loans to the Company as a sale for federal income tax (to the
extent appropriate), reporting and accounting purposes.
(b) With respect to each Mortgage Loan as of the Closing Date
(unless another date is specified):
(i) The information set forth in the Mortgage Loan Schedule
is true and correct in all material respects;
(ii) (A) As of the Cut-off Date, (1) the Mortgage Loan is not
delinquent in payment by one or more Monthly Payments and the
Mortgage Loan has not been dishonored and (2) the Mortgage Loan has
never been delinquent in payment by two or more Monthly Payments
and has not more than once during the twelve months preceding the
Cut-Off Date been delinquent in payment by more than one Monthly
Payment and (B) except as permitted in clause (A)(1) above, there
are no material defaults under the terms of the Mortgage Loan and
the Master Servicer has not advanced funds, or induced, solicited
or knowingly received any advance of funds from a party other than
the owner of the Mortgaged Property subject to the Mortgage,
directly or indirectly, for the payment of any amount required by
the Mortgage Loan;
(iii) To the best of the Master Servicer's knowledge, there are
no delinquent taxes or other outstanding charges affecting the
related Mortgaged Property which would permit a taxing authority to
initiate foreclosure proceedings against the Mortgaged Property;
(iv) The terms of the Mortgage Note and the Mortgage have not
been impaired, waived, altered or modified in any respect, except
by written instruments contained in the Mortgage File, the
substance of which waiver, alteration or modification is reflected
on the Mortgage Loan Schedule. No Mortgagor has been released, in
whole or in part, except in connection with an assumption agreement
which assumption agreement is part of the Mortgage File and the
terms of which are reflected in the Mortgage Loan Schedule;
(v) The Mortgagor has not asserted that the Mortgage Note and
the Mortgage are subject to any right of rescission, set-off,
counterclaim or defense, including the defense of usury, nor will
the operation of any of the terms of the Mortgage Note and the
Mortgage, or the exercise of any right thereunder, render the
Mortgage unenforceable, in whole or in part, or subject to any
right of rescission, set-off, counterclaim or defense, including
the defense of usury and to the best of the Master Servicer's
knowledge, no such right of rescission, set-off, counterclaim or
defense has been asserted by any Person other than the obligor with
respect thereto;
(vi) All buildings upon the Mortgaged Property are required to
be insured by a generally acceptable insurer against loss by fire,
hazards of extended coverage and such other hazards as are
customarily included in extended coverage in the area where the
Mortgaged Property is located, pursuant to Standard Hazard Policies
conforming to the requirements of Section 5.16. To the best
knowledge of the Master Servicer, all such Standard Hazard Policies
are in effect. On the date of origination such Standard Hazard
Policies contained a standard mortgagee clause naming the Master
Servicer or the originator of the Mortgage Loan and their
respective successors in interest as mortgagee and, to the best
knowledge of the Master Servicer, such clause is still in effect
and, to the best of the Master Servicer's knowledge, all premiums
due thereon have been paid. If the Mortgaged Property is located
in an area identified by the Secretary of Housing and Urban
Development as having special flood hazards under the National
Flood Insurance Act of 1968, as amended, such Mortgaged Property is
covered by flood insurance. The Mortgage
obligates the Mortgagor thereunder to maintain all such insurance
at Mortgagor's cost and expense, and on the Mortgagor's failure to
do so, authorizes the holder of the Mortgage to maintain such
insurance at Mortgagor's cost and expense and to seek reimbursement
therefor from the Mortgagor;
(vii) At the time of origination of such Mortgage Loan and
thereafter, all requirements of any federal, state or local law
including, without limitation, usury, truth-in-lending, real estate
settlement procedures, consumer credit protection, equal credit
opportunity or disclosure laws required to be complied with by the
Master Servicer as the originator of the Mortgage Loan and
applicable to the Mortgage Loan have been complied with in all
material respects;
(viii) The Mortgage has not been satisfied as of the Cut-off
Date, cancelled or subordinated, in whole, or rescinded, and the
Mortgaged Property has not been released from the lien of the
Mortgage, in whole or in part (except for a release that does not
materially impair the security of the Mortgage Loan or a release
the effect of which is reflected in the Loan-to-Value Ratio for the
Mortgage Loan as set forth in the Mortgage Loan Schedule), nor to
the best of the Master Servicer's knowledge has any instrument been
executed that would effect any such release, cancellation,
subordination or rescission;
(ix) Ownership of the Mortgaged Property is held in fee simple
(except for Mortgage Loans as to which the related land is held in
a leasehold which extends at least five years beyond the maturity
date of the Mortgage Loan). Except as permitted by the fourth
sentence of this Subsection (ix), the Mortgage is a valid,
subsisting and enforceable first lien on the Mortgaged Property,
including all buildings on the Mortgaged Property and all in-
stallations and mechanical, electrical, plumbing, heating and air
conditioning systems affixed to such buildings, and all additions,
alterations and replacements made at any time with respect to the
foregoing securing the Mortgage Note's original principal balance.
The Mortgage and the Mortgage Note do not contain any evidence on
their face of any security interest or other interest or right
thereto. Such lien is free and clear of all adverse claims, liens
and encumbrances having priority over the first lien of the
Mortgage subject only to (1) the lien of non-delinquent current
real property taxes and assessments not yet due and payable, (2)
covenants, conditions and restrictions, rights of way, easements
and other matters of the public record as of the date of recording
which are acceptable to mortgage lending institutions generally, or
which are specifically referred to in the lender's title insurance
policy delivered to the originator of the Mortgage Loan and either
(A) which are referred to or otherwise considered in the appraisal
made for the originator of the Mortgage Loan, or (B) which do not
in the aggregate adversely affect the appraised value of the
Mortgaged Property as set forth in such appraisal, and (3) other
matters to which like properties are commonly subject which do not
in the aggregate materially interfere with the benefits of the
security intended to be provided by the Mortgage or the use,
enjoyment, value or marketability of the related Mortgaged
Property. Any security agreement, chattel mortgage or equivalent
document related to and delivered in connection with the Mortgage
Loan establishes and creates a valid, subsisting and enforceable
first lien and first priority security interest on the property
described therein;
(x) The Mortgage Note is not subject to a third party's
security interest or other rights or interest therein;
(xi) The Mortgage Note and the related Mortgage are genuine
and, to the best of the Master Servicer's knowledge, each is the
legal, valid and binding obligation of the maker thereof,
enforceable in accordance with its terms subject to bankruptcy,
insolvency and other laws of general application affecting the
rights of creditors. To the best of the Master Servicer's
knowledge, all parties to the Mortgage Note and the Mortgage had
the legal capacity to enter into the Mortgage Loan and to execute
and deliver the Mortgage Note and the Mortgage. The Mortgage Note
and the Mortgage have been duly and properly executed by such
parties. The proceeds of the Mortgage Loan have been fully
disbursed and there is no requirement for future advances
thereunder, and any and all requirements as to completion of any
on-site or off-site improvements and as to disbursements of any
escrow funds therefor have been complied with;
(xii) Immediately prior to the transfer and assignment to the
Company, the Mortgage Note and the Mortgage were not subject to an
assignment or pledge,
and the Master Servicer had good title to and was the sole owner
thereof and had full right to transfer and sell the Mortgage Loan
to the Company free and clear of any encumbrance, equity, lien,
pledge, charge, claim or security interest, including, to the best
knowledge of the Master Servicer, any lien, claim or other interest
arising by operation of law;
(xiii) Each Mortgage Loan is covered by an ALTA lender's title
insurance policy or other generally acceptable form of policy or
insurance acceptable to FNMA or FHLMC, issued by a title insurer
acceptable to FNMA or FHLMC and qualified to do business in the
jurisdiction where the Mortgaged Property is located, insuring
(subject to the exceptions contained in (ix)(1) and (2) above) the
Master Servicer, its successors and assigns, as to the first
priority lien of the Mortgage in the original principal amount of
the Mortgage Loan. The Master Servicer is the sole insured of such
lender's title insurance policy, such title insurance policy has
been duly and validly endorsed to the Trustee or the assignment to
the Trustee of the Master Servicer's interest therein does not
require the consent of or notification to the insurer and such
lender's title insurance policy is in full force and effect and
will be in full force and effect upon the consummation of the
transactions contemplated by this Agreement. To the best of the
Master Servicer's knowledge, no claims have been made under such
lender's title insurance policy, and no prior holder of the related
Mortgage has done, by act or omission, anything which would impair
the coverage of such lender's title insurance policy;
(xiv) To the best of the Master Servicer's knowledge, there is
no default, breach, violation or event of acceleration existing
under the Mortgage or the related Mortgage Note and no event which,
with the passage of time or with notice and the expiration of any
grace or cure period, would constitute a default, breach, violation
or event permitting acceleration, except for any Mortgage Loan
payment which is not late by more than 30 days; and the Master
Servicer has not waived any default, breach, violation or event
permitting acceleration;
(xv) To the best of the Master Servicer's knowledge, there are
no mechanics' or similar liens or claims which have been filed for
work, labor or material (and, to the best of the Master Servicer's
knowledge, no rights are outstanding that under law could give rise
to such lien) affecting the related Mortgaged Property which are or
may be liens prior to, or equal or coordinate with, the lien of the
related Mortgage;
(xvi) To the best of the Master Servicer's knowledge, all
improvements subject to the Mortgage lay wholly within the
boundaries and building restriction lines of the Mortgaged Property
(and wholly within the project with respect to a condominium unit)
and no improvements on adjoining properties encroach upon the
Mortgaged Property except those which are insured against by the
title insurance policy referred to in clause (xiii) above and all
improvements on the property comply with all applicable zoning and
subdivision laws and ordinances;
(xvii) Each Mortgage Loan (except for the Mortgage Loans
referred to in the next sentence) was originated by, or closed in
the name of and funded by, the Master Servicer, and at the time of
each such origination the Master Servicer was a mortgagee approved
by the Secretary of Housing and Urban Development (the "Secretary")
pursuant to Sections 203 and 211 of the National Housing Act.
________ Mortgage Loans, having an aggregate Cut-off Date Principal
Balance of $____________ were originated in the name of an
originator which was a mortgagee approved by the Secretary pursuant
to Sections 203 and 211 of the National Housing Act. As more fully
described in the Prospectus Supplement dated __________, 199_
relating to the Class A Certificates, each Mortgage Loan was
underwritten in accordance with the Master Servicer's underwriting
guidelines in effect at the time of origination. Each Mortgage
Loan is an adjustable rate conventional mortgage loan. Each
Mortgage Loan bears interest at a rate adjusted monthly or
semiannually on the relevant Interest Adjustment Date to a rate
(rounded to the nearest 1/8th of 1% or 1/16th of 1%) equal to the
applicable Margin stated therein and shown on the Mortgage Loan
Schedule plus the Index most recently published as of the date 25
days (in the case of a monthly adjustable Mortgage Loan) or 45 days
(in the case of a semiannually adjustable Mortgage Loan) before the
related Interest Adjustment Date, subject to its Maximum Mortgage
Rate. There is no minimum mortgage rate applicable to a Mortgage
Loan. No Mortgage Loan is subject to a periodic interest rate cap
(exclusive of the effect of usury or similar laws).
Each Mortgage Note is payable in scheduled monthly installments,
with interest payable in arrears. The Monthly Payment on each
Mortgage Loan is adjusted monthly or semiannually on the relevant
Payment Adjustment Date so that the monthly payment is sufficient,
during the first ten years of the term of the Mortgage Loan, to pay
only the interest due thereon and, thereafter, to fully amortize,
without balloon payments, the then outstanding principal balance
over its remaining term to stated maturity and to pay interest at
the related Mortgage Rate in effect on such Payment Adjustment
Date; provided that if a Convertible Mortgage Loan is converted to
a fixed rate, its Monthly Payment is adjusted to a level payment
that will fully amortize such Mortgage Loan through its original
maturity date. Certain Convertible Mortgage Loans may be
converted to a new Index and Margin in accordance with the terms of
the related Mortgage Note. The Mortgage contains the usual and
customary provision of the Master Servicer at the time of
origination for the acceleration of the payment of the unpaid
Principal Balance of the Mortgage Loan if the related Mortgaged
Property is sold without the prior consent of the mortgagee
thereunder;
(xviii) The Mortgaged Property at origination or acquisition was
and, to the best of the Master Servicer's knowledge, currently is
free of material damage and waste and in good repair and at
origination there was, and to the best of the Master Servicer's
knowledge there currently is, no proceeding pending for the total
or partial condemnation thereof;
(xix) The related Mortgage contains customary and enforceable
provisions such as to render the rights and remedies of the holder
thereof adequate for the realization against the Mortgaged Property
of the benefits of the security provided thereby, including, (1) in
the case of a Mortgage designated as a deed of trust, by trustee's
sale or judicial foreclosure, and (2) otherwise by judicial
foreclosure. The Master Servicer has no knowledge of any homestead
or other exemption available to the Mortgagor which would interfere
with the right to sell the Mortgaged Property at a trustee's sale
or the right to foreclose the Mortgage;
(xx) If the Mortgage constitutes a deed of trust, a trustee,
duly qualified if required under applicable law to act as such, has
been properly designated and
currently so serves and is named in the Mortgage, and no fees or
expenses are or will become payable by the Trustee to the trustee
under the deed of trust, except in connection with a trustee's sale
or attempted sale after default by the Mortgagor;
(xxi) With respect to each Mortgage Loan, there is an appraisal
on a FNMA-approved form (or a narrative residential appraisal) of
the related Mortgaged Property signed prior to the approval of such
Mortgage Loan application by a qualified appraiser, appointed by
the Master Servicer or the originator of such Mortgage Loan, as
appropriate, who has no interest, direct or indirect, in the
Mortgaged Property or in any loan made on the security thereof, and
whose compensation is not affected by the approval or disapproval
of such Mortgage Loan;
(xxii) The Master Servicer has no knowledge of any circumstances
or condition with respect to the Mortgage, the Mortgaged Property,
the Mortgagor or the Mortgager's credit standing that can
reasonably be expected to cause investors to regard the Mortgage
Loan as an unacceptable investment, cause the Mortgage Loan to
become delinquent, or adversely affect the value or marketability
of the Mortgage Loan;
(xxiii) Each Mortgage Loan has a Loan-to-Value Ratio that is not
greater than 125%, and has not been significantly modified within
the meaning of Treasury Regulation Section 1.860G-2(h);
(xxiv) The Mortgage Loans were originated from ________ 199_
through ______ 199_. At origination, all Mortgage Loans had a term
to stated maturity of __ years;
(xxv) No Mortgage Loan contains "subsidized buydown" or
"graduated payment" features;
(xxvi) Before giving effect to any exercise of the option in a
Convertible Mortgage Loan to convert to a new Index, the Margins on
the Mortgage Loans (A) in the case of the Prime Index Mortgage
Loans, generally range from -0.250% to 0.750%, (B) in the case of
the Six-Month LIBOR Index Mortgage Loans, generally range from
0.875% to 3.000%, (C) in the case of One-Month LIBOR Index Mortgage
Loans, generally range from 0.750% to 2.625%, and (D) in the case
of Treasury Index Mortgage Loans, generally range from 1.750% to
3.000%;
(xxvii) No more than ___% of the Mortgage Loans, by Cut-Off Date
Principal Balances, are, as of the Cut-Off Date, secured by
Mortgaged Properties located in the same zip code area;
(xxviii) The Mortgaged Property is a single-family (one- to
four-unit) dwelling residence erected thereon, or a two- to four-
family residence erected thereon, or an individual condominium unit
in a condominium, or an individual unit in a planned unit
development project or in a de minimis planned unit development, or
the Mortgage Loan is secured by a security interest in cooperative
shares and a lease or other arrangement in respect of a cooperative
apartment. No such residence is a mobile home or a manufactured
dwelling which is not permanently attached to the land. If the
Mortgage Loan was originated in the Mortgage Loan Seller's con-
struction to permanent financing program, construction of the
related dwelling residence is complete;
(xxix) Based on representations of the related mortgagors,
approximately ____% of the Mortgage Loans (measured by aggregate
Principal Balance) represent loans for primary residences, ____%
represent loans for secondary vacation residences and ___%
represent loans for investment properties;
(xxx) The Mortgage Rates borne by the Mortgage Loans as of the
Cut-off Date ranged from _____% per annum to _____% per annum;
(xxxi) The original principal balances of the Mortgage Loans
ranged from $______ to $_________. The maximum outstanding
principal balance of any Mortgage Loan as of the Cut-off Date was
$_________;
(xxxii) No more than ____% of the Mortgage Loans by Principal
Balance as of the Cut-Off Date are Additional Collateral Mortgage
Loans; and as of the Cut-Off Date each such Additional Collateral
Mortgage Loan had the benefit of Additional Collateral at least
equal to the Original Additional Collateral Requirement for such
Mortgage Loan; and
(xxxiii) Except for ____% of the Mortgage Loans (by Cut-off Date
Principal Balance) which were originated without income
verification, no Mortgage Loan was originated or acquired in
accordance with the terms of a limited documentation program.
The Company, as assignee of the Master Servicer under this Agreement and
the Sale Agreement, hereby assigns to the Trustee for the benefit of the
Certificateholders, the Certificate Insurer and the Surety all of its right,
title and interest in respect of the Sale Agreement insofar as such
Agreements relate to the representations and warranties set forth in this
Section 3.01.
The representations and warranties set forth in this Section 3.01 shall
survive the delivery of the respective Mortgage Files to the Trustee. With
respect to the representations and warranties described in this Section which
are made to the best of the Master Servicer's knowledge, if it is discovered
by any of the Company, the Master Servicer, the Certificate Insurer, the
Surety or the Trustee that the substance of such representation and warranty
is inaccurate, then notwithstanding the Master Servicer's lack of knowledge
with respect to the substance of such representation and warranty being
inaccurate at the time the representation or warranty was made, such
inaccuracy shall be deemed a breach of the applicable representation or
warranty. Upon discovery by either the Company, the Master Servicer, the
Certificate Insurer, the Surety or the Trustee of a breach of any of the
foregoing representations and warranties which materially and adversely
affects the value of a Mortgage Loan or the interest of the Certificate-
holders (or which materially and adversely affects the interests of the
Certificateholders, the Certificate Insurer or the Surety in the related
Mortgage Loan in the case of a representation and warranty relating to a
particular Mortgage Loan), the party discovering such breach shall give
prompt written notice to the other parties and to the Certificate Insurer and
the Surety. The Company shall promptly (and in any event within no more than
five Business Days) request that the Master Servicer cure such breach. The
Master Servicer shall within 90 days from the date the Master Servicer was
notified of or otherwise discovers such breach cure such breach in all
material respects, substitute a Mortgage Loan pursuant to the provisions of
Section 3.02 or purchase such Mortgage Loan from the Trustee at the Purchase
Price. The Company shall send a copy of such notice to the Trustee, the
Certificate Insurer and to the Surety. The Purchase Price for the purchased
Mortgage Loan shall be deposited by the Master Servicer in the Certificate
Account and, upon receipt by the Trustee of written notification of such
deposit in the form of an Officer's Certificate signed by a Servicing
Officer, the Trustee shall promptly authorize the Custodian, upon its receipt
of a request for release of documents from the Master Servicer, to release to
the Master Servicer the related Mortgage File and execute and deliver such
endorsements, instruments of transfer or assignment, without recourse, as
shall be necessary to vest in the Master Servicer or its designee, any
interest of the Trustee in any Mortgage Loan released pursuant hereto, and
the Trustee shall have no further responsibility with regard to such Mortgage
Loan. It is understood and agreed that the obligation of the Master Servicer
to purchase or substitute for any Mortgage Loan as to which such a breach has
occurred and is continuing shall constitute the sole remedy respecting such
breach available to Certificateholders or the Trustee on behalf of
Certificateholders, the Certificate Insurer or the Surety.
Section 3.02. Option to Substitute. Subject to Section 5.28(b), if the
--------------------
Master Servicer is required to repurchase any Mortgage Loan pursuant to
Section 2.02 or 3.01, then within the period of time specified in each such
Section, the Master Servicer may, at its option, but only during the
applicable specified period, remove such deficient Mortgage Loan from the
terms of this Agreement and substitute another mortgage loan for such
deficient Mortgage Loan, in lieu of repurchasing such deficient Mortgage
Loan. Any substitute Mortgage Loan shall (i) have a Principal Balance at the
time of substitution not in excess of the Principal Balance of the deficient
Mortgage Loan (the amount of any difference being deemed to be a Principal
Prepayment to be credited to or deposited in the Certificate Account by the
Master Servicer), (ii) have a Mortgage Rate not less than the Mortgage Rate
of the deficient Mortgage Loan, and not more than one percentage point
greater than the Mortgage Rate of the deficient Mortgage Loan, (iii) bear
interest based on the same Index, have a Margin (assuming the Margin is
subtracted from the Index to arrive at the Mortgage Rate) that is not greater
than the Margin of the deficient Mortgage Loan, have a Margin (assuming the
Margin is added to the Index) that is not less than the Margin of the
deficient Mortgage Loan and have the same frequency for adjustment of the
Mortgage Rate and Monthly Payment, (iv) have a remaining maturity not later
than, and not more than one year earlier than, the remaining maturity of the
deficient Mortgage Loan, (v) be, in the reasonable determination of the
Master Servicer, of the same type, quality and character as the deficient
Mortgage Loan as if the breach had not occurred, (vi) have a Loan-to-Value
Ratio not more than that of the deficient Mortgage Loan, (vii) be in
compliance with the representations and warranties contained in Section 3.01
as of the date of substitution (including the representation and warranties
in Section 3.01(b)) and (viii) not be an Additional Collateral Mortgage Loan
unless the deficient Mortgage Loan is an Additional Collateral Mortgage Loan.
If the Principal Balance of the substitute Mortgage Loan is less than the
Principal Balance of the deficient Mortgage Loan, the Master Servicer shall
deposit such differential amount in the Certificate Account, which amount
shall be deemed to be a Principal Prepayment. Notwithstanding anything in
this Agreement to the contrary, the Master Servicer
shall not substitute a mortgage loan for a deficient Mortgage Loan at any
time after two years after the Closing Date.
The Master Servicer shall amend the Mortgage Loan Schedule to reflect
the withdrawal of the deficient Mortgage Loan from this Agreement and the
substitution of such substitute Mortgage Loan therefor. Upon such amendment,
the Master Servicer shall be deemed to have made as to such substitute
Mortgage Loan the representations and warranties set forth in Section 3.01 as
of the date of such substitution.
Section 3.03. Representation and Warranty of the Company. The Company
------------------------------------------
represents and warrants that it has transferred each Mortgage Loan free of
any liens, claims, charges or other encumbrances created by the Company and
there has been no other sale or assignment thereof by the Company.
Section 3.04. Converting Mortgage Loans; Certain Procedures and
-------------------------------------------------
Purchases. (a) The Trustee hereby authorizes and directs the Master Servicer
- ---------
to determine the fixed interest rates or new Index and Margin, as applicable,
into which Mortgagors under Convertible Mortgage Loans may convert the
adjustable interest rates on their Mortgage Notes in accordance with the
terms thereof. The Master Servicer agrees to make such determinations and
otherwise administer the program contemplated in the Mortgage Notes for the
Convertible Mortgage Loans until the later to occur of (i) the date on which
all the Convertible Mortgage Loans have become fixed rate Mortgage Loans and
(ii) the last date on which Mortgagors have the option to convert the
adjustable interest rates on their Mortgage Notes to fixed interest rates or
new Indices and related Margins. In addition, the Master Servicer agrees to
comply with the provisions of the Mortgage Notes to service the Convertible
Mortgage Loans in accordance with the terms of the related Mortgage Notes.
(b) Upon receiving notice of the conversion of any Convertible
Mortgage Loan to a fixed interest rate, the Master Servicer will promptly
notify the Trustee (if it holds the related Mortgage File) or the Custodian.
Subject to Section 3.04(f), prior to the day on which a Convertible Mortgage
Loan has become a fixed rate Mortgage Loan, the Master Servicer shall be
obligated to purchase such Converting Mortgage Loan at the Conversion Price.
All amounts paid by the Master Servicer in connection with the purchase of a
Converting Mortgage Loan or Converted Mortgage Loan, as the case may be, will
be deposited in the Certificate Account. The Master Servicer shall not be
obligated under this Section to purchase a Mortgage Loan that converts to a
different Index.
(c) Notwithstanding that a Mortgage Loan becomes a Converting
Mortgage Loan in any month, such Converting Mortgage Loan shall remain in the
Trust Fund and all payments in respect thereof shall remain in the Trust Fund
unless and until, if the Master Servicer is obligated to purchase such
Converting Mortgage Loan, such Converting Mortgage Loan is purchased by the
Master Servicer pursuant to Section 3.04(b).
(d) In the event that any Converting Mortgage Loan is not
purchased as provided in Section 3.04(b), the amount of the conversion fee,
if any, paid by the Mortgagor in connection with the conversion of the
adjustable rate on such Converting Mortgage Loan into a fixed rate or a
different Index shall be deposited by the Master Servicer into the
Certificate Account on the Business Day immediately preceding the
Distribution Date on which the proceeds of the purchase of such Converting
Mortgage Loan were to be distributed to Certificateholders. The obligation
of the Master Servicer to deposit the amounts, if any, required by this
subsection (d) shall not limit or affect any purchase under subsection (b)
above.
(e) Upon any purchase of a Converting Mortgage Loan by the Master
Servicer pursuant to Section 3.04(b) and the deposit in the Certificate
Account of the Conversion Price, the Master Servicer shall give the Trustee
written notice thereof and, based thereon, the Trustee shall release, or
cause any Custodian to release, the related Mortgage File and convey such
Mortgage Loan to the Master Servicer whereupon such purchased Converting
Mortgage Loan shall cease to be part of the Trust Fund.
(f) If a Master Servicer's duties as Master Servicer are
terminated pursuant to Section 9.01, Section 8.04 or the third paragraph of
Section 8.02, then such Master Servicer shall not be obligated to purchase
any Mortgage Loan that becomes a Converting Mortgage Loan after such
termination. A successor Master Servicer (including, without limitation, the
Trustee as a successor Master Servicer ) shall not be obligated to purchase
Convertible Mortgage Loans that become Converting Mortgage Loans pursuant to
Section 3.04(b) unless, upon becoming a successor Master Servicer, such
successor Master Servicer elects in its sole discretion, by giving written
notice of such election to the Trustee at or about the time of its
succession, to be obligated to make such purchases.
(End of Article III)
ARTICLE IV
THE CERTIFICATES
- ---------------------------------------------
Section 4.01. The Certificates. The Class A Certificates, Class B
----------------
Certificates and Class R Certificate shall be substantially in the forms
annexed hereto as Exhibits C, D and F, respectively, and shall, on original
issue, be executed by the Company and authenticated by the Trustee upon the
assignment to the Trustee of the documents specified in Section 2.01, and
delivered to or upon the order of the Company. The Class A and Class B
Certificates shall be issuable in the minimum original dollar denominations
(and integral multiples of approximately $1,000 in excess of such amount,
except for one Certificate for each Class representing the balance of such
Class) and aggregate original dollar denominations per Class as set forth in
the following table:
Aggregate
Minimum Approximate Original
Original Denominations of all
Class Denomination Certificates of Class
----- ------------ ---------------------
A $ 25,000 $___________
B $500,000 $___________
So long as the Class A Certificates are Book-Entry Certificates, the
Class A Certificates that are Book-Entry Certificates shall be evidenced by
one or more certificates representing Class A Certificates in denominations
acceptable to the Depository. Beneficial ownership of the Class A Certifi-
cates that are Book-Entry Certificates may be held in minimum dollar
denominations of $25,000 and integral multiples of $1,000 in excess thereof.
The minimum Percentage Interest for a Class R Certificate shall be 20%.
The Certificates shall be signed by manual or facsimile signature on
behalf of the Company by one of its officers. Certificates bearing the
manual or facsimile signatures of individuals who were at the time of
signature proper officers of the Company shall bind the Company, notwith-
standing that such individuals or any of them have ceased to hold such
offices prior to the authentication and delivery of such Certificate or did
not hold such offices at the date of such Certificates. No Certificate shall
be entitled to any benefit under this Agreement, or be valid for any purpose,
unless there appears on such Certificate a manual authentication by an
authorized officer of the Trustee and such authentication upon any
Certificate shall be conclusive evidence, and the only evidence, that such
Certificate has been duly authenticated and delivered hereunder. All
Certificates shall be dated the date of their authentication.
The rights of the Certificateholders to receive payments with respect to
the Trust Fund in respect of the Certificates, and all ownership interests of
the Certificateholders in such payments, shall be as set forth in this
Agreement.
Section 4.02. Registration of Transfer and Exchange of Certificates.
-----------------------------------------------------
(a) The Trustee shall cause to be kept at its Corporate Trust Office, or at
the office of its designated agent, a Certificate Register in which, subject
to such reasonable regulations as it may prescribe, the Trustee shall provide
for the registration of Certificates and of transfers and exchanges of
Certificates as herein provided.
(b) Subject to Section 4.02(c), upon surrender for registration of
transfer of any Certificate at any office or agency of the Trustee maintained
for such purpose, the Company shall execute and the Trustee shall
authenticate and deliver, in the name of the designated transferee or
transferees, a Certificate or Certificates of a like Class and aggregate
denomination and dated the date of authentication by the Trustee.
(c) No transfer of a Class B or Class R Certificate shall be made
unless such transfer is made pursuant to an effective registration statement
or in accordance with an exemption from the requirements under the Securities
Act of 1933, as amended. If such a transfer is to be made in reliance upon
an exemption from said Act, (i) the Trustee shall, if not otherwise directed
by the Company, require a written Opinion of Counsel acceptable to and in
form and substance satisfactory to the Company that such transfer may be made
pursuant to an exemption, describing the applicable exemption and the basis
therefor, from said Act or is being made pursuant to said Act, which Opinion
of Counsel shall not be an expense of the Trustee, the Company or the Master
Servicer, and (ii) the Trustee shall require the transferee to execute a cer-
tification, substantially in the form of Exhibit L hereto, acceptable to and
in form and substance satisfactory to the Company and the Trustee setting
forth the facts surrounding such transfer; provided that such Opinion of
Counsel shall not be required in the case of transfers by or to Merrill
Lynch, Pierce, Fenner & Smith Incorporated or an affiliate thereof. Such
Opinion of Counsel and certification shall not be an expense of the Trustee,
the Company or the Master Servicer. The Trustee, the Master Servicer and the
Company may, without the consent of any Certificateholder, add provisions
(which shall include a form of certificate to be attached hereto as an
exhibit that must be delivered by the proposed transferee) to this Section
4.02(c) to permit transfers pursuant to Rule 144A of the Securities and
Exchange Commission, in which case transfers pursuant to such provisions
shall not require an Opinion of Counsel.
(d) No transfer (exclusive of any transfer to a Depository or a
securitization trustee) of a Class B or Class R Certificate shall be made
unless the Trustee shall have received either (i) a representation letter
(substantially in the form attached hereto as Exhibit N) from the transferee
of such Certificate, acceptable to and in form and substance satisfactory to
the Trustee and the Company, to the effect that such transferee is not an
employee benefit plan subject to Section 406 of ERISA or Section 4975 of the
Code, nor a person acting on behalf of any such plan or acquiring such
Certificate with funds of such a plan (including without limitation any
insurance company using funds that may constitute "plan assets"), which
representation letter shall not be an expense of the Trustee, the Company or
the Master Servicer, or (ii) in the case of any such Certificate presented
for registration in the name of an employee benefit plan subject to ERISA or
Section 4975 of the Code (or comparable provisions of any subsequent
enactments), or a trustee of any such plan, an Opinion of Counsel
satisfactory to the Trustee and the Company to the effect that the purchase
or holding of such Certificate 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
Trustee, the Company or the Master Servicer to any obligation in addition to
those undertaken in this Agreement or cause the Trustee, the Company or the
Master Servicer to be a fiduciary of such Plan, which Opinion of Counsel
shall not be an expense of the Trustee, the Company or the Master Servicer.
(e) At the option of the Certificateholder, a Certificate may be
exchanged for another Certificate or Certificates of authorized denominations
of a like Class and Percentage Interest, upon surrender of the Certificate to
be exchanged at any office or agency of the Trustee maintained for such
purpose. Whenever a Certificate is so surrendered for exchange, the Company
shall execute and the Trustee shall authenticate and deliver, the Certificate
which the Certificateholder making the exchange is entitled to receive.
Every Certificate presented or surrendered for transfer or exchange shall (if
so required by the Trustee) be duly endorsed by, or be accompanied by a
written instrument of transfer in the form satisfactory to the Trustee duly
executed by, the Holder thereof or his attorney duly authorized in writing.
(f) No service charge shall be made to the Holder for any transfer or
exchange of the Certificate, but the Trustee may require payment by the
Certificateholders of a sum sufficient to cover any tax or governmental
charge that may be imposed in connection with any transfer or exchange of the
Certificate.
(g) All Certificates surrendered for transfer and exchange shall be
cancelled and retained or destroyed by the Trustee in accordance with its
standard procedures.
(h) Notwithstanding anything to the contrary contained herein, unless
and until the Company shall have received an Independent Opinion of Counsel,
satisfactory in form and substance to the Company, to the effect that the
absence of the conditions contained in this Section 4.02(h) would not result
in the imposition of federal income tax upon the Trust Fund or cause the
Trust Fund to fail to qualify as a REMIC, no transfer, sale or other
disposition of the Class R Certificate (including a beneficial interest
therein) may be made without the express written consent to be granted in the
sole discretion of the Master Servicer and the Trustee.
(i) As a condition to the granting of the consent referred to in
Section 4.02(h), prior to the transfer, sale or other disposition of such
Certificates, the Master Servicer shall require that the proposed transferee
deliver to the Master Servicer and the Trustee an affidavit stating that as
of the date of such transfer (i) such transferee is not and has no intention
of becoming either (A) the United States, any state or political subdivision
thereof, any foreign government, any international organization, or any
agency or instrumentality of any of the foregoing (other than an
instrumentality that is a corporation all of whose activities are subject to
tax under the Code and, except in the case of the Federal Home Loan Mortgage
Corporation, a majority of the board of directors of which corporation is not
selected by the United States, any state or political subdivision thereof),
(B) any organization that is exempt from any tax imposed by Chapter 1 of
Subtitle A of the Code, other than (x) a tax-exempt farmers' cooperative
within the meaning of section 521 of the Code or (y) an organization that is
subject to the tax imposed by section 511 of the Code on "unrelated business
income" or (C) a corporation operating on a cooperative basis that is engaged
in furnishing electric energy or providing telephone service to persons in
rural areas (within the meaning of section 1381(a)(2)(C) of the Code) (any
Person described in (A), (B), or (C) being referred to herein as a
"Disqualified Organization"), (ii) such transferee is not acquiring such
Certificates as an agent, broker, nominee, or middleman for a Disqualified
Organization and (iii) such transferee is not a Non-U.S. Person. The Master
Servicer and a Responsible Officer of the Trustee
shall not grant the consent referred to in Section 4.02(h) if either has
actual knowledge that any statement made in the affidavit issued pursuant to
the preceding sentence is not true. Notwithstanding any transfer, sale or
other disposition of such Certificates to a Disqualified Organization or Non-
U.S. Person, such transfer, sale or other disposition shall be deemed to be
of no legal force or effect whatsoever and such Disqualified Organization or
Non-U.S. Person shall not be deemed to be a Holder of such Certificates for
any purpose hereunder, including, but not limited to, the receipt of
distributions on such Certificates. If any purported transfer shall be in
violation of the provisions of Section 4.02(h), then the prior Holder of such
Certificates shall, upon discovery that the transfer of such Certificates was
not in fact permitted in Section 4.02(h), be restored to all rights as a
Holder thereof retroactive to the date of the purported transfer of such
Certificates. The Trustee and the Master Servicer shall be under no
liability to any Person for any registration or transfer of a Class R
Certificate that is not permitted by Section 4.02(h) or for making payments
due on any such Certificate to the purported Holder thereof or taking any
other action with respect to such purported Holder under the provisions of
this Agreement so long as the transfer was registered under the written
certification of the Master Servicer as described in Section 4.02(h). The
prior Holder shall be entitled to recover from any purported Holder of any
such Certificate that was in fact not a permitted transferee under Section
4.02(h) at the time it became a Holder all payments made on such Certificate;
provided that the Master Servicer shall not be responsible for such recovery.
Each such Certificateholder, by the acceptance of a Class R Certificate,
shall be deemed for all purposes to have consented to the provisions of
Section 4.02(h) and to any amendment of this Agreement deemed necessary by
counsel of the Master Servicer, as evidenced by an Opinion of Counsel, to
ensure that either such Certificate is not transferred to a Disqualified
Organization or Non-U.S. Person and that any transfer of such Certificate
will not cause the imposition of a tax upon the Trust Fund or cause the Trust
Fund to fail to qualify as a REMIC. The restrictions on transfer of either
such Certificate will cease to apply and be void upon receipt by the Trustee
of the Opinion of Counsel as described in Section 4.02(h) or shall be
modified as indicated in such Opinion of Counsel. If any Person that is not
permitted to acquire any beneficial interest in a Class R Certificate under
this Section 4.02(i) acquires any beneficial interest in a Class R
Certificate in violation of the restrictions in this Section 4.02(i), then
the Trustee, based on information provided to it by the Master Servicer, will
provide to the Internal Revenue Service, and to the persons specified in
Section 860E(e)(3) and (6) of the Code, information needed to compute the tax
imposed under Section
860E(e)(5) of the Code on transfers of residual interests to disqualified
organizations.
(j) Notice of the transfer of any Class B Certificate shall be given to
the Rating Agency by the Trustee.
(k) Except as provided in paragraph (l) below, the Book-Entry
Certificates shall at all times remain registered in the name of the
Depository or its nominee and at all times: (i) registration of the Class A
Certificates may not be transferred by the Trustee except to another
Depository; (ii) the Depository shall maintain book-entry records with
respect to the Certificate Owners and with respect to ownership and transfers
of such Class A Certificates; (iii) ownership and transfers of registration
of the Class A Certificates on the books of the Depository shall be governed
by applicable rules established by the Depository; (iv) the Depository may
collect its usual and customary fees, charges and expenses from its
Depository Participants; (v) the Trustee shall deal with the Depository,
Depository Participants and indirect participating firms as representatives
of the Certificate Owners of the Class A Certificates for purposes of
exercising the rights of Holders under this Agreement, and requests and
directions for and votes of such representatives shall not be deemed to be
inconsistent if they are made with respect to different Certificate Owners;
and (vi) the Trustee may rely and shall be fully protected in relying upon
information furnished by the Depository with respect to its Depository
Participants and furnished by the Depository Participants with respect to
indirect participating firms and persons shown on the books of such indirect
participating firms as direct or indirect Certificate Owners.
All transfers by Certificate Owners of Book-Entry Certificates shall be
made in accordance with the procedures established by the Depository
Participant or brokerage firm representing such Certificate Owner. Each
Depository Participant shall only transfer Book-Entry Certificates of
Certificate Owners it represents or of brokerage firms for which it acts as
agent in accordance with the Depository's normal procedures.
(l) If (x)(i) the Depository or the Company advises the Trustee in
writing that the Depository is no longer willing or able to properly
discharge its responsibilities as Depository, and (ii) the Company is unable
to locate a qualified successor, (y) the Company at its option advises the
Trustee in writing that it elects to terminate the book-entry system through
the Depository or (z) after the occurrence of an Event of Default,
Certificate Owners representing at least 50% of the principal balance of the
Class A Certificates and the Certificate Insurer and the Surety together
advise the Trustee and the Depository
through the Depository Participants in writing that the continuation of a
book-entry system through the Depository is no longer in the best interests
of such Certificate Owners and the Certificate Insurer and the Surety, as
applicable, the Trustee shall notify all Certificate Owners of such Class,
through the Depository, of the occurrence of any such event and of the
availability of definitive, fully registered Class A Certificates (the
"Definitive Certificates"), as applicable, to Certificate Owners requesting
-----------------------
the same. Upon surrender to the Trustee of the Class A Certificates by the
Depository, accompanied by registration instructions from the Depository for
registration, the Trustee shall issue the Definitive Certificates. Neither
the Master Servicer, the Company nor the Trustee shall be liable for any
delay in delivery of such instructions and may conclusively rely on, and
shall be protected in relying on, such instructions. The Master Servicer
shall provide the Trustee with an adequate inventory of certificates to
facilitate the issuance and transfer of Definitive Certificates. Upon the
issuance of Definitive Certificates all references herein to obligations
imposed upon or to be performed by the Depository shall be deemed to be
imposed upon and performed by the Trustee, to the extent applicable with
respect to such Definitive Certificates and the Trustee shall recognize the
Holders of the Definitive Certificates as Certificateholders hereunder. In
addition, the Class A Certificates shall be in the form of Definitive
Certificates up to the time the Class A Certificates are transferred to
public investors.
Section 4.03. Mutilated, Destroyed, Lost or Stolen Certificates. If
-------------------------------------------------
(a) any mutilated Certificate is surrendered to the Trustee or the Trustee
receives evidence to its satisfaction of the destruction, loss or theft of
any Certificate, and (b) there is delivered to the Trustee such security or
indemnity as may be required by it to save it harmless, then, in the absence
of notice to the Trustee that such Certificate has been acquired by a bona
fide purchaser, the Trustee shall authenticate and deliver, in exchange for
or in lieu of any such mutilated, destroyed, lost or stolen Certificate, a
new Certificate of like tenor and Class. Upon the issuance of any new
Certificate under this Section, the Trustee may require of the
Certificateholder the payment of a sum sufficient to cover any tax or other
governmental charge that may be imposed in relation thereto and any other
expenses connected therewith. Any replacement Certificate of any Class
issued pursuant to this Section shall constitute complete and indefeasible
evidence of ownership of the Percentage Interest in the distributions to
which the Certificateholders of such Class are entitled, as if originally
issued, whether or not the mutilated, destroyed, lost or stolen Certificate
shall be found at any time, and such mutilated,
destroyed, lost or stolen Certificate shall be of no force or effect under
this Agreement.
Section 4.04. Persons Deemed Owners. The Company, the Master Servicer,
---------------------
the Certificate Insurer, the Surety and the Trustee may treat the person in
whose name any Certificate is registered as the owner of such Certificate and
the Percentage Interest in the distributions to the Certificateholders of
such Class are entitled, for the purpose of receiving remittances pursuant to
Section 6.01 and for all other purposes whatsoever, and neither the Company,
the Master Servicer, the Certificate Insurer, the Surety nor the Trustee
shall be affected by notice to the contrary.
Section 4.05. Appointment of Paying Agent. The Master Servicer may
---------------------------
appoint a Paying Agent hereunder. In the event of any such appointment, no
later than 12:00 noon New York City time, on the Business Day preceding each
Distribution Date, the Master Servicer shall withdraw from the Certificate
Account and transfer to the Paying Agent for deposit in the Distribution
Account a sum which, together with other amounts deposited in the
Distribution Account, will be sufficient to make the payments to
Certificateholders in the amounts and in the manner provided for in Section
6.01. The Master Servicer shall cause the Paying Agent to perform each of
the obligations of the Paying Agent set forth herein and shall be liable to
the Trustee, the Certificateholders and the Surety for failure of the Paying
Agent to perform such obligations. The Master Servicer designates Bankers
Trust Company of California, N.A. as the initial Paying Agent. The Master
Servicer shall notify each Rating Agency, the Certificate Insurer and the
Surety of any appointment of an additional or successor Paying Agent.
The Master Servicer shall cause each Paying Agent other than itself or
the Trustee to execute and deliver to the Master Servicer an instrument in
which such Paying Agent shall agree with the Master Servicer that such Paying
Agent will hold all sums held by it for the payment to Certificateholders in
trust for the benefit of the Trustee on behalf of the Certificate-holders (or
the Certificate Insurer and the Surety) entitled thereto until such sums
shall be paid to such Certificateholders (or the Certificate Insurer and the
Surety).
(End of Article IV)
ARTICLE V
ADMINISTRATION AND SERVICING OF MORTGAGE LOANS
----------------------------------------------
Section 5.01. Master Servicer to Service Mortgage Loans. The Master
-----------------------------------------
Servicer shall service and administer the Mortgage Loans in accordance with
customary and prudent servicing procedures for residential mortgage loans and
shall have full power and authority, acting alone or through Sub-Servicers as
provided in Section 5.02, to do any and all things which it may deem
necessary or desirable in connection with such servicing and administration.
Without limiting the generality of the foregoing, the Master Servicer in its
own name or in the name of a Sub-Servicer is hereby authorized and empowered
by the Trustee when the Master Servicer or the Sub-Servicer, as the case may
be, believes it appropriate in its best judgment, to execute and deliver, on
behalf of the Certificateholders, the Trustee, the Certificate Insurer and
the Surety or any of them, any and all instruments of satisfaction or
cancellation, or of partial or full release or discharge and all other
comparable instruments, with respect to the Mortgage Loans and with respect
to the Mortgaged Properties. At the written request of the Master Servicer,
the Trustee shall execute any limited powers of attorney and other documents
necessary or appropriate to enable the Master Servicer to service and
administer the Mortgage Loans and the Trustee shall not be liable for the
Master Servicer's or any Sub-Servicer's application thereof and shall be
indemnified by the Master Servicer for its use of such powers of attorney.
In connection with the servicing and administration of the Mortgage
Loans, the Master Servicer may at the request of a Mortgagor or at its own
initiative agree to modify the Mortgage Note or Mortgage relating to the
Mortgage Loan of such Mortgagor or, subject to the provisions of this
Agreement, waive compliance by the Mortgagor with any provision of such
Mortgage Note or Mortgage, provided, however, that any such modification or
waiver shall not (i) extend the scheduled maturity date of, modify the
Mortgage Rate payable under (except as required by law or as contemplated by
the Mortgage Note), or constitute a cancellation or discharge of the
outstanding principal balance of, such Mortgage Loan, (ii) be inconsistent
with the Master Servicer's then current practice respecting comparable
mortgage loans held in its own portfolio, or (iii) materially and adversely
affect the security afforded by the Mortgaged Property (any modification,
waiver or change of the nature described in Section 5.07 being deemed not to
violate clause (i) or clause (iii) above).
The foregoing clauses (i) and (iii) in the preceding paragraph are
subject to the proviso that the Master Servicer may agree to changes to the
terms of a Mortgage Note or Mortgage
which would otherwise be violative thereof if (i) the Master Servicer has
determined that such changes are necessary to avoid prepayment of the related
Mortgage Loan or to accommodate the request of a Mortgagor to extend the
scheduled maturity date of the related Mortgage Loan beyond the period of the
original term to maturity and such changes are consistent with prudent
business practice as evidenced by a certificate signed by a Servicing Officer
to such effect, (ii) the Master Servicer shall purchase the related Mortgage
Loan for the Purchase Price on the Determination Date immediately following
the Due Period during which such changes were made and deposit such Purchase
Price in the Certificate Account on or prior to such Determination Date and
(iii) such changes and subsequent purchase will not affect the status of the
Trust Fund as a REMIC as evidenced by an Opinion of Counsel (provided at the
expense of the Master Servicer) to such effect delivered to the Trustee;
provided, however, that the purchase of the related Mortgage Loan pursuant to
the foregoing clause (ii) shall occur on the second Business Day following
the date on which such changes were made if the short-term credit rating of
the Merrill Lynch & Co. Inc. (or its successor interest) is downgraded below
A-1/P-1. Any such repurchase shall be accomplished in the same manner and
subject to the same conditions set forth in Section 2.02. Upon making any
such repurchase the Servicer shall be entitled to receive an instrument of
assignment or transfer from the Trustee to the same extent as set forth in
Section 2.02.
Nothing herein shall be deemed to constitute a joint venture or
partnership between the Master Servicer and the Trustee.
All Servicing Advances made by the Master Servicer in effecting the
timely payment of taxes and assessments on the properties subject to the
Mortgage Loans shall not, for the purpose of calculating monthly
distributions to Certificate-holders, be added to the amount owing under the
related Mortgage Loans, notwithstanding that the terms of such Mortgage Loan
so permit, and such Servicing Advances shall be recoverable by the Master
Servicer to the extent permitted by Sections 5.09 and 5.23.
Section 5.02. Sub-Servicing Agreements Between Master Servicer and Sub
--------------------------------------------------------
Servicers; Enforcement of Sub-Servicer's Obligations. (a) The Master
- ----------------------------------------------------
Servicer may enter into Sub-Servicing Agreements with Sub-Servicers for the
servicing and administration of all or part of the Mortgage Loans if the
Master Servicer delivers to the Trustee an Officer's Certificate of the
Company, the Certificate Insurer and the Surety consenting to the appointment
of the Sub-Servicer and the entering into of the Sub-Servicing Agreement and
a written confirmation from each Rating Agency to the effect that entering
into such Sub-Servicing
Agreement would not result in the reduction or withdrawal of the then current
ratings of the Class A Certificates. The Master Servicer shall deliver a
copy of any such Sub-Servicing Agreement to each Rating Agency. References
in this Agreement to actions taken or to be taken by the Master Servicer in
servicing the Mortgage Loans include actions taken or to be taken by a Sub-
Servicer on behalf of the Master Servicer. Each Sub-Servicing Agreement will
be based upon such terms and conditions as are not inconsistent with this
Agreement and as the Master Servicer and the Sub-Servicer have agreed. The
Master Servicer shall notify the Trustee, the Certificate Insurer and the
Surety in writing promptly upon the appointment of any Sub-Servicer. For
purposes of this Agreement, the receipt by the Sub-Servicer of any amount
with respect to a Mortgage Loan (other than amounts representing servicing
compensation or reimbursement for an advance) shall be treated as the receipt
by the Master Servicer of such amount.
(b) As part of its servicing activities hereunder, the Master Servicer,
for the benefit of the Trustee, the Certificateholders, the Certificate
Insurer and the Surety, shall enforce the obligations of each Sub-Servicer
under the related Sub-Servicing Agreement. Such enforcement, including,
without limitation, the legal prosecution of claims, termination of
Sub-Servicing Agreements as appropriate, and the pursuit of other remedies,
shall be in such form and carried out to such an extent and at such time as
the Master Servicer, in its good faith business judgment, would require were
it the owner of the related Mortgage Loans. The Master Servicer shall pay
the costs of such enforcement at its own expense but shall be reimbursed
therefor only (i) from a general recovery resulting from such enforcement
only to the extent, if any, that such recovery exceeds all amounts due in
respect of the related Mortgage Loans or (ii) from a specific recovery of
costs, expenses or attorneys' fees against the party against whom such
enforcement is directed.
Section 5.03. Successor Sub-Servicers. The Master Servicer shall be
-----------------------
entitled to terminate any Sub-Servicing Agreement that may exist in
accordance with the terms and conditions of such Sub-Servicing Agreement and
without any limitation by virtue of this Agreement. Each Sub-Servicing
Agreement shall contain provisions that provide that a successor Master
Servicer shall have the option to terminate such agreement without cause or
penalty upon its succession as Master Servicer.
Section 5.04. Liability of the Master Servicer. Notwithstanding any
--------------------------------
Sub-Servicing Agreement, any of the provisions of this Agreement relating to
agreements or arrangements between the Master Servicer or a Sub-Servicer or
reference to actions taken through a Sub-Servicer or otherwise, the Master
Servicer shall remain obligated and liable to the Trustee, the Certificate
holders, the Certificate Insurer and the Surety for the servicing and
administration of the Mortgage Loans in accordance with the provisions of
this Agreement without diminution of such obligation or liability by virtue
of such Sub-Servicing Agreements or arrangements or by virtue of
indemnification from the Sub-Servicer or the Mortgage Loan Seller and to the
same extent and under the same terms and conditions as if the Master Servicer
alone were servicing and administering the Mortgage Loans. The Master
Servicer shall be entitled to enter into any agreement with a Sub-Servicer
for indemnification of the Master Servicer and nothing contained in this
Agreement shall be deemed to limit or modify such indemnification.
Section 5.05. No Contractual Relationship Between Sub- Servicer and
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Trustee, the Certificateholders, the Certificate Insurer or the Surety. Any
- ----------------------------------------------------------------------
Sub-Servicing Agreement that may be entered into and other transactions or
services relating to the Mortgage Loans involving a Sub-Servicer in its
capacity as such and not as an originator shall be deemed to be between the
Sub-Servicer and the Master Servicer alone and the Trustee, the
Certificateholders, the Certificate Insurer and the Surety shall not be
deemed parties thereto and shall have no claims, rights, obligations, duties
or liabilities with respect to the Sub-Servicer.
Section 5.06. (Omitted)
Section 5.07. Collection of Mortgage Loan Payments. Continuously from
------------------------------------
the date hereof until the principal and interest on all Mortgage Loans are
paid in full, the Master Servicer will proceed diligently to collect all
payments due under each of the Mortgage Loans when the same shall become due
and payable and shall, to the extent such procedures shall be consistent with
this Agreement, follow such collection procedures as it follows with respect
to comparable mortgage loans held in its own portfolio; provided, however,
that the Master Servicer may not waive any increase in the Mortgage Rate
permitted by the terms of any Mortgage Note (unless such increase is not
permitted by applicable law). Consistent with the foregoing, the Master
Servicer may in its discretion (i) waive any assumption fee, late payment
charge or other charge in connection with a Mortgage Loan and (ii) if the
Mortgagor is in default or about to be in default because of the Mortgagor's
financial condition, arrange a schedule, running for no more than 180 days
after the Due Date for the initial delinquent installment on the related
Mortgage Note, for the liquidation of delinquent items. The foregoing clause
(ii) is subject to the proviso that the Master Servicer may in its discretion
arrange with the Mortgagor a schedule for the payment of interest and
principal due and unpaid for a period that exceeds 180 days if such
arrangement is determined by the
Master Servicer to be reasonable and consistent with its then current
practices respecting comparable mortgage loans held in its own portfolio,
including but not limited to its practices regarding mortgage loans secured
by mortgage properties located in federally designated disaster areas. Any
such arrangements shall not diminish or otherwise affect the Master
Servicer's obligation to make Advances pursuant to Section 6.03.
At its sole discretion, the Master Servicer may, but shall not be
obligated to, purchase a Defaulted Mortgage Loan at its Purchase Price. For
purposes of this Agreement, any such Defaulted Mortgage Loan so purchased by
the Master Servicer shall be deemed to be a Liquidated Mortgage Loan that
became liquidated at the time of such purchase, and the Purchase Price paid
by the Master Servicer shall be Liquidation Proceeds. The Master Servicer
shall deposit such Purchase Price in the Certificate Account at the time of
such purchase and shall be entitled to receive an instrument of assignment or
transfer from the Trustee in the same manner as provided in Section 2.02.
Section 5.08. Establishment of Certificate Account; Deposits in
-------------------------------------------------
Certificate Account. With respect to all of the Mortgage Loans, the Master
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Servicer shall establish and maintain a Certificate Account (the "Certificate
-----------
Account") which is an Eligible Account, titled "Merrill Lynch Credit
- -------
Corporation, as Master Servicer, in trust for Bankers Trust Company of
California, N.A., as Trustee, for the benefit of registered holders of MLCC
Mortgage Investors, Inc., Mortgage Loan Asset Backed Pass-Through
Certificates, Series 199_-_"; provided, however, that if the Certificate
Account is opened under a different name, the Master Servicer shall, within
90 days after the Closing Date, cause the Certificate Account to be re-titled
under the aforementioned name; and provided further, that if (x) the long-
term unsecured debt of Merrill Lynch & Co., Inc. is rated by Moody's, and is
at any time rated by Moody's below A3 or (y) if such debt is rated by
Standard & Poor's, and is at any time rated by Standard & Poor's below A-,
the Certificate Account shall thereafter be maintained by the Trustee and
such account shall at such time be titled "Bankers Trust Company of
California, N.A., as trustee for the benefit of the holders of MLCC Mortgage
Investors, Inc., Mortgage Loan Asset Backed Pass-Through Certificates, Series
199_-_". Such Certificate Account shall be established with the Trustee or a
commercial bank, a mutual savings bank, or a savings and loan association.
The Master Servicer may invest, or cause the institution maintaining the
Certificate Account to invest, moneys in the Certificate Account in Eligible
Investments, which shall mature not later than the Business Day next
preceding the Distribution Date next following the date of such investment
and shall not be sold or disposed of prior to its maturity. The proceeds of
the sale or
other disposition of all Eligible Investments shall be deposited in the
Certificate Account. All such Eligible Investments shall be made in the name
of the Trustee. All net income and gain realized from any such investment
shall be for the benefit of the Master Servicer as additional servicing
compensation and shall be subject to its withdrawal or order from time to
time. The Master Servicer shall be entitled to retain any net interest paid
on funds deposited in the Certificate Account other than the interest on any
funds required by applicable law to be paid to a Mortgagor, and, to the
extent required by applicable law, the Master Servicer shall pay, without
reimbursement from the Certificate Account, interest on such funds to the
Mortgagor notwithstanding that the Certificate Account is non-interest
bearing or that interest paid thereon is insufficient for such purposes. The
amount of any losses incurred in respect of any such investments (to the
extent not offset by income from other such investments) shall be deposited
in the Distribution Account by the Master Servicer out of its own funds
immediately as realized, without reimbursement from the Certificate Account;
provided, however, that if the Trustee becomes Master Servicer, the Trustee
shall not be required to deposit the amount of any loss incurred prior to its
becoming Master Servicer. The creation of the Certificate Account shall be
evidenced by a certification in the form of Exhibit H. A copy of such
certification shall be furnished to the Trustee.
The Master Servicer shall deposit or cause to be deposited in the
Certificate Account on a daily basis, no later than the later of the Closing
Date and one Business Day after the receipt thereof, and retain therein:
(i) All payments received which were due after the Cut-off Date on
account of principal on the Mortgage Loans, and all Principal
Prepayments collected after the Cut-off Date;
(ii) All payments received on account of interest which are due
after the Cut-off Date on the Mortgage Loans net of the related
Servicing Fee;
(iii) Net Liquidation Proceeds;
(iv) All Insurance Proceeds received by the Master Servicer under
any title, hazard or other insurance policy, including amounts required
to be deposited pursuant to Sections 5.16 and 5.20, other than proceeds
to be held in the Escrow Account or applied to the restoration or repair
of the Mortgaged Property or released to the Mortgagor in accordance
with the Master Servicer's normal servicing
procedures or otherwise applied or held as required by applicable law;
(v) All awards or settlements in respect of condemnation
proceedings affecting any Mortgaged Property which are not released to
the Mortgagor in accordance with the Master Servicer's normal servicing
procedures;
(vi) All Repurchase Proceeds;
(vii) All amounts representing revenues under the insurance provided
pursuant to Section 5.19 to the extent of any losses borne by any
Certificateholder;
(viii) All revenues from any Mortgaged Property acquired by the
Master Servicer by foreclosure or deed in lieu of foreclosure net of any
Servicing Advances with respect to such Mortgaged Property; and
(ix) Any other amounts required to be deposited therein pursuant to
this Agreement.
The foregoing requirements for deposit in the Certificate Account shall be
exclusive, it being understood and agreed that, without limiting the
generality of the foregoing, payments in the nature of prepayment fees, late
payment charges and assumption fees need not be deposited by the Master
Servicer in the Certificate Account and may be retained by the Master
Servicer as additional servicing compensation. The Master Servicer shall
maintain or cause to be maintained accounting records on a loan-by-loan basis
with respect to the Certificate Account.
The Master Servicer shall give notice to the Trustee, the Company, each
Rating Agency, the Certificate Insurer and the Surety of any change in the
Certificate Account, prior to the use thereof.
Section 5.09. Permitted Withdrawals from the Certificate Account. The
--------------------------------------------------
Master Servicer may, from time to time, withdraw funds from the Certificate
Account for the following purposes:
(i) to make payments to Certificateholders, the Certificate
Insurer or the Surety in the amounts and in the manner provided for in
Section 6.01, or if applicable, to transfer moneys to the Distribution
Account maintained by the Paying Agent in accordance with Sections 4.05
and 6.01;
(ii) to reimburse itself and the Trustee for Advances made pursuant
to Section 6.03 (including amounts to reimburse the related Sub-Servicer
for advances made
pursuant to the applicable Sub-Servicing Agreement), the Master
Servicer's, the Sub-Servicer's and the Trustee's right to receive
reimbursement pursuant to this subclause (ii) being limited to amounts
received on particular Mortgage Loans which represent Late Collections
(net of the Servicing Fee) with respect to those particular Mortgage
Loans;
(iii) to reimburse itself for unpaid Servicing Fees and unreimbursed
Servicing Advances, to pay the related Sub-Servicer any portion of
unpaid Servicing Fees and unreimbursed Servicing Advances, the Master
Servicer's right to reimburse itself or make payments to the Sub--
Servicers pursuant to this subclause (iii) with respect to any Mortgage
Loan being limited to related Liquidation Proceeds, Insurance Proceeds,
and condemnation awards;
(iv) to reimburse itself (or the related Sub-Servicer) or the
Company for expenses incurred by and recoverable by or reimbursable to
it pursuant to Section 5.01, 5.16, 5.21 or 8.03 or to the Company
pursuant to Section 8.03 (provided that reimbursements pursuant to
Section 8.03 shall be made only out of funds that would otherwise be
distributable to the Class R Certificateholders);
(v) to reimburse itself (or the related Sub-Servicer) and the
Trustee for any Nonrecoverable Advances;
(vi) to pay to itself (or the related Sub-Servicer) any net income
earned on the investment of funds deposited in the Certificate Account;
and
(vii) to make payments to itself or others pursuant to any provision
of this Agreement, and to clear and terminate the Certificate Account
upon the termination of this Agreement.
Section 5.10. Establishment of Escrow Account; Deposits in Escrow
---------------------------------------------------
Account. With respect to those Mortgage Loans on which the Master Servicer
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or any Sub-Servicer collects Escrow Payments, the Master Servicer shall, and
shall cause any Sub-Servicer to, segregate and hold all funds collected and
received pursuant to each such Mortgage Loan which constitute Escrow Payments
separate and apart from any of its own funds and general assets and shall
establish and maintain one or more Escrow Accounts. Such Escrow Accounts
shall be established with a commercial bank, a mutual savings bank, or a
savings and loan association, the deposits of which are insured by the FDIC,
in a manner which shall provide maximum available insurance thereunder and
which may be drawn on by the Master Servicer. Subject to compliance with
applicable
law, one Escrow Account may relate to multiple Mortgage Loans and other
mortgage loans serviced by the Master Servicer. The Master Servicer shall
give notice to the Trustee of the location of any Escrow Account, and of any
change thereof, prior to the use thereof.
The Master Servicer shall deposit, or cause to be deposited, in any
Escrow Account or Accounts on a daily basis, and retain therein, all Escrow
Payments collected on account of any Mortgage Loans, for the purpose of
effecting timely payment of any such items as required under the terms of
this Agreement. The Master Servicer shall make withdrawals therefrom only to
effect such payments as are required under this Agreement, and for such other
purposes as are set forth in Section 5.11. The Master Servicer or the
Sub-Servicer shall be entitled to retain any interest paid on funds deposited
in the Escrow Account by the depository institution other than interest on
escrowed funds required by law to be paid to the Mortgagor and, to the extent
required by law, the Master Servicer shall pay interest on escrowed funds to
the Mortgagor notwithstanding that the Escrow Account is non-interest-bearing
or that interest paid thereon is insufficient for such purposes.
Section 5.11. Permitted Withdrawals from Escrow Account. Withdrawals
-----------------------------------------
from any Escrow Account or Accounts may be made by the Master Servicer only
(i) to effect timely payments of ground rents, taxes, assessments, water
rates, or other items constituting Escrow Payments for the related Mortgage,
(ii) to reimburse the Master Servicer for any Servicing Advance made by the
Master Servicer, with respect to an Escrow Payment for a related Mortgage
Loan but only from amounts received on the related Mortgage Loan which
represent late payments or collections of Escrow Payments thereunder, (iii)
to refund to any Mortgagor any funds found to be in excess of the amounts
required under the terms of the related Mortgage Loan, (iv) for transfer to
the Certificate Account in accordance with the terms of the related Mortgage
Loan, (v) for application to restoration or repair of the property subject to
the Mortgage, (vi) to pay to the Master Servicer, or to the Mortgagor to the
extent required by law, any interest paid on the funds deposited in the
Escrow Account, or (vii) to clear and terminate the Escrow Account on the
termination of this Agreement.
Section 5.12. Payment of Taxes, Insurance and Other Charges. With
---------------------------------------------
respect to each Mortgage Loan, the Master Servicer shall maintain, or cause
to be maintained, accurate records reflecting the status of ground rents,
taxes, assessments, water rates and other charges which are or may become a
lien upon the Mortgaged Property and the status of Standard Hazard Policy
premiums and shall obtain, from time to time, all bills for the
payment of such charges (including renewal premiums) and shall effect payment
thereof prior to the applicable penalty or termination date and at a time
appropriate for securing maximum discounts allowable, employing for such
purpose deposits of the Mortgagor in the Escrow Account which shall have been
estimated and accumulated by the Master Servicer or the Sub-Servicer in
amounts sufficient for such purposes, as allowed under the terms of the
Mortgage. To the extent that a Mortgage does not provide for Escrow
Payments, the Master Servicer shall determine that any such payments are made
by the Mortgagor the time they first become due. The Master Servicer assumes
full responsibility for the timely payment of all such bills and shall effect
timely payments of all such bills irrespective of each Mortgagor's faithful
performance in the payment of same or the making of the Escrow Payments and
shall make advances from its own funds to effect such payments.
Section 5.13. Transfer of Accounts. The Master Servicer may transfer
--------------------
the Certificate Account or Escrow Account to a different depository
institution from time to time. Such transfer shall be made by the Master
Servicer only upon obtaining the consent of the Trustee, the Certificate
Insurer and the Surety, which consent shall not be unreasonably withheld.
Section 5.14. (Omitted)
Section 5.15. (Omitted)
Section 5.16. Maintenance of Standard Hazard Policies.
---------------------------------------
(a) The Master Servicer shall cause to be maintained for each Mortgage Loan
a Standard Hazard Policy with extended coverage as is customary in the area
where the Mortgaged Property is located in an amount which is equal to (A)
the replacement cost of the improvements securing such Mortgage Loan or (B)
the principal balance owing on such Mortgage Loan, whichever is less. If the
Mortgaged Property is in an area identified at the time of origination in the
Federal Register by the Federal Emergency Management Agency as having special
flood hazards (and such flood insurance has been made available) the Master
Servicer will cause to be maintained a flood insurance policy meeting the
requirements of the current guidelines of the Federal insurance
Administration with a generally acceptable insurance carrier, in an amount
representing coverage not less than the least of (i) the outstanding
principal balance of the Mortgage Loan, (ii) the full insurable value or
(iii) the maximum amount of insurance which is available under the Flood
Disaster Protection Act of 1973. The Master Servicer shall also maintain on
property acquired upon foreclosure, or by deed in lieu of foreclosure, of any
Mortgage Loan, fire and hazard insurance with extended coverage in an amount
which is not less than the lesser of (i)
the outstanding principal balance of the Mortgage Loan or (ii) the maximum
insurable value of the improvements which are a part of such property,
liability insurance, and, to the extent available, flood insurance in an
amount as provided above. Any amounts collected by the Master Servicer under
any such policies (other than amounts to be applied to the restoration or
repair of the property subject to the related Mortgage or property acquired
in liquidation of the Mortgage Loan, or released to the Mortgagor in
accordance with the Master Servicer's normal servicing procedures) shall be
deposited, subject to applicable law, in the Certificate Account. It is
understood and agreed that no earthquake or other additional insurance need
be required by the Master Servicer 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. All such Standard Hazard Policies and
other policies shall be endorsed with standard mortgagee clauses with loss
payable to the Master Servicer or its designee. Any such Standard Hazard
Policies or any other policies may be in the form of blanket policies;
provided, however, that in the event of any claim arising in connection with
a hazard loss the Master Servicer shall be obligated, in the case of blanket
insurance policies, to deposit in the Certificate Account any amount not
payable under such blanket policy because of a deductible clause in such
policy and not otherwise payable under an individual policy. The Master
Servicer shall not interfere with the Mortgagor's freedom of choice in
selecting either his insurance carrier or agent, provided, however, that the
Master Servicer shall not accept any such insurance policies from insurance
companies unless such companies are acceptable insurers with respect to the
insurance coverage set forth in this Section under the laws of, and are
licensed to do business in, the state wherein the property subject to the
policy is located.
(b) Any cost incurred by the Master Servicer in maintaining any of the
foregoing 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 costs (other than the costs of maintaining a blanket Hazard Insurance
Policy not attributable to a specific Mortgaged Property) shall be
recoverable by the Master Servicer from the Mortgagor or out of Insurance
Proceeds or Liquidation Proceeds or to the extent permitted by Section 5.09.
Section 5.17. (Omitted)
Section 5.18. (Omitted)
Section 5.19. Fidelity Bond and Errors and Omissions Insurance. The
------------------------------------------------
Master Servicer shall maintain, at its own expense, a blanket fidelity bond,
and errors and omissions insurance policy (or, in lieu thereof, a mortgage
interest insurance policy acceptable to FNMA), with broad coverage with
responsible companies on all officers, employees or other persons acting in
any capacity with regard to the Mortgage Loans to handle funds, money,
documents and papers relating to the Mortgage Loans. Any such fidelity bond
and errors and omissions insurance (or, in lieu thereof, a mortgage interest
insurance policy acceptable to FNMA), shall protect and insure the Master
Servicer against losses, including forgery, theft, embezzlement, fraud,
errors and omissions and negligent acts of such persons. No provision of
this Section 5.19 requiring such fidelity bond and errors and omissions
insurance (or, in lieu thereof, a mortgage interest insurance policy
acceptable to FNMA) shall diminish or relieve the Master Servicer from its
duties and obligations set forth in this Agreement. The minimum coverage
under any such bond and insurance policy shall be in an amount that will
permit the Master Servicer to continue to be a FNMA-qualified
seller/servicer. Upon request of the Trustee, the Certificate Insurer or the
Surety, the Master Servicer shall cause to be delivered to the Trustee, the
Certificate Insurer or the Surety a certified true copy of such fidelity bond
and insurance policy. Promptly upon receipt of any notice from the surety or
the insurer that such fidelity bond or insurance policy has been terminated
or materially modified, the Master Servicer shall notify the Trustee, the
Certificate Insurer, the Surety and the Rating Agencies of any such
termination or modification.
Section 5.20. Collections under Insurance Policies; Enforcement of Due
--------------------------------------------------------
on-Sale Clauses; Assumption Agreements. (a) In connection with its
- --------------------------------------
activities as administrator and servicer of the Mortgage Loans, the Master
Servicer agrees to present, on behalf of itself, the Trustee, the
Certificateholders, the Certificate Insurer and the Surety, claims to the
insurer under any Standard Hazard Policies and, in this regard, to take such
reasonable action as shall be necessary to permit recovery under any insur-
ance policies. Pursuant to Section 5.08, the Master Servicer shall deposit
Insurance Proceeds in the Certificate Account. In those cases in which a
Mortgage Loan is serviced by a Sub-Servicer, the Sub-Servicer, on behalf of
itself, the Master Servicer, the Trustee, the Certificateholders, the
Certificate Insurer and the Surety, shall, pursuant to a Sub-Servicing
Agreement, be required to present claims to the insurer under any such
Standard Hazard Insurance Policy and deposit all collections thereunder
initially in the Certificate Account to the extent not required or permitted
to be deposited in the Escrow Account pursuant to Section 5.10.
(b) When any Mortgaged Property is conveyed by the Mortgagor, the
Master Servicer shall exercise or refrain from exercising any due-on-sale
clause contained in any Mortgage Note or Mortgage consistent with its then
current practices and without regard to the fact that such Mortgage Loan is
in the Trust Fund rather than the Master Servicer's portfolio. Subject to
the preceding sentence, the Master Servicer will exercise any such due-on-
sale clause only to the extent permitted by such Mortgage Note or Mortgage,
applicable law and governmental regulations and only to the extent that such
enforcement will not adversely affect or jeopardize coverage under any
insurance policy required by this Agreement. If the Master Servicer elects
not to exercise such due on sale clause in respect of a Mortgage Loan or if
it is prohibited from doing so by applicable law, the Master Servicer is
authorized to take or enter into an assumption or substitution agreement from
or with the Person to whom such property has been or is about to be conveyed.
In connection with such assumption or substitution, the Master Servicer shall
follow such practice and procedures as shall be normal and usual and as it
applies to mortgage loans owned solely by it.
Notwithstanding the foregoing paragraph or any other provision of this
Agreement, the Master Servicer shall not be deemed to be in default, breach
or any other violation of its obligations hereunder by reason of and
conveyance by the Mortgagor of the Mortgaged Property or any assumption of a
Mortgage Loan by operation of law which the Master Servicer in good faith
determines it may be restricted by law from preventing, for any reason
whatsoever.
(c) Subject to the Master Servicer's discretion to enforce any
due-on-sale clause as set forth in Section 5.20(b), in any case in which a
Mortgaged Property is to be conveyed to a Person by a Mortgagor, and such
Person is to enter into an assumption agreement or modification agreement or
supplement to the Mortgage Note or Mortgage, the Master Servicer shall so
notify the Trustee by forwarding to the Custodian the original copy of each
assumption or substitution agreement, which copy shall be added by the
Custodian to the related Mortgage File and shall, for all purposes, be
considered a part of such Mortgage File to the same extent as all other
documents and instruments constituting a part thereof. In connection with
any such assumption or substitution agreement, the interest rate of the
related Mortgage Note shall not be changed, and the principal amount of the
Mortgage Note shall not be increased or decreased and the maturity of the
Mortgage Note shall not be accelerated or extended. Any fee collected by the
Master Servicer for entering into an assumption or substitution of liability
agreement with respect to such Mortgage Loan shall be retained by the Master
Servicer as additional servicing compensation.
Section 5.21. Income and Realization from Defaulted Mortgage Loans.
----------------------------------------------------
Subject to Section 5.07, the Master Servicer shall foreclose upon or
otherwise comparably convert the ownership of Mortgaged Properties securing
such of the Mortgage Loans as come into and continue in default and as to
which no satisfactory arrangements can be made for collection of delinquent
payments pursuant to Section 5.07, shall manage, conserve, protect and
operate such Mortgaged Properties for the purposes of their prompt
disposition and sale, and shall dispose of such Mortgaged Properties on such
terms and conditions as it deems in the best interests of the
Certificateholders; provided that if the Master Servicer has actual knowledge
that a Mortgaged Property is affected by hazardous waste, then the Master
Servicer shall not cause the Trustee to acquire title to such Mortgaged
Property in a foreclosure or similar proceeding unless so instructed by the
Certificate Insurer and the Surety. For purposes of the proviso in the
preceding sentence, the Master Servicer shall not be deemed to have actual
knowledge that a Mortgaged Property is affected by hazardous waste unless it
shall have received written notice that hazardous waste is present on such
property and such written notice has been made a part of the servicing file
with respect to the related Mortgage Loan. In addition, if an Additional
Collateral Mortgage Loan becomes a defaulted Mortgage Loan, the Master
Servicer (or if MLCC is no longer the Master Servicer, MLCC at the direction
of the Master Servicer) shall make all reasonable efforts to realize upon the
related Additional Collateral, and any proceeds from the realization of such
Additional Collateral, and not the Additional Collateral itself, shall be
included in Liquidation Proceeds and, to the extent of related Net
Liquidation Proceeds, deposited in the Certificate Account. The Master
Servicer shall sell such property within two years from such foreclosure or
conversion or such longer period as would not prevent such Mortgaged Property
from constituting "foreclosure property" within the meaning of Section
860G(a)(8) of the Code. In connection with such activities, the Master
Servicer shall take all actions necessary to ensure that such Mortgaged
Property constitutes foreclosure property (within the meaning of Section
860G(a)(8) of the Code) including, if necessary, the hiring of independent
contractors (within the meaning of Section 856(d)(3) of the Code) to render
any services with respect to the property. The Master Servicer also shall
follow such practices and procedures as it shall deem necessary or advisable,
as shall be normal and usual in its general mortgage servicing activities,
including its management of foreclosed properties for a temporary period as
contemplated herein. The foregoing is subject to the provision that the
Master Servicer shall not be required to expend its own funds in connection
with any management, foreclosure or towards the restoration of any property
unless it shall determine that such
management, restoration or foreclosure will increase the Liquidation Proceeds
of the Mortgage Loan to the Trust Fund after reimbursement to itself for such
expenses (respecting which it shall have priority for purposes of withdrawals
from the Certificate Account pursuant to Section 5.09). The income earned
from the management of such Mortgaged Properties, net of reimbursement to the
Master Servicer for expenses incurred (including any taxes) in connection
with such management, shall be applied to the payment of principal of and
interest on the related defaulted Mortgage Loans (with interest accruing and
principal amortizing as though such Mortgage Loans were still current) and
all such income shall be deemed, for all purposes in this Agreement, to be
payments on account of principal and interest on the related Mortgage Notes
and shall be deposited into the Certificate Account.
Section 5.22. Trustee to Cooperate; Release of Mortgage Files. (a)
-----------------------------------------------
Upon becoming aware of the payment in full of any Mortgage Loan, the Master
Servicer will immediately notify the Custodian (if the Custodian holds the
related Mortgage File) by a certification in the form of an Officer's
Certificate (which certification shall include a statement to the effect that
all amounts received in connection with such payment which are required to be
deposited in the Certificate Account pursuant to Section 5.08 have been or
will be so deposited) of a Servicing Officer and shall request delivery to it
of the Mortgage File. Upon receipt of such certification and request, the
Custodian, pursuant to the Custodial Agreement, shall promptly release the
related Mortgage File to the Master Servicer and shall execute and deliver to
the Master Servicer the deed of reconveyance or release or satisfaction of
Mortgage or other instruments releasing the lien of the Mortgage, together
with any other documents presented to it by the Master Servicer for such
purposes or to evidence the cancellation of indebtedness, and the Trustee
shall thereafter have no further responsibility with respect to said Mortgage
File. Upon any such payment in full, the Master Servicer is authorized to
procure from the trustee under the deed of trust which secured the Mortgage
Note, if any, a deed of full reconveyance covering the property encumbered by
such deed of trust, or, as the case may be, procure from the Trustee an
instrument of satisfaction or, if the Mortgagor so requests, an assignment
without recourse, which deed of reconveyance, instrument of satisfaction or
assignment shall be delivered by the Master Servicer to the Person or Persons
entitled thereto. No expenses incurred in connection with any instrument of
satisfaction or deed of reconveyance shall be chargeable to the Certificate
Account.
(b) From time to time as is appropriate for the servicing or
foreclosure of any Mortgage Loan, the Master Servicer shall
deliver to the Custodian a certificate of a Servicing Officer in the form of
an Officer's Certificate (a form of which is attached to the Custodial
Agreement) requesting that possession of all, or any document constituting
part of, the Mortgage File be released to the Master Servicer and certifying
as to the reason for such release and that such release will not invalidate
any insurance coverage provided in respect of the Mortgage Loan under any of
the insurance policies required by this Agreement. With such certificate,
the Master Servicer shall request that the Custodian release the Mortgage
File, and the Custodian, pursuant to the Custodial Agreement, shall deliver
the Mortgage File or any document therein to the Master Servicer. The Master
Servicer shall cause each Mortgage File or any document therein so released
to be returned to the Custodian when the need therefor by the Master Servicer
no longer exists, unless (i) the Mortgage Loan has been liquidated and the
Net Liquidation Proceeds relating to the Mortgage Loan have been deposited in
the Certificate Account or (ii) the Mortgage File or such document has been
delivered to an attorney, or to a public trustee or other public official as
required by law, for purposes of initiating or pursuing legal action or other
proceedings for the foreclosure of the Mortgaged Property either judicially
or non-judicially, and the Master Servicer maintains in its servicing records
for presentation to the Custodian upon request the name and address of the
Person to which such Mortgage File or such document was delivered and the
purpose or purposes of such delivery.
(c) Upon written request of the Master Servicer, the Trustee shall
execute and deliver to the Master Servicer any court pleadings, requests for
trustee's sale or other documents necessary to the foreclosure or trustee's
sale in respect of a Mortgaged Property or to any legal action brought to
obtain judgment against any Mortgagor on the Mortgage Note or Mortgage or to
obtain a deficiency judgment, or to enforce any other remedies or rights
provided by the Mortgage Note or Mortgage or otherwise available at law or in
equity. Together with such documents or pleadings, the Master Servicer shall
deliver to the Trustee a certificate of a Servicing Officer requesting that
such a pleadings or documents be executed by the Trustee and certifying as to
the reason such documents or pleadings are required and that the execution
and delivery thereof by the Trustee will not invalidate any insurance
coverage under the insurance policies required under this Agreement or
invalidate or otherwise adversely affect the lien of the Mortgage, except for
the termination of such a lien upon completion of the foreclosure or
trustee's sale.
Section 5.23. Servicing and Other Compensation. The Master Servicer,
--------------------------------
as compensation for its activities hereunder, shall be
entitled to receive on or prior to each Distribution Date the amounts
provided for as the Servicing Fee and as reimbursement for Nonrecoverable
Advances, Servicing Advances and reimbursement for Advances, all as specified
by Section 5.09. The amount of compensation or reimbursement provided for
shall be accounted on an aggregate basis.
Additional servicing compensation in the form of assumption fees,
prepayment fees, late payment charges or, to the extent not required to be
deposited in the Certificate Account pursuant to Section 5.08, 5.20 or 5.21
or to the extent permitted to be withdrawn pursuant to Section 5.09, other
amounts shall be retained by the Master Servicer. The Master Servicer shall
be required to pay all expenses incurred by it in connection with its
servicing activities hereunder (including the fees and expenses of the
Trustee) and shall not be entitled to reimbursement therefor except as
specifically provided in Sections 5.09 and 5.21.
Section 5.24. File Review Rights of the Certificate Insurer and the
-----------------------------------------------------
Surety. The Certificate Insurer or the Surety shall have the right to review
- ------
the files of the Trustee and the Master Servicer relating to the Certificates
during ordinary business hours.
Section 5.25. Annual Statement as to Compliance. The Master Servicer
---------------------------------
will deliver to the Company and the Trustee on or before March 31 of each
year, beginning with the first March 31 that occurs at least six months after
the Cut-off Date, an Officers' Certificate stating, as to each signer
thereof, that (i) a review of the activities of the Master Servicer during
the preceding calendar year and of performance under this Agreement has been
made under such officer's supervision, (ii) to the best of such officer's
knowledge, based on such review the Master Servicer has fulfilled all of its
obligations under this Agreement in all material respects throughout such
year, or, if there has been a default in the fulfillment of any such
obligation in any material respect, specifying each such default known to
such officer and the nature and status thereof and (iii) to the best of such
officer's knowledge, each Sub-Servicer has fulfilled its obligation under its
Sub-Servicing Agreement in all material respects, or if there has been a
material default in the fulfillment of such obligations in any material
respect, specifying such default known to such officers and the nature and
status thereof. Copies of such statement shall be provided to each Rating
Agency, the Certificate Insurer and the Surety. Copies of such statement
shall also be provided by the Master Servicer to any Certificateholder upon
request. If the Master Servicer shall fail to provide such copies and the
Trustee is aware that the Master Servicer has not so provided copies, the
Trustee shall provide such copies at the Master Servicer's expense if the
Trustee has received such statement.
Section 5.26. Annual Independent Public Accountants' Servicing Report.
-------------------------------------------------------
On or before March 31 of each year, beginning with the first March 31 that
occurs at least six months after the Cut-off Date, the Master Servicer at its
expense shall cause a nationally recognized firm of independent public
accountants which is a member of the American Institute of Certified Public
Accountants to furnish a report to the Company and the Trustee to the effect
that all Mortgage Loans serviced by the Master Servicer under this Agreement
were included in the total population that was subject to selection for
testing in such firm's examination of certain documents and records and that
such examination, which has been conducted substantially in compliance with
the Uniform Single Attestation Program for Mortgage Bankers (or such other
audit or review program applicable to the Master Servicer), has disclosed no
items of material noncompliance with the provisions of the Uniform Single
Attestation Program for Mortgage Bankers (or such other program), except for
such items of noncompliance as shall be set forth in such report. Copies of
such report shall be provided to the Rating Agencies, the Certificate
Insurer, the Surety, and, upon request, to the Certificateholders, by the
Master Servicer, or by the Trustee at the Master Servicer's expense if the
Trustee has received such report and the Master Servicer shall fail to
provide such copies and the Trustee is aware that the Master Servicer has not
so provided copies.
Section 5.27. Access to Certain Documentation; Rights of the Company
------------------------------------------------------
in Respect of the Master Servicer. The Master Servicer shall provide access
- ---------------------------------
to the Certificate Insurer, the Surety, the Trustee, Certificateholders which
are savings and loan associations, banks or insurance companies, the Office
of Thrift Supervision, the FDIC and the Supervisory Agents and examiners of
the Office of Thrift Supervision and the FDIC or examiners of any other
federal or state banking or insurance regulatory authority to the
documentation regarding the Mortgage Loans if so required by applicable regu-
lations of the Office of Thrift Supervision or other regulatory authority,
such access to be afforded subject to reimbursement for expenses without
charge but only upon reasonable request and during normal business hours at
the offices of the Master Servicer designated by it. The Company may, but is
not obligated to, enforce the obligations of the Master Servicer under this
Agreement and may, but is not obligated to, appoint and cause a designee to
perform, any defaulted obligations of the Master Servicer hereunder or
exercise the rights of the Master Servicer hereunder; provided that the
Master Servicer shall not be relieved of any of its obligations hereunder by
virtue of the appointment of a designee
by the Company or its designee. The Company shall not assume any
responsibility or liability for any action or failure to take any action by
the Master Servicer and is not obligated to supervise the performance of the
Master Servicer under this Agreement or otherwise.
Section 5.28. REMIC-Related Covenants. For as long as the Trust Fund
-----------------------
shall exist, the Master Servicer shall act in accordance herewith to assure
continued treatment of the Trust Fund (exclusive of the Mortgage 100 Pledge
Agreements and Parent Power Agreements) as a REMIC. In particular:
(a) The Master Servicer shall not create, or permit the creation
of, any "interests" in the Trust Fund (exclusive of the Mortgage 100
Pledge Agreements and Parent Power Agreements) within the meaning of
Section 860G of the Code other than the interests represented by the
Certificates;
(b) As of all times as may be required by the Code, the Master
Servicer will ensure that substantially all of the assets of the Trust
Fund (exclusive of the Mortgage 100 Pledge Agreements and Parent Power
Agreements) will consist of "qualified mortgages" as defined in Section
860G(a)(3) of the Code and "permitted investments" as defined in Section
860G(a)(5) of the Code. The Master Servicer shall maintain records that
are sufficient to indicate the Trust Fund's compliance with applicable
requirements of the Code (or applicable Treasury Regulations) relating
to the assets (exclusive of the Mortgage 100 Pledge Agreements and
Parent Power Agreements) held by the Trust Fund. Further, the Master
Servicer shall not permit and the Trustee shall not accept the transfer
or substitution of any Mortgage Loan two years or more after the Closing
Date unless the Master Servicer and the Trustee have received an Opinion
of Counsel, which shall be an expense of the Master Servicer, that such
transfer or substitution would not adversely affect the REMIC status of
the Trust Fund (exclusive of the Mortgage 100 Pledge Agreements and
Parent Power Agreements) or would not otherwise be prohibited by this
Agreement;
(c) The Master Servicer shall ensure that the Trust Fund does not
receive a fee or other compensation for services and that the Trust Fund
does not receive any income from assets other than "qualified mortgages"
within the meaning of Section 860G(a)(3) of the Code or "permitted
investments" within the meaning of Section 860G(a)(5) of the Code, and
shall take whatever action it deems necessary to avoid any material tax
imposed by the Code on the Trust Fund;
(d) The Trustee shall not sell or permit the sale of all or any
portion of the Mortgage Loans or of any Eligible Investment unless such
sale is as a result of a repurchase of the Mortgage Loans by the Master
Servicer or the Mortgage Loan Seller pursuant to the Agreement or the
Trustee has received an Opinion of Counsel to the effect that such sale
(i) is in accordance with a qualified liquidation as defined in Section
860F(a)(4) of the Code and as described in Section 11.01 hereof, or (ii)
would not be treated as a prohibited transaction within the meaning of
Section 860F(a)(2) of the Code, which prohibited transaction results in
the realization of a material amount of gain or loss for federal income
tax purposes; and
(e) Notwithstanding anything to the contrary in this Agreement,
the Master Servicer and the Trustee, at the direction and at the expense
of the Master Servicer, shall take any other action or may fail to take
any action otherwise required where the Master Servicer deems such
action or inaction reasonably necessary to preserve or ensure the REMIC
status of the Trust Fund (exclusive of the Mortgage 100 Pledge
Agreements and Parent Power Agreements) or to avoid the imposition of
any material tax liability on the Trust Fund other than the tax imposed
pursuant to Section 24872 of the California Revenue and Taxation Code.
Section 5.29. Prohibited Transactions and Other Taxes. In the event
---------------------------------------
that any tax is imposed on the Trust Fund (including "prohibited
transactions" of the Trust Fund as defined in Section 860F of the Code), such
tax shall be charged first against amounts distributable to the Class R
Certificateholders and then against amounts otherwise distributable to the
Class B Certificateholders on a pro rata basis. The Master Servicer is
hereby authorized to direct the Paying Agent to retain and, upon such
direction, the Paying Agent is hereby authorized to retain from amounts
otherwise distributable to the Class R Certificateholders and the Class B
Certificateholders, as appropriate, sufficient funds to pay or provide for
the payments of, and to actually pay, such tax as is legally owed by the
Trust Fund (but such authorization shall not prevent the Trustee or the
Master Servicer from contesting any such tax in appropriate proceedings, if
either of them elects to so contest such tax or proceeding, and withholding
payment of such tax, if permitted by law, pending the outcome of such
proceedings).
(End of Article V)
ARTICLE VI
PAYMENTS TO THE CERTIFICATEHOLDERS
----------------------------------
Section 6.01. Distributions. (a) On each Distribution Date, the
-------------
Paying Agent shall distribute funds from the Distribution Account in the
following amounts and in the following order of priority (subject to the
requirement that Insured Payments shall only be distributed to the Class A
Certificateholders):
(i) to the Class A Certificateholders, the Class A Interest
Formula Distribution Amount;
(ii) to the Class A Certificateholders, on account of principal,
the Class A Formula Principal Distribution Amount until the Class A
Principal Balance is reduced to zero;
(iii) to the Certificate Insurer, the Premium Amount for the
Certificate Insurance Policy;
(iv) to the Certificate Insurer, any Reimbursement Amount;
(v) to the Reserve Fund, the amount (but not in excess of the
Formula Excess Interest Amount) required to be deposited therein
pursuant to Section 6.03(d);
(vi) to the Class B Certificateholders, the Class B Interest
Formula Distribution Amount;
(vii) to the Class A Certificateholders, on account of principal,
the Unrecovered Principal Amounts, if any, for such Distribution Date
and all prior Distribution Dates that have not previously been
distributed pursuant to this clause until the Class A Principal Balance
is reduced to zero;
(viii) to the Class B Certificateholders, on account of principal,
the Class B Formula Principal Distribution Amount until the Class B
Principal Balance is reduced to zero;
(ix) to the Class B Certificateholders, the Class B Loss Amounts
not previously distributed to them pursuant to this clause; and
(x) to the Class R Certificateholders, any remaining balance;
provided, however, that until the Class A Principal Balance is reduced to
zero, distributions on account of principal otherwise
allocable to the Class B Certificateholders in accordance with the above
priorities will instead be made to the Class A Certificateholders (A) to the
extent, if any, that such distribution would, if made to the Class B
Certificateholders, reduce the Class B Principal Balance to less than 1.00%
of the Original Pool Principal Balance or (B) if the Class B Principal
Balance is less than 1.00% of the Original Pool Principal Balance; and
provided further that the aggregate amounts distributed on account of
principal to the Class A and Class B Certificateholders (whether out of the
Available Distribution Amount, the Certificate Insurance Policy, the
Certificate Guaranty Surety Bond or the Reserve Fund) shall not exceed the
Original Class A and Class B Principal Balance, respectively.
As provided in the definitions of "Class A Interest Formula Distribution
Amount" and "Class B Interest Formula Distribution Amount", the interest
entitlement above for the Class A and Class B Certificates with respect to
each Distribution Date shall be reduced by the amount of Net Interest
Shortfall for such Distribution Date allocable to each such Class. Net
Interest Shortfall on any Distribution Date will be allocated pro rata among
the Class A and Class B Certificates based on the amount of interest each
such Class of Certificates would otherwise be entitled to receive on such
Distribution Date.
(b) The Trustee shall calculate LIBOR for each Distribution Date. The
Master Servicer shall make all necessary calculations and provide the Paying
Agent with the information necessary to make the above distribution to each
Class of Certificateholders by the third Business Day prior to each
Distribution Date. The Paying Agent shall not be responsible for recom-
puting, recalculating or verifying information provided to it by the Master
Servicer. All distributions made to Certificateholders of any Class on such
Distribution Date will be made to the Certificateholders of the respective
Class of record on the next preceding Record Date, except that on the final
distribution, distributions shall be made as provided in the form of Certifi-
cate. All distributions made to Certificateholders shall be based on the
Percentage Interest represented by their respective Certificates, and shall
be made either by wire transfer in immediately available funds to the account
of such Holder at a bank or other financial or depository institution having
appropriate facilities therefor, if such Holder has so notified the Paying
Agent in writing at least five Business Days prior to the Record Date for the
relevant Distribution Date and such Holder's Certificates of such Class in
the aggregate evidence an original denomination of not less than $5,000,000
or, if not, by check mailed to the address of the Person entitled thereto as
it appears on the Certificate Register, except that the final distribution in
retirement of the Certificates will be made only
upon presentation and surrender of the Certificates at the Corporate Trust
Office or such other agency of the Trustee specified in the final
distribution notice to Certificateholders. If on any Determination Date, the
Master Servicer determines that there are no Mortgage Loans outstanding and
no other funds or assets in the Trust Fund other than the funds in the
Certificate Account or the Distribution Account, the Master Servicer shall
direct the Trustee promptly to send the final distribution notice to each
Certificateholder specifying the manner in which the final distribution will
be made. Except as otherwise provided in Section 11.01, whenever the Master
Servicer expects that a final distribution with respect to any Class of
Certificates will be made on the next Distribution Date, the Trustee shall,
no later than three (3) days after the related Determination Date, mail to
each Holder on such date of such Class of Certificates a notice to the effect
that: (i) the Master Servicer expects that the final distribution with
respect to such Class of Certificates will be made on such Distribution Date
but only upon presentation and surrender of such Certificates at the office
of the Trustee or as otherwise specified therein, and (ii) no interest shall
accrue on such Certificates from and after the end of the related Accrual
Period. In the event that Certificateholders do not surrender their
Certificates for final cancellation, the Trustee shall follow procedures
comparable to the arrangements set forth in the final paragraph of Section
11.01.
(c) No later than 12:00 noon, New York City time, on the Business Day
preceding each Distribution Date, the Master Servicer shall transfer from the
Certificate Account to the Distribution Account a sum, which, together with
any Advances deposited in the Distribution Account as of the related Advance
Deposit Date pursuant to Section 6.03, will equal the Available Distribution
Amount for such Distribution Date to enable the Paying Agent to make the
distributions provided for in this Section 6.01. The Distribution Account
shall be established and maintained by and with the Paying Agent, and shall
be an Eligible Account in the form of a non-interest bearing trust account,
titled "Bankers Trust Company of California, N.A., as Paying Agent and Agent
for the benefit of Bankers Trust Company of California, N.A., as Trustee on
behalf of the holders of MLCC Mortgage Investors, Inc. Mortgage Loan Asset
Backed Pass-Through Certificates, Series 199_-_" and the Paying Agent shall
deliver to the Trustee, the Certificate Insurer, the Surety and the Master
Servicer a Distribution Account Certification substantially in the form of
Exhibit J attached hereto. The Master Servicer may cause the Paying Agent to
invest moneys in the Distribution Account in Eligible Investments, which
shall mature not later than the Business Day prior to the Distribution Date
following the date of such investment and shall not be sold or disposed of
prior to its maturity. All such Eligible
Investments shall be made in the name of the Trustee. The proceeds of the
sale or other disposition of all Eligible Investments shall be deposited in
the Distribution Account. All net income and gain realized from any such
investment shall be for the benefit of the Master Servicer as additional
servicing compensation and shall be paid by the Paying Agent to the Master
Servicer on the Business Day following each Distribution Date. The amount of
any losses incurred in respect of any such investments (to the extent not
offset by income from other such investments) shall be deposited in the
Distribution Account by the Master Servicer out of its own funds immediately
as realized without reimbursement; provided, however, that if the Trustee
becomes Master Servicer, the Trustee shall not be required to deposit the
amount of any loss incurred prior to its becoming Master Servicer.
Section 6.02. Statements to the Certificateholders. Not later than
------------------------------------
12:00 noon California time on the third Business Day prior to each
Distribution Date, the Master Servicer shall deliver to the Trustee and the
Paying Agent for mailing by the Trustee to each holder of the related Class
of Certificates, each Rating Agency, the Certificate Insurer and the Surety a
statement setting forth the following information:
(i) with respect to each Class of Certificates, the amount of such
distribution to Holders of such Class allocable to principal. Such
statement shall separately identify, in the aggregate and not on a Class
by Class basis, the aggregate amount of any Principal Prepayments, Net
Liquidation Proceeds and Repurchase Proceeds included in the
distribution to all Classes;
(ii) with respect to each Class of Certificates, the amount of such
distribution to Holders of such Class allocable to interest, identifying
those cases in which the applicable Pass-Through Rate was based on the
Alternate Certificate Rate and, to the extent information is reasonably
available to the Master Servicer on such Determination Date, indicating
the Pass-Through Rate applicable to each Class of Certificates for the
next Distribution Date;
(iii) the amounts (stated separately) of any Class A Interest
Shortfall and Class B Interest Shortfall for such Distribution Date and
the amounts (stated separately) of Class A Unpaid Interest Shortfall and
Class B Unpaid Interest Shortfall;
(iv) the amount, if any, by which the sum of the Formula Principal
Distribution Amount and the Unrecovered
Principal Amounts for such Distribution Date exceeds the amount
distributed on account of principal to the related Certificateholders on
such Distribution Date;
(v) the amount of any Advances by the Master Servicer and by the
Trustee pursuant to Section 6.03 and the amount of delinquencies of
Mortgage Loans during the related Due Period;
(vi) the amount to be paid to the Certificate Insurer pursuant to
Section 6.01(a) (the information required by this clause (vi) shall not
be included in the statement to Certificateholders);
(vii) the Pool Principal Balance, after giving effect to the Formula
Principal Distribution Amount and the Unrecovered Principal Amounts for
such Distribution Date;
(viii) the related amount of the Servicing Fees retained or withdrawn
from the Certificate Account by the Master Servicer and the amount of
additional servicing compensation received by the Master Servicer
attributable to penalties, fees and other items;
(ix) the amount of Servicing Advances paid by the Master Servicer
and any Sub-Servicer;
(x) the number and aggregate principal amounts of Mortgage Loans
(A) delinquent (1) one Monthly Payment and (2) two Monthly Payments, (3)
three or more Monthly Payments and (B) in foreclosure;
(xi) the book value (within the meaning of 12 C.F.R. Section 571.13
or comparable provision) of any real estate acquired through foreclosure
or grant of a deed in lieu of foreclosure;
(xii) the Aggregate Net Principal Liquidation Losses for Mortgage
Loans that became Liquidated Mortgage Loans during the related Principal
Prepayment Period;
(xiii) all Advances recovered during the related Principal Prepayment
Period;
(xiv) the amount, if any, distributed to the holders of Certificates
from the Reserve Fund on such Distribution Date and the amount, if any,
in the Reserve Fund after giving effect to such distribution;
(xv) the Distribution Account Shortfall, if any, and the Required
Surety Payment, if any, for such Distribution Date;
(xvi) the aggregate Principal Balance of the Additional Collateral
Mortgage Loans;
(xvii) the Class A Principal Balance and the Class B Principal
Balance after giving effect to the distribution on such Distribution
Date; and
(xviii) the Class B Loss Amount for such Distribution Date.
Not later than two Business Days prior to each Distribution Date, the
Master Servicer shall deliver to the Paying Agent a statement, and on the
following Distribution Date the Paying Agent shall also send to the Class R
Certificateholders, the Company, the Trustee (if other than the Paying
Agent), the Certificate Insurer, the Surety and the Rating Agency such
statement, setting forth the amount, if any, distributed to such Holders on
such Distribution Date.
The Paying Agent's responsibility for distributing the above information
to the Certificateholders is limited to the availability, timeliness and
accuracy of the statement received from the Master Servicer. If the Paying
Agent fails to distribute such statements as specified in this Section 6.02,
it shall be the responsibility of the Trustee to make the required
distribution of such statements.
Upon reasonable advance notice in writing, if required by federal
regulation, the Master Servicer will provide to each Certificateholder which
is a savings and loan association, bank or insurance company certain reports
and access to information and documentation regarding the Mortgage Loans
sufficient to permit such Certificateholder to comply with applicable
regulations of the Office of Thrift Supervision or other regulatory authori-
ties with respect to investment in the Certificates; provided, that the
Master Servicer shall be entitled to be reimbursed by each such
Certificateholder for the Master Servicer's actual expenses incurred in
providing such reports and access.
Section 6.03. Advances by the Master Servicer. (a) If, on any
-------------------------------
Determination Date, the Master Servicer determines that any Monthly Payments
due on the immediately preceding Due Date have not been received, the Master
Servicer shall, to the extent it determines in good faith that such amounts
will be recoverable from Late Collections, Liquidation Proceeds or otherwise,
make an advance on or before the related Advance Deposit Date in an
amount equal to the amount of such delinquent Monthly Payments, after
adjustment of any delinquent interest payment for the Servicing Fee. For
purposes of this Section 6.03, the delinquent Monthly Payments referred to in
the preceding sentence shall be deemed to include an amount equal to the
Monthly Payment that would have been due on the Mortgage Loans which have
been foreclosed or otherwise terminated and, in connection therewith, the
Master Servicer or the Trust Fund acquired and continues to own the Mortgaged
Properties on behalf of the Certificateholders. If the Master Servicer makes
an Advance, it shall on or prior to such Advance Deposit Date deposit in the
Distribution Account an amount equal to the Advance, if any. Any such
Advance shall be included with the distribution to the Certificateholders on
the related Distribution Date. The Master Servicer shall be entitled to be
reimbursed from funds in the Certificate Account for all Advances and Nonre-
coverable Advances as provided in Section 5.09.
The Master Servicer may make an Advance by: (i) depositing its own
funds in the Certificate Account, (ii) applying funds that are not part of
the Available Distribution Amount in respect of which the Advance is being
made or (iii) effecting a combination of clauses (i) and (ii). Any portion
of the funds so used pursuant to clause (ii) shall be replaced by the Master
Servicer by deposit in the Certificate Account on or before 12:00 noon New
York City time on the Business Day preceding any future Distribution Date to
the extent that funds that are available in the Certificate Account on such
date shall be less than the Available Distribution Amount for such
Distribution Date.
(b) If the Master Servicer determines not to make an Advance under the
provisions of this Section, it shall on the related Advance Deposit Date
furnish to the Trustee, the Certificate Insurer, the Surety and each Rating
Agency written notice of such determination. In the event that the Master
Servicer fails to make an Advance required to be made pursuant to Section
6.03(a) and such failure continues unremedied on the close of business on the
Business Day prior to the related Distribution Date, the Trustee shall, on or
before the related Distribution Date, deposit in the Distribution Account an
amount equal to the excess of (i) Advances required to be made by the Master
Servicer under Section 6.03(a) over (ii) the amount of Advances made by the
Master Servicer or from the Reserve Fund established under Section 6.03(d)
with respect to such Distribution Date; provided that the Trustee shall not
be required to make such Advances if prohibited by law or regulation, or if
it determines that such Advance would be a Nonrecoverable Advance. In the
event the Trustee and the Paying Agent are not the same Person, the Paying
Agent shall promptly notify the Trustee of all amounts transferred by the
Master Servicer from the Certificate Account to the Distribution Account.
The Trustee
shall be entitled to be reimbursed from the Certificate Account in the manner
provided by Section 5.09 for Advances and Nonrecoverable Advances made by it
pursuant to this Section 6.03 in like manner as if it were the Master
Servicer.
(c) (i) In the event that any Mortgage Loan is the subject of a
Prepayment Interest Shortfall, the Master Servicer shall, to the extent of
the Servicing Fee for such Distribution Date, deposit into the Certificate
Account, as a reduction of the Servicing Fee (but not in excess thereof) for
such Distribution Date, no later than the close of business on the second
Business Day prior to the related Distribution Date, an amount equal to the
Prepayment Interest Shortfall; and in the case of such deposit, the Master
Servicer shall not be entitled to any recovery or reimbursement from the
Company, the Trustee or the Certificateholders. Such deposited amount shall
be part of the Available Distribution Amount for such Distribution Date.
The balance, if any, of the Servicing Fee in respect of a month (after
giving effect to the preceding paragraph) shall be deposited into the
Certificate Account (as a reduction in the Servicing Fee) to the extent of
the amount, if any, by which (i) the interest accrued on the Class A and
Class B Certificates (calculated on the basis that the sum of the Class A
Principal Balance and the Class B Principal Balance shall not be greater than
the Pool Principal Balance at the end of such month) at the weighted average
of the applicable Class A Pass-Through Rate and the Class B Pass-Through Rate
for the related Accrual Period exceeds (ii) the interest due on the Mortgage
Loans on the Due Date during such Accrual Period (calculated on the
assumption that there were no prepayments of the Mortgage Loans during the
month preceding such Due Date). Such deposited amount shall be part of the
Available Distribution Amount for the Distribution Date following such month.
The preceding sentence is intended to apply to the situation where, if the
Class A and Class B Pass-Through Rates for an Accrual Period are equal to the
related Alternate Certificate Rate, the amount in clause (i) could be greater
than the amount in clause (ii) because interest will accrue on the Mortgage
Loans on the basis of a year consisting of twelve 30-day months and interest
on the Class A and Class B Certificates will accrue on the basis of the
actual number of days in the Accrual Period (which could be more than 30)
divided by 360.
(d) The Trustee shall establish the Reserve Fund as an Eligible Account
with itself, titled "Bankers Trust Company of California, N.A., as trustee
for the benefit of the Holders of Mortgage Loan Asset Backed Pass-Through
Certificates, Series 199_-_, Class A Certificates". Amounts available
pursuant to clause (v) of Section 6.01(a) shall be deposited in the Reserve
Fund until the amount therein equals $_______. On each Distribution Date,
funds, if any, in the Reserve Fund will be applied by the Trustee to make any
Advance required pursuant to Section 6.03(a) that has not been made by the
Master Servicer. Distributions of such amounts to holders of the
Certificates pursuant to this Section 6.03(d) shall be deposited into the
Distribution Account on such Distribution Date, shall be distributed pursuant
to Section 6.01 on such Distribution Date and shall be deemed to be part of
the applicable Available Distribution Amount. The Reserve Fund shall be
reinstated to $250,000 from deposits pursuant to clause (v) of Section
6.01(a) and from Late Collections attributable to Advances made from the
Reserve Fund. If the Master Servicer or the Trustee is unable to transfer
funds from the Certificate Account to the Distribution Account because of an
insolvency of the Master Servicer, the Trustee shall make an advance to the
Distribution Account to cover such shortfalls and shall be reimbursed for
such advances from funds released from the Certificate Account. On the
Distribution Date on which, after giving effect to the distributions to be
made on such date (exclusive of the distribution of the Reserve Fund), the
Class A Principal Balance will have been reduced to zero, the amount in the
Reserve Fund shall be applied pursuant to Section 6.01(a) along with the
related Available Distribution Amount for such Distribution Date.
The Master Servicer shall direct the Trustee to invest moneys in the
Reserve Fund in Eligible Investments, which shall mature not later than the
Business Day next preceding the Advance Deposit Date next following the date
of such investment and shall not be sold or disposed of prior to its
maturity; provided, however, an Eligible Investment that is a money market
fund administered by the Trustee or an affiliate thereof may mature on the
Advance Deposit Date. The proceeds of the sale or other disposition of all
Eligible Investments shall be deposited in the Reserve Fund. All such
Eligible Investments shall be made in the name of the Trustee. All net
income and gain realized from any such investment shall be applied to
reinstate the Reserve Fund to the applicable limit specified in the preceding
paragraph and then to be paid to the Master Servicer as additional servicing
compensation. The amount of any losses incurred in respect of any such
investments (to the extent not offset by income from other such investments)
shall be deposited in the Reserve Fund by the Master Servicer out of its own
funds immediately as realized; provided, however, that if the Trustee becomes
Master Servicer, the Trustee shall not be required to deposit the amount of
any loss incurred prior to its becoming Master Servicer.
Section 6.04. The Certificate Insurance Policy. (a) If the statement
--------------------------------
delivered to the Trustee pursuant to Section 6.02 indicates that there will
be a Distribution Account Shortfall for
the related Distribution Date, the Trustee shall complete the notice in the
form of Exhibit A to the Certificate Insurance Policy. The Trustee shall
submit such notice to the Certificate Insurer no later than 12:00 noon New
York City time on the second Business Day preceding such Distribution Date as
a claim for an Insured Amount in an amount equal to the sum of the
Distribution Account Shortfall.
(b) Upon receipt of Insured Payments from the Certificate Insurer on
behalf of Class A Certificateholders, the Trustee shall deposit such Insured
Payments in the Distribution Account and shall distribute such Insured
Payments, or the proceeds thereof, to the Class A Certificateholders in
accordance with Sections 6.01(a).
(c) The Trustee shall (i) receive as attorney-in-fact of each Holder of
any Class A Certificates any Insured Payment from the Certificate Insurer and
(ii) disburse the same to the Holders of such Certificates as set forth in
Section 6.01(b). Insured Payments disbursed by the Trustee from proceeds of
a Certificate Insurance Policy shall be considered payment by the Certificate
Insurer and not by the Trust Fund with respect to such Certificates, and the
Certificate Insurer shall be entitled to receive the related Reimbursement
Amount pursuant to Section 6.01(a)(iv). The Trustee hereby agrees on behalf
of each Class A Certificateholder and the Trust Fund for the benefit of the
Certificate Insurer that it recognizes that to the extent the Certificate
Insurer makes Insured Payments, either directly or indirectly (as by paying
through the Trustee), to the Holders of such Certificates, the Certificate
Insurer will be entitled to receive the related Reimbursement Amount pursuant
to Section 6.01(a)(iv).
(d) Subject only to the priority of payment provisions of this
Agreement, each of the Company and the Trustee acknowledges that, to the
extent of any payment made by the Certificate Insurer pursuant to the
Certificate Insurance Policy, the Certificate Insurer is to be fully
subrogated to the extent of such payment and any additional interest due on
any late payment, to the rights of the Holders of the Class A Certificates to
any moneys paid or payable in respect of the Class A Certificates under this
Agreement or otherwise. Each of the Company and the Trustee agrees to such
subrogation and, further, agrees to execute such instruments and to take such
actions as, in the sole judgment of the Certificate Insurer are necessary to
evidence such subrogation and, subject to the priority of payment provision
of this Agreement, to perfect the rights of the Certificate Insurer to
receive any moneys paid or payable in respect of the Class A Certificates
under this Agreement or otherwise.
Section 6.05. The Certificate Guaranty Surety Bond. (a) On the __th
------------------------------------
Business Day prior to each Distribution Date, the Master Servicer shall
notify the Trustee of the Required Surety Payment, if any, due in respect of
any Additional Collateral Mortgage Loan that became a Liquidated Mortgage
Loan at least ten Business Days (or such shorter period as the Master
Servicer shall determine in its discretion) prior to such 11th Business Day
and that has not been previously reported to the Trustee pursuant to this
sentence. Upon its receipt of such notice, the Trustee shall complete the
notice in the form of Attachment 1 to the Certificate Guaranty Surety Bond.
The Trustee shall submit such notice to the Surety no later than 12:00 noon
New York City time on the tenth Business Day preceding such Distribution Date
as a claim for a Required Surety Payment.
(b) Upon receipt of a Required Surety Payment from the Surety on behalf
of the Holders of Class A Certificates, the Trustee shall deposit such
Required Surety Payment in the Distribution Account and shall distribute such
Required Surety Payment, or the proceeds thereof, in accordance with Section
6.01(a).
(c) The Trustee shall (i) receive as attorney-in-fact of each Holder of
Class A Certificates any Required Surety Payment from the Surety and (ii)
disburse the same to the Holders of such Certificates as set forth in Section
6.01(a).
(End of Article VI)
ARTICLE VII
REPORTS TO BE PREPARED BY MASTER SERVICER
-----------------------------------------
Section 7.01. Master Servicer Shall Provide Information as Reasonably
-------------------------------------------------------
Required. The Master Servicer shall furnish to the Trustee, the Certificate
- --------
Insurer and the Surety and during the term of this Agreement, such periodic,
special, or other reports or information, whether or not provided for herein,
as shall be necessary, reasonable, or appropriate in respect to the Trustee,
the Certificate Insurer or the Surety, as the case may be, or otherwise in
respect to the purposes of this Agreement, all such reports or information to
be as provided by and in accordance with such applicable instructions and
directions as the Trustee, the Certificate Insurer or the Surety, as the case
may be, may reasonably require. The Master Servicer shall file, as
necessary, financing statements and continuation statements as required by
the Uniform Commercial Code and any other applicable law sufficient to create
and maintain a valid perfected security interest in the Trust for the benefit
of the Certificateholders.
Section 7.02. Federal Information Returns and Reports to
------------------------------------------
Certificateholders. (a) For federal income tax purposes, the taxable year
- ------------------
of the Trust Fund shall be a calendar year and the Master Servicer shall
maintain or cause the maintenance of books of the Trust Fund on the accrual
method of accounting. The books of the Trust Fund shall reflect all payments
made with respect to the Mortgage Loans, and amounts attributable to the
Class A Certificateholders, the Class B Certificateholders and the Class R
Certificateholders.
(b) The Master Servicer shall prepare and file or cause to be filed
with the Internal Revenue Service at the times and in the manner required by
the Code or applicable Treasury Regulations all Federal tax or information
returns with respect to the Trust Fund and the Certificates, which tax or
information returns contain such information as may be required by the Code
or applicable Treasury Regulations. The Master Servicer also shall furnish
to Holders of Certificates such statements or information at the times and in
the manner as the Code or applicable Treasury Regulations may require such
holders to be furnished, regardless of by whom. For this purpose, the Master
Servicer may, but need not, rely on any proposed regulations of the United
States Department of the Treasury. The Master Servicer shall indicate the
election to treat the Trust Fund (exclusive of the Mortgage 100 Pledge
Agreements and the Parent Power Agreements) as a REMIC in such manner as the
Code or applicable Treasury regulations may prescribe. The Trustee shall
sign all required tax or information returns, and the Master Servicer shall
indemnify the Trustee for executing such tax or information returns to the
extent such returns contain errors or
omissions. The initial Class R Certificateholder is hereby designated as the
initial "tax matters person" (within the meaning of Temp. Treas. Reg.
Section 1.860F-4T(d)). In the event that the Code or applicable Treasury
Regulations prohibit the Trustee from signing tax or information returns or
other statements, or the Master Servicer from acting as tax matters person
(as an agent or otherwise), the Master Servicer shall take whatever action
that in its sole good faith judgment is necessary for the proper filing of
such information returns or for the provision of a tax matters person,
including designation of the Class R Certificateholder to sign such returns.
Each Class R Certificateholder shall be bound by this Section 7.02.
(End of Article VII)
ARTICLE VIII
THE COMPANY AND THE MASTER SERVICER
-----------------------------------
Section 8.01. Indemnification; Third Party Claims. (a) The Master
-----------------------------------
Servicer agrees to indemnify the Company, the Certificate Insurer, the Surety
and the Trustee and hold the Company, the Certificate Insurer, the Surety and
the Trustee harmless against any and all claims, losses, penalties, fines,
forfeitures, legal fees and related costs, judgments, and any other costs,
fees and expenses that the Company, the Certificate Insurer, the Surety or
the Trustee may sustain as a result of the failure of the Master Servicer to
perform its duties and service the Mortgage Loans in compliance with the
terms of this Agreement; provided that no such indemnification shall be re-
quired of a successor Master Servicer with respect to acts of a prior Master
Servicer. The Master Servicer shall immediately notify the Company, the
Certificate Insurer, the Surety and the Trustee if a claim is made by a third
party with respect to this Agreement or the Mortgage Loans, assume (unless
otherwise directed by the Company, the Certificate Insurer, the Surety and
the Trustee) the defense of any such claim and pay all expenses in connection
therewith, including counsel fees, and promptly pay, discharge and satisfy
any judgment or decree which may be entered against it, the Company or the
Trustee in respect of such claim.
(b) Should any claim or action by a third party arise after the Closing
Date for which the Company, the Certificate Insurer, the Surety or the
Trustee intends to seek indemnification under the terms of Section 8.01(a),
the Company shall notify the Master Servicer in writing within ten (10)
Business Days, and the Trustee, the Certificate Insurer or the Surety shall
notify the Master Servicer in writing promptly, after each such party
receives notice of such claim or action, or notice of a threat that is
reasonably likely to result in such claim or action. The party seeking
indemnification shall give the Master Servicer a reasonable opportunity to
participate in any proceedings to settle or defend any such claim or action.
If the Master Servicer wishes to assume the defense of such claim or action,
it shall give written notice to the party seeking indemnification and the
Master Servicer shall thereafter assume the defense at its own expense. In
the event that the Master Servicer assumes the defense of a claim or action,
the party seeking indemnification will assert or empower the Master Servicer
to assert on behalf of the party seeking indemnification any rights to
indemnification that the party seeking indemnification may have in connection
with such claim or action. The Master Servicer shall have the right to
settle any such action provided that the Master Servicer obtains the consent
of the party seeking indemnification, which consent shall not be unreasonably
withheld. The Company, the Certificate Insurer, the Surety and the Trustee
agree to respond to the Master Servicer's request for consent as promptly as
possible and agree that a failure by the Company, the
Certificate Insurer, the Surety or the Trustee to respond within thirty (30)
Business Days shall be taken as consent.
Section 8.02. Merger or Consolidation of the Company or the Master
----------------------------------------------------
Servicer; Status of Master Servicer. Subject to the following paragraphs of
- -----------------------------------
this Section 8.02, the Company and the Master Servicer will each keep in full
effect its existence, rights and franchises as a corporation, and will obtain
and preserve its qualification to do business as a foreign corporation in
each jurisdiction in which such qualification is or shall be necessary to
protect the validity and enforceability of this Agreement, the Certificates
or any of the Mortgage Loans and to perform its duties under this Agreement.
The Master Servicer agrees to remain an approved seller/servicer for FNMA or
FHLMC in good standing.
Any person into which the Company or the Master Servicer may be merged
or consolidated, or any corporation resulting from any merger, conversion or
consolidation to which the Company or the Master Servicer shall be a party,
or any Person succeeding to the business of the Company or the Master
Servicer, shall be the successor of the Company or the Master Servicer
hereunder, without the execution or filing of any paper or any further act on
the part of any of the parties hereto, anything herein to the contrary
notwithstanding; provided, however, that the successor or surviving Person to
the Master Servicer shall satisfy the requirements of Section 8.05 with
respect to the qualifications of a successor to the Master Servicer.
Notwithstanding anything else in this Section 8.02 and Section 8.04 to
the contrary, the Master Servicer may assign its rights and delegate its
duties and obligations under this Agreement; provided that the Person
accepting such assignment or delegation shall be a Person which is qualified
to service mortgage loans on behalf of FNMA or FHLMC, is approved by the
Trustee, the Certificate Insurer, the Surety and the Company, is willing to
service the Mortgage Loans and executes and delivers to the Company, the
Certificate Insurer, the Surety and the Trustee an agreement, in form and
substance reasonably satisfactory to the Company, the Certificate Insurer,
the Surety and the Trustee, which contains an assumption by such Person of
the due and punctual performance and observance of each covenant and
condition to be performed or observed by the Master Servicer under this
Agreement; provided further that each Rating Agency's respective ratings of
the Classes of Certificates that have been rated in effect immediately prior
to such assignment and delegation will not be qualified or reduced as a
result of such assignment and delegation. The Master Servicer shall give
notice to the Certificate Insurer and the Surety of any such assignment and
delegation. In the case of any such assignment and delegation, the Master
Servicer shall be released from its obligations as Master Servicer under this
Agreement, except that the Master Servicer shall remain liable for all
liabilities and obligations incurred by it as Master Servicer hereunder prior
to the satisfaction of the
conditions to such assignment and delegation set forth in the second
preceding sentence.
Section 8.03. Limitation on Liability of the Company, the Master
--------------------------------------------------
Servicer, the Trustee and Others. Neither the Company, the Master Servicer
- --------------------------------
nor any of the directors, officers, employees or agents of the Company or the
Master Servicer shall be under any liability to the Trustee, the
Certificateholders, the Certificate Insurer or the Surety for any action
taken or for refraining from the taking of any action in good faith pursuant
to this Agreement, or for errors in judgment; provided, however, that this
provision shall not protect the Company, the Master Servicer or any such
person against any breach of warranties or representations made herein, or
failure to perform its obligations in compliance with this Agreement, or any
liability which would otherwise be imposed by reason of any breach of the
terms and conditions of this Agreement. The Company, the Master Servicer,
the Trustee and any director, officer, employee or agent of the Company, the
Master Servicer or the Trustee may rely in good faith on any document of any
kind prima facie properly executed and submitted by any Person respecting any
matters arising hereunder. Neither the Company nor the Master Servicer shall
be under any obligation to appear in, prosecute or defend any legal action
which is not incidental to its respective duties to service the Mortgage
Loans in accordance with this Agreement and which in its opinion may involve
it in any expenses or liability; provided, however, that the Company or the
Master Servicer may in its discretion undertake any such action which it may
deem necessary or desirable in respect to this Agreement and the rights and
duties of the parties hereto. In such event, the legal expenses and costs of
such action and any liability resulting therefrom shall be expenses, costs
and liabilities payable from the Certificate Account and the Company or the
Master Servicer shall be entitled to be reimbursed therefor out of the
Certificate Account as provided by Section 5.09; provided that no such right
of reimbursement shall exist with respect to the Master Servicer when such
claim results from the failure of the Master Servicer to service the Mortgage
Loans in strict compliance with the terms of this Agreement or a breach of a
representation or warranty made by the Master Servicer hereunder or as
Mortgage Loan Seller under the Sale Agreement or the failure of the Master
Servicer to deliver the Mortgage Files to the Custodian in accordance with
this Agreement.
Section 8.04. Company and Master Servicer Not to Resign. Except as
-----------------------------------------
described in Section 8.02, neither the Company nor the Master Servicer shall
assign this Agreement or resign from the obligations and duties hereby
imposed on it except by mutual consent of the Company, the Master Servicer,
the Certificate Insurer, the Surety, the Trustee and Holders of Certificates
of each Class evidencing, as to such Class, Percentage Interests aggregating
at least 662/3% unless the determination is made that its duties hereunder
are no longer permissible under applicable law and such incapacity cannot be
cured by the Company or the Master Servicer.
Any such determination permitting the resignation of the Company or the
Master Servicer shall be evidenced by an Opinion of independent Counsel to
such effect delivered to the Trustee, the Certificate Insurer and the Surety
which Opinion of Counsel shall be in form and substance acceptable to the
Trustee, the Certificate Insurer and the Surety. A copy of all consents and
any Opinion of Counsel shall be promptly delivered to the Rating Agencies.
Upon any such assignment or resignation, the Company, or the Master Servicer,
as appropriate, shall send notice to all Certificateholders, the Certificate
Insurer and the Surety of the effect of such assignment or resignation upon
the then current rating of the class of Certificates by the Rating Agency
whose rating on such class is then in effect. No such resignation shall
become effective until a successor shall have assumed the Company's or the
Master Servicer's responsibilities and obligations hereunder in the manner
provided in Section 8.05. Any purported assignment or resignation which does
not comply with the requirements of this Section shall be of no effect.
Section 8.05. Successor to the Master Servicer. In connection with the
--------------------------------
termination of the Master Servicer's responsibilities and duties under this
Agreement pursuant to Section 8.04 or 9.01, the Trustee shall (i) succeed to
and assume all of the Master Servicer's responsibilities, rights, duties and
obligations as Master Servicer arising thereafter (but not in any other
capacity) under this Agreement (except that the Trustee shall not be
obligated to make Advances if prohibited by applicable law or regulation and
except that the Trustee makes no representations and warranties of the Master
Servicer pursuant to Section 3.01 or otherwise hereunder) and shall have no
duty or obligation to purchase or repurchase any Mortgage Loans (except that
the Trustee, as successor Master Servicer, may elect pursuant to Section
3.04(f) to be obligated to make such purchases) and shall have the same
indemnities and be entitled to all Servicing Fees and funds to which the
Master Servicer would have been entitled as Master Servicer or (ii) appoint a
successor having a net worth of not less than $10,000,000 and which is a FNMA
or FHLMC approved seller/servicer or FHA approved mortgagee in good standing
and which shall succeed to all rights and assume all of the responsibilities,
duties and liabilities of the Master Servicer under this Agreement prior to
the termination of Master Servicer's responsibilities, duties and liabilities
under this Agreement. A successor Master Servicer other than the Trustee
shall make the representations and warranties in Section 3.01(a) to the
extent that such representations and warranties relate to its corporate
existence or its servicing of the Mortgage Loans hereunder. Neither the
Trustee nor any other successor Servicer shall be deemed to be in default
hereunder by reason of any failure to make, or any delay in making any
distribution hereunder or any portion thereof caused by (i) the failure of
the Master Servicer to deliver, or any delay in delivering, cash, documents
or records to it, or (ii) restrictions imposed by any regulatory authority
having jurisdiction over the Master Servicer. If the Trustee has become the
successor to the Master Servicer in accordance with this Section
or Section 9.03, then notwithstanding the above, the Trustee may, if it shall
be unwilling to so act, or shall, if it is unable to so act, appoint, or
petition a court of competent jurisdiction to appoint, any established
housing and home finance institution having a net worth of not less than
$15,000,000 and which is a FNMA or FHLMC approved seller/servicer or FHA
approved mortgagee in good standing as the successor to the Master Servicer
hereunder in the assumption of all or any part of the responsibilities,
duties or liabilities of the Master Servicer hereunder. In connection with
any such appointment and assumption, the Trustee may make such arrangements
for the compensation of such successor out of payments on Mortgage Loans as
it and such successor shall agree or such court shall determine; provided,
however, that no such compensation shall be in excess of that permitted under
this Agreement without the consent of all of the Certificateholders, the
Certificate Insurer and the Surety. If the Master Servicer's duties,
responsibilities and liabilities under this Agreement should be terminated
pursuant to Section 8.02, 8.04, 9.01 or 11.02, the Master Servicer shall
discharge such duties and responsibilities during the period from the date it
acquires knowledge of such termination until the effective date thereof with
the same degree of diligence and prudence which it is obligated to exercise
under this Agreement, and shall take no action whatsoever that might impair
or prejudice the rights or financial condition of its successor. The
resignation or removal of the Master Servicer pursuant to Section 8.02, 8.04,
9.01 or 11.02 shall not become effective until a successor shall be
appointed pursuant to this Section and shall in no event relieve the Master
Servicer of liability for breach of the representations and warranties made
pursuant to Section 3.01.
Any successor appointed as provided herein shall execute, acknowledge
and deliver to the Master Servicer and to the Trustee an instrument accepting
such appointment, whereupon such successor shall become fully vested with all
the rights, powers, duties, responsibilities, obligations and liabilities of
the Master Servicer, with like effect as if originally named as a party to
this Agreement and the Certificates. Any termination or resignation of the
Master Servicer or this Agreement pursuant to Section 8.02, 8.04, 9.01, or
11.02 shall not affect any claims that the Trustee may have against the
Master Servicer arising prior to any such termination or resignation.
The Master Servicer shall timely deliver to the successor the funds that
were, or were required to be, in the Certificate Account and the Escrow
Account, if any, and all Mortgage Files and related documents and statements
held by it hereunder and the Master Servicer shall account for all funds and
shall execute and deliver such instruments and do such other things as may
reasonably be required to more fully and definitely vest and confirm in the
successor all such rights, powers, duties, responsibilities, obligations and
liabilities of the Master Servicer.
Upon a successor's acceptance of an appointment as such, the Master
Servicer shall notify in writing the Trustee, the Certificateholders, the
Rating Agency, the Certificate Insurer and the Surety of such appointment.
Section 8.06. Maintenance of Ratings. The Master Servicer shall
----------------------
cooperate with the Company and take any action that may be reasonably
necessary to maintain the current rating or ratings on the Class A
Certificates. To the extent not otherwise provided herein, the Master
Servicer shall provide to each Rating Agency notice with respect to any (i)
insurance claims and recoveries, (ii) monthly Mortgage Loan reports, (iii)
accounting and compliance reports with respect to the Mortgages, (iv)
Mortgage Loan repurchases or substitution, (v) monthly shortfalls as a result
of a failure to make advances, (vi) final payment to Certificateholders,
(vii) transfers of the Class B or Class R Certificates and (viii) the reports
and statements delivered pursuant to Sections 5.25 and 5.26.
(End of Article VIII)
ARTICLE IX
DEFAULT
-------
Section 9.01. Events of Default. If one or more of the following
-----------------
Events of Default shall occur and be continuing:
(i) any failure by the Master Servicer to remit to the Trustee or
the Paying Agent, or any failure to cause the Paying Agent to make, any
payment or Advance required to be made or distributed under the terms of
this Agreement (including but not limited to an Advance pursuant to
Section 6.03); provided that if the Master Servicer is using its
reasonable best efforts to so remit, or cause the Trustee or Paying
Agent to make, any such payment or Advance, then such failure shall be
an Event of Default only if such failure continues unremedied for a
period of five days after the date upon which written notice of such
failure, requiring the same to be remedied, shall have been given to the
Master Servicer by the Trustee, the Certificate Insurer, the Surety or
the Company or to the Master Servicer, the Trustee, the Certificate
Insurer, the Surety and the Company by the Holders of Certificates of
all Classes evidencing not less than 25% of the Trust Fund (based on the
outstanding principal balances of the Certificates), the Certificate
Insurer or Surety; or
(ii) if the written notice described in paragraph (i) above has
been given twice during any twelve-month period, any subsequent failure
during such twelve-month period to remit to the Trustee or the Paying
Agent, or cause the Paying Agent to make, any payment required to be
made or distributed under the terms of this Agreement other than for
reasons outside of the Master Servicer's control; or
(iii) failure on the part of the Master Servicer duly to observe or
perform in any material respect any other of the covenants or agreements
on the part of the Master Servicer set forth in this Agreement, which
continues unremedied for a period of 60 days after the date on which
written notice of such failure, requiring the same to be remedied, shall
have been given to the Master Servicer by the Trustee, the Certificate
Insurer, the Surety or the Company or to the Master Servicer, the
Trustee, the Certificate Insurer, the Surety and the Company by the
Holder of Certificates of Classes evidencing not less than 25% of the
Trust Fund (based on the outstanding principal balances of the
Certificates), the Certificate Insurer or the Surety; or
(iv) a decree or order of a court or agency or supervisory
authority having jurisdiction for the appointment of a trustee,
conservator, receiver, liquidator, assignee, custodian or sequestrator
(or other similar official) for the Master
Servicer or any substantial part of its property in any federal or state
bankruptcy, insolvency, readjustment of debt, marshalling of assets and
liabilities or similar proceedings, or for the winding-up or liquidation
of its affairs, shall have been entered against the Master Servicer and
such decree or order shall have remained in force undischarged or
unstayed for a period of 60 days; or
(v) the Master Servicer shall consent to the appointment of a
trustee, conservator, receiver, liquidator, assignee, custodian or
sequestrator (or other similar official) in, or commence a voluntary
case under any federal or state bankruptcy insolvency, readjustment of
debt, marshalling of assets and liabilities or similar proceedings of or
relating to the Master Servicer or of or relating to all or
substantially all of the Master Servicer's property; or
(vi) the Master Servicer shall admit in writing its inability to
pay its debts generally as they become due, file a petition to take
advantage of any applicable insolvency or reorganization statute, make
an assignment for the benefit of its creditors, or voluntarily suspend
payment of its obligations;
then, and in each and every such case, so long as an Event of Default shall
not have been remedied, the Trustee shall notify the Certificateholders, the
Certificate Insurer, the Surety and each Rating Agency of such Event of De-
fault. The Trustee may (with the consent of the Certificate Insurer and the
Surety), and at the written direction of the Certificate Insurer, the Surety
or the Holders of Certificates evidencing not less than 25% of the Trust Fund
(with the consent of the Certificate Insurer and the Surety), shall, by
notice in writing to the Master Servicer, in addition to whatever rights the
Trustee may have at law or equity to damages, including injunctive relief and
specific performance, terminate all the rights and obligations of the Master
Servicer under this Agreement and in and to the Mortgage Loans and the
proceeds thereof. On or after the receipt by the Master Servicer of such
written notice, all authority and power of the Master Servicer under this
Agreement, whether with respect to the Mortgage Loans or otherwise, shall
pass to and be vested in the successor appointed pursuant to Section 8.05.
Upon written request from the Trustee, the Master Servicer shall prepare,
execute and deliver, any and all documents and other instruments, place in
such successor's possession all Mortgage Files and do or accomplish all other
acts or things necessary or appropriate to effect the purposes of such notice
of termination, whether to complete the transfer and endorsement or
assignment of the Mortgage Loans and related documents, or otherwise, at the
Master Servicer's sole expense. The Master Servicer agrees to cooperate with
the Trustee and such successor in effecting the termination of the Master
Servicer's responsibilities and rights hereunder, including, without
limitation, the transfer to
such successor for administration by it of all cash amounts which shall at
the time be credited by the Master Servicer to the Certificate Account or
Escrow Account or thereafter received with respect to the Mortgage Loans.
Section 9.02. Waiver of Defaults. The Trustee may, with the consent
------------------
of the Certificate Insurer and the Surety, and shall at the direction of the
Certificate Insurer and the Surety, waive any default by the Master Servicer
in the performance of its obligations hereunder and its consequences, except
that a default in the making of any required distribution on any of the
Certificates may only be waived by the affected Certificateholders, the
Certificate Insurer and the Surety. Upon any such waiver of a past default,
such default shall cease to exist, and any Event of Default arising therefrom
shall be deemed to have been remedied for every purpose of this Agreement.
No such waiver shall extend to any subsequent or other default or impair any
right contingent thereon except to the extent expressly so waived.
Section 9.03. Trustee or Company to Act; Appointment of Successor. On
---------------------------------------------------
and after the time the Master Servicer receives a notice of termination
pursuant to Section 9.01, the Trustee or its appointed agent shall be the
successor in all respects to the Master Servicer to the extent provided in
Section 8.05.
Section 9.04. Notification to Certificateholders. (a) Upon any such
----------------------------------
termination pursuant to Section 9.01, the Trustee shall give prompt written
notice thereof to Certificateholders at their respective addresses appearing
in the Certificate Register and to each Rating Agency, the Certificate
Insurer and the Surety.
(b) Within 60 days after obtaining actual knowledge of the occurrence
of any Event of Default, the Trustee shall transmit by mail to all Holders of
Certificates notice of each such Event of Default hereunder known to the
Trustee, unless such Event of Default has been cured or waived.
(End of Article IX)
ARTICLE X
CONCERNING THE TRUSTEE
----------------------
Section 10.01. Duties of Trustee. The Trustee, prior to the occurrence
-----------------
of an Event of Default and after the curing of all Events of Default which
may have occurred, undertakes to, and is empowered to, perform such duties
and only such duties as are specifically set forth in this Agreement. Any
permissive right of the Trustee as enumerated in this Agreement shall not be
construed as a duty; provided that in case an Event of Default has occurred
(which has not been cured), the Trustee shall exercise such of the rights and
powers vested in it by this Agreement, and use the same degree of care and
skill in their exercise as a prudent man would exercise or use under the
circumstances in the conduct of such man's own affairs.
The Trustee, upon receipt of all resolutions, certificates, statements,
opinions, reports, documents, orders or other instruments furnished to the
Trustee which are specifically required to be furnished pursuant to any
provision of this Agreement, shall examine them to determine whether they
conform to the requirements of this Agreement.
No provision of this Agreement shall be construed to relieve the Trustee
from liability for its own negligent action, its own negligent failure to act
or its own intentional misconduct, and, if the Trustee is acting as the
successor Master Servicer pursuant to Section 8.05 or 9.03, its own willful
misconduct with respect to its servicing obligations; provided, however,
that:
(i) Prior to the occurrence of an Event of Default, and after the
curing of all such Events of Default which may have occurred, the duties
and obligations of the Trustee shall be determined solely by the express
provisions of this Agreement, the Trustee shall not be liable except for
the performance of such duties and obligations as are specifically set
forth in this Agreement, no implied covenants or obligations shall be
read into this Agreement against the Trustee and, in the absence of bad
faith on the part of the Trustee, the Trustee may conclusively rely, as
to the truth of the statements and the correctness of the opinions
expressed therein, upon any certificates or opinions furnished to the
Trustee and conforming to the requirements of this Agreement;
(ii) The Trustee shall not be personally liable for an error of
judgment made in good faith by a Responsible Officer or Responsible
Officers of the Trustee, unless it shall be proved that the Trustee was
negligent in ascertaining the pertinent facts; and
(iii) The Trustee shall not be personally liable with respect to any
action taken, suffered or omitted to be taken by it in good faith in
accordance with the direction of Certificateholders of any Class holding
Certificates which evidence at least 25% of the Trust Fund (on the basis
of the outstanding principal balances of the Certificates) with the
consent of the Certificate Insurer and the Surety as to the time, method
and place of conducting any proceeding for any remedy available to the
Trustee, or exercising any trust or power conferred upon the Trustee,
under this Agreement.
Section 10.02. Certain Matters Affecting the Trustee. Except as
-------------------------------------
otherwise provided in Section 10.01:
(i) The Trustee may request and rely upon and shall be protected
in acting or refraining from acting upon any resolution, Officers'
Certificate, certificate of auditors or any other certificate,
statement, instrument, opinion, report, notice, request, consent, order,
appraisal, bond or other paper or document believed by it to be genuine
and to have been signed or presented by the proper party or parties;
(ii) The Trustee may consult with counsel and any Opinion of
Counsel shall be full and complete authorization and protection in
respect of any action taken or suffered or omitted by it hereunder in
good faith and in accordance with such Opinion of Counsel;
(iii) The Trustee shall be under no obligation to exercise any of
the trusts or powers vested in it by this Agreement or to institute,
conduct or defend any litigation hereunder or in relation hereto at the
request, order or direction of any of the Certificateholders, pursuant
to the provisions of this Agreement, unless such Certificateholders
shall have offered to the Trustee reasonable security or indemnity
against the costs, expenses and liabilities which may be incurred
therein or thereby; nothing contained herein shall, however, relieve the
Trustee of the obligation, upon the occurrence of an Event of Default
(which has not been cured), to exercise such of the rights and powers
vested in it by this Agreement, and to use the same degree of care and
skill in their exercise as a prudent man would exercise or use under the
circumstances in the conduct of such man's own affairs;
(iv) The Trustee shall not be personally liable for any action
taken, suffered or omitted by it in good faith and believed by it to be
authorized or within the discretion or rights or powers conferred upon
it by this Agreement;
(v) Prior to the occurrence of an Event of Default hereunder and
after the curing of all Events of Default which may have occurred, the
Trustee shall not be bound to make any investigation into the fact or
matters stated in any resolution, certificate, statement, instrument,
opinion, report, notice, request, consent, order, approval, bond or
other paper or document, unless requested in writing so to do by Holders
of Certificates of any Class evidencing at least 25% of the Trust Fund
(on the basis of the outstanding principal balances of the
Certificates); provided, however, that if the payment within a
reasonable time to the Trustee of the costs, expenses or liabilities
likely to be incurred by it in the making of such investigation is, in
the opinion of the Trustee, not reasonably assured to the Trustee by the
security afforded to it by the terms of this Agreement, the Trustee may
require reasonable indemnity against such expense or liability as a
condition to such proceeding. The reasonable expense of every such
examination shall be paid by the Master Servicer, if an Event of Default
shall have occurred and is continuing, and otherwise by the
Certificateholder requesting the investigation; and
(vi) The Trustee may execute any of the trusts or powers hereunder
or perform any duties hereunder either directly or by or through agents
or attorneys.
Section 10.03. Trustee Not Liable for Certificates or Mortgage Loans.
-----------------------------------------------------
The recitals contained herein and in the Certificates shall be taken as the
statements of the Company or the Master Servicer, as the case may be, and the
Trustee assumes no responsibility for their correctness. The Trustee makes
no representations or warranties as to the validity or sufficiency of this
Agreement or of the Certificates (except that the Certificates shall be duly
and validly authenticated by it) or of any Mortgage Loan or related document.
The Trustee shall not be accountable for the use or application by the
Company or the Master Servicer of any of the Certificates or of the proceeds
of such Certificates, or for the use or application of any funds paid to the
Company or the Master Servicer in respect of the Mortgage Loans or deposited
in or withdrawn from the Certificate Account by the Company or the Master
Servicer.
Section 10.04. Trustee May Own Certificates. The Trustee in its
----------------------------
individual or any other capacity may become the owner or pledgee of
Certificates with the same rights it would have if it were not Trustee.
Section 10.05. Master Servicer to Pay Trustee's Fees and Expenses. The
--------------------------------------------------
Master Servicer covenants and agrees to pay to the Trustee from time to time,
and the Trustee shall be entitled to, reasonable compensation (which shall
not be limited by any provision of law in regard to the compensation of a
trustee of an express trust) for all services rendered by it in the execution
of the trust
hereby created and in the exercise and performance of any of the powers and
duties hereunder of the Trustee, and the Master Servicer will pay or
reimburse the Trustee upon its request for all reasonable expenses,
disbursements and advances incurred or made by the Trustee in accordance with
any of the provisions of this Agreement (including the reasonable
compensation and the expenses and disbursements of its counsel and of all
persons not regularly in its employ, and the expenses incurred by the Trustee
in connection with the appointment of an office or agency pursuant to Section
10.11) and indemnify and hold the Trustee harmless from any such loss,
liability or expense except any such expense, disbursement or advance as may
arise from its negligence or bad faith. The Trustee and any officer,
director, agent or employee of the Trustee shall be indemnified by the Master
Servicer and held harmless against any loss, liability or expense incurred in
connection with any claim or legal action relating to this Agreement, the
Insurance Agreement or the Certificates, or the performance of any of the
Trustee's duties in accordance with the terms of this Agreement or the
Insurance Agreement, other than any loss, liability or expense that is
incurred by reason of wilful misfeasance, bad faith or negligence of the
Trustee. Notwithstanding anything to the contrary in this Agreement, the
provisions of this Section shall survive the termination of this Agreement.
Section 10.06. Eligibility Requirements for Trustee. The Trustee
------------------------------------
hereunder shall at all times be a corporation or association having its
principal office in a state and city acceptable to the Company and organized
and doing business under the laws of such state or the United States of
America, authorized under such laws to exercise corporate trust powers,
having a combined capital and surplus of at least $50,000,000 and subject to
supervision or examination by federal or state authority. The Trustee shall
not be an affiliate of the Mortgage Loan Seller or the Company. If such
corporation publishes reports of condition at least annually, pursuant to law
or to the requirements of the aforesaid supervising or examining authority,
then for the purposes of this Section the combined capital and surplus of
such corporation shall be deemed to be its combined capital and surplus as
set forth in its most recent report of condition so published. In case at
any time the Trustee shall cease to be eligible in accordance with the
provisions of this Section, the Trustee shall resign immediately in the
manner and with the effect specified in Section 10.07.
Section 10.07. Resignation and Removal of the Trustee. The Trustee may
--------------------------------------
at any time resign and be discharged from the trusts hereby created by giving
written notice thereof to the Company, the Master Servicer, any Sub-Servicer,
the Certificate Insurer, the Surety and the Rating Agency. Upon receiving
such notice of resignation, the Company shall promptly appoint a successor
trustee by written instrument, in duplicate, one copy of which instrument
shall be delivered to the resigning Trustee and one copy to the
successor trustee; provided that such appointment does not result in a
reduction or withdrawal of the rating of the Class A Certificates, and
provided further, that, so long as such consent is not unreasonably withheld,
the Certificate Insurer and the Surety consents to such appointment. The
Company shall make a good faith effort to appoint a successor within 30 days
of its receipt of such notice. If the Company does not appoint a successor
Trustee within such 30 day period and it is not making a good faith effort to
appoint a successor Trustee, then the Certificate Insurer or the Surety may
appoint a successor Trustee. The Master Servicer shall indemnify the Trustee
for any loss, liability, or expense incurred as a result of the Company's
failure to make a good faith effort to appoint a successor Trustee. If no
successor trustee shall have been so appointed and have accepted appointment
within 30 days after the giving of such notice of resignation, the resigning
Trustee may petition any court of competent jurisdiction for the appointment
of a successor trustee.
If at any time (i) the Trustee shall cease to be eligible in accordance
with the provisions of Section 10.06, (ii) the Company has delivered to the
Trustee a letter from any Rating Agency to the effect that the rating of the
Class A Certificates has been or is about to be reduced or withdrawn on
account of a reduction in the long-term credit rating of the Trustee or the
parent of the Trustee (if (a) the Trustee proposes to the Company and the
Master Servicer to enter into an agreement with the Trustee, and the Company
and the Master Servicer, each in its sole discretion, elect to enter into
such agreement and (b) such agreement is consented to by the Certificate
Insurer and the Surety Provider and is satisfactory to the Rating Agencies
without resulting in a reduction in or withdrawal of any rating of the Class
A Certificates, then upon the execution and delivery of such agreement the
Company shall not request such resignation pursuant to this clause (ii)), and
the Trustee shall fail to resign after written request therefor by the
Company, or (iii) the Trustee shall become incapable of acting, or shall be
adjudged bankrupt or insolvent, or a receiver of the Trustee or of its
property shall be appointed, or any public officer shall take charge or
control of the Trustee or of its property or affairs for the purpose of
rehabilitation, conservation or liquidation, then the Company may remove the
Trustee and appoint a successor trustee by written instrument, in duplicate,
one copy of which instrument shall be delivered to the Trustee so removed
and one copy to the successor trustee.
The Holders of Certificates evidencing in the aggregate more than 50% of
the Trust Fund (on the basis of the outstanding principal balances of the
Certificates) may at any time remove the Trustee and appoint a successor
trustee by written instrument or instruments, in triplicate, signed by such
Holders or their attorneys-in-fact duly authorized, one complete set of which
instruments shall be delivered to the Company, one complete set to
the Trustee so removed and one complete set to the successor so appointed.
Any resignation or removal of the Trustee and appointment of a successor
trustee pursuant to any of the provisions of this Section shall become
effective upon acceptance of appointment by the successor trustee as provided
in Section 10.08.
Section 10.08. Successor Trustee. Any successor trustee appointed as
-----------------
provided in Section 10.07 shall execute, acknowledge and deliver to the
Company and to its predecessor trustee an instrument accepting such
appointment hereunder, and thereupon the resignation or removal of the
predecessor trustee shall become effective and such successor trustee,
without any further act, deed or conveyance, shall become fully vested with
all the rights, powers, duties and obligations of its predecessor hereunder,
with the like effect as if originally named as trustee herein. The
predecessor trustee shall deliver to the successor trustee all Mortgage Files
and related documents and statements held by it hereunder, and the Company,
the Master Servicer and the predecessor trustee shall execute and deliver
such instruments and do such other things as may reasonably be required for
more fully and certainly vesting and confirming in the successor trustee all
such rights, powers, duties and obligations.
No successor trustee shall accept appointment as provided in this
Section unless at the time of such acceptance such successor trustee shall be
eligible under the provisions of Section 10.06 and the Company shall have
received written notice from the Rating Agency that the appointment of the
successor trustee will not result in reduction of the then current rating on
the Class A Certificates.
Upon acceptance of appointment by a successor trustee as provided in
this Section, the Company shall mail notice of the succession of such trustee
hereunder to all Holders of Certificates at their addresses as shown in the
Certificate Register, and to each Rating Agency, the Master Servicer, any
Sub-Servicer, the Certificate Insurer, and the Surety. If the Company fails
to mail such notice within 10 days after acceptance of appointment by the
successor trustee, the successor trustee shall cause such notice to be mailed
at the expense of the Company.
Section 10.09. Merger or Consolidation of Trustee. Any corporation or
----------------------------------
national banking association into which the Trustee may be merged or
converted or with which it may be consolidated or any corporation or national
banking association resulting from any merger, conversion or consolidation to
which the Trustee shall be a party, or any corporation or national banking
association succeeding to the business of the Trustee, shall be the successor
of the Trustee hereunder, provided such corporation or national banking
association shall be eligible under the provisions of Section 10.06, without
the execution or filing of any paper or any further act on
the part of any of the parties hereto, anything herein to the contrary
notwithstanding.
Section 10.10. Appointment of Co-Trustee or Separate Trustee.
---------------------------------------------
Notwithstanding any other provisions hereof, at any time, for the purpose of
meeting any legal requirements of any jurisdiction in which any part of the
Trust Fund or property securing the same may at the time be located, the
Company and the Trustee acting jointly shall have the power and shall execute
and deliver all instruments to appoint one or more Persons approved by the
Trustee to act as co-trustee or co-trustees, jointly with the Trustee, of any
part of the Trust Fund, and to vest in such Person or Persons, in such
capacity, such title to the Trust Fund, or any part thereof, and, subject to
the other provisions of this Section 10.10, such powers, duties, obligations,
rights and trusts as the Company and the Trustee may consider necessary or
desirable. If the Company shall not have joined in such appointment within
15 days after the receipt by it of a request so to do, or in case an Event of
Default shall have occurred and be continuing, the Trustee alone shall have
the power to make such appointment. No co-trustee or separate trustee
hereunder shall be required to meet the terms of eligibility as a successor
trustee under Section 10.06 hereunder and no notice to Holders of
Certificates of the appointment of co-trustee(s) or separate trustee(s) shall
be required under Section 10.08 hereof. No co-trustee shall be obligated to
make any Advances required pursuant to Section 6.03(b).
In the case of any appointment of a co-trustee or separate trustee
pursuant to this Section 10.10 all rights, powers, duties and obligations
conferred or imposed upon the Trustee shall be conferred or imposed upon and
exercised or performed by the Trustee and such separate trustee or co-trustee
jointly, except to the extent that under any law of any jurisdiction in which
any particular act or acts are to be performed (whether as Trustee hereunder
or as successor to the Master Servicer hereunder), the Trustee shall be
incompetent or unqualified to perform such act or acts, in which event such
rights, powers, duties and obligations (including the holding of title to the
Trust Fund or any portion thereof in any such jurisdiction) shall be
exercised and performed by such separate trustee or co-trustee at the
direction of the Trustee.
Any notice, request or other writing given to the Trustee shall be
deemed to have been given to each of the then separate trustees and co-
trustees, as effectively as if given to each of them. Every instrument
appointing any separate trustee or co-trustee shall refer to this Agreement
and the conditions of this Article X. Each separate trustee and co-trustee,
upon its acceptance of the trusts conferred, shall be vested with the estates
or property specified in its instrument of appointment, either jointly with
the Trustee or separately, as may be provided therein, subject to all the
provisions of this Agreement, specifically including every provision
of this Agreement relating to the conduct of, affecting the liability of, or
affording protection to, the Trustee. Every such instrument shall be filed
with the Trustee.
Any separate trustee or co-trustee may, at any time, constitute the
Trustee its agent or attorney-in-fact, with full power and authority, to the
extent not prohibited by law, to do any lawful act under or in respect of
this Agreement on its behalf and in its name. If any separate trustee or
co-trustee shall die, become incapable of acting, resign or be removed, all
of it estates, properties, rights, remedies and trusts shall vest in and be
exercised by the Trustee, to the extent permitted by law, without the
appointment of a new or successor trustee.
Section 10.11. Appointment of Office or Agency. The Trustee may
-------------------------------
appoint an office or agency in the City of New York where Certificates may be
surrendered for registration of transfer or exchange. The Trustee will
maintain an office at the address stated in Section 12.07 hereof where
notices and demands to or upon the Trustee in respect of the Certificates may
be served.
(End of Article X)
ARTICLE XI
TERMINATION
-----------
Section 11.01. Termination. (a) The respective obligations and
-----------
responsibilities of the Company, the Master Servicer and the Trustee (except
the duty to pay the Trustee's fees and expenses and indemnification
hereunder) shall terminate (i) upon the later of the final payment or other
liquidation (or any advance with respect thereto) of the last Mortgage Loan
or the disposition of all property acquired upon foreclosure or deed in lieu
of foreclosure of any Mortgage Loan and the remittance of all funds due
hereunder (including without limitation any Distribution Account Shortfall)
or (ii) at the option of the Master Servicer, on any Distribution Date which
occurs in the month next following a Due Period in which the aggregate unpaid
Principal Balance of all Outstanding Mortgage Loans is less than 10% of the
aggregate unpaid Principal Balance of the Mortgage Loans on the Cut-off Date,
so long as the Master Servicer deposits or causes to be deposited in the
Certificate Account during the Due Period related to such Distribution Date
an amount equal to the greatest of (A) the Purchase Price for each Mortgage
Loan, and, with respect to all property acquired in respect of any Mortgage
Loan remaining in the Trust Fund, an amount equal to the appraised value of
such property (less, if the purchaser is the Master Servicer, any
unreimbursed Advances made by the Master Servicer, which Advances shall
thereupon be deemed reimbursed to the Master Servicer), such appraisal to be
conducted by an appraiser selected by the Master Servicer, (B) the aggregate
fair market value (as determined by the Master Servicer as of the close of
business on the last Business Day of such Due Period) of all of the assets of
the Trust Fund (less, if the purchaser is the Master Servicer, any
unreimbursed Advances made by the Master Servicer, which Advances shall
thereupon be deemed reimbursed to the Master Servicer), plus, in each case,
one month's interest at the applicable Net Mortgage Rate on the Principal
Balance of each Mortgage Loan (including any Mortgage Loan as to which title
to the underlying Mortgaged Property has been acquired) and (C) the sum of
(1) the aggregate of the Class A Principal Balance, together with one month's
interest on the Class A Principal Balance at the Class A Pass-Through Rate,
and any Class A Unpaid Interest Shortfall, (2) the sum of the Class B
Principal Balance, together with one month's interest on the Class B
Principal Balance at the Class B Pass-Through Rate and any Class B Unpaid
Interest Shortfall, and (3) any amounts owed to the Certificate Insurer and
the Surety hereunder; provided, however, that in no event shall the trust
created hereby continue beyond the expiration of 21 years from the death of
the last survivor of the descendants of Joseph P. Kennedy, the late
ambassador of the United States to the Court of St. James, living on the date
hereof.
Notice of any termination, specifying the Distribution Date upon which
all Certificateholders may surrender their Certificates to the Trustee for
payment and cancellation, shall be given promptly
by the Trustee (upon direction by the Company 10 days prior to the date such
notice is to be mailed) by letter to Certificateholders, the Certificate
Insurer, the Surety and the Rating Agency mailed no later than the 25th day
of the month preceding the month of such final distribution specifying (i)
the Distribution Date upon which final payment on the Certificates will be
made upon presentation and surrender of Certificates at the office or agency
of the Trustee therein designated, (ii) the amount of any such final payment
and (iii) that the Record Date otherwise applicable to such Distribution Date
is not applicable, payments being made only upon presentation and surrender
of the Certificates at the office or agency of the Trustee therein specified.
Such notice shall be accompanied by an Opinion of Counsel provided by the
Master Servicer at its expense that such plan is a "qualified liquidation"
under the REMIC Provisions and shall constitute the adoption by the Trustee
on behalf of the Certificateholders of a plan of complete liquidation within
the meaning of section 860F(a)(4) of the Code. After giving such notice, the
Trustee shall not register the transfer or exchange of any Certificates. If
such notice is given in connection with the Master Servicer's election to
repurchase, the Master Servicer shall cause to be deposited in the
Distribution Account during the applicable Due Period an amount equal to the
above-described purchase price and on the Distribution Date on which such
termination is to occur, Certificateholders will be entitled to the amount of
such purchase price but not amounts in excess thereof, all as provided
herein. Upon presentation and surrender of the Certificates, the Trustee
shall notify the Paying Agent and the Paying Agent shall distribute from the
Distribution Account to Certificateholders an amount equal to (a) the amount
otherwise distributable on such Distribution Date, if not in connection with
a purchase; or (b) if the Master Servicer elected to so purchase, the
purchase price calculated as provided above. Following such final deposit
the Trustee shall promptly release to the Master Servicer the Mortgage Files
for the remaining Mortgage Loans, and the Trustee shall execute all
assignments, endorsements and other instruments necessary to effectuate such
transfer and shall have no further responsibility with regard to said
Mortgage Files.
If all of the Certificateholders shall not surrender their Certificates
for cancellation within three months after the time specified in the above-
mentioned written notice, the Paying Agent shall on such date cause all funds
in the Distribution Account not distributed in final distribution to
Certificateholders to be withdrawn therefrom and credited to the remaining
Certificateholders by depositing such funds in a separate escrow account for
the benefit of such Certificateholders, and the Trustee shall give a second
written notice to the remaining Certificateholders to surrender their
Certificates for cancellation and receive the final distribution with respect
thereto. If within three months after the second notice all the
Certificates shall not have been surrendered for cancellation, the Trustee
shall appoint an agent to take appropriate and reasonable steps to contact
the remaining
Certificateholders concerning surrender of their Certificates, and the cost
thereof shall be paid out of the funds and other assets which remain in the
Trust Fund hereunder.
Section 11.02. Additional Termination Requirements. (a) In the event
-----------------------------------
the Master Servicer exercises its repurchase option as provided in Section
11.01, the Trust Fund shall be terminated in accordance with the following
additional requirements, unless the Trustee has received an Opinion of
Independent Counsel to the effect that the failure of the Trust Fund to
comply with the requirements of this Section 11.02 will not (i) result in the
imposition of taxes on "prohibited transactions" of the Trust Fund as defined
in Section 860F of the Code, or (ii) cause the Trust Fund to fail to qualify
as a REMIC at any time that any Certificates are outstanding:
(i) The Master Servicer shall establish a 90-day liquidation
period in a statement attached to the final tax returns of the Trust
Fund pursuant to Treasury Regulation Section 1.860F-1. The Master
Servicer shall satisfy all requirements of a qualified liquidation under
Section 860F of the Code and any regulations thereunder, as evidenced by
an Independent Opinion of Counsel obtained at the expense of the Master
Servicer;
(ii) During such 90-day liquidation period, and at or prior to the
Distribution Date for the final distribution, the Trustee shall sell all
of the assets of the Trust Fund to the Master Servicer for cash; and
(iii) At the time of the final payment on the Class A and Class B
Certificates, the Trustee shall distribute or credit, or cause to be
distributed or credited, to the Class R Certificateholders all remaining
available cash (other than cash retained to meet claims) and property in
the Trust Fund, and the Trust Fund shall terminate at that time.
(b) By their acceptance of the Class R Certificates, the Holders
thereof hereby authorize the Master Servicer to specify the 90-day
liquidation period, which authorization shall be binding upon all successor
Holders of the Class R Certificates.
Section 11.03. Termination By Certificate Insurer or Surety. In the
--------------------------------------------
event the Master Servicer does not exercise its option to terminate the Trust
Fund pursuant to this Article, the Certificate Insurer or the Surety may do
so on the same terms.
(End of Article XI)
ARTICLE XII
MISCELLANEOUS PROVISIONS
------------------------
Section 12.01. Severability of Provisions. If any one or more of the
--------------------------
covenants, agreements, provisions or terms of this Agreement shall be for any
reason whatsoever held invalid, then such covenants, agreements, provisions
or terms shall be deemed severable from the remaining covenants, agreements,
provisions or terms of this Agreement and shall in no way affect the validity
or enforceability of the other provisions of this Agreement.
Section 12.02. Limitation on Rights of Certificateholders. The death
------------------------------------------
or incapacity of any Certificateholder shall not operate to terminate this
Agreement or the Trust Fund, nor entitle such Certificateholder's legal
representatives or heirs to claim an accounting or to take any action or
proceeding in any court for a partition or winding-up of the Trust Fund, nor
otherwise affect the rights, obligations, and liabilities of the parties
hereto or any of them.
No Certificateholder shall have any right to vote (except as expressly
provided herein) or in any manner otherwise control the operation and
management of the Trust Fund, or the obligations of the parties hereto, nor
shall anything herein set forth, or contained in the terms of the
Certificates, be construed so as to constitute the Certificateholders from
time to time as partners or members of an association; nor shall any
Certificateholder be under any liability to any third person by reason of any
action taken by the parties to this Agreement pursuant to any provision
hereof.
No Certificateholder shall have any right by virtue of any provision of
this Agreement to institute any suit, action or proceeding in equity or at
law upon or under or with respect to this Agreement, the Certificate
Insurance Policy or the Certificate Guaranty Surety Bond, unless such Holder
previously shall have given to the Trustee a written notice of default and of
the continuance thereof, as hereinbefore provided, and the Holders of Cer-
tificates evidencing in the aggregate not less than 25% of the Trust Fund (on
the basis of the principal balances of the Certificates) shall have made
written request upon the Trustee to institute such action, suit or proceeding
in its own name as Trustee hereunder and shall have offered to the Trustee
such reasonable indemnity as it may require against the costs, expenses and
liabilities to be incurred therein or thereby, and the Trustee, for 60 days
after its receipt of such notice, request and offer of indemnity, shall have
neglected or refused to institute any such action, suit or proceeding; it
being understood and intended, and being expressly covenanted by each
Certificateholder with every other Certificateholder and the Trustee, that no
one or more Holders of Certificates of any Class shall have any right in any
manner whatever by virtue of any
provision of this Agreement to affect, disturb or prejudice the rights of the
Holders of any other of such Certificates of such Class or any other Class,
or to obtain or seek to obtain priority over or preference to any other such
Holder, or to enforce any right under this Agreement, except in the manner
herein provided and for the common benefit of Certificateholders of such
Class or all Classes, as the case may be. For the protection and enforcement
of the provisions of this Section, each and every Certificateholder and the
Trustee shall be entitled to such relief as can be given either at law or in
equity.
Section 12.03. Amendment. This Agreement may be amended from time to
---------
time by the Company, the Master Servicer and the Trustee, with the consent of
the Certificate Insurer and the Surety so long as such consent is not
unreasonably withheld and without the consent of any of the
Certificateholders, (i) to cure or correct any ambiguity, mistake or error,
(ii) to correct or supplement any provisions herein which may be inconsistent
with any other provisions herein or with the Prospectus Supplement or
Prospectus pursuant to which the Class A Certificates were offered, (iii) to
obtain a rating by a nationally recognized rating agency or to maintain or
improve the rating of the Class A Certificates then given by a rating agency
(it being understood that, after obtaining the rating of the Class A
Certificates at the Closing Date, none of the Trustee, the Company or the
Master Servicer is obligated to obtain, maintain or improve any rating of any
Class of Certificates), or (iv) to make any other provisions with respect to
matters or questions arising under this Agreement which shall not be
materially inconsistent with the provisions of this Agreement, including
without limitation provisions relating to the issuance of Definitive
Certificates to Certificate Owners if book-entry registration of the Class A
Certificates is no longer permitted; provided that, in the case of clause
(iv), such action shall not, as evidenced by an Opinion of Independent
Counsel, adversely affect in any material respect the interests of any
Certificateholder.
This Agreement may also be amended from time to time by the Company, the
Master Servicer and the Trustee, with the consent of the Holders of
Certificates of each Class affected thereby, evidencing, as to each such
Class, Percentage Interests aggregating not less than 66% and the consent of
the Certificate Insurer and the Surety, for the purpose of adding any
provisions to or changing in any manner or eliminating any of the provisions
of this Agreement or of modifying in any manner the rights of the Holders of
Certificates of such Class; provided, however, that no such amendment shall
(i) reduce in any manner the amount of, or delay the timing of, payments
received on Mortgage Loans which are required to be distributed on any
Certificate without the consent of the Holder of such Certificate or (ii)
reduce the aforesaid percentage of Certificates of any class the Holders of
which are required to consent to any such amendment, without the consent of
the Holders of all Certificates of such Class then outstanding.
The Company, the Master Servicer and the Trustee, may from time to time
amend this Agreement without the consent of any of the Certificateholders,
the Certificate Insurer or the Surety to modify, eliminate or add to any of
the provisions hereof to the extent necessary to maintain the qualification
of the Trust Fund as a REMIC or to avoid the imposition of any material tax
liability thereon at all times that any Certificate is outstanding.
Promptly after the execution of any such amendment the Trustee shall
furnish written notification of the substance of such amendment to each
Certificateholder, the Certificate Insurer, the Surety and the Rating
Agencies (with a copy of the amendment itself to Standard & Poor's).
It shall not be necessary for the consent of Certificateholders under
this Section 12.03 to approve the particular form of any proposed amendment
but it shall be sufficient if such consent shall approve the substance
thereof. The manner of obtaining such consents and of evidencing the
authorization of the execution thereof by Certificateholders shall be subject
to such reasonable regulations as the Trustee may prescribe.
Notwithstanding any provisions of this Agreement, the Trustee shall not
consent to any amendment to this Agreement unless it shall first receive an
Opinion of Counsel to the effect that such amendment will not result in the
imposition of a tax on the Trust Fund or cause the Trust Fund to fail to
qualify as a REMIC at any time that any Certificates are outstanding. In no
event shall any Opinion of Counsel provided pursuant to this Section 12.03 be
an expense of the Trustee.
Section 12.04. The Certificate Insurer; Surety. The Certificate
-------------------------------
Insurer is a third-party beneficiary of this Agreement. Any right conferred
to the Certificate Insurer shall be suspended during any period in which the
Certificate Insurer is in default in its payment obligations under the
Certificate Insurance Policy. During any period of suspension the Certi-
ficate Insurer's rights thereunder shall vest in the Holders of the Class A
Certificates and shall be exercisable by the Holders of at least a majority
in Percentage Interest of the Class A Certificates then Outstanding. At such
time as the Class A Certificates are no longer Outstanding hereunder and the
Certificate Insurer has been reimbursed for all Insured Payments to which it
is entitled hereunder and has been paid all Premium Amounts due and owing
under the Insurance Agreement, the Certificate Insurer's rights hereunder
shall terminate.
The Surety is a third-party beneficiary of this Agreement. Any right
conferred to the Surety shall be suspended during any period in which the
Surety is in default in its payment obligations under the Certificate
Guaranty Surety Bond. During any period of suspension the Surety's rights
hereunder shall vest in the Holders
of the Certificates and shall be exercisable by the Holders of at least a
majority in Percentage Interest of each Class of Certificates then
Outstanding. At such time as the Certificates are no longer Outstanding
hereunder, the Surety's rights hereunder shall terminate.
Section 12.05. Recordation of Agreement; Counterparts. To the extent
--------------------------------------
permitted by applicable law, this Agreement is subject to recordation in all
appropriate public offices for real property records in all the counties or
other comparable jurisdictions in which any or all of the properties subject
to the Mortgages are situated, and in any other appropriate public recording
office or elsewhere, such recordation to be effected by the Master Servicer
at the Master Servicer's expense on direction of the Trustee accompanied by
an Opinion of Counsel to the effect that such recordation materially and
beneficially affects the interests of the Certificateholders or is necessary
for the administration or servicing of the Mortgage Loans.
This Agreement may be executed simultaneously in any number of
counterparts, each of which counterparts shall be deemed to be an original,
and such counterparts shall constitute but one and the same instrument.
Section 12.06. Duration of Agreement. This Agreement shall continue
---------------------
in existence and effect until terminated as herein provided.
Section 12.07. Governing Law. This Agreement shall be construed in
-------------
accordance with the laws of the State of New York and the obligations, rights
and remedies of the parties hereunder shall be determined in accordance with
such laws.
Section 12.08. Notices. All demands, notices and communications
-------
hereunder shall be in writing and shall be deemed to have been duly given
when delivered to (i) in the case of the Company, MLCC Mortgage Investors,
Inc., 4802 Deer Lake Drive East, Jacksonville, Florida 32246, Attention:
President, (ii) in the case of the Master Servicer, Merrill Lynch Credit
Corporation, 4802 Deer Lake Drive East, Jacksonville, Florida 32246,
Attention: President, with a copy at the same address to the General
Counsel of the Master Servicer, (iii) in the case of the Trustee, at the
Corporate Trust Office, Attention: MLCCMI Mortgage Loan Asset Backed
Certificates Series 199_-_, (iv) in the case of Moody's Investors Service,
Inc., 99 Church Street, New York, New York 10007, Attention: Structured
Finance Surveillance, (v) in the case of Standard & Poor's, 26 Broadway, 15th
Floor, New York, New York, Attention: Mortgage Surveillance Group, (vi) in
the case of the Certificate Insurer and the Surety, AMBAC Indemnity
Corporation, One State Street Plaza, New York, New York 10004, Attention:
Structured Finance -- MBS, or (vii) in the case of any of the foregoing
persons, such other addresses as may hereafter be furnished by any such
persons to the
other parties to this Agreement. Notice to a Certificateholder shall be sent
U.S. mail first class postage prepaid and shall be deemed given when mailed
addressed to the address shown in the Certificate Register.
(End of Article XII)
IN WITNESS WHEREOF, the Company, the Master Servicer and the Trustee
have caused their names to be signed hereto by their respective officers
thereunto duly authorized as of the day and year first above written.
MLCC MORTGAGE INVESTORS,
INC., as the Company
By:
----------------------------
Name:
Title:
MERRILL LYNCH CREDIT CORPORATION,
as Master Servicer
By:
-----------------------------
Name:
Title:
BANKERS TRUST COMPANY OF CALIFORNIA, N.A.
as Trustee
By:
--------------------------------
Name:
Title:
STATE OF FLORIDA )
) ss.:
COUNTY OF DUVAL )
On the ____ day of ___________. 199_, before me, a notary public in and
for said State, personally appeared ______________, known to me to be
__________________________ of MLCC Mortgage Investors, Inc., one of the
corporations that executed the within instrument, and also known to me to be
the person who executed it on behalf of said corporation, and acknowledged to
me that such corporation executed the within instrument.
IN WITNESS WHEREOF, I have hereunto set my hand and affixed my official
seal the day and year in this certificate first above written.
----------------------------
Notary Public
(Notarial Seal)
My Commission expires:
STATE OF FLORIDA )
) ss.:
COUNTY OF DUVAL )
On the ____ day of _____________, 199_, before me, a notary public in
and for said State, personally appeared _______________, known to me or
proved to be ________________________________ of Merrill Lynch Credit
Corporation that executed the within instrument, and also known or proved to
me to be the person who executed it on behalf of said corporation, and
acknowledged to me that such corporation executed the within instrument.
IN WITNESS WHEREOF, I have hereunto set my hand and affixed my official
seal the day and year in this certificate first written.
----------------------------------
Notary Public
(Notarial Seal)
My Commission expires:
STATE OF __________ )
) ss.:
COUNTY OF _________ )
On the ____ day of ____________, 199_, before me, a notary public in and
for said State, personally appeared ____________, known to me to be
____________________ of Bankers Trust Company of California, N.A., that
executed the within instrument, and also known to me to be the person who
executed it on behalf of said banking association, and acknowledged to me
that such banking association executed the within instrument.
IN WITNESS WHEREOF, I have hereunto set my hand and affixed my official
seal the day and year in this certificate first written.
-----------------------------
Notary Public
(Notarial Seal)
My Commission expires:
EXHIBIT A
MORTGAGE LOAN SCHEDULE
EXHIBIT B
CONTENTS OF MORTGAGE FILE
With respect to each Mortgage Loan, the Mortgage File shall include each
of the following items:
1. Original Mortgage Note endorsed (by facsimile signature if so
authorized by the Mortgage Loan Seller), "Pay to the order of
Bankers Trust Company of California, N.A., as trustee, under that
certain Pooling and Servicing Agreement dated as of ______ 1, 199_,
for Mortgage Loan Asset Backed Pass-Through Certificates, Series
199_-_ (MLCC Mortgage Investors, Inc., Seller) without recourse"
and signed in the name of the Mortgage Loan Seller by an authorized
officer.
2. Original recorded Mortgage, or if such original has been delivered
to the appropriate recorder's office for recording, a certified
copy thereof certified true and complete by the Mortgage Loan
Seller or the escrow agent acting in connection with the
origination of the Mortgage Loan, with the original to be delivered
within 180 days of the Closing Date.
3. Original Assignment of Mortgage in recordable form to "Bankers
Trust Company of California, N.A., as trustee, under that certain
Pooling and Servicing Agreement dated as of ______ 1, 199_, for
Mortgage Loan Asset Backed Pass-Through Certificates, Series 199_-_
", executed by an authorized signatory of the Mortgage Loan Seller.
Subject to the foregoing, such assignments may, if permitted by
law, be in the form of blanket assignments for Mortgage Loans
covering Mortgaged Properties situated within the same county. If
the Assignment of Mortgage is in blanket form, a copy of the
Assignment of Mortgage shall be included in the individual Mortgage
File.
4. Originals of all assumption and modification agreements, if any.
5. Original policies of title insurance, or if the original policy of
title insurance is unavailable, a copy of the preliminary title
report, with the original title policy to be delivered within 150
days of the Closing Date. The policy must affirmatively insure
ingress and egress and insure against encroachments by or upon the
Mortgaged Property or any interest therein.
6. With respect to those Mortgage Loans which are cooperative loans,
the original Mortgage Note, endorsed (by facsimile signature if so
authorized by the Mortgage Loan Seller),
"Pay to the order of Bankers Trust Company of California, N.A., as
trustee, under that certain Pooling and Servicing Agreement dated
as of ______ 1, 199_, for Mortgage Loan Asset Backed Pass-Through
Certificates, Series 199_-_ (MLCC Mortgage Investors, Inc., Seller)
without recourse" and signed in the name of the Mortgage Loan
Seller by an authorized officer; the original stock certificate and
related stock power executed by the obligor in blank; the original
loan security agreement and the assignment of the note and loan
security agreement, if applicable, assigned to "Bankers Trust
Company of California, N.A. as trustee under that certain Pooling
and Servicing Agreement dated as of ______ 1, 199_ for Mortgage
Loan Asset Backed Pass-Through Certificates, Series 199_-_"; the
original proprietary lease and the assignment of the proprietary
lease, if applicable, executed by the obligor in blank; and any
financing statements relating thereto.
EXHIBIT C
FORM OF FACE OF CLASS A CERTIFICATE
SOLELY FOR U.S. FEDERAL INCOME TAX PURPOSES, THIS CERTIFICATE IS A
"REGULAR INTEREST" IN A "REAL ESTATE MORTGAGE INVESTMENT CONDUIT"
AS THOSE TERMS ARE DEFINED, RESPECTIVELY, IN SECTIONS 860G AND 860D
OF THE INTERNAL REVENUE CODE.
UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF
THE DEPOSITORY TRUST COMPANY, A NEW YORK CORPORATION ("DTC"), TO THE
TRUSTEE OR ITS AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE, OR PAYMENT,
AND ANY CERTIFICATE ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR IN
SUCH OTHER NAME AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC
(AND ANY PAYMENT IS MADE TO CEDE & CO. OR TO SUCH OTHER ENTITY AS IS
REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC), ANY TRANSFER, PLEDGE,
OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS
WRONGFUL INASMUCH AS THE REGISTERED OWNER HEREOF, CEDE & CO., HAS AN
INTEREST HEREIN.
CLASS A
MORTGAGE LOAN ASSET BACKED PASS-THROUGH CERTIFICATE
SERIES 199_-_
NUMBER: ______________
DATE OF POOLING ORIGINAL DENOMINATION:
AND SERVICING AGREEMENT: $_____________________
______ 1, 199_
CUT-OFF DATE:
______ 1, 199_
FINAL MATURITY DATE: ORIGINAL CLASS A PRINCIPAL
____________, 20__ BALANCE:
$___________
FIRST DISTRIBUTION DATE: CUSIP__________________
___________, ____
evidencing a percentage interest in any distribution allocable to
the Class A Certificates with respect to a pool of adjustable rate
conventional one- to four-family mortgage loans formed and sold by
MLCC MORTGAGE INVESTORS, INC.
THIS CERTIFICATE DOES NOT REPRESENT AN OBLIGATION OF OR INTEREST IN
MLCC MORTGAGE INVESTORS, INC., THE MASTER SERVICER OR
THE TRUSTEE REFERRED TO BELOW OR ANY OF THEIR AFFILIATES. NEITHER THIS
CERTIFICATE NOR THE UNDERLYING MORTGAGE LOANS ARE GUARANTEED OR INSURED BY
MLCC MORTGAGE INVESTORS, INC. OR BY ANY OF ITS AFFILIATES OR BY ANY
GOVERNMENTAL AGENCY OR INSTRUMENTALITY.
THE PRINCIPAL BALANCES OF THE MORTGAGE LOANS EVIDENCED BY THIS
CERTIFICATE ("CERTIFICATE BALANCE") WILL BE REDUCED BY A PORTION OF THE
PAYMENTS ON SUCH MORTGAGE LOANS. ACCORDINGLY, FOLLOWING THE INITIAL ISSUANCE
OF THE CERTIFICATES, THE CERTIFICATE BALANCE OF THIS CERTIFICATE WILL BE
DIFFERENT FROM THE ORIGINAL DENOMINATION SHOWN ABOVE. ANYONE ACQUIRING THIS
CERTIFICATE MAY ASCERTAIN ITS CURRENT CERTIFICATE BALANCE BY INQUIRY OF THE
TRUSTEE. ON THE DATE OF THE INITIAL ISSUANCE OF THE CERTIFICATES, THE
TRUSTEE IS BANKERS TRUST COMPANY OF CALIFORNIA, N.A., 3 PARK PLAZA, IRVINE,
CALIFORNIA 92714.
This certifies that CEDE & CO. is the registered owner of a beneficial
interest in certain monthly distributions with respect to a pool (the
"Mortgage Pool") of conventional one- to four-family mortgage loans (the
"Mortgage Loans") formed and sold by MLCC Mortgage Investors, Inc.
(hereinafter called the "Company", which term includes any successor entity
under the Agreement referred to below) and certain other property held in
trust for the benefit of Certificateholders (collectively, the "Trust Fund").
The Mortgage Loans are serviced by Merrill Lynch Credit Corporation (the
"Master Servicer"). The Trust Fund was created pursuant to a Pooling and
Servicing Agreement dated as specified above (the "Agreement") among the
Company, the Master Servicer and Bankers Trust Company of California, N.A.,
as trustee (the "Trustee"), a summary of certain of the pertinent provisions
of which is set forth hereafter. To the extent not defined herein, the
capitalized terms used herein have the meanings assigned in the Agreement.
This Certificate is one of a duly authorized issue of Certificates,
designated as Mortgage Loan Asset Backed Pass-Through Certificates, Series
199_-_, Class A (the "Class A Certificates") and is issued under and is
subject to the terms, provisions and conditions of the Agreement, to which
Agreement the Holder of this Certificate by virtue of the acceptance hereof
assents and by which such Holder is bound. Also issued under the Agreement
are Certificates designated as Mortgage Loan Asset Backed Pass-Through
Certificates, Series 199_-_, Class B (the "Class B Certificates") and a
residual interest Certificate designated as Mortgage Loan Asset Backed Pass-
Through Certificates, Series 199_-_, Class R (the "Class R Certificate").
The Class B Certificates and the Class R Certificate are subordinate to the
Class A Certificates in right of payment to the extent described in the
Agreement. The Class A Certificates, the Class B Certificates and the Class
R Certificate are collectively referred to as the "Certificates". The
interests of the Class A Certificateholders in the Trust Fund will vary as
described in the Agreement.
Pursuant to the terms of the Agreement, the Paying Agent will distribute
from certain funds in the Distribution Account on the 15th day of each month
or, if such 15th day is not a Business Day, the first Business Day
immediately following (the "Distribution Date"), commencing on ____________,
____, to the Person in whose name this Certificate is registered on the
related Record Date, an amount equal to the product of the Percentage
Interest evidenced by this Certificate and the Class A Distribution Amount
for such Distribution Date.
Distributions on this Certificate will be made by the Paying Agent
either by check mailed to the address of the Person entitled thereto, as such
name and address shall appear on the Certificate Register, or, by wire
transfer in immediately available funds to the account of such Holder at a
bank or other financial or depository institution having appropriate
facilities therefor, if such Holder has so notified the Paying Agent in
writing at least five Business Days prior to the Record Date for such
Distribution Date and such Holder's Class A Certificates evidence an original
denomination of not less than $5,000,000. Notwithstanding the above, the
final distribution on this Certificate will be made after due notice by the
Trustee of the pendency of such distribution and only upon presentation and
surrender of this Certificate at the office or agency appointed by the
Trustee for that purpose and specified in such notice of final distribution.
Unless this Certificate is presented by an authorized representative of
The Depository Trust Company to the Trustee or its agent for registration of
transfer, exchange or payment, and any certificate issued is registered in
the name of Cede & Co. or in such other name as is requested by an authorized
representative of The Depository Trust Company and any payment is made to
Cede & Co. or to such other entity as is requested by an authorized
representative of DTC, any transfer, pledge or other use hereof for value or
otherwise by or to any person is wrongful inasmuch as the registered owner
hereof, Cede & Co., has an interest herein.
Reference is hereby made to the further provisions of this Certificate
set forth hereafter, which further provisions shall for all purposes have the
same effect as if set forth at this place.
Unless the certificate of authentication hereon has been executed by the
Trustee, by manual signature, this Certificate shall not be entitled to any
benefit under the Agreement or be valid for any purpose.
IN WITNESS WHEREOF, the Company has caused this Certificate to be duly
executed.
Dated:
MLCC MORTGAGE INVESTORS, INC.
By:
--------------------
Authorized Officer
FORM OF CERTIFICATE OF
AUTHENTICATION
THIS IS ONE OF THE CLASS A CERTIFICATES
REFERRED TO IN THE WITHIN-MENTIONED AGREEMENT
BANKERS TRUST COMPANY OF CALIFORNIA, N.A.,
as Trustee
By:___________________________
Authorized Signatory
FORM OF REVERSE OF CLASS A CERTIFICATE
This Class A Certificate is one of a duly authorized issue of
Certificates, designated as Mortgage Loan Asset Backed Pass-Through
Certificates, Series 199_-_, issued in one Class of Class A Certificates, one
Class of Class B Certificates and one Class of Class R Certificates, each
evidencing an interest in certain distributions, as specified in the
Agreement, with respect to a pool of adjustable rate conventional one- to
four-family mortgage loans formed and sold by the Company and certain other
property conveyed by the Company to the Trustee. The Class B and Class R
Certificates represent subordinate interests in the Trust Fund (to the extent
provided in the Agreement) to those of the Class A Certificates. The Class R
Certificate represents the residual interest in the Trust Fund.
The Trustee will cause to be kept at its Corporate Trust Office in
Irvine, California, or at the office of its designated agent, a Certificate
Register in which, subject to such reasonable regulations as it may
prescribe, the Trustee will provide for the registration of Certificates and
of transfers and exchanges of Certificates. Upon surrender for registration
of transfer of any Certificate at any office or agency of the Trustee
maintained for such purpose, the Trustee will, subject to the limitations set
forth in the Agreement, authenticate and deliver, in the name of the
designated transferee or transferees, a Certificate of a like Class and
aggregate Percentage Interest and dated the date of authentication by the
Trustee.
No service charge will be made for any transfer or exchange of the
Certificate, but the Trustee may require payment of a sum sufficient to cover
any tax or governmental charge that may be imposed in connection with any
transfer or exchange of the Certificate. Prior to due presentation of a
Certificate for registration of transfer, the Company, the Master Servicer,
the Certificate Insurer, the Surety and the Trustee may treat the person in
whose name any Certificate is registered as the owner of such Certificate and
the Percentage Interest in the Trust Fund evidenced thereby for the purpose
of receiving distributions pursuant to the Agreement and for all other
purposes whatsoever, and neither the Company, the Master Servicer, the
Certificate Insurer, the Surety nor the Trustee will be affected by notice to
the contrary.
The Agreement may be amended from time to time by the Company, the
Master Servicer and the Trustee, with the consent of the Certificate Insurer
and the Surety and without the consent of any of the Certificateholders, (i)
to cure or correct any ambiguity, mistake or error, (ii) to correct or
supplement any provisions therein which may be inconsistent with any other
provisions therein or with the Prospectus Supplement or Prospectus pursuant
to which the Class A Certificates were offered, (iii) to ensure continuing
treatment of the Trust Fund as a REMIC or to avoid the imposition of certain
tax liabilities, (iv) to obtain a rating by a nationally
recognized rating agency or to maintain or improve the ratings of the Class A
Certificates then given by a rating agency (it being understood that, after
obtaining the ratings of the Class A Certificates at the Closing Date, none
of the Trustee, the Company or the Master Servicer is obligated to obtain,
maintain or improve any rating of any Class of Certificates), and (v) to make
any other provisions with respect to matters or questions arising under the
Agreement which are not materially inconsistent with the provisions of the
Agreement, including without limitation provisions relating to the issuance
of Definitive Certificates to Certificate Owners if book-entry registration
of the Class A Certificates is no longer permitted; provided that, in the
case of clause (v), such action does not, as evidenced by an Opinion of
Counsel, adversely affect in any material respect the interest of any
Certificateholder.
The Agreement may also be amended from time to time by the Company, the
Master Servicer and the Trustee, with the consent of the Holders of
Certificates of each Class affected thereby evidencing, as to each such
Class, Percentage Interests aggregating not less than 66% and the consent of
the Certificate Insurer and the Surety, for the purpose of adding any
provisions to or changing in any manner or eliminating any of the provisions
of the Agreement or of modifying in any manner the rights of the Holders of
Certificates of such Class; provided, however, that no such amendment may (i)
reduce in any manner the amount of, or delay the timing of, payments received
on Mortgage Loans which are required to be distributed on any Certificate
without the consent of the Holder of such Certificate or (ii) reduce the
aforesaid percentage of Certificates of any Class the Holders of which are
required to consent to any such amendment, without the consent of the Holders
of all Certificates of such Class then outstanding.
The Company intends to cause an election to be made to treat the Trust
Fund (exclusive of the Mortgage 100 Pledge Agreements and the Parent Power
Agreements) as a real estate mortgage investment conduit (the "REMIC"). The
Class A Certificates and the Class B Certificates will constitute "regular
interests" in the REMIC. The Class R Certificate will constitute the
"residual interest" in the REMIC.
The respective obligations and responsibilities of the Company, the
Master Servicer and the Trustee under the Agreement will terminate upon: (i)
the later of the final payment or other liquidation (or any advance with
respect thereto) of the last Mortgage Loan or the disposition of all property
acquired upon foreclosure or deed in lieu of foreclosure of any Mortgage Loan
and the remittance of all funds due thereunder; or (ii) at the option of the
Master Servicer, the Certificate Insurer or the Surety, on any Distribution
Date which occurs in the month following a Due Date on which the aggregate
unpaid Principal Balance of all outstanding Mortgage Loans is less than 10%
of the aggregate unpaid Principal Balance of the Mortgage Loans on the Cut-
off Date in accordance with the provisions set forth in the Agreement;
provided, however, that
in no event shall the trust created hereby continue beyond the expiration of
21 years from the death of the last survivor of the descendants of Joseph P.
Kennedy, the late ambassador of the United States to the Court of St. James,
living on the date hereof.
Most of the Mortgage Loans are convertible to fixed rates or new Indices
in accordance with their terms.
FORM OF ASSIGNMENT
FOR VALUE RECEIVED, the undersigned hereby sells, assigns and transfers
unto
(PLEASE INSERT SOCIAL SECURITY* OR TAXPAYER IDENTIFICATION NUMBER OF
ASSIGNEE)
_______________________
_______________________
________________________________________________________
(Please Print or Typewrite Name and Address of Assignee)
___________________________________________________________
the within Certificate, and all rights thereunder, and hereby does
irrevocably constitute and appoint
Attorney
- ---------------------------------------------------
to transfer the within Certificate on the books kept for the registration
thereof, with full power of substitution in the premises.
Dated:
(Signature guaranty) ______________________________
NOTICE: The signature to this assignment must
correspond with the name as it appears upon
the face of the within Certificate in every
particular, without alteration or enlargement
or any change whatever.
(*This information, which is voluntary, is being requested to ensure that the
assignee will not be subject to backup withholding under Section 3406 of the
Code.)
EXHIBIT D
FORM OF FACE OF CLASS B CERTIFICATE
(THE FOLLOWING INFORMATION IS PROVIDED SOLELY FOR PURPOSES OF APPLYING
UNITED STATES FEDERAL INCOME TAX ORIGINAL ISSUE DISCOUNT ("OID") RULES
TO THIS CERTIFICATE. FOR PURPOSES OF SUCH RULES, THE ISSUE DATE OF THIS
CERTIFICATE IS _________________. THE INITIAL INTEREST RATE PAYABLE ON
THIS CERTIFICATE IS ____. THIS CERTIFICATE HAS BEEN ISSUED WITH
$________ OF OID PER $1000 OF PRINCIPAL AMOUNT, AND THE YIELD TO
MATURITY IS _______. THE AMOUNT OF OID ATTRIBUTABLE TO THE INITIAL
SHORT ACCRUAL PERIOD IS $_____ PER $1000 OF PRINCIPAL AMOUNT CALCULATED
UNDER THE EXACT (APPROXIMATE) METHOD.)
THIS CLASS B CERTIFICATE HAS NOT BEEN REGISTERED UNDER THE SECURITIES
EXCHANGE ACT OF 1933, AS AMENDED, OR THE SECURITIES LAWS OF ANY STATE
AND MAY NOT BE RESOLD OR TRANSFERRED UNLESS IT IS REGISTERED PURSUANT TO
SUCH ACT OR LAWS OR IS SOLD OR TRANSFERRED IN TRANSACTIONS WHICH ARE
EXEMPT FROM REGISTRATION UNDER SUCH ACT OR UNDER APPLICABLE STATE LAW
AND IS TRANSFERRED IN ACCORDANCE WITH THE PROVISIONS OF SECTION 4.02 OF
THE AGREEMENT REFERRED TO HEREIN.
THIS CLASS B CERTIFICATE IS SUBORDINATE IN RIGHT OF PAYMENT TO THE CLASS
A CERTIFICATES AS DESCRIBED IN THE AGREEMENT REFERRED TO HEREIN.
SOLELY FOR U.S. FEDERAL INCOME TAX PURPOSES, THIS CERTIFICATE IS A
"REGULAR INTEREST" IN A "REAL ESTATE MORTGAGE INVESTMENT CONDUIT" AS
THOSE TERMS ARE DEFINED, RESPECTIVELY, IN SECTIONS 860G AND 860D OF THE
INTERNAL REVENUE CODE.
CLASS B ORIGINAL DENOMINATION:
SUBORDINATE $_____________________
NUMBER: ______________
DATE OF POOLING
AND SERVICING AGREEMENT: ORIGINAL CLASS B
______ 1, 199_ PRINCIPAL BALANCE: $_________
CUT-OFF DATE:
______ 1, 199_
FINAL MATURITY DATE:
____________, ____
FIRST DISTRIBUTION DATE:
______________, ____
MORTGAGE LOAN ASSET BACKED PASS-THROUGH
CERTIFICATES, SERIES 199_-_
evidencing a percentage interest in any
distribution allocable to the Class B
Certificates with respect to a pool of
adjustable rate conventional one- to four-
family mortgage loans formed and sold by
MLCC MORTGAGE INVESTORS, INC.
THIS CERTIFICATE DOES NOT REPRESENT AN OBLIGATION OF OR INTEREST IN MLCC
MORTGAGE INVESTORS, INC., THE MASTER SERVICER OR THE TRUSTEE REFERRED TO
BELOW OR ANY OF THEIR AFFILIATES. NEITHER THIS CERTIFICATE NOR THE
UNDERLYING MORTGAGE LOANS ARE GUARANTEED OR INSURED BY MLCC MORTGAGE
INVESTORS, INC. OR BY ANY OF THEIR AFFILIATES OR BY ANY GOVERNMENTAL AGENCY
OR INSTRUMENTALITY.
THE PRINCIPAL BALANCES OF THE MORTGAGE LOANS EVIDENCED BY THIS
CERTIFICATE ("CERTIFICATE BALANCE") WILL BE REDUCED BY A PORTION OF THE
PAYMENTS ON SUCH MORTGAGE LOANS. ACCORDINGLY, FOLLOWING THE INITIAL ISSUANCE
OF THE CERTIFICATES, THE CERTIFICATE BALANCE OF THIS CERTIFICATE WILL BE
DIFFERENT FROM THE ORIGINAL DENOMINATION SHOWN ABOVE. ANYONE ACQUIRING THIS
CERTIFICATE MAY ASCERTAIN ITS CURRENT CERTIFICATE BALANCE BY INQUIRY OF THE
TRUSTEE. ON THE DATE OF THE INITIAL ISSUANCE OF THE CERTIFICATES, THE
TRUSTEE IS BANKERS TRUST COMPANY OF CALIFORNIA, N.A., 3 PARK PLAZA, IRVINE,
CALIFORNIA 92714.
This certifies that ___________________ is the registered owner of a
beneficial interest in certain distributions with respect to a pool (the
"Mortgage Pool") of conventional one- to four-family mortgage loans (the
"Mortgage Loans") formed and sold by MLCC Mortgage Investors, Inc.
(hereinafter called the "Company", which term includes any successor entity
under the Agreement referred to below), and certain other property held in
trust for the benefit of Certificateholders (collectively, the "Trust Fund").
The Mortgage Loans are serviced by Merrill Lynch Credit Corporation (the
"Master Servicer"). The Trust Fund was created pursuant to a Pooling and
Servicing Agreement dated as specified above (the "Agreement"), among the
Company, the Master Servicer and Bankers Trust Company of California, N.A.,
as trustee (the "Trustee"), a summary of certain of the pertinent provisions
of which is set forth hereafter. To the extent not defined herein, the
capitalized terms used herein have the meanings assigned in the Agreement.
This Certificate is one of a duly authorized issue of Certificates,
designated as Mortgage Loan Asset Backed Pass-Through Certificates, Series
199_-_, Class B (the "Class B Certificates") and is issued under and is
subject to the terms, provisions and conditions of the Agreement, to which
Agreement the Holder of this Certificate by virtue of the acceptance hereof
assents and by which such Holder is bound. Also issued under the Agreement
are Certificates designated as Mortgage Loan Asset Backed Pass-Through
Certificates Series 199_-_, Class A (the "Class A Certificates"),
and a residual interest certificate designated Mortgage Loan Asset Backed
Pass-Through Certificates, Series 199_-_, Class R (the "Class R
Certificate"). The Class A Certificates are senior to the Class B
Certificates in right of payment to the extent described in the Agreement.
The Class A Certificates, the Class B Certificates and the Class R
Certificate are collectively referred to as the "Certificates".
Pursuant to the terms of the Agreement, the Paying Agent will distribute
from funds in the Distribution Account on the 15th day of each month or, if
such 15th day is not a Business Day, the first Business Day immediately
following (the "Distribution Date"), commencing on September 16, 1996, to the
Person in whose name this Certificate is registered on the related Record
Date, an amount equal to the product of the Percentage Interest evidenced by
this Certificate and the Class B Distribution Amount for such Distribution
Date.
The rights of the Class B Certificateholders to receive distributions in
respect of the Class B Certificates on any Distribution Date are subordinate
to the rights of the Class A Certificateholders to receive distributions in
respect of such Class A Certificates to the extent set forth in the
Agreement. Distributions on this Certificate will be made by the Paying
Agent either by check mailed to the address of the Person entitled thereto,
as such name and address shall appear on the Certificate Register, or, by
wire transfer in immediately available funds to the account of such Holder at
a bank or other financial or depository institution having appropriate
facilities therefor, if such Holder has so notified the Paying Agent in
writing at least five Business Days prior to the Record Date for such
Distribution Date and such Holder's Class B Certificates evidence an original
denomination of not less than $5,000,000. Notwithstanding the above, the
final distribution on this Certificate will be made after due notice by the
Trustee of the pendency of such distribution and only upon presentation and
surrender of this Certificate at the office or agency appointed by the
Trustee for that purpose and specified in such notice of final distribution.
The Trustee will cause to be kept at its Corporate Trust Office in
Irvine, California, or at the office of its designated agent, a Certificate
Register in which, subject to such reasonable regulations as it may
prescribe, the Trustee will provide for the registration of Certificates and
of transfers and exchanges of Certificates. Upon surrender for registration
of transfer of any Certificate at any office or agency of the Trustee
maintained for such purpose, the Trustee will, subject to the limitations set
forth in the Agreement, authenticate and deliver, in the name of the
designated transferee or transferees, a Certificate of a like class and
aggregate Percentage Interest and dated the date of authentication by the
Trustee.
No service charge will be made for any transfer or exchange of the
Certificate, but the Trustee may require payment of a sum sufficient to cover
any tax or governmental charge that may be imposed in connection with any
transfer or exchange of the Certificate. Prior to due presentation of a
Certificate for registration of transfer, the Company, the Master Servicer,
the Certificate Insurer, the Surety and the Trustee may treat the person in
whose name any Certificate is registered as the owner of such Certificate and
the Percentage Interest in the Trust Fund evidenced thereby for the purpose
of receiving distributions pursuant to the Agreement and for all other
purposes whatsoever, and neither the Company, the Master Servicer, the
Certificate Insurer, the Surety nor the Trustee will be affected by notice to
the contrary.
The Agreement may be amended from time to time by the Company, the
Master Servicer and the Trustee, with the consent of the Certificate Insurer
and the Surety and without the consent of any of the Certificateholders, (i)
to cure or correct any ambiguity, mistake or error, (ii) to correct or
supplement any provisions therein which may be inconsistent with any other
provisions therein or with the Prospectus Supplement or Prospectus pursuant
to which the Class A Certificates were offered, (iii) to ensure continuing
treatment of the Trust Fund as a REMIC or to avoid the imposition of certain
tax liabilities, (iv) to obtain a rating by a nationally recognized rating
agency or to maintain or improve the ratings of the Class A Certificates then
given by a rating agency (it being understood that, after obtaining the
ratings of the Class A Certificates at the Closing Date, none of the Trustee,
the Company or the Master Servicer is obligated to obtain, maintain or
improve any rating of any Class of Certificates), and (v) to make any other
provisions with respect to matters or questions arising under the Agreement
which are not materially inconsistent with the provisions of the Agreement,
including without limitation provisions relating to the issuance of
Definitive Certificates to Certificate Owners if book-entry registration of
the Class A Certificates is no longer permitted; provided that, in the case
of clause (v), such action does not, as evidenced by an Opinion of Counsel,
adversely affect in any material respect the interest of any
Certificateholder.
The Agreement may also be amended from time to time by the Company, the
Master Servicer and the Trustee, with the consent of the Holders of
Certificates of each Class affected thereby evidencing, as to each such
Class, Percentage Interests aggregating not less than 66% and the consent of
the Certificate Insurer and the Surety, for the purpose of adding any
provisions to or changing in any manner or eliminating any of the provisions
of the Agreement or of modifying in any manner the rights of the Holders of
Certificates of such Class; provided, however, that no such amendment may (i)
reduce in any manner the amount of, or delay the timing of, payments received
on Mortgage Loans which are required to be distributed on any Certificate
without the consent of the Holder of such Certificate or (ii) reduce the
aforesaid percentage of Certificates
of any Class the Holders of which are required to consent to any such
amendment, without the consent of the Holders of all Certificates of such
Class then outstanding.
The Company intends to cause an election to be made to treat the Trust
Fund (exclusive of the Mortgage 100 Pledge Agreements and the Parent Power
Agreements) as a real estate mortgage investment conduit (the "REMIC"). The
Class A Certificates and the Class B Certificates will constitute "regular
interests" in the REMIC. The Class R Certificate will constitute the
"residual interest" in the REMIC.
No transfer of a Class B Certificate will be made unless such transfer
is exempt from the registration requirements of the Securities Act of 1933,
as amended, and any applicable state securities laws or is made pursuant to
an effective registration statement under said Act or laws. The Trustee
shall, if not otherwise directed by the Company, require an opinion of
counsel acceptable to and in form and substance satisfactory to the Company
that such transfer is exempt (describing the applicable exemption and the
basis therefor) from the registration requirements of the Securities Act of
1933, as amended, and from any applicable securities statute of any state,
and the transferee shall execute an investment letter in the form described
by the Agreement. Unless the Opinion of Counsel required by Section
4.02(d)(ii) has been delivered to the Trustee in connection with this
Certificate, the holder of this Certificate represents, by virtue of its
acceptance hereof, that it is not an employee benefit plan subject to Section
406 of ERISA or Section 4975 of the Code or a person acting on behalf of such
a plan or using funds of such a plan to acquire this Certificate.
The respective obligations and responsibilities of the Company, the
Master Servicer and the Trustee under the Agreement will terminate upon: (i)
the later of the final payment or other liquidation (or any advance with
respect thereto) of the last Mortgage Loan or the disposition of all property
acquired upon foreclosure or deed in lieu of foreclosure of any Mortgage Loan
and the remittance of all funds due thereunder; or (ii) at the option of the
Master Servicer, the Certificate Insurer or the Surety, on any Distribution
Date which occurs in the month following a Due Date on which the aggregate
unpaid Principal Balance of all outstanding Mortgage Loans is less than 10%
of the aggregate unpaid Principal Balance of the Mortgage Loans on the Cut-
off Date in accordance with the provision set forth in the Agreement;
provided, however, that in no event shall the trust created hereby continue
beyond the expiration of 21 years from the death of the last survivor of the
descendants of Joseph P. Kennedy, the late ambassador of the United States to
the Court of St. James's, living on the date hereof.
Most of the Mortgage Loans are convertible to fixed rates or new Indices
in accordance with their terms.
Unless the certificate of authentication hereon has been executed by the
Trustee, by manual signature, this Certificate shall not be entitled to any
benefit under the Agreement or be valid for any purpose.
* * *
IN WITNESS WHEREOF, the Company has caused this Certificate to be duly
executed.
Dated:
MLCC MORTGAGE INVESTORS, INC.
By:
--------------------
Authorized Officer
FORM OF CERTIFICATE OF
AUTHENTICATION
THIS IS ONE OF THE CLASS B CERTIFICATES
REFERRED TO IN THE WITHIN-MENTIONED AGREEMENT
BANKERS TRUST COMPANY OF CALIFORNIA, N.A.,
as Trustee
By:___________________________
Authorized Signatory
FORM OF ASSIGNMENT
FOR VALUE RECEIVED, the undersigned hereby sells, assigns and transfers
unto
(PLEASE INSERT SOCIAL SECURITY* OR TAXPAYER IDENTIFICATION NUMBER OF
ASSIGNEE)
________________________________________________________________
________________________________________________________________
_________________________________________________________________
(Please Print or Typewrite Name and Address of Assignee)
_________________________________________________________________
the within Certificate, and all rights thereunder, and hereby does
irrevocably constitute and appoint
Attorney
- -------------------------------------------------------
to transfer the within Certificate on the books kept for the registration
thereof, with full power of substitution in the
premises.
Dated:
(Signature guaranty) _________________________________
NOTICE: The signature to this
assignment must correspond with
the name as it appears upon the
face of the within Certificate
in every particular, without
alteration or enlargement or
any change whatever.
(*This information, which is voluntary, is being requested to ensure that the
assignee will not be subject to backup withholding under Section 3406 of the
Code.)
EXHIBIT E
(RESERVED)
EXHIBIT F
FORM OF CLASS R CERTIFICATE
THIS CLASS R CERTIFICATE HAS NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, OR THE SECURITIES LAWS OF ANY
STATE AND MAY NOT BE RESOLD OR TRANSFERRED UNLESS IT IS REGISTERED
PURSUANT TO SUCH ACT OR LAWS OR IS SOLD OR TRANSFERRED IN
TRANSACTIONS WHICH ARE EXEMPT FROM REGISTRATION UNDER SUCH ACT OR
UNDER APPLICABLE STATE LAW AND IS TRANSFERRED IN ACCORDANCE WITH
THE PROVISIONS OF SECTION 4.02 OF THE AGREEMENT REFERRED TO HEREIN.
THIS CLASS R CERTIFICATE IS SUBORDINATE IN RIGHT OF PAYMENT TO THE
CLASS A CERTIFICATES AS DESCRIBED IN THE POOLING AND SERVICING
AGREEMENT REFERRED TO HEREIN.
SOLELY FOR U.S. FEDERAL INCOME TAX PURPOSES, THIS CERTIFICATE IS A
"RESIDUAL INTEREST" IN A "REAL ESTATE MORTGAGE INVESTMENT CONDUIT"
AS THOSE TERMS ARE DEFINED, RESPECTIVELY, IN SECTIONS 860G AND 860D
OF THE INTERNAL REVENUE CODE.
NEITHER THIS CERTIFICATE NOR ANY BENEFICIAL INTEREST HEREIN MAY BE,
DIRECTLY OR INDIRECTLY, TRANSFERRED, SOLD, PLEDGED, HYPOTHECATED OR
OTHERWISE ASSIGNED WITHOUT THE EXPRESS WRITTEN CONSENT OF THE
MASTER SERVICER, ACTING ON BEHALF OF THE TRUST FUND, AND ANY
TRANSFER IN VIOLATION OF THIS RESTRICTION SHALL BE ABSOLUTELY NULL
AND VOID AND SHALL VEST NO RIGHTS IN ANY PURPORTED TRANSFEREE, AND
SHALL SUBJECT THE HOLDER HEREOF TO LIABILITY FOR ANY TAX IMPOSED
(AND RELATED EXPENSES, IF ANY) WITH RESPECT TO SUCH ATTEMPTED
TRANSFER.
CLASS R PERCENTAGE
RESIDUAL INTEREST INTEREST: %
------
NUMBER:
----------
DATE OF POOLING
AND SERVICING AGREEMENT:
______ 1, 199_
CUT-OFF DATE:
______ 1, 199_
FIRST DISTRIBUTION DATE:
_________________, ____
MORTGAGE LOAN ASSET BACKED PASS-THROUGH CERTIFICATE
Series 199_-_
evidencing a percentage interest in any distribution allocable to
the Class R Certificates with respect to a pool of adjustable rate
conventional one- to four-family mortgage loans formed and sold by
MLCC MORTGAGE INVESTORS, INC.
THIS CERTIFICATE DOES NOT REPRESENT AN OBLIGATION OF OR INTEREST IN MLCC
MORTGAGE INVESTORS, INC., THE MASTER SERVICER OR THE TRUSTEE REFERRED TO
BELOW OR ANY OF THEIR AFFILIATES. NEITHER THIS CERTIFICATE NOR THE
UNDERLYING MORTGAGE LOANS ARE GUARANTEED OR INSURED BY MLCC MORTGAGE
INVESTORS, INC. OR BY ANY OF THEIR AFFILIATES OR BY ANY GOVERNMENTAL AGENCY
OR INSTRUMENTALITY.
This certifies that ___________________ is the registered owner of a
beneficial interest in certain distributions with respect to a pool (the
"Mortgage Pool") conventional one- to four-family mortgage loans (the
"Mortgage Pool") formed and sold by MLCC Mortgage Investors, Inc.
(hereinafter called the "Company", which term includes any successor entity
under the Agreement referred to below), and certain other property held in
trust for the benefit of Certificateholders (collectively, the "Trust Fund").
The Mortgage Loans are serviced by Merrill Lynch Credit Corporation (the
"Master Servicer"). The Trust Fund was created pursuant to a Pooling and
Servicing Agreement dated as specified above the "Agreement"), among the
Company, the Master Servicer and Bankers Trust Company of California, N.A.,
as trustee (the "Trustee"), a summary of certain of the pertinent provisions
of which is set forth hereafter. To the extent not defined herein, the
capitalized terms used herein have the meanings signed in the Agreement.
This Certificate is one of a duly authorized issue of Certificates,
designated as Mortgage Loan Asset Backed Pass-Through Certificates, Series
199_-_, Class R (the "Class R Certificate") and is issued under and is
subject to the terms, provisions and conditions of the Agreement, to which
Agreement the Holder of this Certificate by virtue of the acceptance hereof
assents and by which such Holder is bound. Also issued under the Agreement
are Certificates designated as Class A Certificates and Class B Certificates.
The Class A Certificates, Class B Certificates and Class R Certificate are
collectively referred to as the "Certificates". All payments made under this
Certificate will be made in accordance with the terms of the Agreement.
The Agreement may be amended from time to time by the Company, the
Master Servicer and the Trustee, with the consent of the Certificate Insurer
and the Surety and without the consent of any of the Certificateholders, (i)
to cure or correct any ambiguity,
mistake or error, (ii) to correct or supplement any provisions therein which
may be inconsistent with any other provisions therein or with the Prospectus
Supplement or Prospectus pursuant to which the Class A Certificates were
offered, (iii) to ensure continuing treatment of the Trust Fund as a REMIC or
to avoid the imposition of certain tax liabilities, (iv) to obtain a rating
by a nationally recognized rating agency or to maintain or improve the
ratings of the Class A Certificates then given by a rating agency (it being
understood that, after obtaining the ratings of the Class A Certificates at
the Closing Date, none of the Trustee, the Company or the Master Servicer is
obligated to obtain, maintain or improve any rating of any Class of
Certificates), and (v) to make any other provisions with respect to matters
or questions arising under the Agreement which are not materially
inconsistent with the provisions of the Agreement, including without
limitation provisions relating to the issuance of Definitive Certificates to
Certificate Owners if book-entry registration of the Class A Certificates is
no longer permitted; provided that, in the case of clause (v), such action
does not, as evidenced by an Opinion of Counsel, adversely affect in any
material respect the interest of any Certificateholder.
The Agreement may also be amended from time to time by the Company, the
Master Servicer and the Trustee, with the consent of the Holders of
Certificates of each Class affected thereby evidencing, as to each such
Class, Percentage Interests aggregating not less than 66% and the consent of
the Certificate Insurer and the Surety, for the purpose of adding any
provisions to or changing in any manner or eliminating any of the provisions
of the Agreement or of modifying in any manner the rights of the Holders of
Certificates of such Class; provided, however, that no such amendment may (i)
reduce in any manner the amount of, or delay the timing of, payments received
on Mortgage Loans which are required to be distributed on any Certificate
without the consent of the Holder of such Certificate or (ii) reduce the
aforesaid percentage of Certificates of any Class the Holders of which are
required to consent to any such amendment, without the consent of the Holders
of all Certificates of such Class then outstanding.
The Company intends to cause an election to be made to treat the Trust
Fund (exclusive of the Mortgage 100 Pledge Agreements and the Parent Power
Agreements) as a real estate mortgage investment conduit (the "REMIC"). The
Class A Certificates and the Class B Certificates will constitute "regular
interests" in the REMIC. The Class R Certificate will constitute the
"residual interest" in the REMIC.
No transfer of a Class R Certificate will be made unless such transfer
is exempt from the registration requirements of the Securities Act of 1933,
as amended, and any applicable state securities laws or is made pursuant to
an effective registration statement under said Act or laws. The Company may
direct the Trustee to require an opinion of counsel acceptable to and in form
and substance satisfactory to the Company that such transfer is exempt
(describing the applicable exemption and the basis therefor) from the
registration requirements of the Securities Act of 1933, as amended, and from
any applicable securities statute of any state, and the transferee shall
execute an investment letter in the form described by the Agreement. Unless
the Opinion of Counsel required by Section 4.02(d)(ii) has been delivered to
the Trustee in connection with this Certificate, the holder of this
Certificate represents, by virtue of its acceptance hereof, that it is not an
employee benefit plan subject to Section 406 of ERISA or Section 4975 of the
Code or a person acting on behalf of such a plan or using the funds of such a
plan to acquire this Certificate.
The respective obligations and responsibilities of the Company, the
Master Servicer and the Trustee under the Agreement will terminate upon: (i)
the later of the final payment or other liquidation (or any advance with
respect thereto) of the last Mortgage Loan or the disposition of all property
acquired upon foreclosure or deed in lieu of foreclosure of any Mortgage Loan
and the remittance of all funds due thereunder; or (ii) at the option of the
Master Servicer, the Certificate Insurer or the Surety, on any Distribution
Date which occurs in the month following a Due Date on which the aggregate
unpaid Principal Balance of all outstanding Mortgage Loans is less than 10%
of the aggregate unpaid Principal Balance of the Mortgage Loans on the Cut-
off Date in accordance with the provisions set forth in the Agreement;
provided, however, that in no event shall the trust created hereby continue
beyond the expiration of 21 years from the death of the last survivor of the
descendants of Joseph P. Kennedy, the late ambassador of the United States to
the Court of St. James, living on the date hereof.
Most of the Mortgage Loans are convertible to fixed rates or new Indices
in accordance with their terms.
Unless the certificate of authentication hereon has been executed by the
Trustee, by manual signature, this Certificate shall not be entitled to any
benefit under the Agreement or be valid for any purpose.
IN WITNESS WHEREOF, the Company has caused this Certificate to be duly
executed.
Dated: MLCC MORTGAGE INVESTORS, INC.
By:
---------------------
Authorized Officer
FORM OF CERTIFICATE OF AUTHENTICATION
THIS IS THE CLASS R
CERTIFICATE REFERRED TO
IN THE WITHIN-MENTIONED AGREEMENT
BANKERS TRUST COMPANY OF CALIFORNIA, N.A.,
as Trustee
By:
------------------------
Authorized Signatory
FORM OF ASSIGNMENT
FOR VALUE RECEIVED, the undersigned hereby sells, assigns and
transfers unto
(PLEASE INSERT SOCIAL SECURITY* OR TAXPAYER IDENTIFICATION NUMBER OF
ASSIGNEE)
- ------------------------
- ------------------------
- -----------------------------------------------------------------
(Please Print or Typewrite Name and Address of Assignee)
- -----------------------------------------------------------------
the within Certificate, and all rights thereunder, and hereby does
irrevocably constitute and appoint
Attorney to
- -------------------------------------------------------
transfer the within Certificate on the books kept for the registration
thereof, with full power of substitution in the premises.
Dated:
(Signature guaranty)
------------------------------
NOTICE: The signature to this
assignment must correspond with
the name as it appears upon the
face of the within Certificate
in every particular, without
alteration or enlargement or
any change whatever.
(*This information, which is voluntary, is being requested to ensure that the
assignee will not be subject to backup withholding under Section 3406 of the
Code.)
EXHIBIT G
(RESERVED)
EXHIBIT H
CERTIFICATE ACCOUNT CERTIFICATION
____________ __, 1996
Merrill Lynch Credit Corporation hereby certifies that it has
established the account described below as a Certificate Account pursuant to
Section 5.08 of the Pooling and Servicing Agreement, dated as of ______ 1,
199_.
Title of Account:
"Merrill Lynch Credit Corporation, as Master Servicer, in trust for Bankers
Trust Company of California, N.A., as Trustee, for the benefit of registered
holders of MLCC Mortgage Investors, Inc., Mortgage Loan Asset Backed Pass-
Through Certificates, Series 199_-_"
Account Number: ____________________________
Address of office ____________________________
or branch at which
Account is
maintained:
MERRILL LYNCH CREDIT CORPORATION
By:__________________________
Name:
Title:
EXHIBIT I
(RESERVED)
EXHIBIT J
DISTRIBUTION ACCOUNT CERTIFICATION
___________ __, 1996
Bankers Trust Company of California, N.A. (the "Paying Agent") hereby
certifies that it has established the account described below as a
Distribution Account pursuant to Section 6.01 of the Pooling and Servicing
Agreement dated as of ______ 1, 199_ by and among MLCC Mortgage Investors,
Inc., Merrill Lynch Credit Corporation as the Master Servicer and the
undersigned as Trustee.
Title of Account: "Bankers Trust Company of California, N.A., as Paying
Agent and Agent for the benefit of Bankers Trust Company
of California, N.A., as Trustee on behalf of the holders
of MLCC Mortgage Investors, Inc. Mortgage Loan Asset
Backed Pass-Through Certificates, Series 199_-_"
Account Number: ____________________________
Address of office
or branch of the
Paying Agent at
which Account is
maintained: Bankers Trust Company of California, N.A.
3 Park Plaza
Irvine, California 92714
BANKERS TRUST COMPANY OF CALIFORNIA, N.A.
as Paying Agent
By:__________________________
Name:
Title:
EXHIBIT K
(RESERVED)
The undersigned, as "Depository," hereby certifies that the above
described account has been established under Account Number ,
at the office of the depository indicated above, and agrees to honor
withdrawals on such account as provided above.
By:__________________________
Name:
Title:
EXHIBIT L
FORM OF INVESTMENT LETTER FOR HOLDER OF
CLASS B AND CLASS R CERTIFICATES
1. The Purchaser is acquiring the Class B or Class R Certificate (the
"Certificate") as principal for its own account for the purpose of investment
(neither Merrill Lynch nor any of its Affiliates need represent that it is
acquiring for purposes of investment) and not with a view to or for sale in
connection with any distribution thereof, subject nevertheless to any
requirement of law that the disposition of the Purchaser's property shall at
all times be and remain within its control.
2. The Purchaser has knowledge and experience in financial and business
matters and is capable of evaluating the merits and risks of its investment
in the Residual Interest and is able to bear the economic risk of such
investment. The Purchaser is an "accredited investor" within the meaning of
Rule 501(a) under the rules and regulations of the Securities and Exchange
Commission under the Securities Act of 1933, as amended (Affiliates of
Merrill Lynch need not make this representation). The Purchaser has been
given such information concerning the Certificate, the underlying Mortgage
Loans and the Master Servicer as it has requested.
3. The Purchaser will comply with all applicable federal and state
securities laws in connection with any subsequent resale by the Purchaser of
the Certificate.
4. The Purchaser understands that the Certificate has not been and will
not be registered under the Securities Act of 1933, as amended, or any state
securities laws and may be resold (which resale is not currently
contemplated) only if an exemption from registration is available, that
neither the Company, the Master Servicer nor the Trustee is required to
register the Certificate and that any transfer must comply with Section 4.02
of the Pooling and Servicing Agreement. In connection with any resale of the
Certificate, the Purchaser shall not make any general solicitation or
advertisement.
5. The Purchaser agrees that it will obtain from any purchaser of the
Certificate from it the same representations, warranties and agreements
contained in the foregoing paragraphs 1 through 4 and in this paragraph 5.
6. The Purchaser hereby directs the Trustee to register the Certificate
acquired by the Purchaser in the name of its nominee as follows:
____________.
Very truly yours,
------------------------------
NAME OF PURCHASER
By:
---------------------------
Name:
-------------------------
Title:
------------------------
EXHIBIT M
FORM OF TRANSFER AFFIDAVIT FOR CLASS R CERTIFICATES
STATE OF )
: ss.:
COUNTY OF )
The undersigned, being first duly sworn, deposes and says as follows:
1. The undersigned is an officer of _____________________ (the
"Transferee"), a corporation duly organized and existing under the laws of
the State of Delaware and on behalf of which the undersigned makes this
affidavit.
2. The Transferee is acquiring a beneficial ownership interest in
Mortgage Loan Asset Backed Pass-Through Certificates, Series 199_-_, Class R
(the "Class R Certificates"), issued pursuant to the Pooling and Servicing
Agreement, dated as of ______ 1, 199_ (the "Agreement"), by and among MLCC
Mortgage Investors, Inc., as Seller (the "Seller"), Merrill Lynch Credit
Corporation, as Master Servicer, and Bankers Trust Company of California,
N.A., as Trustee. Capitalized terms used, but not defined herein, shall have
the meanings ascribed to such terms in the Agreement. The Transferee has
authorized the undersigned to make this affidavit on behalf of the
Transferee.
3. The Transferee is not, as of the date hereof, and will not be, as of
the date of the Transfer, a Disqualified Organization. The Transferee is
acquiring the Class R Certificate either (i) for its own account or (ii) as
nominee, trustee or agent for another Person and has attached hereto an
affidavit from such Person in substantially the form as this affidavit
attached hereto. The Transferee has no knowledge that any such affidavit is
false.
4. The Transferee has been advised of, and understands that: (i) a tax
shall be imposed on any Transfer to Persons that are Disqualified
Organizations; (ii) such tax is imposed on the transferor, or, if such
Transfer is through an agent (which includes a broker, nominee or middleman)
for Persons that are Disqualified Organizations, on the agent; and (iii) the
Person otherwise liable for the tax shall be relieved of liability for the
tax if the subsequent transferee furnished to such Person an affidavit that
such subsequent transferee is not a Disqualified Organization and,
at the time of the Transfer, such Person does not have actual knowledge that
the affidavit is false.
5. The Transferee has been advised and understands that a tax shall be
imposed on a "pass-through entity" holding Class R Certificates if at any
time during the taxable year of the pass-through entity a Person that is a
Disqualified Organization is the record holder of an interest in such entity.
The Transferee understands that no tax will be imposed for any period for
which the record holder furnishes to the pass-through entity an affidavit
stating that the record holder is not a Disqualified Organization and the
pass-through entity does not have actual knowledge that such affidavit is
false. (For this purpose, a "pass-through entity" includes a regulated
investment company, a real estate investment trust or common trust fund, a
partnership, trust or estate, and certain cooperatives and, except as may be
provided in Treasury Regulations, persons holding interests in pass-through
entities as nominees for other Persons.)
6. The Transferee has reviewed the provisions of Section 4.02 of the
Agreement, which is incorporated herein by reference, and understands the
legal consequences of the acquisition of the Class R Certificates including,
without limitations, the restrictions on subsequent Transfers and the
provisions regarding voiding the Transfer and mandatory sales. The
Transferee expressly agrees to be bound by and to abide by the provisions of
Section 4.02 of the Agreement. The Transferee understands and agrees that
any breach of any of the representations included herein shall render the
Transfer to the Transferee contemplated hereby null and void.
7. The Transferee does not have the intention to impede the assessment
or collection of any income tax legally required to be paid with respect to
the Class R Certificates and the Transferee hereby acknowledges that the
Class R Certificates may generate tax liabilities in excess of the cash flow
associated with the Class R Certificates and intends to pay such taxes
associated with the Class R Certificates when they become due.
8. The Transferee agrees to require a Transfer Affidavit from any
Person to whom the Transferee attempts to make a Transfer and in connection
with any Transfer by a Person for whom the Transferee is acting as nominee,
trustee or agent, and the Transferee will not make a Transfer or cause any
Transfer to any Person that the Transferee knows is a Disqualified
Organization.
9. That the Purchaser (i) is not a Non-U.S. Person or (ii) is a Non-
U.S. Person that holds the Class R Certificate in connection with the conduct
of a trade or business in the United States and has furnished the transferor
and the Trustee with an effective Internal Revenue Service Form 4224 or
successor form at the time and in the
manner required by the Code or (iii) is a Non-U.S. Person that has delivered
to both the transferor and the Trustee an opinion of a nationally recognized
tax counsel to the effect that the transfer of the Class R Certificates to it
is in accordance with the requirements of the Code and the regulation
promulgated thereunder and that such transfer of the Class R Certificates
will not be disregarded for federal income tax purposes.
10. The following information as to the Transferee is true and correct:
Address:
Contact for Tax Matters:
Phone Number:
Form of Organization of Transferee:
Transferee's Federal Tax Identification Number:
Percentage of Residual Interest Acquired: __%
Price Paid for Residual Interest:
Date of Acquisition:
If security is being registered in the name of a nominee, please state
such name:
IN WITNESS WHEREOF, the Transferee has caused this instrument to be
executed on its behalf, pursuant to authority of its _________________, by
its duly authorized officer this _____ day of _____________.
(NAME OF TRANSFEREE)
By: ___________________________
Name:
Title:
STATE OF )
) ss.:
COUNTY OF )
Personally appeared before me the above-named __________,
-----------
known or proved to me to be the same person who executed the foregoing
instrument and to be the of
------------------
_______________________________, and acknowledged that he executed the same
as his free act and deed and the free act and deed of the Transferee.
Subscribed and sworn before me this _______ of ___________.
_____________________________
NOTARY PUBLIC
My commission expires the ___
day of ________________, 19__.
EXHIBIT N
ERISA REPRESENTATION LETTER
(for Transfers of Class B and Class R Certificates)
The Purchaser is not an employee benefit plan (a "Plan") subject to
Section 406 of the Employee Retirement Income Security Act of 1974, as
amended ("ERISA"), or Section 4975 of the Internal Revenue Code of 1986, as
amended (the "Code") or a person acting on behalf of such a Plan or using the
assets of such a Plan to acquire a Class R Certificate.
EXHIBIT O
(RESERVED)
EXHIBIT P
Sale Agreement
See Tab 5
EXHIBIT Q
Form of Notice for Certificate Insurance Policy
EXHIBIT R
Form of Notice for Certificate Guaranty Surety Bond
MERRILL LYNCH CREDIT CORPORATION,
as Servicer
MLCC MORTGAGE INVESTORS, INC.,
as Seller
and
BANKERS TRUST COMPANY OF CALIFORNIA, N.A.,
as Trustee
_______________________
POOLING AND SERVICING AGREEMENT
Dated as of _______, 199_
______________________
ML Revolving Home Equity Loan Asset Backed Certificates
Series 199_-_
TABLE OF CONTENTS
-----------------
Page
----
ARTICLE I
Definitions
Section 1.01. Definitions . . . . . . . . . . . . . . . . . . . . . . . 1
Section 1.02. Interest Calculations . . . . . . . . . . . . . . . . . . 26
ARTICLE II
Conveyance of Mortgage Loans;
Original Issuance of Certificates
Section 2.01. Conveyance of Mortgage Loans . . . . . . . . . . . . . . . 27
Section 2.02. Acceptance by Trustee; Retransfer
of Mortgage Loans; Substitution of
Eligible Substitute Mortgage Loans. . . . . . . . . . . . 32
Section 2.03. Representations and Warranties
Regarding the Servicer . . . . . . . . . . . . . . . . . . 35
Section 2.04. Representations and Warranties of the Servicer Regarding the
Mortgage Loans; Repurchase and Substitution Obligations . 37
Section 2.05. Execution and Authentication
of Certificates . . . . . . . . . . . . . . . . . . . . . 41
Section 2.06. Retransfers of Mortgage Loans
at Election of the Seller . . . . . . . . . . . . . . . . 41
Section 2.07. Tax Treatment . . . . . . . . . . . . . . . . . . . . . . 43
Section 2.08. Covenants of the Seller . . . . . . . . . . . . . . . . . 44
ARTICLE III
Administration and Servicing
of Mortgage Loans
Section 3.01. MLCC to Act as Servicer . . . . . . . . . . . . . . . . . 45
Section 3.02. Collection of Certain Mortgage Loan
Payments; Mortgage Loan Payment Record . . . . . . . . . . 47
Section 3.03. Permitted Debits to the Mortgage Loan
Payment Record . . . . . . . . . . . . . . . . . . . . . . 49
Section 3.04. Hazard Insurance Policies; Property
Protection Expenses . . . . . . . . . . . . . . . . . . . . . . . . 50
Section 3.05. Mortgagor Transfers of
Mortgaged Properties . . . . . . . . . . . . . . . . . . . 52
Section 3.06. Realization Upon Defaulted
Mortgage Loans . . . . . . . . . . . . . . . . . . . . . . 53
Section 3.07. Trustee to Cooperate . . . . . . . . . . . . . . . . . . . 54
Section 3.08. Servicing Compensation; Payment
of Certain Expenses by Servicer . . . . . . . . . . . . . 55
Section 3.09. Annual Statement as to Compliance . . . . . . . . . . . . 56
Section 3.10. Annual Independent Public
Accountants' Servicing Report . . . . . . . . . . . . . . 56
Section 3.11. Access to Certain Documentation
and Information Regarding the
Mortgage Loans . . . . . . . . . . . . . . . . . . . . . . 57
Section 3.12. Maintenance of Certain Servicing Policies . . . . . . . . 57
Section 3.13. Reports to the Securities and Exchange
Commission . . . . . . . . . . . . . . . . . . . . . . . . 58
Section 3.14. Information Required by the Internal Revenue Service Generally
and Reports of
Foreclosures and Abandonments of
Mortgaged Property . . . . . . . . . . . . . . . . . . . . 58
Section 3.15. Tax Returns . . . . . . . . . . . . . . . . . . . . . . . 58
Section 3.16. Further Assurances . . . . . . . . . . . . . . . . . . . . 59
ARTICLE IV
Servicing Certificate; Certificate Account Deposit
Section 4.01. Servicing Certificate . . . . . . . . . . . . . . . . . . 60
Section 4.02. Certificate Account . . . . . . . . . . . . . . . . . . . 63
Section 4.03. Payments Under Support Agreement . . . . . . . . . . . . . 64
Section 4.04. The Certificate Insurance Policy . . . . . . . . . . . . . 64
ARTICLE V
Payments and Statements to
Certificateholders
Section 5.01. Distributions . . . . . . . . . . . . . . . . . . . . . . 66
Section 5.02. Certain Calculations by the Trustee . . . . . . . . . . . 70
Section 5.03. Statements to Certificateholders . . . . . . . . . . . . . 70
Section 5.04. Rights of Certificateholders . . . . . . . . . . . . . . . 72
ARTICLE VI
The Certificates
Section 6.01. The Certificates . . . . . . . . . . . . . . . . . . . . . 73
Section 6.02. Registration of Transfer and
Exchange of Certificates; Registrar . . . . . . . . . . . 74
Section 6.03. Mutilated, Destroyed, Lost
or Stolen Certificates . . . . . . . . . . . . . . . . . . 76
Section 6.04. Persons Deemed Owners . . . . . . . . . . . . . . . . . . 77
Section 6.05. Restrictions on Transfer
of Seller Certificates . . . . . . . . . . . . . . . . . . 77
Section 6.06. Actions of Certificateholders . . . . . . . . . . . . . . 79
ARTICLE VII
The Servicer and the Seller
Section 7.01. Liability of the Servicer . . . . . . . . . . . . . . . . 80
Section 7.02. Merger or Consolidation of,
or Assumption of the Obligations
of, the Servicer or Seller . . . . . . . . . . . . . . . . 80
Section 7.03. Limitation on Liability of
the Servicer and Others . . . . . . . . . . . . . . . . . 81
Section 7.04. Servicer Not to Resign . . . . . . . . . . . . . . . . . . 81
Section 7.05. Limitation on Liability of Certain Persons . . . . . . . . 82
Section 7.06. Liability of Seller . . . . . . . . . . . . . . . . . . . 83
Section 7.07. Seller May Own Certificates . . . . . . . . . . . . . . . 83
ARTICLE VIII
Default
Section 8.01. Events of Default . . . . . . . . . . . . . . . . . . . . 85
Section 8.02. Trustee to Act; Appointment of Successor . . . . . . . . . 87
Section 8.03. Notification to Certificateholders . . . . . . . . . . . . 88
Section 8.04. Waiver of Past Events of Default . . . . . . . . . . . . . 88
ARTICLE IX
The Trustee
Section 9.01. Duties of Trustee . . . . . . . . . . . . . . . . . . . . 90
Section 9.02. Certain Matters Affecting the Trustee . . . . . . . . . . 91
Section 9.03. Trustee Not Liable for Certificates
or Mortgage Loans . . . . . . . . . . . . . . . . . . . . 93
Section 9.04. Trustee May Own Certificates . . . . . . . . . . . . . . . 93
Section 9.05. Servicer to Pay Trustee's Fees and Expenses . . . . . . . 93
Section 9.06. Eligibility Requirements for Trustee . . . . . . . . . . . 94
Section 9.07. Resignation or Removal of Trustee . . . . . . . . . . . . 94
Section 9.08. Successor Trustee . . . . . . . . . . . . . . . . . . . . 96
Section 9.09. Merger or Consolidation of Trustee . . . . . . . . . . . . 96
Section 9.10. Appointment of Co-Trustee or
Separate Trustee . . . . . . . . . . . . . . . . . . . . . 96
Section 9.11. Tax Returns . . . . . . . . . . . . . . . . . . . . . . . 98
Section 9.12. Streit Act . . . . . . . . . . . . . . . . . . . . . . . . 98
ARTICLE X
Termination
Section 10.01. Termination . . . . . . . . . . . . . . . . . . . . . . . 100
Section 10.02. Termination by Certificate Insurer . . . . . . . . . . . 102
ARTICLE XI
Rapid Amortization Events
Section 11.01. Rapid Amortization Events . . . . . . . . . . . . . . . . 103
Section 11.02. Additional Rights Upon an Insolvency Event . . . . . . . 105
ARTICLE XII
Miscellaneous Provisions
Section 12.01. Amendment . . . . . . . . . . . . . . . . . . . . . . . . 107
Section 12.02. Recordation of Agreement . . . . . . . . . . . . . . . . 108
Section 12.03. Limitation on Rights of Certificateholders . . . . . . . 108
Section 12.04. (Reserved) . . . . . . . . . . . . . . . . . . . . . . . 109
Section 12.05. The Certificate Insurer. . . . . . . . . . . . . . . . . 109
Section 12.06. Governing Law . . . . . . . . . . . . . . . . . . . . . . 110
Section 12.07. Notices . . . . . . . . . . . . . . . . . . . . . . . . . 110
Section 12.08. Severability of Provisions . . . . . . . . . . . . . . . 110
Section 12.09. Assignment . . . . . . . . . . . . . . . . . . . . . . . 111
Section 12.10. Certificates Nonassessable and Fully Paid . . . . . . . . 111
Section 12.11. Counterparts . . . . . . . . . . . . . . . . . . . . . . 111
Section 12.12. Effect of Headings and Table of Contents . . . . . . . . 111
Section 12.13. Third Party Beneficiary . . . . . . . . . . . . . . . . . 111
Section 12.14. Merger and Integration . . . . . . . . . . . . . . . . . 112
TESTIMONIUM . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 113
SIGNATURES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 113
EXHIBIT A - Form of Face of Investor Certificate . . . . . . . A-1
EXHIBIT B - Form of Face of Seller Certificate . . . . . . . . S-1
EXHIBIT C - Form of Reverse of Investor Certificate . . . . . . C-1
EXHIBIT D - Form of Reverse of Seller Certificate . . . . . . . D-1
EXHIBIT E - Form of Notice for Certificate
Insurance Policy . . . . . . . . . . . . . . . . E-1
EXHIBIT F - Mortgage Loan Schedule . . . . . . . . . . . . . . F-1
THIS POOLING AND SERVICING AGREEMENT, dated as of _______, 199_, between
MERRILL LYNCH CREDIT CORPORATION, a corporation organized and existing under
the laws of the State of Delaware, MLCC MORTGAGE INVESTORS, INC., a corpora-
tion organized and existing under the laws of the State of Delaware, and
BANKERS TRUST COMPANY OF CALIFORNIA, N.A., as Trustee,
W I T N E S S E T H T H A T:
----------------------------
In consideration of the mutual agreements herein contained, the parties
hereto agree as follows:
ARTICLE I
Definitions
Section 1.01. Definitions.
-----------
Whenever used in this Agreement, the following words and phrases, unless
the context otherwise requires, shall have the meanings specified in this
Article.
Accelerated Principal Distribution Amount: As to any Distribution
-----------------------------------------
Date, the amount, if any, required to reduce the Certificate Principal
Balance (after giving effect to the distribution of all other amounts
actually distributed on the Investor Certificates on such Distribution Date)
until the Invested Amount (immediately following such Distribution Date)
exceeds the Certificate Principal Balance (as so reduced) by the amount, if
any, equal to (x) the Required Amount minus (y) the Seller Subordinated
Amount.
Accrual Period: As to any Distribution Date other than the first
--------------
Distribution Date, the period beginning on the preceding Distribution Date
and ending on the day preceding such Distribution Date, and, in the case of
the first Distribution Date, the period beginning on ______, 199_ and ending
on the day preceding the first Distribution Date.
Additional Balance: As to any Mortgage Loan and day, the unpaid
------------------
balance of any principal advanced to the related Mortgagor after the date as
of which the related Cut-off Date Trust Balance is calculated.
Aggregate Investor Loss Amount: With respect to any Distribution
------------------------------
Date, the total of the Investor Loss Amounts for prior Distribution Dates
(other than Investor Loss Amounts that were reallocated on prior Distribution
Dates to the Seller pursuant to Section 5.01(c)(ii)).
Agreement: This Pooling and Servicing Agreement and all amendments
---------
hereof and supplements hereto.
Alternate Certificate Rate: As to any Accrual Period, the weighted
--------------------------
average of the Net Loan Rates applicable to the Mortgage Loans included in
the Trust Fund during the Collection Period preceding the related
Distribution Date, weighted on the basis of the monthly average Trust
Balances of such Mortgage Loans during such Collection Period as determined
by the Servicer in accordance with its normal servicing procedures, less the
Premium Percentage for the related Distribution Date.
Alternative Principal Payment: As to any Distribution Date, the
-----------------------------
amount (but not less than zero) equal to the aggregate amount of Trust
Principal Collections received during the related Collection Period minus the
total Additional Balances created during such Collection Period.
Appraised Value: As to any Mortgaged Property and time referred to
---------------
herein, the appraised value of the Mortgaged Property based upon the
appraisal made by or on behalf of the Seller at such time.
Assignment of Retained Rights: As defined in Section 2.01(f).
-----------------------------
Available Distribution Amount: As to any Distribution Date, the
-----------------------------
aggregate of the amounts on deposit in the Certificate Account on such
Distribution Date described in clauses (i) - (vi), inclusive, of Section
4.01.
BIF: The Bank Insurance Fund, as from time to time constituted,
---
created under the Financial Institutions Reform, Recovery and Enhancement Act
of 1989, or if at any time after the execution of this instrument the Bank
Insurance Fund is not existing and performing duties now assigned to it, the
body performing such duties on such date.
Book-Entry Certificate: Any Investor Certificate registered in the
----------------------
name of the Depository or its nominee ownership of which is reflected on the
books of the Depository or on the books of a Person maintaining an account
with such Depository (directly or as an indirect participant in accordance
with the rules of such Depository).
Business Day: Any day other than (i) a Saturday or a Sunday or (ii)
------------
a day on which national banks in the States of New York, Florida or
California are required or authorized by law to be closed.
Certificate: Any Investor Certificate or a Seller Certificate.
-----------
Certificate Account: The trust account or accounts created and
-------------------
maintained with the Trustee pursuant to Section 4.02 and which shall be an
Eligible Account and shall be entitled "Bankers Trust Company of California,
N.A., in trust for the benefit of the registered holders of the ML Revolving
Home Equity Loan Asset Backed Certificates, Series 1996-1"; provided,
however, that if the Certificate Account is opened under a different name,
the Seller shall, promptly after the Closing Date, cause the Certificate
Account to be retitled in the above name.
Certificateholder or Holder: The Person in whose name a Certificate
---------------------------
is registered in the Certificate Register, except that, solely for the
purpose of giving any consent pursuant to this Agreement, any Investor
Certificate registered in the name of the Seller or the Servicer or any
affiliate of either shall be deemed not to be outstanding and the Percentage
Interest evidenced thereby shall not be taken into account in determining
whether the requisite amount of Percentage Interests necessary to effect any
such consent has been obtained.
Certificate Formula Interest: As to any Distribution Date, interest
----------------------------
at the Certificate Rate for the related Accrual Period on the Certificate
Principal Balance on the first day of such Accrual Period (after giving
effect to the distribution of principal made on the first day of such Accrual
Period).
Certificate Insurance Policy: The certificate insurance policy
----------------------------
number ________ dated as of the Closing Date, issued by the Certificate
Insurer to the Trustee for the benefit of the Holders of the Investor
Certificates.
Certificate Insurer: AMBAC Indemnity Corporation, or its successor in
-------------------
interest.
Certificate Interest Collections: As to any Distribution Date, an
--------------------------------
amount equal to the Floating Allocation Percentage of the aggregate amount of
Trust Interest Collections for the related Collection Period.
Certificate Owner: With respect to an Investor Certificate, the
-----------------
person who is the beneficial owner of a Book-Entry Certificate.
Certificate Principal Balance: As of any Distribution Date, (i) the
-----------------------------
Original Certificate Principal Balance minus (ii) the aggregate amount
actually distributed as principal on the Investor Certificates on previous
Distribution Dates.
Certificate Register and Certificate Registrar: The register
----------------------------------------------
maintained and the registrar appointed pursuant to Section 6.02.
Certificate Rate: As to the initial Distribution Date, LIBOR
----------------
determined as of ________, 199_ plus 0.__%. As to any subsequent
Distribution Date, LIBOR plus 0.__%; provided, however, that in the event the
Alternate Certificate Rate is less than LIBOR for such Distribution Date plus
the applicable percentage specified above, the Certificate Rate for such
Distribution Date shall be the Alternate Certificate Rate.
Closing Date: _____, 199_.
------------
Code: The Internal Revenue Code of 1986, as the same may be amended
----
from time to time (or any successor statute thereto).
Collection Period: As to any Distribution Date and collections other
-----------------
than scheduled payments of Interest Collections and scheduled and unscheduled
payments of Principal Collections by Mortgagors, the calendar month preceding
the month in which such Distribution Date occurs. As to such Interest
Collections and Principal Collections and any Distribution Date, the period
from and including the 17th day of the month preceding the month in which
such Distribution Date occurs to and including the 16th day of the month in
which such Distribution Date occurs.
Combined Loan-to-Value Ratio: As of any date and Mortgage Loan, the
----------------------------
fraction, expressed as a percentage, the numerator of which is the sum of (i)
the Credit Limit and (ii) the unpaid principal balance of any related senior
mortgage loan or loans as of such date and the denominator of which is
generally the lesser of the Appraised Value or the sales price of the
Mortgaged Property, as applicable, as of the date of the appraisal and/or
purchase contract for the Mortgaged Property, as applicable, used by or on
behalf of MLCC to underwrite such Mortgage Loan.
Common Mortgage Loan Interests: The Common Mortgage Loans and, to
------------------------------
the extent provided in subsection 2.01(a), the related Loan Agreements,
Mortgages and other Mortgage File documents.
Common Mortgage Loans: Such of the Mortgage Loans, certain of the
---------------------
balances of which were sold and assigned to Trust 1989, Trust 1991, Trust
1993, Trust 1994-1, Trust 1994-2, Trust 1995-1 or Trust 1995-2 pursuant to
the Trust 1989 Pooling and Servicing Agreement, the Trust 1991 Pooling and
Servicing Agreement, the Trust 1993 Pooling and Servicing Agreement, the
Trust 1994-1 Pooling and Servicing Agreement, the Trust 1994-2 Pooling and
Servicing Agreement, the Trust 1995-1 Pooling and Servicing Agreement, and
the Trust 1995-2 Pooling and Servicing Agreement, respectively, until such
balances are reduced to zero.
Corporate Trust Office: The principal office of the Trustee in
----------------------
California, at which at any particular time its trust shall administer this
Agreement, which office at the date of the execution of this Agreement is
located at 3 Park Plaza, 16th Floor, Irvine, California 92714, Attention: ML
Revolving Home Equity Loan Asset Backed Certificates, Series 1996-1;
Facsimile: (714) 253-7577.
Credit Limit: As to any Mortgage Loan, the maximum Loan Balance
------------
permitted under the terms of the related Loan Agreement.
Cut-off Date: With respect to each Initial Mortgage Loan, April 1,
------------
1996 and, with respect to each Eligible Substitute Mortgage Loan, the day on
which each such Mortgage Loan is transferred to the Trust.
Cut-off Date Pool Balance: The aggregate of the Cut-off Date Trust
-------------------------
Balances of the Initial Mortgage Loans.
Cut-off Date Trust Balance: As to any Mortgage Loan, the unpaid
--------------------------
principal balance thereof (which may be $0) transferred and assigned to the
Trust as of the applicable Cut-off Date (excluding, in the case of any Common
Mortgage Loan, the portion thereof owned by one or more Prior Trusts).
Defective Mortgage Loan: Any Mortgage Loan which is required to be
-----------------------
repurchased or replaced by the Servicer pursuant to Sections 2.02, 2.04 or
3.01.
Depository: The initial Depository shall be The Depository Trust
----------
Company, the nominee of which is Cede & Co., as the registered Holder of one
or more Certificates evidencing the Certificate Principal Balance. The
Depository shall at all times be a "clearing corporation" as defined in
Section 8-102(3) of the Uniform Commercial Code of the State of New York.
Depository Participant: A broker, dealer, bank or other financial
----------------------
institution or other Person for whom from time to time a Depository effects
book-entry transfers and pledges of securities deposited with the Depository.
Determination Date: The __th day (or, if such __th day is not a
------------------
Business Day, the Business Day immediately preceding such 17th day) of the
month in which the related Distribution Date occurs.
Dissolution Distribution Date: The date on which the proceeds from
-----------------------------
the sale, disposition or liquidation of the Trust Balance of the Mortgage
Loans are received and distributed to Certificateholders pursuant to Article
XI hereof.
Distribution Date: The __th day of each month beginning in the month
-----------------
following the month of the initial issuance of the Certificates (or, if such
__th day is not a Business Day, the Business Day immediately following).
Eligible Account: One or more accounts:
----------------
(i) that are maintained with a depository institution or trust company
whose long-term and short-term unsecured debt obligations (or, in
the case of a depository institution or trust company that is the
principal subsidiary of a bank holding company, the debt
obligations of such holding company) at the time of deposit therein
have been rated by each Rating Agency in its highest rating catego-
ries;
(ii) that are maintained with a depository institution or trust company
the long-term unsecured debt obligations of which have been rated
Baa3 or higher by Moody's, and the deposits in which are fully
insured by the Federal Deposit Insurance Corporation acting through
either the BIF or the SAIF;
(iii) that are segregated trust accounts maintained with the corporate
trust department of a depository institution or trust company,
acting in its fiduciary capacity, which has a short-term deposit
rating of P-1 by Moody's and A-1+ by Standard & Poor's; or
(iv) such other accounts that are acceptable to each Rating Agency and
the Certificate Insurer, as evidenced by a letter from each Rating
Agency and the Certificate Insurer to the Trustee, without
reduction or withdrawal of the rating of the Investor Certificates.
The depository institution or trust company with which the Eligible Account
is maintained shall be organized under the laws of the United States or any
state thereof, have a net worth in excess of $100,000,000 and deposits
insured to the full extent permitted by law by the Federal Deposit Insurance
Corporation and be subject to supervision and examination by federal or state
banking authorities. An Eligible Account may bear interest, and may include,
if otherwise qualified by this definition, an account maintained with the
Trustee.
Eligible Substitute Mortgage Loan: A Mortgage Loan to be substituted
---------------------------------
by the Servicer for a Defective Mortgage Loan pursuant to Section 2.02, 2.04
or 3.01, which on the date of such substitution shall:
(i) have a Trust Balance not substantially greater than and not less
than the Trust Balance of the Defective Mortgage Loan;
(ii) have a Loan Rate of not less than the Loan Rate of the Defective
Mortgage Loan and not more than 500 basis points in excess thereof;
(iii) have a Loan Rate based on the same index as that of the Defective
Mortgage Loan;
(iv) have a Margin that is not less than the Margin for the Defective
Mortgage Loan, or more than 100 basis points higher than the Margin
for the Defective Mortgage Loan;
(v) have a maximum Loan Rate and a minimum Loan Rate, if any, that are
not lower than the maximum Loan Rate and minimum Loan Rate,
respectively, of the Defective Mortgage Loan;
(vi) have a remaining term to maturity not more than six months earlier
and not more than six months later than the remaining term to
maturity of the Defective Mortgage Loan, and in no case later than
March 1, 2006;
(vii) comply with the representations and warranties set forth in Section
2.04 (which representations and warranties shall be deemed to be
made as of the date of substitution);
(viii) have a Combined Loan-to-Value Ratio that is not greater than the
Combined Loan-to-Value Ratio of the Defective Mortgage Loan as of
the date of origination of the Defective Mortgage Loan;
(ix) have a Mortgage in a lien position at least equal to the lien
position of the Mortgage securing the Defective Mortgage Loan; and
(x) be secured by a Mortgaged Property that is subject to the same use
(owner-occupied, second home or rental property) and that has the
same structural characteristics (attached or detached) as the
Mortgaged Property securing the Defective Mortgage Loan,
provided, however, that in the case of clause (x), an owner-occupied,
detached Mortgaged Property will satisfy the requirements of clause (x) in
all cases.
Event of Default: As defined in Section 8.01.
----------------
Fixed Allocation Percentage: With respect to any date, the greater
---------------------------
of (i) __% and (ii) the percentage equivalent (but not in excess of 100%) of
a fraction, the numerator of which is the Invested Amount and the denominator
of which is the Pool Balance as of the end of such day.
Floating Allocation Percentage: As to any Distribution Date, the
------------------------------
percentage equivalent of a fraction, the numerator of which is the Invested
Amount at the close of business on the preceding Distribution Date (or at the
Closing Date in the case of the first Distribution Date) and the denominator
of which is the Pool Balance, calculated as of the first day of the month
preceding the month in which such Distribution Date occurs.
Indirect Parent: Merrill Lynch & Co., Inc., a Delaware corporation,
---------------
or its successor in interest.
Initial Mortgage Loans: The mortgage loans (including the rights to
----------------------
receive payments thereunder) transferred and assigned to the Trustee on the
Closing Date pursuant to Section 2.01, together with the related Loan
Agreements and other Mortgage File documents and the rights thereunder
conveyed to the Trustee on the Closing Date pursuant to Section 2.01.
Insurance Agreement: The Insurance and Indemnity Agreement dated as
-------------------
of the Closing Date, among the Servicer, the Seller, the Trustee and the
Certificate Insurer, including any amendments and supplements thereto.
Insurance Proceeds: Proceeds paid by any insurer pursuant to any
------------------
insurance policy covering a Mortgage Loan or the related Mortgaged Property
net of any component thereof covering any expenses incurred by or on behalf
of the Seller or the Servicer in connection with obtaining such Insurance
Proceeds.
Insured Amount: As defined in the Certificate Insurance Policy.
--------------
Insured Payment: With respect to any Distribution Date, the Insured
---------------
Amount for such Distribution Date paid to the Trustee by the Certificate
Insurer.
Interest Collections: As to any payment on a Mortgage Loan made by
--------------------
or on behalf of the related Mortgagor for the related Collection Period, the
portion thereof allocable to accrued interest for the related Interest Period
in accordance with the terms of the related Loan Agreement (net of interest
at the Servicing Fee Rate on the Loan Balance for each day during such
Interest Period), including Net Liquidation Proceeds allocable to interest on
such Mortgage Loan.
Interest Period: As to any payment of interest on a Mortgage Loan,
---------------
the period during which the interest covered by such payment accrued and
which, for any Distribution Date, is the month preceding the month in which
such Distribution Date occurs.
Invested Amount: With respect to any date, an amount equal to the
---------------
Original Invested Amount minus the sum of (i) the total of Trust Principal
Collections previously distributed to Investor Certificateholders pursuant to
Section 5.01(b) and (ii) the Aggregate Investor Loss Amount.
Investor Certificate: Any one of the Certificates signed and
--------------------
countersigned by the Trustee substantially in the form set forth in Exhibits
A and C hereto.
Investor Certificate Distribution Amount: As to any Distribution
----------------------------------------
Date, the sum of all amounts to be distributed to the Investor
Certificateholders pursuant to Article V and Article XI hereof.
Investor Certificateholder: The Holder of an Investor Certificate.
--------------------------
Investor Loss Amount: With respect to any Distribution Date, the
--------------------
amount equal to the product of (i) the Floating Allocation Percentage and
(ii) the aggregate of the Liquidation Loss Amounts for such Distribution
Date.
Investor Loss Reduction Amount: With respect to any Distribution
------------------------------
Date, the portion, if any, of the Investor Loss Amount for such Distribution
Date and all prior Distribution Dates that has not been (i) paid to Investor
Certificateholders from Certificate Interest Collections pursuant to Section
5.01(a), (ii) paid to Investor Certificateholders from Trust Interest
Collections and Trust Principal Collections allocable to the Seller pursuant
to Section 5.01(c)(i), (iii) reallocated to the Seller pursuant to Section
5.01(c)(ii), or (iv) paid to Investor Certificateholders from Insured
Payments pursuant to Section 5.01(d).
Late Payment Rate: For any Distribution Date, the rate of interest,
-----------------
as it is publicly announced by Citibank, N.A. at its principal office in New
York, New York as its prime rate (any change in such prime rate of interest
to be effective on the date such change is announced by Citibank, N.A.) plus
_%. The Late Payment Rate shall be computed on the basis of a year of 365
days calculating the actual number of days elapsed. In no event shall the
Late Payment Rate exceed the maximum rate permissible under any applicable
law limiting interest rates.
LIBOR: As to any Distribution Date as follows:
-----
(i) the arithmetic mean (rounded, if necessary, to the nearest one
sixteenth of a percent, with one thirty-second of a percent rounded
upwards) of the offered rates for United States dollar deposits for one
month which appear on the Reuters Screen LIBO Page (as defined below) as
of 11:00 A.M., London time, on the second LIBOR Business Day prior to
the immediately preceding Distribution Date (as of April 30, 1996 in the
case of the initial Distribution Date); provided that at least two such
offered rates appear on the Reuters Screen LIBO Page on such date. If
fewer than two offered rates appear, LIBOR will be determined on such
date as described in clause (ii) below. "Reuters Screen LIBO Page"
means the display designated as page "LIBO" on the Reuter Monitor Money
Rates Service (or such other page as may replace the LIBO page on that
service for the purpose of displaying London inter-bank offered rates of
major banks).
(ii) If on such date fewer than two offered rates appear on the
Reuters Screen LIBO Page as described in clause (i) above, the Trustee
will request the principal London office of each of four reference banks
(which shall be National Westminster Bank Plc, Bank of Tokyo Trust Co.,
Llyods Bank Plc, and Bankers Trust Co., so long as each such bank is
engaged in transactions in the London inter-bank market) ("Reference
Banks") to provide the Trustee with its offered quotation for United
States dollar deposits for one month to prime banks in the London
inter-bank market as of 11:00 A.M., London time, on such date. If at
least two Reference Banks provide the Trustee with such offered
quotations, then LIBOR on such date will be the arithmetic mean
(rounded, if necessary, to the nearest one sixteenth of a percent, with
one thirty-second of a percent rounded upwards) of all such quotations.
If on such date fewer than two of the Reference Banks provide the
Trustee with such an offered quotation, LIBOR on such date will be the
arithmetic mean (rounded, if necessary, to the nearest one sixteenth of
a percent, with one thirty-second of a percent rounded upwards) of the
offered per annum rates which one or more leading banks in The City of
New York selected by the Trustee (after consultation with the Servicer)
are quoting as of 11:00 A.M., New York City time, on such date to
leading European banks for United States dollar deposits for one month,
provided, however, that if such banks are not quoting as described
above, LIBOR will be the LIBOR applicable to the immediately preceding
Distribution Date.
LIBOR Business Day: Any day other than (i) a Saturday or a Sunday or
------------------
(ii) a day on which banking institutions in the States of New York or
California or in the City of London, England are required or authorized by
law to be closed.
Liquidated Mortgage Loan: As to any Distribution Date, any
------------------------
Mortgage Loan which was not previously a Liquidated Mortgage Loan, was in
default during the related Collection Period and with respect to which the
Servicer has determined that all Liquidation Proceeds which the Servicer
expects to recover from or on account of such Mortage Loan have been
recovered.
Liquidation Expenses: Expenses which are incurred by the Servicer in
--------------------
connection with the liquidation of any defaulted Mortgage Loan and not
recovered under any insurance policy or from the related Mortgagor,
including, without limitation, legal fees and expenses, real estate brokerage
commissions, any unreimbursed amount expended by the Servicer pursuant to
Section 3.06 with respect to such Mortgage Loan (including, without
limitation, amounts advanced to correct defaults on any mortgage loan which
is prior to such defaulted Mortgage Loan) and any related and previously
unreimbursed Property Protection Expenses.
Liquidation Loss Amount: With respect to any Distribution Date and
-----------------------
any Mortgage Loan that becomes a Liquidated Mortgage Loan during the related
Collection Period, the unrecovered Trust Balance thereof at the end of such
Collection Period, after giving effect to the Net Trust Liquidation Proceeds
applied in reduction of such Trust Balance in accordance with the related
Loan Agreement and this Agreement.
Liquidation Proceeds: Cash or funds (including Insurance Proceeds)
--------------------
received in connection with the liquidation of any defaulted Mortgage Loan,
whether through trustee's sale, foreclosure sale or otherwise.
Loan Agreement: As to any Mortgage Loan, the Credit Agreement, Note
--------------
or other instrument pursuant to which the Servicer agrees to make revolving
credit loans to a Mortgagor or a Mortgagor agrees to repay such loans on the
terms and conditions provided in such instrument.
Loan Balance: As to any Mortgage Loan and day, the principal balance
------------
of such Mortgage Loan upon which interest accrued for such day was
calculated.
Loan Rate: As to any Mortgage Loan and day, the rate of interest
---------
applicable to the calculation of interest for such day on the Loan Balance.
Managed Amortization Period: The period from the first Distribution
---------------------------
Date to and including the earlier of (i) the Distribution Date in _____ ____
and (ii) the day as of which a Rapid Amortization Event occurs.
Margin: As to any Mortgage Loan, the spread over the applicable
------
index, as specified in the related Loan Agreement.
Maximum Principal Payment: As to any Distribution Date, an amount
-------------------------
equal to the Fixed Allocation Percentage of the aggregate amount of Trust
Principal Collections for the related Collection Period.
Minimum Monthly Payment: As to any Mortgage Loan and any month, the
-----------------------
minimum amount required to be paid by the related Mortgagor pursuant to the
related Loan Agreement.
Minimum Seller Interest: As to any date, an amount equal to the
-----------------------
lesser of (i) _% of the Pool Balance on such date and (ii) the Original
Seller Certificate Principal Balance.
Monthly Advance: As to any Distribution Date, the aggregate of the
---------------
advances made by the Servicer on such Distribution Date pursuant to Section
4.02, the amount of any such Monthly Advance being equal to the excess of:
(i) the total amount of accrued interest (adjusted to interest at the
related Net Loan Rate) and principal due (including principal due
by reason of default or acceleration) on the Trust Balances of the
Mortgage Loans for the related Interest Period, over
(ii) the total amount of interest (adjusted to interest at the related
Net Loan Rate) and principal collected on the Trust Balances of the
Mortgage Loans for the related Collection Period as of the
Determination Date,
minus any amounts with respect to installments of interest and principal on
the Trust Balances of the Mortgage Loans which (x) were delinquent as of the
end of the related Collection Period, (y) were not the subject of a previous
Monthly Advance and (z) are determined by the Servicer to be Nonrecoverable
Advances.
Monthly Advance Reimbursement Amount: As to any Distribution Date,
------------------------------------
the aggregate of the Monthly Advances which have not been reimbursed (or
deemed to have been reimbursed) to the Servicer through either (i)
withdrawals from the Certificate Account on or before such Distribution Date
pursuant to the second paragraph of Section 4.02 or (ii) debits to the
Mortgage Loan Payment Record pursuant to clause (ii) of Section 3.03.
Moody's: Moody's Investors Service, Inc. or its successor in
-------
interest.
Mortgage: The mortgage, deed of trust or other instrument creating a
--------
first, second or more junior lien on an estate in fee simple interest in real
property securing a Mortgage Loan or creating a first, second or more junior
lien on a leasehold interest insofar as such leasehold interest exceeds the
term of the related mortgage by five years.
Mortgage File: The mortgage documents listed in Section 2.01
-------------
pertaining to a particular Mortgage Loan and any additional documents
required to be added to the Mortgage File pursuant to this Agreement.
Mortgage Loan Payment Record: With respect to the Trust, the record
----------------------------
maintained by the Servicer pursuant to Section 3.02(b).
Mortgage Loan Schedule: As of any date, the schedule of Mortgage
----------------------
Loans included in the Trust Fund on such date. The initial schedule of
Mortgage Loans as of the Cut-off Date is attached hereto as Exhibit F and
sets forth as to each Initial Mortgage Loan (i) the Cut-off Date Trust
Balance, (ii) the Credit Limit, (iii) the stated maturity upon which any out-
standing Loan Balance is due and payable, (iv) the identification number, (v)
the state and zip code of the related Mortgaged Property, and (vi) whether
such loan is a Common Mortgage Loan. The Mortgage Loan Schedule will be
amended from time to time to reflect the removal of any Mortgage Loans from
the Trust and/or the conveyance of any Eligible Substitute Mortgage Loans to
the Trust, and when so amended shall include the information set forth above
with respect to each Eligible Substitute Mortgage Loan as of its related Cut-
off Date.
Mortgage Loan Seller: Merrill Lynch Credit Corporation, a Delaware
--------------------
corporation, or its successor in interest, as seller of the Trust Balances of
the Mortgage Loans to the Seller.
Mortgage Loan With Title Insurance: Each of the following Mortgage
----------------------------------
Loans:
(i) Mortgage Loans originated before February 1, 1994;
(ii) Mortgage Loans originated after February 1, 1994 in which (a) the
Credit Limit was over $1,000,000, or (b) the Mortgage Loan was
being used for a purchase money first mortgage transaction; and
(iii) Any other Mortgage Loan for which the Mortgage Loan Seller required
title insurance to be obtained.
Mortgage Loans: Such of the mortgage loans transferred and assigned
--------------
to the Trustee pursuant to Section 2.01 as from time to time are held as a
part of the Trust Fund, the Mortgage Loans so held being identified in the
Mortgage Loan Schedule. Any reference in this Agreement (including, without
limitation, any reference in subsection 2.01(a)) to a Mortgage Loan sold and
assigned to, or repurchased or purchased from, the Trust Fund or as
constituting part of the Trust Fund shall mean such Mortgage Loan to the
extent of the related balance owned by the Trust Fund. Any defaulted Mort-
gage Loan in respect of which the Servicer has not yet received all
Liquidation Proceeds that it expects to receive shall continue to be a part
of the Trust Fund. All proceeds of any such defaulted Mortgage Loan shall be
credited to the Mortgage Loan Payment Record to the same extent as proceeds
of Mortgage Loans which are not defaulted.
Mortgaged Property: The underlying property securing a Mortgage
------------------
Loan.
Mortgagor: The obligor under a Loan Agreement.
---------
Net Liquidation Proceeds: As to any Liquidated Mortgage Loan,
------------------------
Liquidation Proceeds net of Liquidation Expenses.
Net Loan Rate: As to any Mortgage Loan and day, the Loan Rate less
-------------
the Servicing Fee Rate.
Net Trust Liquidation Proceeds: As to any Liquidated Mortgage Loan,
------------------------------
(i) the lesser of (x) Net Liquidation Proceeds and (y) the Trust Balance of
such Mortgage Loan at the time of liquidation, together with accrued and
unpaid interest thereon at the Net Loan Rate from the last day on which
interest was paid in full on such Mortgage Loan to the end of the Collection
Period in which such Mortgage Loan became a Liquidated Mortgage Loan, minus
(ii) any amount which may be retained by the Servicer on account of any
unreimbursed Monthly Advances under clause (iii) of Section 3.03.
Nonrecoverable Advance: Any portion of a Monthly Advance previously
----------------------
made or proposed to be made in respect of a Mortgage Loan which has not been
previously reimbursed to the Servicer and which, in the good faith judgment
of the Servicer, will not or, in the case of a proposed Monthly Advance,
would not be ultimately recoverable from Net Trust Liquidation Proceeds or
other recoveries in respect of the related Mortgage Loan. The determination
by the Servicer that it has made a Nonrecoverable Advance or that any pro-
posed advance, if made, would constitute a Nonrecoverable Advance, shall be
evidenced by a certificate of a Servicing Officer delivered to the Trustee
and detailing the reasons for such determination.
Officer's Certificate: A certificate signed by the Chairman of the
---------------------
Board, the President, a Senior Vice President or a Vice President of the
Seller or the Servicer, as the case may be, and delivered to the Trustee.
Opinion of Counsel: A written opinion of counsel acceptable to the
------------------
Trustee and the Certificate Insurer, who may be internal counsel for the
Seller or the Servicer.
Original Certificate Principal Balance: $___________.
--------------------------------------
Original Invested Amount: $___________.
------------------------
Original Seller Certificate Principal Balance: $_________.
---------------------------------------------
Overcollateralization Amount: As of any date of determination, the
----------------------------
amount, if any, by which the Invested Amount exceeds the Certificate
Principal Balance.
Ownership Interest: With respect to any Certificate, any ownership
------------------
or security interest in such Certificate, including any interest in such
Certificate as the Holder thereof and any other interest therein, whether
direct or indirect, legal or beneficial, as owner or as pledgee.
Percentage Interest: As to any Investor Certificate, the percentage
-------------------
interest evidenced thereby in distributions required to be made thereon, such
percentage interest being equal to the percentage obtained by dividing the
initial principal denomination of such Investor Certificate by the Original
Certificate Principal Balance.
Permitted Investments: One or more of the following (excluding any
---------------------
callable investments purchased at a premium):
(i) obligations of, or guaranteed as to timely principal and interest
by, the United States or any agency or instrumentality thereof when
such obligations are backed by the full faith and credit of the
United States;
(ii) repurchase agreements on obligations specified in clause (i)
maturing not more than one month from the date of acquisition
thereof, provided that the short-term unsecured obligations of the
party agreeing to repurchase such obligations are at the time rated
by each Rating Agency in its highest short-term rating category;
provided that if Moody's is a Rating Agency, the short-term debt
obligations of the party agreeing to repurchase shall be rated
Prime-1 or better;
(iii) certificates of deposit, demand and time deposits and bankers'
acceptances (which, if Moody's is a Rating Agency, shall each have
an original maturity of not more than 90 days and, in the case of
bankers' acceptances, shall in no event have an original maturity
of more than 365 days) of any U.S. depository institution or trust
company incorporated under the laws of the United States or any
state; provided that the short-term debt obligations of such
depository institution or trust company (or, if the only Rating
Agency is Standard & Poor's, in the case of the principal
depository institution in a depository institution holding company,
debt obligations of the depository institution holding company) at
the date of acquisition thereof have been rated by each Rating
Agency in its highest short-term rating category; provided that if
Moody's is a Rating Agency, the short-term obligations of such
depository institution or trust company shall be rated Prime-1 or
better;
(iv) commercial paper (having original maturities of not more than 270
days) of any corporation incorporated under the laws of the United
States or any state thereof which on the date of acquisition has
been rated by each Rating Agency in its highest short-term rating
category;
(v) investments in money market mutual funds registered under the
Investment Company Act of 1940 that are rated by each Rating Agency
in its highest rating category; provided that if Standard & Poor's
is a Rating Agency, the rating of such money market funds shall be
AAAm or AAAm-G; and
(vi) other obligations or securities that are acceptable to each Rating
Agency as a Permitted Investment hereunder and will not result in a
reduction in the then current rating or ratings of the Investor
Certificates without taking into account the Certificate Insurance
Policy, as evidenced by a letter to such effect from such Rating
Agency.
Person: Any individual, corporation, partnership, joint venture,
------
association, joint-stock company, trust, unincorporated organization or
government or any agency or political subdivision thereof.
Pool Balance: As to any date, the aggregate of the Trust Balances of
------------
all Mortgage Loans as of such date.
Pool Factor: As to any Distribution Date, the percentage, carried to
-----------
six places, obtained by dividing the Certificate Principal Balance for such
Distribution Date by the Original Certificate Principal Balance.
Preference Amount: As defined in the Certificate Insurance Policy.
-----------------
Premium Amount: As to any Distribution Date, beginning on the first
--------------
Distribution Date, the product of (x) the Premium Percentage and (y) the
Certificate Principal Balance on such Distribution Date (before taking into
account any distributions of principal to be made to Investor Certificate-
holders on such Distribution Date).
Premium Percentage: As defined in the Certificate Insurance Policy.
------------------
Principal Collections: As to any Mortgage Loan and Collection
---------------------
Period, all amounts (other than Insurance Proceeds and Liquidation Proceeds)
received from or on behalf of the related Mortgagor during such Collection
Period which, at the time of receipt, were applied in reduction of the Loan
Balance in accordance with the terms of the related Loan Agreement.
Prior Trust: Any of Trust 1989, Trust 1991, Trust 1993, Trust 1994
-----------
1, Trust 1994-2, Trust 1995-1 and Trust 1995-2.
Prior Trust Pooling and Servicing Agreement: Any of the Trust 1989
-------------------------------------------
Pooling and Servicing Agreement, the Trust 1991 Pooling and Servicing
Agreement, the Trust 1993 Pooling and Servicing Agreement, the Trust 1994-1
Pooling and Servicing Agreement, the Trust 1994-2 Pooling and Servicing
Agreement, the Trust 1995-1 Pooling and Servicing Agreement or the Trust
1995-2 Pooling and Servicing Agreement.
Prior Trust Trustee: Any of the Trust 1989 Trustee, the Trust 1991
-------------------
Trustee, the Trust 1993 Trustee, the Trust 1994-1 Trustee, the Trust 1994-2
Trustee, the Trust 1995-1 Trustee and the Trust 1995-2 Trustee.
Property Protection Expenses: Expenses paid or incurred by or for
----------------------------
the account of the Servicer in connection with the preservation or protection
of a Mortgaged Property or the security of a Mortgaged Property including (i)
hazard insurance policy premiums, (ii) real estate taxes and property repair,
replacement, protection and preservation expenses, (iii) amounts expended to
cure or prevent any default with respect to any mortgage loan senior to a
Mortgage Loan, and (iv) similar expenses reasonably paid or incurred to
preserve or protect the value of such security.
Rapid Amortization Commencement Date: The earlier of the
------------------------------------
Distribution Date in ___ ____ and the Distribution Date next following the
Collection Period in which a Rapid Amortization Event is deemed to occur
pursuant to Section 11.01.
Rapid Amortization Event: As defined in Section 11.01.
------------------------
Rapid Amortization Period: The period following the Managed
-------------------------
Amortization Period until the termination of the Trust pursuant to Section
10.01.
Rating Agency: Any statistical credit rating agency, or its
-------------
successor, that rated the Investor Certificates at the request of the Seller
at the time of the initial issuance of the Investor Certificates. If such
agency or a successor is no longer in existence, "Rating Agency" shall be
such statistical credit rating agency, or other comparable Person, designated
by the Servicer, notice of which designation shall be given to the Trustee.
References herein to the highest rating categories of a Rating Agency shall
mean AAA (long-term), AAAm or AAAm-G (money market funds) and A-1+ (short-
term) in the case of Standard & Poor's and Aaa (long-term) and P-1 (short-
term) in the case of Moody's and in the case of any other Rating Agency shall
mean such equivalent ratings.
Record Date: As to any Distribution Date, the last day of the month
-----------
(or if such last day is not a Business Day, the Business Day immediately
preceding such last day) preceding the month of such Distribution Date.
Reimbursement Amount: As to any Distribution Date, the sum of (x)(i)
--------------------
all Insured Payments paid by the Certificate Insurer, but for which the
Certificate Insurer has not been reimbursed prior to such Distribution Date
pursuant to Section 5.01(a) plus (ii) interest accrued thereon, calculated at
the Late Payment Rate from the date the Trustee received the related Insured
Payments and (y)(i) any amounts then due and owing to the Certificate Insurer
under the Insurance Agreement or the Certificate Insurance Policy plus (ii)
interest on such amounts at the Late Payment Rate. The Certificate Insurer
shall notify the Trustee and the Servicer of the amount of any Reimbursement
Amount.
Required Amount: For each Distribution Date occurring on or prior to
---------------
the 30th Distribution Date, _% of the Cut-off Date Pool Balance. For each
Distribution Date thereafter, the lesser of (i) _% of the Cut-off Date Pool
Balance and (ii) _% of the Pool Balance as of such Distribution Date;
provided that in no event will the Required Amount be less than a floor
amount equal to the greater of (x) _% of the Cut-off Date Pool Balance and
(y) __% of the aggregate Trust Balances of all Mortgage Loans delinquent 91
days or more (including for this purpose any Mortgage Loans in foreclosure
and any Mortgage Loans with respect to which the related Mortgaged Properties
have been acquired by the Trust Fund) as of the end of the related Collection
Period. Notwithstanding the foregoing, for each Distribution Date, if the
cumulative principal losses on the Trust Balances of the Mortgage Loans
specified in item (xxxvi) of the Servicing Certificate prepared pursuant to
Section 4.01 exceed ____% of the Cut-off Date Pool Balance, then the Required
Amount shall be ____% of the Cut-off Date Pool Balance.
Responsible Officer: When used with respect to the Trustee, the
-------------------
Chairman or Vice Chairman of the Board of Directors or Trustees, the Chairman
or Vice Chairman of the Executive or Standing Committee of the Board of
Directors or Trustees, the President, the Chairman of the Committee on Trust
Matters, any Vice President, any Assistant Vice President, the Secretary,
any Assistant Secretary, the Treasurer, any Assistant Treasurer, the Cashier,
any Assistant Cashier, any Trust Officer or Assistant Trust Officer, the
Controller and any Assistant Controller or any other officer of the Trustee
customarily performing functions similar to those performed by any of the
above designated officers and also, with respect to a particular matter, to
whom such matter is referred because of such officer's knowledge of and
familiarity with the particular subject.
Retained Rights: As defined in Section 2.01(e).
---------------
Retransfer Date: As defined in Section 2.06.
---------------
Retransfer Notice Date: As defined in Section 2.06.
----------------------
SAIF: The Savings Association Insurance Fund, as from time to time
----
constituted, created under the Financial Institutions Reform, Recovery and
Enhancement Act of 1989, or if at any time after the execution of this
instrument the Savings Association Insurance Fund is not existing and
performing duties now assigned to it, the body performing such duties on such
date.
Scheduled Principal Collections Payment: With respect to any
---------------------------------------
Distribution Date during the Managed Amortization Period, an amount equal to
the lesser of (i) the Maximum Principal Payment and (ii) the Alternative
Principal Payment. With respect to any Distribution Date on or after the
Rapid Amortization Commencement Date, an amount equal to the Maximum
Principal Payment.
Seller: MLCC Mortgage Investors, Inc., a Delaware corporation, or
------
its successor in interest.
Seller Certificate: The Certificates signed and countersigned by the
------------------
Trustee substantially in the form set forth in Exhibits B and D hereto.
Seller Certificate Principal Balance: As of the date of determin
------------------------------------
ation thereof, the amount equal to (i) the Pool Balance as of the end of the
day next preceding such date of determination minus (ii) the Invested Amount
as of the end of such day.
Seller Certificateholders: The Holders of the Seller Certificates.
-------------------------
Seller Interest Collections: As to any Distribution Date, Trust
---------------------------
Interest Collections for the related Collection Period that are not
Certificate Interest Collections.
Seller Principal Collections: As to any Distribution Date, Trust
----------------------------
Principal Collections for the related Collection Period minus the amount of
such Trust Principal Collections required to be distributed to Investor
Certificateholders pursuant to Section 5.01(b).
Seller Subordinated Amount: As to any Distribution Date, the least of
--------------------------
(i) _% of the Cut-off Date Pool Balance minus the sum of (a) the
aggregate amount of Trust Principal Collections allocable to the
Seller that have previously been distributed to Investor
Certificateholders pursuant to Section 5.01(c)(i) and (b) the
aggregate amount of Investor Loss Amounts that have previously been
reallocated to the Seller pursuant to Section 5.01(c)(ii); or
(ii) the Seller Subordinated Amount on the previous Distribution Date;
or
(iii) the Required Amount.
Seriously Delinquent Mortgage Loan: As to any Distribution Date, any
----------------------------------
Mortgage Loan which (i) had not reached its stated maturity and was
delinquent in payment of interest for more than 90 days at the end of the
related Collection Period, (ii) had reached its stated maturity and was more
than 60 days delinquent at the end of the related Collection Period, or (iii)
was in default under the terms and provisions of the Loan Agreement (other
than a default related to a delinquency) as of the end of the related
Collection Period and as to which the Servicer had notified the Mortgagor of
such default, terminated the Loan Agreement and demanded the immediate
repayment of the outstanding Loan Balance.
Servicer or MLCC: Merrill Lynch Credit Corporation, a Delaware
----------------
corporation, or its successor in interest or any successor servicer appointed
as herein provided.
Servicing Certificate: A certificate completed by and executed on
---------------------
behalf of the Servicer in accordance with Section 4.01.
Servicing Fee Rate: 0.__% per annum.
------------------
Servicing Officer: Any officer of the Servicer involved in, or
-----------------
responsible for, the administration and servicing of the Mortgage Loans whose
name and facsimile signature appear on a list of servicing officers furnished
to the Trustee by the Servicer, as such list may from time to time be
amended.
Standard & Poor's: Standard & Poor's Corporation or its successor in
-----------------
interest.
Stated Maturity Date: The Distribution Date in June 2006.
--------------------
Support Agreement: The letter agreement between the Servicer and its
-----------------
Indirect Parent dated as of April 1, 1996, pursuant to which the Indirect
Parent ensures performance by the Servicer of the obligations to repurchase
certain Mortgage Loans pursuant to Section 2.02 and to deposit certain
amounts in the Certificate Account pursuant to Section 4.02.
Transfer: Any direct or indirect transfer, sale, pledge,
--------
hypothecation or other form of assignment of any Ownership Interest in a
Certificate.
Transfer Date: With respect to the Initial Mortgage Loans, the
-------------
Closing Date and with respect to any Eligible Substitute Mortgage Loan, the
date on which such Eligible Substitute Mortgage Loan is conveyed to the Trust
under the terms hereof.
Transfer Deposit Amount: As defined in Section 2.02(b).
-----------------------
Transferee: Any Person who is acquiring by Transfer any Ownership
----------
Interest in a Certificate.
Trust: The trust created by this Agreement and designated "ML
-----
Revolving Home Equity Loan Trust 1996-1".
Trust 1989: The trust created by the Trust 1989 Pooling and
----------
Servicing Agreement and designated "ML Home Equity Loan Trust 1989-1".
Trust 1989 Pooling and Servicing Agreement: The Pooling and
------------------------------------------
Servicing Agreement dated as of November 1, 1989 among Merrill Lynch Equity
Management, Inc., as Servicer, Merrill Lynch Home Equity Acceptance, Inc., as
Seller, and Security Pacific National Bank, as Trustee, and all amendments
thereof and supplements thereto.
Trust 1989 Trustee: The institution which executed the Trust 1989
------------------
Pooling and Servicing Agreement as Trustee, or its successors in interest, or
any successor trustee that has been appointed in accordance with the terms of
the Trust 1989 Pooling and Servicing Agreement.
Trust 1991: The trust created by the Trust 1991 Pooling and
----------
Servicing Agreement and designated "ML Home Equity Loan Trust 1991-2".
Trust 1991 Pooling and Servicing Agreement: The Pooling and
------------------------------------------
Servicing Agreement dated as of September 1, 1991 among Merrill Lynch Credit
Corporation, as Servicer, Merrill Lynch Home Equity Acceptance, Inc., as
Seller, and Bankers Trust Company of California, N.A., as Trustee, and all
amendments thereof and supplements thereto.
Trust 1991 Trustee: The institution which executed the Trust 1991
------------------
Pooling and Servicing Agreement as Trustee, or its successors in interest, or
any successor trustee that has been appointed in accordance with the terms of
the Trust 1991 Pooling and Servicing Agreement.
Trust 1993: The trust created by the Trust 1993 Pooling and
----------
Servicing Agreement and designated "ML Home Equity Loan Trust 1993-1".
Trust 1993 Pooling and Servicing Agreement: The Pooling and
------------------------------------------
Servicing Agreement dated as of February 1, 1993 among Merrill Lynch Credit
Corporation, as Servicer, Merrill Lynch Home Equity Acceptance, Inc., as
Seller, and Bankers Trust Company of California, N.A., as Trustee, and all
amendments thereof and supplements thereto.
Trust 1993 Trustee: The institution which executed the Trust 1993
------------------
Pooling and Servicing Agreement as Trustee, or its successors in interest, or
any successor trustee that has been appointed in accordance with the terms of
the Trust 1993 Pooling and Servicing Agreement.
Trust 1994-1: The trust created by the Trust 1994-1 Pooling and
------------
Servicing Agreement and designated "ML Home Equity Loan Trust 1994-1".
Trust 1994-1 Pooling and Servicing Agreement: The Pooling and
--------------------------------------------
Servicing Agreement dated as of April 1, 1994 among Merrill Lynch Credit
Corporation, as Servicer, Merrill Lynch Home Equity Acceptance, Inc., as
Seller, and Bankers Trust Company of California, N.A., as Trustee, and all
amendments thereof and supplements thereto.
Trust 1994-1 Trustee: The institution which executed the Trust 1994
--------------------
1 Pooling and Servicing Agreement as Trustee, or its successors in interest,
or any successor trustee that has been appointed in accordance with the terms
of the Trust 1994-1 Pooling and Servicing Agreement.
Trust 1994-2: The trust created by the Trust 1994-2 Pooling and
------------
Servicing Agreement and designated "ML Home Equity Loan Trust 1994-2".
Trust 1994-2 Pooling and Servicing Agreement: The Pooling and
--------------------------------------------
Servicing Agreement dated as of September 1, 1994 among Merrill Lynch Credit
Corporation, as Servicer, MLCC Mortgage Investors, Inc., as Seller, and
Bankers Trust Company of California, N.A., as Trustee, and all amendments
thereof and supplements thereto.
Trust 1994-2 Trustee: The institution which executed the Trust 1994
--------------------
2 Pooling and Servicing Agreement as Trustee, or its successors in interest,
or any successor trustee that has been appointed in accordance with the terms
of the Trust 1994-2 Pooling and Servicing Agreement.
Trust 1995-1: The trust created by the Trust 1995-1 Pooling and
------------
Servicing Agreement and designated "ML Home Equity Loan Trust 1995-1".
Trust 1995-1 Pooling and Servicing Agreement: The Pooling and
--------------------------------------------
Servicing Agreement dated as of March 1, 1995 among Merrill Lynch Credit
Corporation, as Servicer, MLCC Mortgage Investors, Inc., as Seller, and
Bankers Trust Company of California, N.A., as Trustee, and all amendments
thereof and supplements thereto.
Trust 1995-1 Trustee: The institution which executed the Trust 1995
--------------------
1 Pooling and Servicing Agreement as Trustee, or its successors in interest,
or any successor trustee that has been appointed in accordance with the terms
of the Trust 1995-1 Pooling and Servicing Agreement.
Trust 1995-2: The trust created by the Trust 1995-2 Pooling and
------------
Servicing Agreement and designated "ML Home Equity Loan Trust 1995-2".
Trust 1995-2 Pooling and Servicing Agreement: The Pooling and
--------------------------------------------
Servicing Agreement dated as of October 1, 1995 among Merrill Lynch Credit
Corporation, as Servicer, MLCC Mortgage Investors, Inc., as Seller, and
Bankers Trust Company of California, N.A., as Trustee, and all amendments
thereof and supplements thereto.
Trust 1995-2 Trustee: The institution which executed the Trust 1995
--------------------
2 Pooling and Servicing Agreement as Trustee, or its successors in interest,
or any successor trustee that has been appointed in accordance with the terms
of the Trust 1995-2 Pooling and Servicing Agreement.
Trust Balance: As to any Mortgage Loan, other than a Liquidated
-------------
Mortgage Loan, and day, the related Cut-off Date Trust Balance, plus any
Additional Balances in respect of such Mortgage Loan arising during the
Managed Amortization Period, minus the sum of (i) all Principal Collections
credited against the Loan Balance (excluding, in the case of any Common
Mortgage Loan, any such Principal Collections applied in reduction of the
principal balance of such Common Mortgage Loan sold and assigned to one or
more of the Prior Trusts) in accordance with the related Loan Agreement prior
to such day, and (ii) any Trust Insurance Proceeds received prior to such day
in respect of such Mortgage Loan. For purposes of this definition, a
Liquidated Mortgage Loan shall be deemed to have a Trust Balance equal to the
Trust Balance of the related Mortgage Loan immediately prior to the final
recovery of related Liquidation Proceeds and a Trust Balance of zero
thereafter.
Trust Fund: The corpus of the ML Revolving Home Equity Loan Trust
----------
1996-1, consisting of, to the extent described herein, the following:
(i) the Trust Balance of each Mortgage Loan, including any Additional
Balance arising during the Managed Amortization Period under such
Mortgage Loan subsequent to the related Cut-off Date, all payments
of interest and of principal thereon, from whatever source derived,
received on or with respect to such Mortgage Loan on and after the
applicable Cut-off Date and allocable to such Trust Balance (but
not including all accrued interest and principal due on or with
respect to such Mortgage Loan for Interest Periods prior to the
related Cut-off Date);
(ii) such assets as shall from time to time be identified as deposited
in the Certificate Account in accordance with this Agreement;
(iii) the interest of the Certificateholders to the extent of the Trust
Balances of the Mortgage Loans and interest accrued thereon in (x)
property which secured a Mortgage Loan and which has been acquired
by foreclosure or deed in lieu of foreclosure, (y) any insurance
policies related to the Mortgage Loans, including hazard insurance
policies, and (z) the related Mortgage, Loan Agreement and other
Mortgage File documents for each Mortgage Loan;
(iv) the benefit of the Support Agreement and the Certificate Insurance
Policy; and
(v) the proceeds of each of the foregoing.
Trust Insurance Proceeds: As to any Mortgage Loan and Collection
------------------------
Period, an amount equal to the lesser of (i) Insurance Proceeds paid to the
Servicer during such Collection Period (reduced by any related expenses of
the Servicer in collecting such proceeds), which (x) are not Liquidation
Proceeds, (y) are not applied to the restoration or repair of the related
Mortgaged Property or released to the related Mortgagor in accordance with
the normal servicing procedures of the Servicer and (z) will be applied by
the Servicer in reduction of the Loan Balance of such Mortgage Loan and (ii)
the Trust Balance of such Mortgage Loan at the end of such Collection Period,
together with accrued and unpaid interest thereon at the Net Loan Rate from
the last day on which interest was paid in full on such Mortgage Loan to the
end of such Collection Period.
Trust Interest Collections: As to any payment on a Mortgage Loan
--------------------------
made by or on behalf of the related Mortgagor for the related Collection
Period, the lesser of (i) the portion thereof allocable to accrued interest
for the related Interest Period in accordance with the terms of the related
Loan Agreement (net of interest at the Servicing Fee Rate on the Loan Balance
for each day during such Interest Period) and (ii) accrued interest at the
Net Loan Rate on the Trust Balance for each day during such Interest Period.
Trust Principal Collections: As to any Mortgage Loan and Collection
---------------------------
Period, the sum of (i) all amounts (other than Insurance Proceeds and
Liquidation Proceeds) received from or on behalf of the related Mortgagor
during such Collection Period which, at the time of receipt, were applied in
reduction of the Loan Balance in accordance with the terms of the related
Loan Agreement (other than, in the case of any Common Mortgage Loan, any such
principal collections applied in reduction of the principal balance of such
Common Mortgage Loan sold and assigned to any Prior Trust), (ii) the
principal portion of any Net Trust Liquidation Proceeds and Trust Insurance
Proceeds and (iii) the principal portion of any Transfer Deposit Amount.
Trustee: The institution executing this Agreement as Trustee, or its
-------
successor in interest, or any successor trustee that has been appointed in
accordance with the terms of this Agreement.
Unpaid Certificate Interest Shortfall: As to any Distribution Date,
-------------------------------------
the aggregate amount, if any, of Certificate Formula Interest that was
accrued in respect of one or more prior Distribution Dates and has not been
distributed to Investor Certificateholders.
Section 1.02. Interest Calculations.
---------------------
All calculations of interest hereunder that are made in respect of the
Loan Balance, Trust Balance or Additional Balance of a Mortgage Loan,
including calculations of interest at the Servicing Fee Rate, shall be made
on a daily basis using a 365 day year. All calculations of interest on the
Investor Certificates shall be made on the basis of the actual number of days
in an Accrual Period and a year assumed to consist of 360 days.
ARTICLE II
Conveyance of Mortgage Loans;
Original Issuance of Certificates
Section 2.01. Conveyance of Mortgage Loans.
----------------------------
(a) In consideration of the Trustee's delivery to or upon the order of
the Seller of the Certificates in an aggregate amount equal to the Cut-off
Date Pool Balance, the Seller does hereby transfer, assign, set over and
otherwise convey to the Trustee without recourse (except as provided herein)
all the right, title and interest of the Seller in and to (i)(A) the Cut-off
Date Trust Balance of each Mortgage Loan, including any Additional Balance
arising during the Managed Amortization Period under each Mortgage Loan
subsequent to the related Cut-off Date and assigned and transfered to the
Trustee hereunder, all payments of interest and principal thereon, from
whatever source derived, which are received on or with respect to each
Mortgage Loan on or after the Cut-off Date and are allocable to the Trust
Balance (but not including all accrued interest and principal due on or with
respect to the Mortgage Loans for Interest Periods prior to the Cut-off
Date), (B) the Certificate Account, and (C) the Certificate Insurance Policy,
(ii) to the extent of the Trust Balances of the Mortgage Loans and interest
accrued thereon, as provided in this Agreement, (A) any Mortgaged Properties
converted to ownership through foreclosure or deed in lieu or otherwise, (B)
any insurance policies related to the Mortgage Loans, and (C) the related
Mortgages, Loan Agreements and other Mortgage File documents for the Mortgage
Loans; and (iii) the proceeds of each of the foregoing.
The Seller and the Trustee acknowledge that the Prior Trusts have
rights, interests, power and authority with respect to the Common Mortgage
Loans and the related Loan Agreements, Mortgages and other Mortgage File
documents to the extent provided in the Prior Trust Pooling and Servicing
Agreements. The Servicer acknowledges that, pursuant to the terms of the
Loan Agreements, amounts received from or on behalf of the Mortgagor of a
Common Mortgage Loan which, at the time of receipt, are treated as principal
collections pursuant to the related Loan Agreement, will be applied in
reduction of the principal balance of such Common Mortgage Loan sold to one
or more of the Prior Trusts as provided in the Prior Trust Pooling and
Servicing Agreements before such collections may be applied as Principal
Collections under this Agreement.
The parties hereto intend that the transaction set forth herein be a
sale by the Mortgage Loan Seller to the Seller and a sale by the Seller to
the Trust of all of their right, title and interest in and to the Mortgage
Loans and other property described above. In the event the transaction set
forth herein is deemed not to be a sale, the Mortgage Loan Seller and the
Seller hereby grant to the Trustee a first priority security interest in all
of the Mortgage Loan Seller's and the Seller's right, title and interest in
and to the (i) Mortgage Loans identified on the Mortgage Loan Schedule on the
Cut-off Date, (ii) Mortgage Loans added to the Mortgage Loan Schedule from
time to time, (iii) all property included in the Trust Fund, (iv) and all
proceeds of any of the foregoing; and this Agreement shall constitute a
security agreement under applicable law.
In connection with such assignment, transfer and conveyance of the Trust
Fund, as promptly as practicable but in no event later than 10 days following
the Closing Date, (i) the Mortgage Loan Seller will file in the appropriate
office in the State in which the principal place of business of the Mortgage
Loan Seller is located a UCC-1 financing statement executed by the Mortgage
Loan Seller as debtor, naming the Seller as secured party and listing as
collateral the Mortgage Loans identified on the Mortgage Loan Schedule and
all property constituting the Trust Fund, and (ii) the Seller will file in
the appropriate office in the State in which the principal place of business
of the Seller is located a UCC-1 financing statement executed by the Seller
as debtor, naming the Trustee as secured party and listing as collateral the
Mortgage Loans identified on the Mortgage Loan Schedule and all property
constituting the Trust Fund. In connection with such filings, the Mortgage
Loan Seller and the Seller agree that they shall each cause to be filed all
necessary continuation statements thereof and to take or cause to be taken
such actions and execute such documents as are necessary to perfect and
protect the Certificateholders' interests in the Mortgage Loans and the
proceeds thereof allocable thereto.
(b) In connection with the foregoing assignment, transfer and
conveyance by the Seller, the Servicer acknowledges that it is holding as
custodian for the Trustee or the applicable Prior Trustee the following
documents or instruments with respect to each Mortgage Loan so assigned and
transferred (other than Mortgage Loans which have been prepaid in full on or
after the Cut-off Date and prior to the date of the execution of this
Agreement):
(i) The original Loan Agreement;
(ii) The related Mortgage with evidence of recording indicated
thereon; and
(iii) As to each Mortgage Loan With Title Insurance, evidence of
such insurance (to the extent such evidence is included in the
related Mortgage File).
Except as hereinafter provided, the Servicer shall be entitled to
maintain possession of all of the foregoing documents and instruments and
shall not be required to deliver any of them to the Trustee. In the event,
however, that possession of any of such documents or instruments is required
by any person (including the Trustee) acting as successor servicer pursuant
to Section 7.04 in order to carry out the duties of Servicer hereunder, then
such successor shall be entitled to request delivery of such documents or
instruments by the Servicer and to retain such documents or instruments for
as long as necessary for servicing purposes. Any such documents or
instruments shall be returned to the Servicer (unless returned to the related
Mortgagor in connection with the payment in full of the related Mortgage
Loan) when possession thereof is no longer required.
(c) The Servicer further confirms to the Trustee that it has caused the
portions of its records relating to the Mortgage Loans to be clearly and
unambiguously marked to indicate that the Trust Balances of such Mortgage
Loans (to the extent provided herein) have been assigned and transferred to
the Trustee and constitute part of the Trust Fund in accordance with the
terms of the trust created hereunder.
(d) The Servicer's right to maintain possession of the documents
enumerated above shall continue so long as the long term unsecured debt of
the Indirect Parent is assigned ratings of at least A- by Standard and Poor's
and A3 by Moody's. At such time as the long term unsecured debt of the
Indirect Parent does not satisfy the above referenced criteria, as promptly
as practicable but in no event more than 90 days following the happening of
such event (or 120 days upon the receipt by the Trustee from the Servicer of
a letter from each Rating Agency that such longer period (without taking into
account the Certificate Insurance Policy) will not result in a reduction in
or withdrawal of any rating of the Investor Certificates), the Servicer shall
at the expense of the Servicer (i) prepare assignments in recordable form to
the Trustee of each Mortgage Loan (which may be a blanket assignment) and
(ii) deliver the related Mortgage Files to the Trustee to be held by the
Trustee in trust, upon the terms herein set forth, for the use and benefit of
all present and future Certificateholders and the Trustee shall retain
possession thereof except to the extent the Servicer requires any Mortgage
Files for normal servicing as contemplated by Section 3.07; provided,
however, that such preparation of assignments and delivery of related
Mortgage Files shall not be required in the case of any Common Mortgage Loan
for which the Servicer has so prepared an assignment and delivered the
related Mortgage File to the related Prior Trustee. In the event the Servicer
fails to deliver the Mortgage Files to the Trustee within such 90 day period
or, if applicable, 120 day period, the Trustee shall give written notice
pursuant to the Support Agreement to the Indirect Parent of the Servicer's
failure to deliver the Mortgage Files.
Within 60 days following delivery of the Mortgage Files to the Trustee,
it will review or cause to be reviewed each Mortgage File to ascertain that
all required documents set forth in this Section 2.01 have been executed and
received, and that such documents relate to the Mortgage Loans identified on
the Mortgage Loan Schedule and in so doing the Trustee may rely on the
purported due execution and genuineness of any signature thereon. If within
such 60 day period the Trustee finds any document constituting a part of a
Mortgage File not to have been executed or received or to be unrelated to the
Mortgage Loans identified in the Mortgage Loan Schedule, the Trustee shall
promptly notify the Servicer, which shall have a period of 30 days after such
notice within which to correct or cure any such defect. Upon the completion
of the review by the Trustee of each Mortgage File within such 60 day period
and, if necessary, the correction or cure of any defect by the Servicer
within such 30 day period, the Servicer will submit such assignments of the
Mortgage Loans for recording in the appropriate public offices for real
property records within seven (7) days of the completion of such review and
necessary correction and instruct the recording offices to return the
original recorded assignments to the Trustee. Within 30 days following
receipt by the Trustee of the recorded assignment the Trustee shall review or
cause to be reviewed such assignment to confirm the information specified
above with respect to the other documents. The Trustee shall notify the
Servicer of any defect in such assignment based on such review. The Servicer
shall have a period of 30 days following such notice to correct or cure such
defect.
If the Servicer fails to record an assignment of a Mortgage Loan as
herein provided, the Trustee shall prepare and file or cause to be prepared
and filed, at the expense of the Servicer, such assignments in the
appropriate real property or other records and the Servicer hereby appoints
the Trustee as its attorney-in-fact with full power and authority acting in
its stead for the purpose of such preparation and filing.
(e) On the Closing Date the Seller shall deliver the Certificate
Insurance Policy to the Trustee.
(f) Bankers Trust Company of California, N.A., as the Prior Trust
Trustee or successor trustee for each of the Prior Trusts, hereby
acknowledges that the Mortgage Loan Seller has previously reserved and
retained certain rights, interests, power and authority (the "Retained
Rights") with respect to the Common Mortgage Loan Interests to the extent of
the Mortgage Loan Seller's interest in the Common Mortgage Loan Interests not
sold to the Prior Trusts, all as set forth more fully in the Prior Trust
Pooling and Servicing Agreements. Without limiting the generality of the
foregoing, the Retained Rights include the right of the Mortgage Loan Seller
to certain balances arising under the related Common Mortgage Loans, together
with payments of principal and interest, from whatever source derived,
allocable to such balances, as provided in the Prior Trust Pooling and
Servicing Agreements. The Mortgage Loan Seller hereby notifies the Prior
Trust Trustees that certain of the Retained Rights are being assigned to the
Trustee pursuant to, and to the extent provided in, this Agreement (the
"Assignment of Retained Rights").
Bankers Trust Company of California, N.A., as the Prior Trust Trustee or
successor trustee for each of the Prior Trusts, hereby acknowledges receipt
of (i) a copy of this Agreement, (ii) notice of the Assignment of Retained
Rights as set forth in this Section 2.01(f), (iii) notice of the transfer and
assignment to the Trustee of the Common Mortgage Loan Interests and related
rights (including, without limitation, payments on the Common Mortgage Loans)
as evidenced by this Section 2.01(f), and (iv) notice of the Trustee's first
priority perfected security interest in the Common Mortgage Loan Interests
and related rights (including, without limitation, payments on the Common
Mortgage Loans) as evidenced by, and to the extent provided in, this
Agreement.
Not later than the end of the 90 day period or, if applicable, 120 day
period specified in Section 2.01(d), the Servicer shall deliver the Mortgage
File for each Common Mortgage Loan to the Prior Trust Trustee with the most
senior rights thereto. Each of the Prior Trust Trustees hereby agrees to act
for the Trust Fund as a bailee that has received notification of the Trust
Fund's interest in the Common Mortgage Loans to the extent of the Trust
Balances at such time as the Prior Trust Trustees take possession of the Loan
Agreements or any of the other Mortgage File documents with respect to the
Common Mortgage Loans. Further, each of the Prior Trust Trustees agrees that
if the Loan Agreement or any of the other Mortgage File documents with
respect to any Common Mortgage Loan that may be held by it in its capacity as
trustee are no longer required to be held by it in such capacity (by reason
of payment of the balance of such Common Mortgage Loan owned by such Prior
Trust or for any other reason that under the related Prior Trust Pooling and
Servicing Agreement permits or requires release of the related Mortgage File
to the Seller), and the Trust Balance of such Common Mortgage Loan is then
owned by the Trust Fund, the Prior Trust Trustee shall promptly transfer
possession of all such Mortgage File documents to the Prior Trust Trustee, if
any, with the then most senior rights to the related Mortgage File for such
Common Mortgage Loan and if there is no such trustee, then to the Trustee or
to any successor Trustee. Each of the Prior Trust Trustees hereby
acknowledges and confirms that its right, title and interest in any mortgage
loan and any property related to such mortgage loan conveyed to it pursuant
to Section 2.01(a) of the applicable Prior Trust Pooling and Servicing
Agreement, is limited to the "trust balance" (as defined in the applicable
Prior Trust Pooling and Servicing Agreement), if any, of any such mortgage
loan plus accrued interest, if any, thereon.
Nothing in this Section 2.01(f) shall be deemed to affect the right or
obligation of a Prior Trust Trustee to release the Mortgage File of any
Common Mortgage Loan to the servicer of the related Prior Trust or to the
Servicer to the extent permitted or required by the applicable Prior Trust
Pooling and Servicing Agreement.
Section 2.02. Acceptance by Trustee; Retransfer
---------------------------------
of Mortgage Loans; Substitution of
----------------------------------
Eligible Substitute Mortgage Loans.
----------------------------------
(a) The Trustee acknowledges the assignment and transfer of the Loan
Agreements and the Mortgages pursuant to Section 2.01, and declares that it
will hold the Trust Fund in trust, upon the terms herein set forth, for the
use and benefit of all present and future Certificateholders and the
Certificate Insurer.
(b) If the time to correct or cure any defect of which the Trustee has
notified the Servicer following any review by the Trustee of the Mortgage
Files pursuant to Section 2.01 has expired without any correction or cure or
if any loss that materially and adversely affects the interests of the
Certificateholders is incurred in respect of any Mortgage Loan as a result of
(i) a defect in any document constituting a part of a Mortgage File or (ii)
the Servicer's retention of such Mortgage File, then on the Business Day next
preceding the Distribution Date in the month following the Collection Period
in which the time to correct or cure such defect expired or such loss
occurred, deposit in the Certificate Account the Transfer Deposit Amount, if
any, and upon satisfaction of the applicable conditions described herein, all
right, title and interest of the Trust in and to such Mortgage Loan shall be
deemed to be retransferred, reassigned and otherwise reconveyed, without
recourse, representation or warranty, to the Seller on such Business Day and
the Trust Balance of such Mortgage Loan shall be deducted from the Pool
Balance; provided, however, that interest accrued on the Trust Balance of
such Mortgage Loan to the end of the related Interest Period shall be the
property of the Trust. The Servicer shall determine if the removal of such
Trust Balance from the Pool Balance in accordance with the preceding sentence
would cause the Seller Certificate Principal Balance to be less than the
Minimum Seller Interest ("Transfer Deficiency"), in which event the Servicer
shall deliver written notice of such deficiency to the Trustee and the
Seller, and within five Business Days after the Business Day of such
retransfer the Servicer shall either (i) substitute an Eligible Substitute
Mortgage Loan or (ii) deposit into the Certificate Account an amount (the
"Transfer Deposit Amount") in immediately available funds equal to the
Transfer Deficiency or a combination of both (i) and (ii) above. Such
reduction or substitution and the actual payment of any Transfer Deposit
Amount, if any, shall be deemed to be payment in full for such Mortgage Loan.
Upon receipt of any Eligible Substitute Mortgage Loan or of written
notification signed by a Servicing Officer to the effect that the Transfer
Deposit Amount in respect of a Defective Mortgage Loan has been deposited
into the Certificate Account or, if the Seller Certificate Principal Balance
is not reduced below the Minimum Seller Interest as a result of the deemed
retransfer of a Defective Mortgage Loan, then as promptly as practicable
following such deemed transfer, the Trustee shall execute and deliver such
instrument of transfer or assignment presented to it by the Servicer, in each
case without recourse, as shall be necessary to vest in the Servicer or the
Seller, as the case may be, legal and beneficial ownership of such
repurchased or removed Mortgage Loan (including any property acquired in
respect thereof and any insurance policy or Insurance Proceeds with respect
thereto). Notwithstanding the preceding sentence, the Trustee shall not be
required to execute and deliver such instrument of transfer and assignment if
the Mortgage Loan is required to be retained for the use and benefit of a
Prior Trust pursuant to a Prior Trust Pooling and Servicing Agreement. It is
understood and agreed that the obligation of the Seller and the Servicer to
accept a transfer of a Defective Mortgage Loan and to either convey an
Eligible Substitute Mortgage Loan or to make a deposit of any related Trans-
fer Deposit Amount into the Certificate Account shall constitute the sole
remedy respecting such defect available to Certificateholders, the Trustee or
the Certificate Insurer, and such obligation on the part of the Servicer
shall survive any resignation or termination of the Servicer pursuant to
Section 7.04 or 8.01.
Notwithstanding the foregoing, if any Eligible Substitute Mortgage Loans
conveyed to the Trust are Common Mortgage Loans, the Servicer shall be
required to deliver to, and deposit with, the Trustee with respect to such
Common Mortgage Loans an Officer's Certificate identifying the Eligible
Substitute Mortgage Loans with respect to which such documents or instruments
previously were delivered and deposited pursuant to a Prior Trust Pooling and
Servicing Agreement. The documents or instruments identified in such
Officer's Certificate shall be considered to be part of the Mortgage Files
for all purposes of this Agreement and shall be subject to the provisions of
Section 2.01(e).
Notwithstanding any other provision of this Section 2.02(b), a re-
transfer of a Defective Mortgage Loan to the Servicer pursuant to this
Section that would cause the Seller Certificate Principal Balance to be less
than the Minimum Seller Interest shall not occur if either the Seller fails
to convey an Eligible Substitute Mortgage Loan or to deposit into the
Certificate Account any related Transfer Deposit Amount required by this
Section 2.02(b) with respect to the transfer of such Defective Mortgage Loan.
(c) For any Collection Period during which the Servicer substitutes
one or more Eligible Substitute Mortgage Loans, the Servicer shall determine
the Transfer Deposit Amount which shall be deposited into the Certificate
Account on the Business Day next preceding the Distribution Date occurring in
the month following such Collection Period. All amounts received in respect
of the Eligible Substitute Mortgage Loan or Loans during the Collection
Period in which the circumstances giving rise to the relevant substitution
occur shall not be a part of the Trust Fund and shall not be deposited by the
Servicer into the Certificate Account. All amounts received by the Servicer
in respect of any Mortgage Loan so removed from the Trust Fund during the
Collection Period in which the circumstances giving rise to such substitution
occur shall be deposited by the Servicer into the Certificate Account. Upon
the substitution of an Eligible Substitute Mortgage Loan or Loans, such
Mortgage Loans shall be subject to the terms of this Agreement in all
respects, and the Servicer shall be deemed to have entered into or made with
respect to such Eligible Substitute Mortgage Loan or Loans, as of the date of
substitution, the covenants, representations and warranties set forth in
Section 2.04. The procedures applied by the Servicer in selecting each
Eligible Substitute Mortgage Loan shall not be adverse to the interests of
the Trustee, the Certificate Insurer and the Investor Certificateholders and
shall be comparable to the selection procedures applicable to the Mortgage
Loans conveyed hereunder as of the date of this Agreement.
The provisions of this Section 2.02(c) shall apply to (i) any removal or
retransfer of Defective Mortgage Loan or Loans, (ii) the substitution of
Eligible Substitute Mortgage Loan or Loans by the Servicer pursuant to
Section 2.04(b) and 3.01(c) or (iii) the repurchase of any Mortgage Loan or
Loans by the Servicer pursuant to Section 3.06.
The Mortgage Loan Schedule shall be amended to reflect all additions,
substitutions or deletions of Mortgage Loans provided for in this Section.
Section 2.03. Representations and Warranties
------------------------------
Regarding the Servicer.
----------------------
The Servicer represents and warrants to the Trustee, the Certificate
Insurer and the Investor Certificateholders that:
(i) The Servicer is a corporation duly organized, validly existing and
in good standing under the laws of the State of Delaware and has
the corporate power to own its assets and to transact the business
in which it is currently engaged. The Servicer is duly qualified
to do business as a foreign corporation and is in good standing in
each jurisdiction in which the character of the business transacted
by it or properties owned or leased by it requires such quali-
fication and in which the failure so to qualify would have a
material adverse effect on the business, properties, assets, or
condition (financial or other) of the Servicer;
(ii) The Servicer has the power and authority to make, execute, deliver
and perform this Agreement and all of the transactions contemplated
under the Agreement, and has taken all necessary corporation action
to authorize the execution, delivery and performance of this
Agreement. When executed and delivered, this Agreement will
constitute the legal, valid and binding obligation of the Servicer
enforceable in accordance with its terms, except as enforcement of
such terms may be limited by bankruptcy, insolvency or similar laws
affecting the enforcement of creditors' rights generally and by the
availability of equitable remedies;
(iii) The Servicer is not required to obtain the consent of any other
party or any consent, license, approval or authorization from, or
registration or declaration with, any governmental authority,
bureau or agency which consent the Servicer has not already
obtained in connection with the execution, delivery, performance,
validity or enforceability of this Agreement;
(iv) The execution, delivery and performance of this Agreement by the
Servicer will not violate any provision of any existing law or
regulation or any order or decree of any court or the Articles of
Incorporation or Bylaws of the Servicer, or constitute a material
breach of any mortgage, indenture, contract or other agreement to
which the Servicer is a party or by which the Servicer may be
bound;
(v) No litigation or administrative proceeding of or before any court,
tribunal or governmental body is currently pending, or to the
knowledge of the Servicer threatened, against the Servicer or any
of its properties or with respect to this Agreement or the
Certificates which, if adversely determined, would in the opinion
of the Servicer have a material adverse effect on the transactions
contemplated by this Agreement;
(vi) On the Closing Date, the Servicer will assign and transfer all of
its right, title and interest in the Trust Balance of each Mortgage
Loan to the Seller;
(vii) The Servicer will take all necessary actions to enforce payment of
the Mortgage Loans by the obligors thereon, including commencing or
joining as a party to proceedings; and
(viii) (a) Immediately prior to the assignment and transfer referenced in
(vi) above, the Servicer had good title to the Mortgage Loans, is
authorized to assign and transfer the Trust Balance of each
Mortgage Loan to the Seller and (b) the Servicer and its assignees,
including the Seller and the Trustee, have the right to enforce
payment of the Mortgage Loans against the obligors on such Mortgage
Loans.
Upon discovery by the Seller, the Servicer or the Trustee of a breach of any
of the foregoing representations and warranties in this Section 2.03 which
materially and adversely affects the interests of the Investor
Certificateholders, the party discovering such breach shall give prompt
written notice to the other parties. Within sixty (60) days of its discovery
or receipt of notice of any such breach, the Servicer shall use all
reasonable efforts to cure such breach in all material respects.
Section 2.04. Representations and Warranties of the Servicer
-------------------------------------
Regarding the Mortgage Loans; Repurchase and Substitution Obligations.
-------------------
- --------------------
As indicated in Section 2.03(vi), on the Closing Date the Trust Balances
of the Mortgage Loans are being assigned and transfered by the Servicer to
the Seller. In connection with such assignment and transfer the Servicer is
making the representations and warranties in this Section 2.04 to the Seller.
As a condition of the purchase by the Seller, the Seller has required that
the Servicer make such representations and warranties directly to the
Trustee, the Certificate Insurer and the Investor Certificateholders so that
the Trustee may recover directly against the Servicer on such representations
and warranties rather than indirectly through claims by the Seller against
the Servicer. Consequently, the Servicer represents and warrants to the
Trustee, the Certificate Insurer and the Investor Certificateholders as of
the Closing Date (unless otherwise specified) and as to each Mortgage Loan
that:
(i) The information set forth in the Mortgage Loan Schedule was true
and correct in all material respects at the date or dates
respecting which such information is furnished;
(ii) As of the Closing Date, each Mortgage is a valid lien on the
property securing the amount owed by the Mortgagor under the Loan
Agreement subject only to (a) the lien of current real property
taxes and assessments, (b) any related first, second or third
mortgage loan, which first, second or third mortgage loan does not
contain an obligatory future advance provision (except for certain
Mortgage Loans that are subordinate to mortgage loans held by MLCC,
in which case the senior lien amount is defined as the total credit
limit of the senior liens), (c) covenants, conditions and
restrictions, rights of way, easements and other matters of public
record as of the date of recording of such Mortgage, such
exceptions appearing of record being acceptable to mortgage lending
institutions generally in the area wherein the property subject to
the Mortgage is located or specifically reflected in the appraisal
obtained in connection with the origination of the related Mortgage
Loan obtained by the Seller and (d) other matters to which like
properties are commonly subject which do not materially interfere
with the benefits of the security intended to be provided by such
Mortgage;
(iii) Immediately prior to the transfer and assignment by the Servicer to
the Seller referred to in Section 2.03(vi) hereof and the transfer
and assignment by the Seller to the Trust Fund referred to in
Section 2.01, the Servicer and the Seller each had good title to
each Mortgage Loan and was authorized to transfer the Trust Balance
of each Mortgage Loan to the Seller and to the Trust Fund,
respectively;
(iv) As of the Cut-off Date, no payment of interest on or in respect of
any Mortgage Loan is more than one month past due;
(v) As of the Closing Date, to the best knowledge of the Servicer,
there is no mechanics' lien or claim for work, labor or material
affecting the premises subject to any Mortgage which is or may be a
lien prior to, or equal or coordinate with, the lien of such
Mortgage except those which are insured against by the title
insurance policy referred to in (x) below;
(vi) As of the Closing Date, to the best knowledge of the Servicer,
there is no delinquent tax or assessment lien against any Mortgaged
Property;
(vii) As of the Closing Date, to the best knowledge of the Servicer,
there is no valid offset, defense or counterclaim to any Loan
Agreement or Mortgage;
(viii) As of the Closing Date, to the best knowledge of the Servicer,
without independent investigation, the physical property subject to
each Mortgage is free of material damage, including damage by
water, flood or similar casualty, and is in good repair (excluding
any damage to the Mortgaged Property from the presence of hazardous
wastes or hazardous substances, as to which no representation or
warranty is made);
(ix) As of the origination of each Mortgage Loan and as of the Closing
Date, all requirements of federal, state or local laws, including,
without limitation, usury, truth-in-lending, real estate settlement
procedures, consumer credit protection, equal credit opportunity
and disclosure laws and the regulations promulgated thereunder
which are applicable to the origination and servicing of the
Mortgage Loans, have been complied with in all material respects
and the consummation of the transactions herein contemplated,
including, without limitation, the receipt of interest by Certifi
cateholders, will not violate of such laws in any
material respect;
(x) As to each Mortgage Loan With Title Insurance, a lender's title
insurance policy or binder, or other assurance of title customary
in the relevant jurisdiction therefor, was issued on or as of the
date of the recording of each such Mortgage, and each such policy
or binder is valid and remains in full force and effect;
(xi) As of the Closing Date, the Servicer has not received a notice of
default of any first mortgage loan related to a Mortgaged Property
which has not been cured by a party other than the Servicer;
(xii) As to most of the Mortgage Loans, the definition of "Prime Rate"
for each day set forth in the Loan Agreements is the prime rate
published for that day in The Wall Street Journal; if a prime rate
range is published, the Loan Agreements provide either that the
highest rate of that range is to be used or that the midpoint of
any prime rate range published in The Wall Street Journal is to be
used; and for the other Mortgage Loans, the Loan Agreements provide
that the "Prime Rate" for any day is the highest prime rate (or
equivalent rate) quoted for that day by three specified banks;
(xiii) As of the Closing Date, no more than _____% of the Mortgage Loans
by principal balance have as Mortgagors employees or independent
contractors entitled to the reduced Loan Rates specified in the
schedules referred to in clause (xii) above;
(xiv) At the date of the execution of the related Loan Agreement, the
Combined Loan-to-Value Ratio for each of the Mortgage Loans was not
in excess of 85%, except with respect to approximately ____% of the
Mortgage Loans by principal balance;
(xv) Except with respect to approximately ____% of the Mortgage Loans by
principal balance, no Mortgage Loan was originated in a program
conducted by the Servicer in which the amount of documentation in
the underwriting process was limited in comparison to the
Servicer's normal documentation requirements;
(xvi) Approximately _____% of the Mortgage Loans by principal balance
were, as of their origination, the primary residences of the
related Mortgagors;
(xvii) Not more than ____% of the Mortgage Loans by principal balance are
secured by Mortgaged Properties located in the same zip code area;
(xviii) Not more than ____% of the Mortgage Loans by principal balance will
be secured by condominiums;
(xix) Not more than ____% of the Mortgage Loans by principal balance will
be secured by manufactured homes within the meaning of 42 United
States Code, Section 5402(6);
(xx) With respect to each Mortgage Loan originated by the Servicer, the
Servicer performed a full appraisal of the related Mortgaged
Property at the origination of such Mortgage Loan;
(xxi) No selection procedure believed by the Servicer to be adverse to
the interests of the Certificateholders was used in selecting the
Mortgage Loans for inclusion in the Trust Fund; and
(xxii) Each Mortgagor is required to maintain for the corresponding
Mortgaged Property a hazard insurance policy conforming to the
requirements of Section 3.04 and, to the best knowledge of the
Servicer, each such individual hazard insurance policy is in effect
and has not lapsed.
The representations and warranties set forth in this Section 2.04 shall
survive the transfer and assignment of the Mortgage Loans to the Trustee.
Upon discovery by the Seller, the Servicer or the Trustee of a breach of any
of the foregoing representations and warranties, without regard to any
limitation set forth in such representation or warranty concerning the
knowledge of the Servicer as to the facts stated therein, which materially
and adversely affects the interests of the Investor Certificateholders or the
Certificate Insurer in the related Mortgage Loan, the party discovering such
breach shall give prompt written notice to the other parties. Any breach of a
representation and warranty contained in clauses (ii)(b) and (v) - (viii),
inclusive, shall not be deemed to materially and adversely affect the inter-
ests of Investor Certificateholders or the Certificate Insurer in the related
Mortgage Loan to the extent that such Mortgage Loan is not a delinquent or
defaulted Mortgage Loan. Within 60 days of its discovery or receipt of
notice of any such breach, the Servicer shall use all reasonable efforts to
cure such breach in all material respects. Unless at the expiration of such
60-day period, such breach has been cured in all material respects or
otherwise does not exist or continue to exist, the Servicer shall, not later
than the Business Day next preceding the Distribution Date in the month
following the related Collection Period in which any such cure period ex-
pired, either (i) repurchase such Defective Mortgage Loan (including any
property acquired in respect thereof and any insurance policy or Insurance
Proceeds with respect thereto) or (ii) remove such Mortgage Loan from the
Trust Fund and substitute in its place an Eligible Substitute Mortgage Loan
or Loans, in either case in the same manner and subject to the same
conditions as set forth in Section 2.02. Upon making any such repurchase or
removal, the Servicer shall be entitled to receive an instrument of assign-
ment of the repurchased or removed Mortgage Loan from the Trustee to the
extent set forth in Section 2.02. The obligation of the Servicer to
repurchase or remove any such Defective Mortgage Loan (or property acquired
in respect thereof) shall constitute the sole remedy against the Servicer
with respect to such breach of the foregoing representations or warranties
available to Investor Certificateholders, the Trustee on behalf of Certifi-
cateholders, or the Certificate Insurer, and such obligation on the part of
the Servicer shall survive any resignation or termination of the Servicer
pursuant to Section 7.04 or 8.01.
Section 2.05. Execution and Authentication
----------------------------
of Certificates.
- -----------------------------------
The Trustee has caused to be executed, countersigned and delivered to or
upon the order of the Seller (except that the Seller Certificates shall be in
the name of the Seller), in exchange for the Initial Mortgage Loans,
concurrently with the transfer and assignment to the Trustee of the Initial
Mortgage Loans, Investor Certificates in authorized denominations and the
Seller Certificates, together evidencing the entire ownership of the Trust
Fund.
Section 2.06. Retransfers of Mortgage Loans
-----------------------------
at Election of the Seller.
- ---------------------------------------------
Subject to the conditions set forth below, the Seller may, but shall not
be obligated to, require the retransfer of Mortgage Loans from the Trust to
the Seller as of the end of a Collection Period (the "Retransfer Date")
during the Managed Amortization Period. On the fifth (5th) Business Day (the
"Retransfer Notice Date") prior to the Retransfer Date designated in such
notice, the Seller shall give the Trustee a notice of the proposed retransfer
that contains a list of the Mortgage Loans to be retransferred. Such
retransfers of Mortgage Loans shall be permitted upon satisfaction of the
following conditions:
(i) No Rapid Amortization Event has occurred;
(ii) On the Retransfer Notice Date the Seller Certificate Principal
Balance (after giving effect to the removal from the Trust of the
Mortgage Loans) is at least equal to the Minimum Seller Interest;
(iii) The retransfer of any Mortgage Loans on any Retransfer Date during
the Managed Amortization Period shall not, in the reasonable belief
of the Servicer, cause a Rapid Amortization Event to occur or an
event which with notice or lapse of time or both would constitute a
Rapid Amortization Event:
(iv) On or before the Retransfer Date, the Servicer shall have delivered
to the Trustee a revised Mortgage Loan Schedule, reflecting the
proposed retransfer and on the Retransfer Date the Servicer shall
have caused the portions of its records relating to the Mortgage
Loans to be clearly and unambiguously marked to show that the
Mortgage Loans retransferred to the Seller are no longer owned by
the Trust;
(v) The Seller shall represent and warrant that no selection procedures
reasonably believed by the Seller to be adverse to the interests of
the Investor Certificateholders or the Certificate Insurer were
utilized in selecting the Mortgage Loans to be removed from the
Trust;
(vi) In connection with the first retransfer of Mortgage Loans pursuant
to this Section 2.06, each Rating Agency shall have received on or
prior to the Retransfer Notice Date notice of such proposed
retransfer of Mortgage Loans and, prior to the first Retransfer
Date, shall have notified the Seller in writing that such
retransfer of Mortgage Loans would not result in a reduction or
withdrawal of its then current rating of the Investor Certificates
without taking into account the Certificate Insurance Policy;
(vii) The percentage of the Trust Balances of the Mortgage Loans
remaining in the Trust Fund (after giving effect to the proposed
retransfer) that are delinquent more than 30 days shall not exceed
by more than ____% the percentage (based on the average for the
three immediately preceding months) of the Trust Balances of the
Mortgage Loans in the Trust Fund (prior to giving effect
to the proposed
retransfer) that
are delinquent
more than 30
days; and
(viii) The Seller shall have delivered to the Trustee and the Certificate
Insurer an Officer's Certificate certifying that the items set
forth in subparagraphs (i) through (vii), inclusive, have been
performed or are true and correct, an the case may be. The Trustee
may conclusively rely on such Officer's Certificate, shall have no
duty to make inquiries with regard to the matters set forth therein
and shall incur no liability in so relying.
Upon receiving the requisite information from the Seller or the Servicer, the
Servicer shall perform in a timely manner those acts required of it as
specified above. Upon satisfaction of the above conditions, on the
Retransfer Date the Trustee shall execute and deliver to the Servicer such
instruments of assignment and other documents prepared by the Servicer as
shall be reasonably necessary to retransfer such Mortgage Loan or Loans to
the Servicer. Any such retransfer of the Trust's right, title and interest in
and to Mortgage Loans shall be without recourse, representation or warranty
by the Trust to the Seller.
The Mortgage Loan Schedule shall be amended to reflect all additions,
substitutions or deletions of Mortgage Loans provided for in this Section
2.06.
Section 2.07. Tax Treatment.
-------------
It is the intention of the Seller, the Servicer and the Investor
Certificateholders (and Certificate Owners) that the Investor Certificates
will be indebtedness for federal, state and local income and franchise tax
purposes and for purposes of any other tax imposed on or measured by income.
The Seller, the Servicer, the Trustee and each Investor Certificateholder
(and Certificate Owner) by acceptance of its Investor Certificate (or, in the
case of a Certificate Owner, by virtue of such Certificate Owner's
acquisition of a beneficial interest therein) agree to treat the Investor
Certificates (or beneficial interest therein), for purposes of federal, state
and local income, as indebtedness secured by the Mortgage Loans and to report
the transactions contemplated by this Agreement on all applicable tax returns
in a manner consistent with such treatment. Each Certificateholder agrees
that it will cause any Certificate Owner acquiring an interest in a Investor
Certificate through it to comply with this Agreement as to treatment as
indebtedness for federal, state and local income and franchise tax purposes
and for purposes of any other tax imposed on or measured by income.
Furthermore, the Trustee shall treat the Trust as a security device only, and
shall not file tax returns or obtain an employer identification number on
behalf of the Trust.
Section 2.08. Covenants of the Seller.
-----------------------
The Seller shall not, without the prior written consent of the
Certificate Insurer and the Trustee (which consent of the Trustee shall be
given only upon the delivery to the Trustee by the Seller of a letter from
each Rating Agency to the effect that any of the following will not result in
a downgrading or withdrawal of its rating of the Investor Certificates), do
any of the following:
(a) dissolve or liquidate, in whole or in part, or file a petition to
take advantage of any applicable insolvency, bankruptcy or reorganization
statute;
(b) merge or consolidate with any other corporation other than a
corporation wholly-owned, directly or indirectly, by the Indirect Parent,
having a certificate of incorporation containing provisions identical to the
covenants of this Section 2.08 and executing an agreement of assumption to
perform every obligation of the Seller hereunder; or
(c) incur any indebtedness except in connection with, or relating to,
the issuance of obligations that are rated in the highest rating category of
each Rating Agency.
ARTICLE III
Administration and Servicing
of Mortgage Loans
Section 3.01. MLCC to Act as Servicer.
-----------------------
(a) The Servicer shall service and administer the Mortgage Loans in
accordance with its customary servicing procedures consistent with general
industry practice. The Servicer shall have full power and authority, acting
alone, to do any and all things in connection with such servicing and
administration which it may deem necessary or desirable. Without limiting the
generality of the foregoing, the Servicer shall continue, and is hereby
authorized and empowered by the Trustee, to execute and deliver, on behalf of
itself, the Certificateholders and the Trustee or any of them, any and all
instruments of satisfaction or cancellation, or of partial or full release or
discharge and all other comparable instruments, with respect to the Mortgage
Loans and with respect to the Mortgaged Properties. The Trustee shall
execute, at the Servicer's direction, any special or limited powers of
attorney and other documents necessary or appropriate to enable the Servicer
to carry out its servicing and administrative duties hereunder.
For purposes of this Article III, to the extent that the Servicer
determines that there are any conflicts or inconsistencies between its
servicing responsibilities set forth in this Agreement and its servicing
responsibilities as servicer of one or more Common Mortgage Loans set forth
in the Prior Trust Pooling and Servicing Agreements, the Servicer shall use
its best efforts to service the Mortgage Loans for purposes of this Agreement
in accordance with the most prudent and conservative procedures set forth in
either the Prior Trust Pooling and Servicing Agreements or in this Agreement.
The relationship of the Servicer (and of any successor to the Servicer
as servicer under this Agreement) to the Trustee under this Agreement is
intended by the parties to be that of an independent contractor and not that
of a joint venturer, partner or agent.
(b) In connection with its servicing and administration of the Mortgage
Loans, the Servicer may consent to the placing or refinancing of a lien
senior to that of the Mortgage on the related Mortgaged Property. Any such
consent shall be consistent with the Servicer's then current practice
respecting comparable mortgage loans held in its own portfolio and may be
given only in the following situations:
(i) the Combined Loan-to-Value Ratio of the related Mortgage Loan
following such placing or refinancing of a senior lien does not
exceed the Combined Loan-to-Value Ratio at origination of such
Mortgage Loan; or
(ii) such placement or refinancing of an existing senior lien is in
connection with a new senior lien for which the principal balance
is limited to the sum of the unpaid principal balance of the
existing senior lien, closing costs (including all prepaid items),
points and other funds for the Mortgagor's use (which other funds
do not exceed 1% of the principal balance of the new senior lien).
(c) In connection with its servicing and administration of the Mortgage
Loans, during the Rapid Amortization Period the Servicer may increase the
Credit Limit specified in the related Loan Agreement by modifying the Loan
Agreement to provide for an additional amount. The Combined Loan-to-Value
Ratio of such Mortgage Loan immediately following such modification shall not
exceed 85%.
(d) In connection with its servicing and administration of the Mortgage
Loans and at the request of a Mortgagor or at its own initiative, the
Servicer may agree to modify the Loan Agreement relating to the Mortgage Loan
of such Mortgagor or waive compliance by the Mortgagor with any provision of
such Loan Agreement. Any such modification or waiver shall be consistent with
the Servicer's then current practice respecting comparable mortgage loans
held in its own portfolio and shall not:
(i) extend the scheduled maturity date of, modify the interest rate
payable under (except as required by law or as contemplated by the
Loan Agreement), or constitute a cancellation or discharge of the
outstanding Loan Balance under, such Mortgage Loan; or
(ii) materially and adversely affect the security afforded by the Mort-
gaged Property.
Any modification, waiver or change of the nature described in Section 3.02(a)
shall be deemed not to violate either Section 3.01(d)(i) or (ii).
(e) In the event that:
(i) the Servicer consents to (A) the placing or refinancing of a senior
lien that does not satisfy the requirements of Section 3.01(b), (B)
the modification of a Loan Agreement to provide for an increased
Credit Limit resulting in a Combined Loan-to-Value Ratio exceeding
the limitation specified in Section 3.01(c), or (C) the
modification or waiver of a Loan Agreement that does not satisfy
the requirements of Section 3.01(d), or
(ii) any loss is suffered by the Trust Fund in respect of any Mortgage
Loan as a result of a failure to file on or within 90 days
subsequent to the Closing Date of the UCC-1 financing statements
referred to in Section 2.01,
then the Servicer shall, not later than the Business Day preceding the
Distribution Date in the month following the Collection Period during which
such modification, change, loss or consent occurred, either repurchase the
applicable Mortgage Loan or Loans or substitute one or more Eligible
Substitute Mortgage Loans for the applicable Mortgage Loan or Loans.
Each repurchase or substitution shall be accomplished in the same manner
and subject to the same conditions as set forth in Section 2.02. Upon
completing any such repurchase or substitution, the Servicer shall be
entitled to receive an instrument of assignment or transfer from the Trustee
to the same extent as set forth in Section 2.02.
The Mortgage Loan Schedule shall be amended to reflect all deletions,
substitutions or additions of Mortgage Loans provided for in this Section
3.01.
(f) Notwithstanding anything to the contrary in Section 3.01(e), if the
short-term credit rating of the Indirect Parent is downgraded below A-1/P-1,
any repurchase or substitution of a Mortgage Loan pursuant to Section
3.01(e) shall occur on the second Business Day following the date on which
the applicable modification, waiver or changes agreed to by the Servicer are
made by it.
Section 3.02. Collection of Certain Mortgage Loan
-----------------------------------
Payments; Mortgage Loan Payment Record.
- ----------------------------------------------------------
(a) The Servicer shall make reasonable efforts to collect all
payments called for under the terms and provisions of the Mortgage Loans, and
shall, to the extent such procedures shall be consistent with this Agreement,
follow such collection procedures as it follows with respect to mortgage
loans in its servicing portfolio comparable to the Mortgage Loans.
Consistent with, and without limiting the generality of, the foregoing, the
Servicer may, in its discretion, do the following:
(i) waive any late payment charge or any assumption fees or other fees
which may be collected in the ordinary course of servicing such
Mortgage Loan,
(ii) if the Mortgagor is in default or about to be in default because of
the Mortgagor's financial condition, arrange with a Mortgagor a
schedule for the payment of interest due and unpaid for a period of
not more than 180 days after the date of the initial uncured
delinquency thereon, and
(iii) waive compliance with or modify the terms of such Mortgage Loan as
appropriate to permit the Mortgagor to bring such Mortgage Loan
current and/or remedy any deviations from compliance with the
documentation for such Mortgage Loan.
provided, however, that as to clause (ii) above, the Servicer may in its
discretion arrange with a Mortgagor a schedule for the payment of interest
due and unpaid for a period that exceeds 180 days if such arrangement is
determined by the Servicer to be reasonable and consistent with its then
current practice respecting comparable mortgage loans held in its own port-
folio, including but not limited to its practices regarding mortgage loans
secured by mortgage properties located in federally designated disaster
areas.
Any waiver or modification of the sort described in this Section 3.02(a)
shall not (x) be considered in any determination pursuant to clause (i) of
the definition of Seriously Delinquent Mortgage Loan or (y) affect the amount
or timing of the Servicer's obligation to make Monthly Advances with respect
to any Mortgage Loan which Monthly Advances shall be made without regard to
any such waiver or modification.
(b) The Servicer shall establish and maintain for the Trust Fund a
Mortgage Loan Payment Record in which the following payments on and
collections in respect of the Mortgage Loans shall as promptly as practicable
be credited by the Servicer for the account of the Holders of the
Certificates:
(i) All Interest Collections and Principal Collections;
(ii) The Transfer Deposit Amount in respect of any Mortgage Loans
transferred, substituted or repurchased pursuant to Sections 2.02, 2.04,
3.01 and 3.06;
(iii) All Net Trust Liquidation Proceeds; and
(iv) All Trust Insurance Proceeds (including, for this purpose,
any amounts required to be credited by the Servicer pursuant to the last
sentence of Section 3.04(c)).
The foregoing requirements respecting credits to the Mortgage Loan Payment
Record are exclusive. Without limiting the generality of the preceding
sentence, the Servicer need not enter in the Mortgage Loan Payment Record
amounts representing fees (including annual fees) or late charge penalties
payable by Mortgagors, or amounts received by the Servicer for the account of
Mortgagors for application towards the payment of taxes, insurance premiums,
assessments and similar items. If any such amounts are credited to the
Mortgage Loan Payment Record, they shall be thereafter debited to the
Mortgage Loan Payment Record by the Servicer in accordance with its normal
servicing procedures.
(c) Until the Business Day prior to each Distribution Date on which
amounts are required to be deposited in the Certificate Account pursuant to
Section 4.02, the Servicer may, so long as the Indirect Parent has a
short-term credit rating of A-1/P-1 or higher and a long-term unsecured debt
rating of at least A3 by Moody's, retain and commingle such amounts with its
own funds and shall be entitled to retain for its own account any investment
income thereon, and any such investment income shall not be subject to any
claim of the Trustee or Certificateholders. In the event that the Servicer
is not permitted to retain and commingle such amounts with its own funds, it
shall, all provisions in this Agreement to the contrary notwithstanding,
deposit such amounts in the Certificate Account created and maintained
pursuant to Section 4.02 not later than the second Business Day following
receipt, subject to withdrawal to the same extent as debits to the Mortgage
Loan Payment Record are permitted pursuant to Section 3.03.
(d) The Mortgage Loan Payment Record shall be made available for
inspection during normal business hours of the Servicer upon request of the
Trustee or the firm of independent accountants acting pursuant to Section
3.10.
Section 3.03. Permitted Debi--------------------------------------ts to
_________________________________________________________
the Mortgage Loan--------------------------------------------------------
- ----_________________________________________________________________________
____
- ------------------------------------------------------____________________
__________________________________
Payment Record. ______________
The Servicer may, from time to time, make debits to the Mortgage Loan
Payment Record for the following purposes:
(i) to make deposits into the Certificate Account pursuant to Section
4.02;
(ii) to reimburse or indemnify the Servicer to the extent required or
permitted by Section 7.03;
(iii) to reimburse the Servicer for unreimbursed Monthly Advances
theretofore made in respect of any Mortgage Loan to the extent of
receipts by the Servicer of late payments of Trust Interest
Collections and Net Trust Liquidation Proceeds in respect of such
Mortgage Loan;
(iv) to reimburse the Servicer for any Nonrecoverable Advance;
(v) to pay the Servicer amounts received in respect of Defective
Mortgage Loans during the Collection Period in which such Defective
Mortgage Loans were replaced, substituted for or repurchased or
which were otherwise reflected in the calculation of the related
Transfer Deposit Amount;
(vi) to pay the Servicer out of related collections the servicing fee
pursuant to Section 3.08; and
(vii) to pay the Servicer the servicing fee pursuant to Section 3.08 with
respect to any Liquidated Mortgage Loan to the extent that Net
Liquidation Proceeds for such Mortgage Loan exceed the related Loan
Balance together with interest accrued thereon at the Net Loan Rate
from the last date to which such interest was distributed to
Certificateholders to the end of the related Collection Period pre-
ceding the Distribution Date for which the related Net Trust
Liquidation Proceeds are distributed to Certificateholders.
In addition, if the Servicer credits to the Mortgage Loan Payment Record
any amount not required to be credited thereto or any amount in respect of
payments by Mortgagors made by checks subsequently returned for insufficient
funds or other reason for non-payment it may at any time debit such amount in
the Mortgage Loan Payment Record, any provision herein to the contrary not-
withstanding. All amounts credited by the Servicer to the Mortgage Loan
Payment Record shall be held by the Servicer in trust for the
Certificateholders until such amounts are disbursed in accordance with
Section 4.02 or debited in accordance with this Section 3.03.
Section 3.04. Hazard Insurance Policies; Property
--------------------------------------------------
rotection Expenses.
- ------------------
(a) Under the terms of each of the Mortgage Loans, the Mortgagor is
required to maintain for the corresponding Mortgaged Property a hazard
insurance policy which contains a standard mortgagee's clause with an
appropriate endorsement in favor of the Servicer or the Trustee and which
insures against loss by fire and by hazards included within the term
"extended coverage" and by such other hazards for which the Servicer requires
coverage. The hazard insurance coverage for the Mortgage Loans shall be in
the amounts and for the periods of time required by the Servicer. In
general, such hazard coverage for each Mortgage Loan will be in an amount
approximately equal to the lesser of (a) the maximum insurable value of the
Mortgaged Property or (b) the Credit Limit of such Mortgage Loan plus the
outstanding balance of any mortgage loan senior to such Mortgage Loan, but in
no event will such amount be less than is necessary to prevent the Mortgagor
from becoming a coinsurer thereunder. If the Mortgaged Property is in an
area identified at the time of origination in the Federal Register by the
Federal Emergency Management Agency as having special flood hazards (and such
flood insurance has been made available) the Servicer will cause to be
maintained a flood insurance policy meeting the requirements of the current
guidelines of the Federal Insurance Administration with a generally
acceptable insurance carrier, in an amount representing coverage not less
than the least of (i) the Credit Limit of such Mortgage Loan plus the
outstanding balance of any mortgage loan senior to such Mortgage Loan, (ii)
the full insurable value or (iii) the maximum amount of insurance which is
available under the Flood Disaster Protection Act of 1973. The Servicer shall
also maintain on property acquired upon foreclosure, or by deed in lieu of
foreclosure, hazard insurance with extended coverage in a similar amount. In
general, such hazard coverage for each such foreclosed Mortgage Loan will be
in an amount which is at least approximately equal to the lesser of (a) the
maximum insurable value from time to time of the improvements which are a
part of such property or (b) the Credit Limit of such Mortgage Loan plus the
outstanding balance of any mortgage loan senior to such Mortgage Loan at the
time of such foreclosure plus accrued interest and the good-faith estimate of
the Servicer of related Liquidation Expenses to be incurred in connection
therewith. Amounts collected by the Servicer under any such policies shall
be credited to the Mortgage Loan Payment Record and deposited in the
Certificate Account to the extent that they constitute Net Trust Liquidation
Proceeds or Trust Insurance Proceeds.
(b) If the Servicer, or an affiliate thereof, shall obtain and maintain
a "mortgagee interest policy" issued by an insurer acceptable to the Rating
Agencies insuring against hazard losses on all of the Mortgaged Properties in
an amount equal to the aggregate Loan Balances outstanding from time to time
under the Mortgage Loans, it shall conclusively be deemed to have satisfied
its obligations as set forth in the second and third sentences of Section
3.04(a). Such mortgagee policy may contain a deductible clause, in which case
the Servicer shall, in the event that there shall not have been maintained on
the related Mortgaged Property a policy complying with the second and third
sentences of Section 3.04(a), and there shall have been a loss which would
have been covered by such policy, credit to the Mortgage Loan Payment Record
and deposit into the Certificate Account, no later than 60 days after such
loss occurs, the amount not otherwise payable under the blanket policy
because of such deductible clause.
(c) The Servicer shall incur, or refrain from incurring, Liquidation
Expenses and Property Protection Expenses with respect to Mortgage Loans in a
manner consistent with this Agreement and the Servicer's then current
practice respecting comparable mortgage loans in its own portfolio. Anything
contained herein to the contrary notwithstanding, the Servicer shall have the
right to assign, transfer, abandon or surrender any Mortgaged Property, if,
in the good faith judgment of the Servicer, there is a reasonable possibility
that continued retention of such interest in such Mortgaged Property could
result in Liquidation Expenses and Property Protection Expenses with respect
to such Mortgage Loan exceeding Liquidation Proceeds. The Servicer shall be
reimbursed for amounts expended for Property Protection Expenses and Liquida-
tion Expenses with respect to Mortgage Loans in accordance with the terms of
this Agreement.
Section 3.05. Mortgagor Transfers of
----------------------
Mortgaged Properties.
- ----------------------------------------
In any case in which the Servicer becomes aware that a Mortgaged
Property has been conveyed by a Mortgagor (except to, or for the benefit of,
the Mortgagor, a co-Mortgagor or relative of the Mortgagor), the Servicer
will take reasonable steps to freeze such Mortgagor's Credit Limit at the
level of the current outstanding Loan Balance. Notwithstanding the
Servicer's efforts to freeze a Mortgagor's Credit Limit at the current
outstanding Loan Balance under such circumstances, the Loan Balance of such a
Mortgage Loan may include any charges which may accrue subsequent to the date
of such freeze.
The Servicer shall exercise or refrain from exercising its right to
undertake to collect the full amount due under the related Loan Agreement
consistent with the then current practice of the Servicer and without regard
to the inclusion of such Mortgage Loan in the Trust Fund and not in the
Servicer's portfolio. If it elects not to enforce its right to accelerate
and collect the full amount of such Mortgage Loan or if it is prevented from
doing so by applicable law, the Servicer is authorized to take or enter into
an assumption and modification 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 Loan Agreement and the Mortgagor remains
liable thereon. The Servicer shall notify the Trustee that any assumption
and modification agreement has been completed by delivering to the Trustee an
Officer's Certificate certifying that such agreement is in compliance with
this Section 3.05 and by retaining the original copy of such assumption and
modification agreement. Any such assumption and modification agreement
shall, for all purposes, be considered a part of the related Mortgage File to
the same extent as all other documents and instruments constituting a part
thereof. No change in the terms of the related Loan Agreement may be made by
the Servicer in connection with any such assumption to the extent that such
change would not be permitted to be made in respect of the original Loan
Agreement pursuant to Section 3.01(d). Any fee collected by the Servicer for
entering into any such assumption will be retained by the Servicer as
additional servicing compensation.
Notwithstanding any provision of this Agreement to the contrary, the
Servicer shall not be deemed to be in default, breach or otherwise in
violation of its obligations hereunder by reason of any transfer of a
Mortgaged Property which occurs by operation of law or which the Servicer is
restricted by law from preventing.
Section 3.06. Realization Upon Defaulted
--------------------------
Mortgage Loans.
- ----------------------------------
The Servicer shall foreclose upon or otherwise comparably convert to
ownership Mortgaged Properties securing such of the Mortgage Loans as come
into and continue in delinquency or default and as to which no satisfactory
arrangements can be made for collection of delinquent payments pursuant to
Section 3.02. In connection with such foreclosure or other conversion, the
Servicer shall follow such practices (including, in the case of any
delinquency or default on a related prior mortgage loan, the advancing of
funds to correct such delinquency or default) and procedures as it shall deem
necessary or advisable and as shall be normal and usual in the general first
and second mortgage loan servicing activities of the Servicer. The Servicer
shall be reimbursed for Property Protection Expenses incurred by it out of
the related Liquidation Proceeds. Notwithstanding the foregoing, the
Servicer shall not be required (i) to expend its own funds in connection with
any foreclosure or towards the correction of any delinquency or default on a
related prior mortgage loan or restoration of any property unless, in the
reasonable judgment of the Servicer, such foreclosure, correction or resto-
ration will increase Net Trust Liquidation Proceeds, or (ii) to foreclose
upon or otherwise convert to ownership any Mortgaged Property which the
Servicer has determined may be materially contaminated with hazardous wastes
or hazardous substances.
In lieu of foreclosing on any delinquent or defaulted Mortgage Loan, the
Servicer, may, in its sole discretion, repurchase from the Trust Fund any
Mortgage Loan which is a Seriously Delinquent Mortgage Loan. Each repurchase
shall be subject to the same conditions as set forth in Section 2.02. The
repurchase price for any Seriously Delinquent Mortgage Loan shall be equal to
the sum of (i) the Trust Balance thereof as of the end of the Collection
Period next preceding the Distribution Date upon which the proceeds of such
repurchase are to be distributed and (ii) accrued and unpaid interest to the
end of such Collection Period computed on a daily basis at the Net Loan Rate
on the Trust Balance thereof. The purchase price shall be included as part of
the Transfer Deposit Amount deposited into the Certificate Account on the
Business Day next preceding the Distribution Date upon which the proceeds of
such repurchase are to be distributed. Upon making any such purchase the
Servicer shall be entitled to receive an instrument of assignment or transfer
from the Trustee to the same extent as set forth in Section 2.02.
In the event that title to any Mortgaged Property securing a Mortgage
Loan other than a Common Mortgage Loan is acquired in foreclosure or by deed
in lieu of foreclosure, the deed or certificate of sale shall be issued to
the Servicer on behalf of the Trust Fund, to the Trustee on behalf of
Certificateholders, or to the Trustee's nominee on behalf of
Certificateholders.
Section 3.07. Trustee to Cooperate.
--------------------
Upon the payment in full of the Trust Balance of any Mortgage Loan
during the Rapid Amortization Period or the distribution of all Net Trust
Liquidation Proceeds with respect to any Mortgage Loan, the Servicer will
notify the Trustee by a certification (which certification shall include a
statement to the effect that all amounts received in connection with such
payment which are required to be credited to the Mortgage Loan Payment Record
pursuant to Section 3.02 have been so credited) of a Servicing Officer. Such
notification shall be made each month at the time that the Servicer delivers
the Servicing Certificate to the Trustee pursuant to Section 4.01. Upon any
such payment or distribution, the Servicer is authorized to execute, pursuant
to the authorization contained in Section 3.01, if the Loan Balance of such
Mortgage Loan equals zero, an instrument of satisfaction regarding the
related Mortgage, which instrument of satisfaction shall be recorded by the
Servicer if required by applicable law and be delivered to the Person
entitled thereto. No expenses incurred in connection with such instrument of
satisfaction shall be reimbursed from amounts at the time credited to the
Mortgage Loan Payment Record.
If the Trustee is holding the Mortgage Files, from time to time and as
appropriate for the servicing or foreclosure of any Mortgage Loan, the
Trustee shall, upon request of the Servicer and delivery to the Trustee of a
receipt signed by a Servicing Officer, release the related Mortgage File to
the Servicer and shall execute at the Servicer's direction such documents as
shall be necessary to the prosecution of any such proceedings. Such trust
receipt shall obligate the Servicer to return the Mortgage File to the
Trustee when the need therefor by the Servicer no longer exists unless the
Mortgage Loan shall be liquidated, in which case, upon receipt of a
certificate of a Servicing Officer similar to that hereinabove specified, the
receipt shall be released by the Trustee to the Servicer.
In order to facilitate the foreclosure of the Mortgage securing any
delinquent or defaulted Mortgage Loan following any recordation of the
assignments of Mortgage in accordance with the provisions of this Agreement,
the Trustee shall, if so requested, assign such delinquent or defaulted
Mortgage Loan for the purpose of collection to the Servicer or to another
assignee for collection designated by the Servicer (any such assignment shall
unambiguously indicate that the assignment is for the purpose of collection
only), and, upon such assignment, such assignee for collection will thereupon
bring all required actions in its own name and otherwise enforce the terms of
the Mortgage Loan and the Servicer will deposit or credit any Net Trust
Liquidation Proceeds received with respect thereto in the Certificate Account
or the Mortgage Loan Payment Record, as the case may be. In the event that
all delinquent payments due under any such Mortgage Loan are paid by the
Mortgagor and any other defaults are cured then the Servicer shall cause the
assignee for collection to promptly reassign such Mortgage Loan to the
Trustee and return it to the place where the related Mortgage File was being
maintained.
Section 3.08. Servicing Compensation; Payment
-------------------------------
of Certain Expenses by Servicer.
- ---------------------------------------------------
(a) The Servicer shall be entitled to withhold and pay to itself as
servicing compensation out of each payment received by it on account of
interest on a Mortgage Loan an amount equal to daily interest at the
Servicing Fee Rate on the Loan Balance from time to time outstanding during
the related Interest Period. Additional servicing compensation in the form
of assumption fees, annual fees, late payment charges or otherwise shall be
retained by the Servicer.
(b) The Servicer shall be required to pay all expenses incurred by it
in connection with its activities hereunder (including payment of Trustee
fees, and all other fees and expenses not expressly stated hereunder to be
for the account of the Certificateholders) and shall not be entitled to
reimbursement therefor except as specifically provided herein.
Section 3.09. Annual Statement as to Compliance.
---------------------------------
The Servicer will deliver to the Company and the Trustee on or before
March 31 of each year, beginning with the first March 31 that occurs at least
six months after the Cut-off Date, an Officers' Certificate stating, as to
each signer thereof, that (a) a review of the activities of the Servicer
during the preceding calendar year and of performance under this Agreement
has been made under such officer's supervision and (b) to the best of such
officer's knowledge, based on such review the Servicer has fulfilled all of
its obligations under this Agreement in all material respects throughout such
year, or, if there has been a default in the fulfillment of any such
obligation in any material respect, specifying each such default known to
such officer and the nature and status thereof. Copies of such statement
shall be provided to each Rating Agency and the Certificate Insurer. Copies
of such statement shall also be provided by the Servicer to any
Certificateholder upon request. If the Servicer shall fail to provide such
copies and the Trustee is aware that the Servicer has not so provided copies,
the Trustee shall provide such copies at the Servicer's expense if the
Trustee has received such statement.
Section 3.10. Annual Independent Public
-------------------------
Accountants' Servicing Report.
- -------------------------------------------------
On or before March 31 of each year, beginning with the first March 31
that occurs at least six months after the Cut-off Date, the Servicer at its
expense shall cause a nationally recognized firm of independent public
accountants which is a member of the American Institute of Certified Public
Accountants to furnish a report to the Company and the Trustee to the effect
that all Mortgage Loans serviced by the Servicer under this Agreement were
included in the total population that was subject to selection for testing in
such firm's examination of certain documents and records and that such
examination, which has been conducted substantially in compliance with the
Uniform Single Attestation Program for Mortgage Bankers (or such other audit
or review program applicable to the Servicer), has disclosed no items of
material noncompliance with the provisions of the Uniform Single Attestation
Program for Mortgage Bankers (or such other program), except for such items
of noncompliance as shall be set forth in such report. Copies of such report
shall be provided to the Rating Agencies, the Certificate Insurer, and, upon
request, to the Certificateholders, by the Servicer, or by the Trustee at the
Servicer's expense if the Trustee has received such report and the Servicer
shall fail to provide such copies and the Trustee is aware that the Servicer
has not so provided copies.
Section 3.11. Access to Certain Documentation
-------------------------------
- ------------------------------------------------- and
Information Regarding the
Mortgage Loans.
- ----------------------------------
(a) The Servicer shall provide to the Trustee, the Certificate Insurer,
Investor Certificateholders which are federally insured savings and loan
associations, the Office of Thrift Supervision, the Federal Deposit Insurance
Corporation and the supervisory agents and examiners of such office and such
corporation, access to the documentation regarding the Mortgage Loans
required by applicable regulations of the Office of Thrift Supervision, such
access being afforded without charge but only upon reasonable request and
during normal business hours at the offices of the Servicer. Nothing in this
Section 3.11 shall derogate from the obligation of the Servicer to observe
any applicable law prohibiting disclosure of information regarding the
Mortgagors and the failure of the Servicer to provide access as provided in
this Section 3.11 as a result of such obligation shall not constitute a
breach of this Section 3.11.
(b) The Servicer shall supply information, in such form as the Trustee
shall reasonably request, to the Trustee on or before the start of the third
Business Day preceding each Distribution Date, as is required in the
Trustee's reasonable judgment to enable the Trustee to make required
distributions and to furnish the required reports to Certificateholders and
to make any draws under the Certificate Insurance Policy.
Section 3.12. Maintenance of Certain Servicing Policies.
-----------------------------------------
The Servicer shall during the term of its service as servicer maintain
in force (i) a policy or policies of insurance covering errors and omissions
in the performance of its obligations as servicer hereunder and (ii) a
fidelity bond in respect of its officers, employees or agents. Each such
policy or policies and bond shall, together, comply with the requirements
from time to time of the Federal National Mortgage Association for persons
performing servicing for mortgage loans purchased by such association;
provided, however, that if the cost of the premiums for such policy or
policies and bond in any year is greater than an amount equal to the sum of
(i) the premiums paid by the Servicer for such policy or policies and bond in
the year during which this Agreement was executed and (ii) the product of (x)
the number of full years from the date of this Agreement to such future date,
(y) 0.15 and (z) the premium amount described in clause (i) above, the policy
or policies and bond maintained by the Servicer may provide for coverage
which does not satisfy the requirements of the Federal National Mortgage
Association so long as the premiums paid by the Servicer therefor approximate
such sum.
Section 3.13. Reports to the Securities and Exchange Commission.
-------------------------------------- ----------
The Servicer shall, on behalf of the Trust, cause to be filed with the
Securities and Exchange Commission any periodic reports required to be filed
under the provisions of the Securities Exchange Act of 1934, as amended, and
the rules and regulations of the Securities and Exchange Commission
thereunder.
Section 3.14. Information Required by the Internal Revenue Service
--------------------------------------------
Generally and Reports of
Foreclosures and Abandonments of
--------------------------------
Mortgaged Property.
------------------
In addition to the requirements set forth in Section 3.01, the Servicer
shall prepare and deliver, or cause to be prepared and delivered, to the
Trustee for the Trustee's signature, and shall file or cause to be filed, all
federal and state information reports when and as required by all applicable
state and federal income tax laws, including, without limitation, reports
required by Section 6050J of the Code.
Section 3.15. Tax Returns.
-----------
In accordance with Section 2.07 hereof, the Trustee shall not file any
federal or state income tax return for the Trust or apply for a taxpayer
identification number on behalf of the Trust. The Seller shall treat the
Mortgage Loans as its property for all federal and state tax purposes and
shall report all income earned thereon (including amounts payable as fees to
the Servicer) as its income for federal income tax purposes. In the event
the Trust shall be required pursuant to an audit or administrative proceeding
or change in applicable regulations to file federal or state tax returns, the
Servicer shall prepare and deliver, or cause to be prepared and delivered, to
the Trustee for filing any tax returns required to filed by the Trust; the
Servicer, as agent on behalf of the Trust, shall promptly sign such returns
and such returns shall be filed by the Servicer. The Servicer shall also
prepare or shall cause to be prepared all tax information required by and to
be distributed to Certificateholders. In no event shall the Trustee or the
Servicer be liable for any liabilities, costs or expenses of the Trust, the
Certificateholders or the Certificate Owners arising under any tax law,
including without limitation federal, state or local income or excise taxes
or any other tax imposed on or measured by income (or any interest or penalty
with respect thereto or arising from a failure to comply therewith).
Section 3.16. Further Assurances.
------------------
The Servicer shall provide any certifications and other information
reasonably requested by the Trustee.
ARTICLE IV
Servicing Certificate; Certificate Account Deposit
Section 4.01. Servicing Certificate.
---------------------
With respect to each Distribution Date, not later than the second
Business Day prior to each Distribution Date, the Servicer shall deliver to
the Trustee, the Certificate Insurer and to the Rating Agencies a Servicing
Certificate stating the related Collection Period, Distribution Date, the
series number of the Certificates, the date of this Agreement, and including,
but not limited to, the following information:
(i) the aggregate amount of Trust Interest Collections for such
Collection Period (net of any amount included therein which has
been retained by the Servicer prior to such Distribution Date in
reimbursement for any portion of a Monthly Advance made in respect
of the related Mortgage Loan as permitted by clause (iii) of
Section 3.03);
(ii) the aggregate amount of Trust Principal Collections for such
Collection Period;
(iii) the aggregate of any Trust Insurance Proceeds received during the
related Collection Period (including, for this purpose, any amounts
required to be credited by the Servicer pursuant to the last
sentence of Section 3.04(b));
(iv) the aggregate of any Net Trust Liquidation Proceeds received during
the related Collection Period;
(v) the amount of any Transfer Deposit Amount paid by the Seller or
Servicer pursuant to Section 2.02, 2.04, 3.01 or 3.06;
(vi) the Monthly Advance for such Distribution Date;
(vii) the Available Distribution Amount for such Distribution Date;
(viii) any Monthly Advance Reimbursement Amount for such Distribution
Date;
(ix) the Floating Allocation Percentage and the Fixed Allocation
Percentage for such Distribution Date;
(x) the Certificate Interest Collections for such Distribution
Date;
(xi) the Certificate Formula Interest for the related Accrual
Period, together with a specification as to the Certificate
Rate applicable to such Distribution Date and whether it is
derived from LIBOR or the Alternate Certificate Rate;
(xii) the Unpaid Certificate Interest Shortfall, if any;
(xiii) the portion of the Unpaid Certificate Interest Shortfall, if
any, to be distributed on such Distribution Date;
(xiv) the amount of Unpaid Certificate Interest Shortfall, if any,
to remain after the distribution on such Distribution Date;
(xv) the Seller Interest Collections and Seller Principal
Collections for such Distribution Date;
(xvi) the Accelerated Principal Distribution Amount for such
Distribution Date;
(xvii) the Scheduled Principal Collections Payment, separately
stating the components thereof;
(xviii) the aggregate of the Liquidation Loss Amounts and the Investor
Loss Amount for such Distribution Date;
(xix) the aggregate amount, if any, of Investor Loss Reduction
Amounts for previous Distribution Dates that have not been
previously reimbursed to Investor Certificateholders pursuant
to Section 5.01(a)(iv);
(xx) the Pool Balance of the Mortgage Loans, as of the end of the
preceding Collection Period;
(xxi) the Invested Amount as of the end of the preceding Collection
Period;
(xxii) the Required Amount for such Distribution Date;
(xxiii) the Seller Subordinated Amount for such Distribution Date;
(xxiv) the Overcollateralization Amount, if any, after giving effect
to the distribution to be made on such Distribution Date;
(xxv) the Certificate Principal Balance and Pool Factor after giving
effect to the distribution on such Distribution Date;
(xxvi) the Seller Certificate Principal Balance after giving effect
to the distribution on such Distribution Date;
(xxvii) the aggregate amount of Additional Balances created during the
previous Collection Period;
(xxviii) whether a Rapid Amortization Event has occurred since the
prior Distribution Date, specifying each such Rapid
Amortization Event if one has occurred;
(xxix) the Insured Amount, if any, for such Distribution Date;
(xxx) the Reimbursement Amount, if any, for such Distribution Date;
(xxxi) the amount to be distributed to the Seller pursuant to Section
5.01(a)(vii);
(xxxii) the number and aggregate Trust Balances of Mortgage Loans
delinquent (a) 31 to 60 days, (b) 61 to 90 days and (c) 91 days or
more, respectively, as of the end of the related Collection Period;
(xxxiii) the number and aggregate Trust Balances of all Mortgage Loans
in foreclosure as of the end of the related Collection Period;
(xxxiv) the book value (within the meaning of 12 C.F.R. Section 571.13
or comparable provision) of any real estate acquired through
foreclosure or grant of a deed in lieu of foreclosure;
(xxxv) the aggregate of the Trust Balances as of the end of the
related Collection Period of the Mortgage Loans which became
Liquidated Mortgage Loans during such Collection Period;
(xxxvi) the cumulative amount of Liquidation Loss Amounts for such
Distribution Date and all prior Distribution Dates; and
(xxxvii) the number and aggregate Trust Balances of Mortgage Loans to
be retransferred from the Trust Fund on the related Retransfer
Date and the cumulative number and aggregate Trust Balance of
all Mortgage Loans that have been retransferred on all prior
Retransfer Dates.
Section 4.02. Certificate Account.
-------------------
The Servicer shall establish and maintain with the Trustee the
Certificate Account as a single, separate account for the benefit of the
Holders of Certificates. The Servicer shall remit to the Trustee by wire
transfer of immediately available funds for deposit into the Certificate
Account, not later than 1:00 p.m. New York City time on the Business Day
prior to each Distribution Date, an amount equal to the aggregate of the
amounts specified in clauses (i) - (v), inclusive, of the Servicing
Certificate furnished to the Trustee pursuant to Section 4.01. The Servicer
shall include with such deposit any Monthly Advance for such Distribution
Date as specified in the Servicing Certificate.
On each Distribution Date upon which there is a Monthly Advance
Reimbursement Amount, upon the request of the Servicer, the Trustee shall
withdraw from the Certificate Account for the account of the Servicer an
amount equal to the Monthly Advance Reimbursement Amount, but not in excess
of (i) the Available Distribution Amount (without taking into account any
portion thereof representing payments of Trust Interest Collections and Trust
Principal Collections allocable to the Seller and payments of any Insured
Amounts) minus (ii) the sum of the Investor Certificate Distribution Amount,
the Premium Amount and the Reimbursement Amount.
At the direction of the Servicer signed by a Servicing Officer, the
Trustee shall invest any funds in the Certificate Account in Permitted
Investments specified in such direction (including (but not limited to)
obligations of the Trustee or any of its affiliates, if such obligations
otherwise qualify as Permitted Investments). Such direction shall be in
writing, shall designate specific investments and shall certify that the
specified investments constitute Permitted Investments. Each investment
shall mature not later than the Business Day next preceding the Distribution
Date following the date of such investment (unless the obligor in respect of
such investment is the Trustee, in which case such investment may mature on
such Distribution Date) and shall not be sold or disposed of prior to its
maturity. All income and gain realized from any such investment shall be for
the benefit of the Servicer. The Trustee shall remit all such income and
gain to the Servicer on each Distribution Date. The amount of any losses
incurred in respect of any such investments shall be deposited in the
Certificate Account by the Servicer out of its own funds immediately as
realized. The Trustee shall not be liable for any loss incurred in connection
with any such investment except with respect to any investment where the
Trustee is the obligor thereon.
Section 4.03. Payments Under Support Agreement.
--------------------------------
In the event that the Servicer does not, on or before 1:00 P.M. New York
City time on the Business Day preceding a Distribution Date, remit to the
Trustee for deposit in the Certificate Account the respective amounts
required to be remitted by it pursuant to Section 4.02, the Trustee, no later
than 2:00 P.M. on such day, shall make a written demand pursuant to the
Support Agreement upon the Indirect Parent for any and all amounts required
to be deposited in the Certificate Account by it pursuant thereto.
To the extent of any payment by the Indirect Parent under the Support
Agreement, the Indirect Parent shall have all rights of the Servicer under
this Agreement to be reimbursed for such payment made by the Indirect Parent,
including, without limitation, rights in and to any Mortgage Loan or payment
with respect to any Mortgage Loan or the proceeds thereof. In addition, the
Indirect Parent shall be subrogated to the rights of Investor
Certificateholders to the extent of payments under the Support Agreement.
Each of the Seller, the Servicer and the Trustee agrees to such subrogation
and, further, agrees to execute such instruments and to take such actions as,
in the sole judgment of the Indirect Parent, as evidenced in writing to the
Seller, the Servicer and the Trustee, are necessary to evidence such
subrogation.
Section 4.04. The Certificate Insurance Policy.
--------------------------------
(a) If, on any Determination Date, the statement delivered to the
Trustee pursuant to Section 4.01 indicates that there will be the payment of
an Insured Amount for the related Distribution Date, the Trustee shall
complete the Notice for Payment (as defined and included in the form
specified by the Certificate Insurance Policy). The Trustee shall submit
such notice to the Certificate Insurer no later than 12:00 noon New York City
time on the Business Day preceding such Distribution Date as a claim for an
Insured Payment.
(b) Upon receipt of Insured Payments from the Certificate Insurer on
behalf of Investor Certificateholders, the Trustee shall deposit such Insured
Payments in the Certificate Account and shall distribute such Insured
Payments, or the proceeds thereof, in accordance with Section 5.01(a);
provided that Insured Payments shall be applied and distributed solely to
Holders of the Investor Certificates and any Preference Amount shall be
distributed solely to the Holders of the Investor Certificates.
(c) The Trustee shall (i) receive as attorney-in-fact of each Holder of
Investor Certificates receiving any Insured Payment from the Certificate
Insurer and (ii) disburse the same to the Holders of such Certificates as set
forth in Section 5.01(a). Insured Payments disbursed by the Trustee from
proceeds of a Certificate Insurance Policy shall not be considered payment by
the Trust Fund with respect to such Certificates, and the Certificate Insurer
shall be entitled to receive the related Reimbursement Amount pursuant to
Section 5.01(a)(v). The Trustee hereby agrees on behalf of each Investor
Certificateholder and the Trust Fund for the benefit of the Certificate
Insurer that it recognizes that to the extent the Certificate Insurer makes
Insured Payments, either directly or indirectly (as by paying through the
Trustee), to the Holders of such Certificates, the Certificate Insurer will
be entitled to receive the related Reimbursement Amount pursuant to Section
5.01(a)(v).
(d) Subject only to the priority of payment provisions of this
Agreement, each of the Seller, the Servicer and the Trustee acknowledges
that, to the extent of any payment made by the Certificate Insurer pursuant
to the Certificate Insurance Policy, the Certificate Insurer is to be fully
subrogated to the extent of such payment and any additional interest due on
any late payment, to the rights of the Holders of the Investor Certificates
to any moneys paid or payable in respect of the Investor Certificates under
this Agreement or otherwise. Each of the Seller, the Servicer and the
Trustee agrees to such subrogation and, further, agrees to execute such
instruments and to take such actions as, in the sole judgment of the
Certificate Insurer, as evidenced in writing to the Seller, the Servicer and
the Trustee, are necessary to evidence such subrogation and, subject to the
priority of payment provisions of this Agreement, to perfect the rights of
the Certificate Insurer to receive any moneys paid or payable in respect of
the Investor Certificates under this Agreement or otherwise.
ARTICLE V
Payments and Statements to
Certificateholders
Section 5.01. Distributions.
-------------
(a) Distribution of Certificate Interest Collections. On each
------------------------------------------------
Distribution Date, the Trustee shall, based upon information set forth in the
Servicing Certificate, distribute out of the Certificate Account to the
extent of Certificate Interest Collections collected during the related
Collection Period and any Monthly Advance for such Distribution Date
(including any amount paid by the Indirect Parent under the Support Agreement
pursuant to Section 4.03), in the following amounts and order of priority to
the following Persons:
(i) to the Certificate Insurer, the Premium Amount;
(ii) to the Investor Certificateholders as interest, the
Certificate Formula Interest and any Unpaid Certificate
Interest Shortfall;
(iii) to the Investor Certificateholders as principal in reduction
of the Certificate Principal Balance, any Investor Loss Amount
for such Distribution Date;
(iv) to the Investor Certificateholders as principal in reduction
of the Certificate Principal Balance, the aggregate amount of
any Investor Loss Reduction Amounts for previous Distribution
Dates that have not been previously reimbursed to Investor
Certificateholders pursuant to this clause (iv);
(v) to the Certificate Insurer, any Reimbursement Amount;
(vi) to the Investor Certificateholders as principal in reduction
of the Certificate Principal Balance, any Accelerated
Principal Distribution Amount; and
(vii) to the Seller, any remaining amount.
provided, however, that, notwithstanding the above prioritization of the
distribution of the Certificate Interest Collections on deposit in the
Certificate Account, on each Distribution Date any Insured Payment received
by the Trustee and deposited in the Certificate Account shall be applied by
the Trustee solely for the benefit of the Investor Certificateholders.
(b) Distribution of Trust Principal Collections. Subject to Section
-------------------------------------------
11.02(b) and except on the Stated Maturity Date, on each Distribution Date,
the Trustee shall distribute out of the Certificate Account to Investor
Certificateholders the Trust Principal Collections up to the Scheduled
Principal Collections Payment (but not in excess of the Certificate Principal
Balance). On the Stated Maturity Date, the Trustee shall distribute Trust
Principal Collections to the Investor Certificateholders up to the
Certificate Principal Balance.
(c) Application of Seller Subordinated Amount. (i) If, after
-----------------------------------------
applying Certificate Interest Collections as provided in Section 5.01(a)
above, any amounts payable pursuant to clauses (i) through (iv), inclusive,
of Section 5.01(a) remain unpaid, the Trustee shall, based on information set
forth in the Servicing Certificate, apply Seller Interest Collections and
Seller Principal Collections (but only up to the Seller Subordinated Amount
prior to such application) to make such payments and the Seller Subordinated
Amount shall be reduced in accordance with clause (i)(a) of the definition
thereof to the extent of such application of funds.
(ii) If Seller Interest Collections and Seller Principal Collections as
so applied in the preceding paragraph are insufficient to cover the amounts
payable pursuant to clauses (iii) and (iv) of Section 5.01(a) on such
Distribution Date, then the remaining Investor Loss Amount (but only to the
extent of the remaining Seller Subordinated Amount on such Distribution Date)
shall be reallocated to the Seller (i.e., in accordance with the definition
of Aggregate Investor Loss Amount) and the Seller Subordinated Amount shall
be reduced in accordance with clause (i)(b) of the definition thereof to the
extent of such reallocation to the Seller.
(d) Distribution of the Insured Payment. With respect to any
-----------------------------------
Distribution Date, to the extent that:
(i) the amount on deposit in the Certificate Account on such
Distribution Date and available to be distributed pursuant to
Section 5.01(a), together with the amount of Seller Interest
Collections and Seller Principal Collections to be applied pursuant
to Section 5.01(c), are less than the amount payable pursuant to
Section 5.01(a)(ii) on such Distribution Date, plus
(ii) after the Seller Subordinated Amount has been reduced to zero, the
amount, if any, by which the Certificate Principal Balance as of
such Distribution Date (after giving effect to all other amounts
distributable and allocable to principal on the Investor
Certificates on such Distribution Date) exceeds the Invested Amount
as of such Distribution Date (after giving effect to all other
amounts distributable and allocable to principal on the Investor
Certificates on such Distribution Date), plus
(iii) any portion of the Certificate Principal Balance remains
outstanding on the Stated Maturity Date (after giving effect to all
other amounts distributable and allocable to principal on the
Investor Certificates on such Distribution Date),
the Trustee will make such payments (the "Deficiency Amount") to Investor
Certificateholders from the Insured Payment pursuant to Section 4.04.
Notwithstanding the foregoing, the Certificate Insurance Policy (i)
shall not cover any such Deficiency Amount on any Dissolution Distribution
Date and (ii) shall not be available to cover any insufficiency in the
distributions required to be made to Investor Certificateholders pursuant to
Section 11.02(b).
The aggregate amount of principal distributed to Investor
Certificateholders under Article V of this Agreement shall not exceed the
Original Certificate Principal Balance.
(e) Method of Distribution. On each Distribution Date, the Trustee
----------------------
shall distribute to each Investor Certificateholder of record on the related
Record Date (other than as provided in Section 10.01 respecting the final
distribution) by check mailed to such Certificateholder at the address
appearing in the Certificate Register, or upon written request of a Holder of
a Investor Certificate received by the Trustee at least five Business Days
prior to the related Record Date, by wire transfer (but only if such Certifi-
cateholder is the Depository or such Certificateholder owns of record one or
more Investor Certificates which have principal denominations aggregating at
least $5,000,000), or by such other means of payment as such Certifi-
cateholder and the Trustee shall agree. Distributions among Investor
Certificateholders shall be made in proportion to the Percentage Interests
evidenced by the Investor Certificates held by such Investor
Certificateholders.
(f) Final Distribution. Except as otherwise provided in Section
------------------
10.01 and Section 11.02, when the Trustee expects that the final distribution
with respect to the Investor Certificates will be made on the next
Distribution Date, the Trustee shall, no later than three (3) days after the
related Determination Date, mail to each Holder on such date of the Investor
Certificates a notice to the effect that: (i) the Trustee expects that the
final distribution with respect to the Investor Certificates will be made on
such Distribution Date but only upon presentation and surrender of such
Certificates at the office of the Trustee or as otherwise specified therein,
and (ii) no interest shall accrue on the Investor Certificates from and after
the end of the related Interest Accrual Period. In the event that
Certificateholders do not surrender their Certificates for final
cancellation, the Trustee shall follow procedures comparable to the
arrangements set forth in Section 10.01(e).
(g) Distributions on Book-Entry Certificates. Each distribution
----------------------------------------
with respect to a Book-Entry Certificate shall be paid to the Depository,
which shall credit the amount of such distribution to the accounts of its
Depository Participants in accordance with its normal procedures. Each
Depository Participant shall be responsible for disbursing such distribution
to the Certificate Owners that it represents and to each indirect
participating brokerage firm (a "brokerage firm" or "indirect participating
firm") for which it acts as agent. Each brokerage firm shall be responsible
for disbursing funds to the Certificate Owners that it represents. All such
credits and disbursements with respect to a Book-Entry Certificate are to be
made by the Depository and the Depository Participants in accordance with the
provisions of the Investor Certificates. None of the Trustee, the Seller nor
the Servicer shall have any responsibility therefore except as otherwise
provided by applicable law.
(h) Distributions to Holders of Seller Certificates. On each
-----------------------------------------------
Distribution Date, the Trustee shall, based upon the information set forth in
the Servicing Certificate for such Distribution Date, distribute to the
Seller the Seller Interest Collections and Seller Principal Collections that
are not required to be distributed to the Investor Certificateholders
pursuant to Section 5.01(c) on such Distribution Date; provided that
collections allocable to the Seller Certificates will be distributed to the
Seller only to the extent that such distribution will not reduce the amount
of the Seller Certificate Principal Balance as of such Distribution Date
below the Minimum Seller Interest. Amounts not distributed to the Seller
because of such limitations will be retained in the Certificate Account until
the Seller Certificate Principal Balance exceeds the Minimum Seller Interest,
at which time such excess shall be released to the Seller. If any such
amounts are still retained in the Certificate Account upon the commencement
of the Rapid Amortization Period, such amounts will be paid to the Investor
Certificateholders as a reduction of the Investor Certificate Principal
Balance.
Section 5.02. Certain Calculations by the Trustee.
-----------------------------------
On the LIBOR Business Day next preceding each Distribution Date the
Trustee shall determine LIBOR for the next Accrual Period. The Trustee shall
promptly advise the Servicer of such determination by tested telex or telefax
to the address provided herein.
The determination of LIBOR by the Trustee for each Accrual Period
(excluding the first Accrual Period) shall (in the absence of manifest error)
be final, conclusive and binding upon the Certificateholders, the Servicer
and any of their respective partners, beneficiaries, agents, officers,
directors, employees or successors or assigns.
Section 5.03. Statements to Certificateholders.
--------------------------------
Not later than the second Business Day prior to each Distribution Date,
the Servicer shall deliver to the Trustee for mailing to each Holder of a
Investor Certificate and the Certificate Insurer a statement with respect to
such Distribution Date setting forth:
(i) the Investor Certificate Distribution Amount;
(ii) the amount of interest included in such distribution and the
related Certificate Rate;
(iii) the amount, if any, of any Unpaid Certificate Interest
Shortfall in such distribution;
(iv) the amount, if any, of the remaining Unpaid Certificate
Interest Shortfall after giving effect to such distribution;
(v) the amount, if any, of principal in such distribution,
separately stating the components thereof;
(vi) the amount, if any, of the reimbursement of previous
Investor Loss Reduction Amounts in such distribution;
(vii) the amount, if any, of the aggregate of unreimbursed
Investor Loss Reduction Amounts after giving effect to such
distribution;
(viii) the Investor Floating Allocation Percentage for such
Distribution Date;
(ix) the Invested Amount, the Certificate Principal Balance and
the Pool Factor, each after giving effect to such distribution;
(x) the Required Amount for such Distribution Date,
(xi) the Seller Subordinated Amount after giving effect to such
distribution,
(xii) the Pool Balance of the Mortgage Loans as of the end of the
preceding Collection Period and the end of the second preceding
Collection Period;
(xiii) the Overcollateralization Amount, if any;
(xiv) the Servicing Fee for such Distribution Date;
(xv) the amount of any Monthly Advance by the Servicer;
(xvi) the number and aggregate Trust Balances of Mortgage Loans
delinquent (a) 31 to 60 days, (b) 61 to 90 days and (c) 91 days or more,
respectively, as of the end of the preceding Collection Period;
(xvii) the number and aggregate Trust Balances of the Mortgage
Loans in foreclosure as of the end of the preceding Collection Period;
(xviii) the book value (within the meaning of 12 C.F.R.
Section 571.13 or comparable provision) of any real estate acquired
through foreclosure or grant of a deed in lieu of foreclosure; and
(xix) the amount of any Insured Payments by the Certificate
Insurer;
(xx) the number and aggregate Trust Balance of Mortgage Loans to
be retransferred from the Trust Fund on the related Retransfer Date, and
the cumulative number and aggregate Trust Balance of all Mortgage Loans
that have been retransferred on all prior Retransfer Dates.
In the case of information furnished pursuant to clauses (ii)
through (vii) above, the amounts shall be expressed as a dollar amount per
Investor Certificate with a $1,000 denomination.
Within 90 days after the end of each calendar year, the Servicer shall
deliver to the Trustee for mailing to each Person who at any time during the
calendar year was the Holder of a Investor Certificate and to the Certificate
Insurer a statement containing the information set forth in clauses (ii) and
(v) above aggregated for such calendar year or, in the case of each Person
who was a Certificateholder for a portion of such calendar year, setting
forth such information for each month thereof. Such obligation of the
Servicer shall be deemed to have been satisfied to the extent that
substantially comparable information shall be provided by the Servicer
pursuant to any requirements of the Code.
The Trustee shall prepare or cause to be prepared (based on information
provided to it by the Servicer and in a manner consistent with the treatment
of the Investor Certificates as indebtedness) Internal Revenue Service Form
1099 (or any successor form) and any other tax forms required to be filed or
furnished to Certificateholders in respect of distributions by the Trustee on
the Investor Certificates (e.g., Internal Revenue Service Form 1099-OID) and
shall file and distribute such forms as required by law.
Section 5.04. Rights of Certificateholders.
----------------------------
The Investor Certificates shall represent fractional undivided interests
in the Trust Fund, including the benefits of the Certificate Account and the
right to receive Certificate Interest Collections, Principal Collections and
other amounts at the times and in the amounts specified in this Agreement;
the Seller Certificates shall represent the remaining interest in the Trust
Fund.
ARTICLE VI
The Certificates
Section 6.01. The Certificates. The Investor Certificates shall be
----------------
substantially in the forms set forth in Exhibits A and C, and the Seller
Certificates shall be substantially in the forms set forth in Exhibits B and
D, and shall, on original issue, be executed, countersigned and delivered by
the Trustee to or upon the order of the Seller concurrently with the transfer
and assignment to the Trustee of the Trust Fund. The Investor Certificates
shall be initially evidenced by one or more certificates representing the
entire Original Certificate Principal Balance. Beneficial ownership of the
Investor Certificates that are Book-Entry Certificates may be held in minimum
dollar denominations of $25,000 and integral multiples of $1,000 in excess
thereof (except as provided in the following paragraph). The sum of the
denominations of all outstanding Investor Certificates shall equal the
Original Certificate Principal Balance. The Seller Certificates shall be
issuable as one or more certificates representing the entire interest in the
assets of the trust other than that represented by the Investor Certificates
and shall initially be issued to the Seller.
Beneficial ownership of the Investor Certificates that are Book-Entry
Certificates may be held in minimum dollar denominations of less than $25,000
and integral multiples of $1,000 in excess thereof in the case of Persons who
(i) are sophisticated, institutional investors having knowledge and
experience in financial and business matters, (ii) are purchasing on behalf
of, and serving as investment advisor or manager for, one or more Persons who
are sophisticated, institutional investors having knowledge and experience in
financial and business matters, (iii) are purchasing Certificates which have,
in the aggregate, an Original Certificate Principal Balance in excess of
$25,000, and (iv) have requested that Investor Certificates be issued in such
lower minimum denominations and registered in the name of Persons meeting the
criteria in clause (ii).
The Certificates shall be executed by manual or facsimile signature on
behalf of the Trustee by an authorized officer under its seal imprinted
thereon. Certificates bearing the manual or facsimile signatures of
individuals who were, at the time when such signatures were affixed,
authorized to sign on behalf of the Trustee shall bind the Trustee,
notwithstanding that such individuals or any of them have ceased to be so
authorized prior to the authentication and delivery of such Certificates or
did not hold such offices at the date of such Certificate. No Certificate
shall be entitled to any benefit under this Agreement, or be valid for any
purpose, unless such Certificate shall have been manually countersigned by
the Trustee substantially in the form provided for herein, and such
countersignature upon any Certificate shall be conclusive evidence, and the
only evidence, that such Certificate has been duly authenticated and
delivered hereunder. All Certificates shall be dated the date of their
countersignature. Subject to Section 6.02(c), the Investor Certificates shall
be Book-Entry Certificates. The Seller Certificates shall not be Book-Entry
Certificates.
Section 6.02. Registration of Transfer and
----------------------------
Exchange of Certificates; Registrar.
- -------------------------------------------------------
(a) The Certificate Registrar shall cause to be kept at the Corporate
Trust Office a Certificate Register in which, subject to such reasonable
regulations as it may prescribe, the Certificate Registrar shall provide for
the registration of Certificates and of Transfers and exchanges of Certifi-
cates as herein provided. The Trustee shall initially serve as Certificate
Registrar for the purpose of registering Investor Certificates and transfers
and exchanges of Investor Certificates as herein provided.
Upon surrender for registration of Transfer of any Investor Certificate
at any office or agency of the Trustee maintained for such purpose pursuant
to the foregoing paragraph, the Trustee shall execute, countersign and de-
liver, in the name of the designated Transferee or Transferees, one or more
new Investor Certificates of the same aggregate Percentage Interest.
At the option of the Investor Certificateholders, Investor Certificates
may be exchanged for other Investor Certificates of authorized denominations
of the same aggregate Percentage Interest, upon surrender of the Investor
Certificates to be exchanged at any such office or agency. Whenever any
Investor Certificates are so surrendered for exchange the Trustee shall
execute, countersign and deliver the Investor Certificates which the Cer-
tificateholder making the exchange is entitled to receive. Every Investor
Certificate presented or surrendered for Transfer or exchange shall (if so
required by the Trustee) be duly endorsed by, or be accompanied by a written
instrument of Transfer in form satisfactory to the Trustee duly executed by,
the Holder thereof or his attorney duly authorized in writing.
No service charge shall be made for any Transfer or exchange of Investor
Certificates, but the Trustee may require payment of a sum sufficient to
cover any tax or governmental charge that may be imposed in connection with
any Transfer or exchange of Investor Certificates.
All Certificates surrendered for Transfer and exchange shall be
cancelled by the Trustee.
(b) Except as provided in Section 6.02(d), the Book-Entry Certificates
shall at all times remain registered in the name of the Depository or its
nominee and at all times: (i) registration of the Investor Certificates may
not be transferred by the Trustee except to another Depository; (ii) the
Depository shall maintain book-entry records with respect to the Certificate
Owners and with respect to ownership and transfers of such Investor
Certificates; (iii) ownership and transfers of registration of the Investor
Certificates on the books of the Depository shall be governed by applicable
rules established by the Depository; (iv) the Depository may collect its
usual and customary fees, charges and expenses from its Depository
Participants; (v) the Trustee shall deal with the Depository, Depository
Participants and indirect participating firms as representatives of the
Certificate Owners of the Investor Certificates for purposes of exercising
the rights of Holders under this Agreement, and requests and directions for
and votes of such representatives shall not be deemed to be inconsistent if
they are made with respect to different Certificate Owners; and (vi) the
Trustee may rely and shall be fully protected in relying upon information
furnished by the Depository with respect to its Depository Participants and
furnished by the Depository Participants with respect to indirect
participating firms and persons shown on the books of such indirect
participating firms as direct or indirect Certificate Owners.
All transfers by Certificate Owners of Book-Entry Certificates shall be
made in accordance with the procedures established by the Depository
Participant or brokerage firm representing such Certificate Owner. Each
Depository Participant shall only transfer Book-Entry Certificates of
Certificate Owners it represents or of brokerage firms for which it acts as
agent in accordance with the Depository's normal procedures.
Whenever notice or other communication to the Investor
Certificateholders is required under this Agreement, unless and until
Definitive Certificates shall have been issued to Certificate Owners pursuant
to Section 6.02(d), the Trustee shall give to the Depository all such notices
and communications specified herein to be given to Certificateholders.
(c) If (x)(i) the Servicer advises the Trustee and the Certificate
Insurer in writing that the Depository is no longer willing or able to
properly discharge its responsibilities as Depository, and (ii) the Servicer
is unable to locate a qualified successor, (y) the Servicer at its option may
advise the Trustee in writing that it elects to terminate the book-entry
system through the Depository or (z) after the occurrence of an Event of
Default, Certificate Owners representing Percentage Interests aggregating not
less than 50% of the aggregate Percentage Interests of the Investor
Certificates together advise the Trustee and the Depository through the
Depository Participants in writing that the continuation of a book-entry
system through the Depository is no longer in the best interests of the
Certificate Owners, the Trustee shall notify all Certificate Owners, through
the Depository, of the occurrence of any such event and of the availability
of definitive, fully registered Investor Certificates (the "Definitive
Certificates") to Certificate Owners requesting the same. Upon surrender to
the Trustee of the Investor Certificates by the Depository, accompanied by
registration instructions from the Depository for registration, the Trustee
shall, at the expense of the Servicer, issue the Definitive Certificates.
The Definitive Certificates shall be issued in minimum denominations of
$25,000 and integral multiples of $1,000 in excess thereof, except that any
Investor Certificate that was represented by a Book-Entry Certificate in an
amount less than $25,000 immediately prior to the issuance of a Definitive
Certificate pursuant to the second paragraph of Section 6.01 shall be issued
in minimum denomination equal to the amount represented by such Book-Entry
Certificate and shall be subject to the same restrictions on transfer set
forth in the second paragraph of Section 6.01. Neither the Servicer nor the
Trustee shall be liable for any delay in delivery of such instructions and
may conclusively rely on, and shall be protected in relying on, such
instructions. Upon the issuance of Definitive Certificates all references
herein to obligations imposed upon or to be performed by the Depository shall
be deemed to be imposed upon and performed by the Trustee, to the extent
applicable with respect to such Definitive Certificates and the Trustee shall
recognize the Holders of the Definitive Certificates as Certificateholders
hereunder.
Section 6.03. Mutilated, Destroyed, Lost
--------------------------
or Stolen Certificates.
- ------------------------------------------
If (i) any mutilated Certificate is surrendered to the Trustee or the
Trustee receives evidence to its satisfaction of the destruction, loss or
theft of any Certificate, and (ii) there is delivered to the Trustee, the
Servicer and the Seller such security or indemnity as may be required by them
to save each of them harmless, then, in the absence of notice to the Trustee
that such Certificate has been acquired by a bona fide purchaser, the Trustee
shall execute, countersign and deliver, in exchange for or in lieu of any
such mutilated, destroyed, lost or stolen Certificate, a new Certificate of
like tenor, Class and Percentage Interest. Upon the issuance of any new
Certificate under this Section, the Trustee may require the payment of a sum
sufficient to cover any tax or other governmental charge that may be imposed
in relation thereto and any other expenses (including the fees and expenses
of the Trustee) connected therewith. Any new Certificate issued pursuant to
this Section shall constitute complete and indefeasible evidence of ownership
in the Trust Fund, as if originally issued, whether or not the lost, stolen
or destroyed Certificate shall be found at any time.
Section 6.04. Persons Deemed Owners.
---------------------
The Servicer, the Seller, the Certificate Insurer, the Trustee and any
agent of the Servicer, the Seller or the Trustee may treat the Person in
whose name any Certificate is registered as the owner of such Certificate for
the purpose of receiving distributions pursuant to Section 5.01 and for all
other purposes whatsoever, and neither the Servicer, the Seller, the
Certificate Insurer, the Trustee nor any agent of the Servicer, the Seller,
the Certificate Insurer or the Trustee shall be affected by notice to the
contrary.
Section 6.05. Restrictions on Transfer
------------------------
of Seller Certificates.
----------------------
(a) The Seller Certificates shall be assigned, transferred, exchanged,
pledged, financed, hypothecated or otherwise conveyed (collectively, for
purposes of this Section 6.05 and any other Section referring to the Seller
Certificates, "transferred" or a "transfer") only in accordance with this
Section 6.05.
(b) No transfer of a Seller Certificate shall be made unless such
transfer is exempt from the registration requirements of the Securities Act
of 1933, as amended, and any applicable state securities laws or is made in
accordance with said Act and laws. The Trustee and the Servicer shall
require a written Opinion of Counsel acceptable to and in form and substance
satisfactory to the Trustee and the Servicer that such transfer may be made
pursuant to an exemption, describing the applicable exemption and the basis
therefor, from which Act and laws or is being made pursuant to said Act and
laws, which Opinion of Counsel shall not be an expense of the Trustee or the
Servicer, and the Trustee and the Servicer shall require the transferee to
execute an investment letter acceptable to and in form and substance
satisfactory to the Trustee and the Servicer certifying to the Trustee and
the Servicer the facts surrounding such transfer, which Investment letter
shall not be an expense of the Trustee or the Servicer; provided that such
Opinion of Counsel shall not be required in the case of transfers by or to
Merrill Lynch, Pierce, Fenner & Smith Incorporated or an affiliate thereof.
The Holder of a Seller Certificate desiring to effect such transfer shall,
and does hereby agree to, indemnify the Trustee, the Servicer and the
Certificate Insurer against any liability that may result if the transfer is
not so exempt or if not made in accordance with such federal and state laws.
(c) The Seller Certificates and any interest therein shall not be
transferred except upon satisfaction of the following conditions precedent:
(i) the Person that acquires a Seller Certificate shall (A) be organized and
existing under the laws of the United States of America or any state or the
district of Columbia thereof (B) expressly assume, by an agreement
supplemental hereto, executed and delivered to the Trustee, the performance
of every covenant and obligation of the Seller hereunder with respect to the
assets evidenced by the Seller Certificates, and (C) as part of its
acquisition of a Seller Certificate, acquire all rights of the related Seller
or any transferee under this Section 6.05(c) to amounts payable to such
Seller or such transferee under Sections 5.01(a)(vii) and 5.01(g), (ii) the
Seller shall deliver to the Trustee an Officer's Certificate stating that
such transfer and such supplemental agreement comply with this Section
6.05(c) and that all conditions precedent provided by this Section 6.05(c)
have been complied with and an Opinion of Counsel stating that all conditions
precedent provided by this Section 6.05(c) have been complied with, and the
Trustee may conclusively rely on such Officer's Certificate, shall have no
duty to make inquiries with regard to the matters set forth therein and shall
incur no liability in so relying; (iii) the Seller shall deliver to the
Trustee a letter from each Rating Agency confirming that its rating of the
Investor Certificates, after giving effect to such transfer without taking
into account the Certificate Insurance Policy, will not be reduced or
withdrawn; (iv) the Seller shall deliver to the Trustee an Opinion of Counsel
to the effect that (a) such transfer will not adversely affect the treatment
of the Investor Certificates after such transfer as debt for federal and
applicable state income tax purposes, (b) such transfer will not result in
the Trust being subject to tax at the entity level for federal or applicable
state tax purposes, (c) such transfer will not have any material adverse
impact on the federal or applicable state income taxation of an Investor
Certificateholder or any Certificate Owner and (d) such transfer will not
result in the arrangement created by this agreement or any "portion" of the
assets being treated as a taxable mortgage pool as defined in Section 7701(i)
of the Code; (v) all filings and other actions necessary to continue the
perfection of the interest of the Trust in the assets and the other property
conveyed hereunder shall have been taken or made and (vi) the transferee
shall have assumed the obligations of the Seller pursuant to Section 7.06
hereof. Notwithstanding the foregoing, the requirement set forth in
subclause (i)(A) of this Section 6.05(c) shall not apply in the event the
Trustee shall have received a letter from each Rating Agency confirming that
its rating of the Investor Certificates, after giving effect to a proposed
transfer to a Person that does not meet the requirement set forth in
subclause (i)(A) without taking into account the Certificate Insurance
Policy, shall not be reduced or withdrawn.
Section 6.06. Actions of Certificateholders.
-----------------------------
(a) Any request, demand, authorization, direction, notice, consent,
waiver or other action provided by this Agreement to be given or taken by
Certificateholders may be embodied in and evidenced by one or more
instruments of substantially similar tenor signed by such Certificateholders
in person or by its agent duly appointed in writing; and except as herein
otherwise expressly provided, such action shall become effective when such
instrument or instruments are delivered to the Trustee and, where required,
to the Seller, the Certificate Insurer or the Servicer. Proof of execution
of any such instrument or of a writing appointing any such agent shall be
sufficient for any purpose of this Agreement and conclusive in favor of the
Trustee, the Seller, the Certificate Insurer and the Servicer, if made in the
manner provided in this Section.
(b) The fact and date of the execution by any Certificateholder of any
such instrument or writing may be proved in any reasonable manner which the
Trustee deems sufficient.
(c) Any request, demand, authorization, direction, notice, consent,
waiver or other action by a Certificateholder shall bind every Holder of
every Certificate issued upon the registration of Transfer thereof or in
exchange therefor or in lieu thereof, in respect of anything done, or omitted
to be done, by the Trustee, the Seller or the Servicer in reliance thereon,
whether or not notation of such action is made upon such Certificate.
(d) The Trustee may require such additional proof of any matter
referred to in this Section as it shall deem necessary.
(e) The ownership of Certificates shall be proved by the Certificate
Register.
ARTICLE VII
The Servicer and the Seller
Section 7.01. Liability of the Servicer.
-------------------------
The Servicer shall be liable in accordance herewith only to the extent
of the obligations specifically imposed upon and undertaken by the Servicer
herein.
Section 7.02. Merger or Consolidation of,
---------------------------
or Assumption of the Obligations
- ----------------------------------------------------
of, the Servicer or Seller.
- ----------------------------------------------
Any corporation into which the Servicer or Seller may be merged or
consolidated, or any corporation resulting from any merger, conversion or
consolidation to which the Servicer or Seller shall be a party, or any
corporation succeeding to the business of the Servicer or Seller, or any
corporation, more than 50% of the voting stock of which is, directly or
indirectly, owned by the Indirect Parent, which executes an agreement of
assumption to perform every obligation of the Servicer or Seller hereunder,
shall be the successor of the Servicer or Seller hereunder, without the
execution or filing of any paper or any further act on the part of any of the
parties hereto, anything herein to the contrary notwithstanding.
Notwithstanding anything to the contrary contained in this Section 7.02
or in Section 7.04, the Servicer may assign its rights and delegate its
duties and obligations under this Agreement; provided that (i) the purchaser
or transferee accepting such assignment or delegation shall be a Person
reasonably satisfactory to the Trustee and which shall be qualified to
service mortgage loans for the Federal National Mortgage Association, and
shall execute and deliver to the Trustee an agreement, in form and substance
reasonably satisfactory to the Trustee, which contains an assumption by such
Person of the due and punctual performance and observance of each covenant
and condition to be performed or observed by the Servicer under this
Agreement from and after the date of such agreement; and (ii) each Rating
Agency's rating of the Investor Certificates in effect immediately prior to
such assignment, sale or transfer will not be qualified, downgraded or
withdrawn as a result of such assignment, sale or transfer, as evidenced by a
letter to such effect from each Rating Agency. In the case of any such
assignment and delegation, the Servicer shall remain liable for all
liabilities and obligations incurred by it as Servicer hereunder prior to the
satisfaction of the conditions to such assignment and delegation set forth in
clauses (i) and (ii) of the preceding sentence.
Section 7.03. Limitation on Liability of
--------------------------
the Servicer and Others.
- -------------------------------------------
Neither the Servicer nor any of the directors or officers or employees
or agents of the Servicer shall be under any liability to the Trust Fund or
the Certificateholders for any action taken or for refraining from the taking
of any action by the Servicer pursuant to this Agreement, or for errors in
judgment; provided, however, that this provision shall not protect the
Servicer or any such person against any liability which would otherwise be
imposed by reason of willful misfeasance, bad faith or gross negligence in
the performance of duties of the Servicer or by reason of reckless disregard
of obligations and duties of the Servicer hereunder. The Servicer and any
director or officer or employee or agent of the Servicer may rely in good
faith on any document of any kind prima facie properly executed and submitted
by any Person
----- -----
respecting any matters arising hereunder. The Servicer shall not be under any
obligation to appear in, prosecute or defend any legal action which is not
incidental to duties to service the Mortgage Loans in accordance with this
Agreement, and which in its opinion may involve it in any expense or liabil-
ity; provided, however, that the Servicer may in its sole discretion
undertake any such action which it may deem necessary or desirable in respect
of this Agreement, and the rights and duties of the parties hereto and the
interests of the Certificateholders hereunder. In the event of any such
loss, liability or expense, the legal expenses and costs of such action and
any liability resulting therefrom shall be expenses, costs and liabilities
for which the Servicer shall be entitled to reimbursement therefor only from
amounts otherwise distributable to the Holders of the Seller Certificates on
any subsequent Distribution Date. The Servicer's right to reimbursement
pursuant to this Section 7.03 shall survive any resignation or termination of
the Servicer pursuant to Section 7.04 or 8.01 with respect to any such
losses, liabilities or expenses arising prior to such resignation or termi-
nation (or arising from events that occurred prior to such resignation or
termination). Any claims under this Section 7.03 by or on behalf of the
Certificateholders or the Trust Fund shall be made only against the Servicer,
who shall be liable hereunder with respect to its own acts and omissions as
well as the acts and omissions of its directors, officers, employees and
agents.
Section 7.04. Servicer Not to Resign.
----------------------
Subject to the provisions of Section 7.02, the Servicer shall not resign
from the obligations and duties hereby imposed on it (i) for so long as the
Trust owns Trust Balances of one or more Common Mortgage Loans, unless it has
resigned from its obligations and duties as servicer under all Prior Trust
Pooling and Servicing Agreements applicable to such Common Mortgage Loans or
(ii) except upon determination that the performance of its duties hereunder
is no longer permissible under applicable law or is in material conflict by
reason of applicable law with any other activities carried on by it or its
subsidiaries or other affiliates, the other activities of the Servicer so
causing such a conflict being of a type and nature carried on by the Servicer
or such subsidiaries or other affiliates at the date of this Agreement. For
so long as the Trust owns Trust Balances of one or more Common Mortgage
Loans, the determination set forth in clause (ii) shall provide the basis for
the Servicer's resignation only if the Servicer simultaneously resigns from
its obligations and duties as servicer under the Prior Trust Pooling and
Servicing Agreements applicable to such Common Mortgage Loans. For so long
as the Trust owns Trust Balances of one or more Common Mortgage Loans, the
Servicer shall resign from its obligations and duties hereunder promptly upon
any resignation from its obligations and duties as servicer under the Prior
Trust Pooling and Servicing Agreements applicable to such Common Mortgage
Loans.
Any resignation under this Section 7.04 shall not relieve the Servicer
of responsibility for any of the obligations specified in Sections 8.01 and
8.02 as obligations that survive the resignation or termination of the
Servicer; provided, however, that no resignation by the Servicer shall become
effective until the Trustee or a successor servicer shall have assumed the
responsibilities and obligations of the Servicer in accordance with Section
8.02. The Servicer shall have no claim (whether by subrogation or otherwise)
or other action against any Certificateholder for any amounts paid by the
Servicer pursuant to any provision of this Agreement. Any determination
permitting the resignation of the Servicer shall be evidenced by an Opinion
of Counsel to such effect delivered to the Trustee and the Certificate
Insurer.
Section 7.05. Limitation on Liability of Certain Persons.
------------------------------------------
No recourse under or upon any obligation or covenant of this Agreement,
or of any Certificate, or for any claim based thereon or otherwise in respect
thereof, shall be had against any incorporator, shareholder, officer or
director, as such, past, present or future, of the Seller or of any successor
corporation, either directly or through the Seller, whether by virtue of any
constitution, statute or rule of law, or by the enforcement of any assessment
or penalty or otherwise. This Agreement and the obligations issued hereunder
are solely corporate obligations, and that no such personal liability
whatever shall attach to, or is or shall be incurred by the incorporators,
shareholders, officers or directors as such, of the Seller, or any of them,
because of the issuance of the Certificates, or under or by reason of the
obligations, covenants or agreements contained in this Agreement or in any of
the Certificates or implied therefrom; and that any and all such personal
liability, either at common law or in equity or by constitution or statute,
of, and any and all such rights and claims against, every such incorporator,
shareholder, officer or director, as such, because of the issuance of the
Certificates, or under or by reason of the obligations, covenants or
agreements contained in this Agreement or in any of the Certificates or
implied therefrom, are hereby expressly waived and released as a condition
of, and as a consideration for, the execution of this Agreement and the
issuance of the Certificates. The Seller and any director, officer, employee
or agent of the Seller may rely in good faith on any document of any kind
prima facie properly executed and submitted by
----- -----
any Person respecting any matters arising hereunder.
Section 7.06. Liability of Seller.
-------------------
Notwithstanding Section 7.05 or any other provisions of this Agreement,
the Seller by entering into this Agreement, by its acceptance thereof, agrees
to be liable, directly to the injured party, for the entire amount of any
losses, claims, damages or liabilities (other than those that would be
incurred by a Certificateholder if the Certificates were notes secured by the
Trust assets, for example, as a result of the performance of the Trust
assets, market fluctuations, a shortfall or failure to make payment under the
Certificate Insurance Policy or other similar market or investment risks
associated with ownership of the Certificates) arising out of or based on the
arrangement created by this Agreement or the actions of the Servicer taken
pursuant hereto (to the extent that, if the Trust assets at the time the
claim is made were used to pay in full all outstanding Certificates, the
Trust assets that would remain after the Certificateholders and Certificate
Insurer were paid in full would be insufficient to pay any such losses,
claims, damages or liabilities) as though this Agreement created a
partnership under the Delaware Revised Uniform Partnership Act in which the
Seller was a general partner. The rights created by this Section 7.06 shall
run directly to and be enforceable by the injured party subject to the
limitations hereof.
Section 7.07. Seller May Own Certificates.
---------------------------
The Seller and any Person controlling, controlled by or under common
control with the Seller may in its individual or any other capacity become
the owner or pledgee of Investor Certificates with the same rights as it
would have if it were not the Seller or such an affiliate thereof, except as
otherwise provided in the definition of the term "Certificateholder"
specified in Section 1.01. Certificates so owned by or pledged to the Seller
or such controlling or commonly controlled Person shall have an equal and
proportionate benefit under the provisions of this Agreement, without
preference, priority or distinction as among all of the Investor
Certificates, except as otherwise provided in the definition of the term
"Certificateholder" specified in Section 1.01.
ARTICLE VIII
Default
Section 8.01. Events of Default.
-----------------
If any one of the following events ("Events of Default") shall occur and
be continuing:
(i) Any failure by the Servicer to remit to the Trustee any
payment required to be made under the terms of such Certificates and
this Agreement which continues unremedied for a period of five (5)
Business Days after the date upon which written notice of such failure
shall have been given to the Servicer by the Trustee or to the Servicer
and the Trustee by Holders of Investor Certificates evidencing not less
than 25% of the aggregate Percentage Interests of the Investor
Certificates or by the Certificate Insurer; or
(ii) Failure on the part of the Servicer duly to observe or perform
in any material respect any other covenants or agreements of the
Servicer set forth in the Certificates or in this Agreement, which
covenants and agreements (A) materially affect the rights of
Certificateholders and (B) continue unremedied for a period of sixty
(60) days after the date on which written notice of such failure,
requiring the same to be remedied, shall have been given to the Servicer
by the Trustee, or to the Servicer and the Trustee by the Holders of
Investor Certificates evidencing not less than 25% of the aggregate
Percentage Interests of the Investor Certificates or by the Certificate
Insurer; or
(iii) The entry against the Servicer of a decree or order by a court
or agency or supervisory authority having jurisdiction in the premises
for the appointment of a conservator, receiver or liquidator in any
insolvency, readjustment of debt, marshalling of assets and liabilities
or similar proceedings, or for the winding up or Liquidation of its
affairs, and the continuance of any such decree or order unstayed and in
effect for a period of sixty (60) consecutive days; or
(iv) The consent by the Servicer to the appointment of a con-
servator or receiver or liquidator in any insolvency, readjustment of
debt, marshalling of assets and liabilities or similar proceedings of or
relating to the Servicer or of or relating to substantially all of its
property; or the Servicer shall admit in writing its inability to pay
its debts generally as they become due, file a petition to take
advantage of any applicable insolvency or reorganization statute,
make an assignment for the benefit of its creditors, or voluntarily
suspend payment of its obligations;
then, and in each and every such case, so long as an Event of Default shall
not have been remedied by the Servicer, either the Trustee (with the consent
of the Certificate Insurer, which consent shall not be unreasonably
withheld), or the Holders of Investor Certificates evidencing not less than
25% of the aggregate Percentage Interests of the Investor Certificates (with
the consent of the Certificate Insurer) or the Certificate Insurer, by notice
then given in writing to the Servicer (and to the Trustee if given by
Certificateholders or the Certificate Insurer) may terminate all of the
rights and obligations of the Servicer as servicer under this Agreement. In
addition, for so long as the Trust owns Trust Balances of one or more Common
Mortgage Loans, whether or not there is any Event of Default hereunder, if
the Servicer is terminated as servicer under the Prior Trust Pooling and
Servicing Agreements applicable to such Common Mortgage Loans, the Trustee
shall promptly deliver a notice of termination to the Servicer and shall
appoint as successor Servicer pursuant to Section 8.02 the same Person
appointed to succeed the Servicer as servicer under such Prior Trust Pooling
and Servicing Agreements.
Any written notice provided to the Servicer shall be simultaneously
provided to the Indirect Parent, the Certificate Insurer and the Rating
Agencies. On or after the receipt by the Servicer of such written notice,
all authority and power of the Servicer under this Agreement, whether with
respect to the Certificates or the Mortgage Loans or otherwise, shall pass to
and be vested in the Trustee pursuant to and under this Section 8.01; and,
without limitation, the Trustee is hereby authorized and empowered to execute
and deliver, on behalf of the Servicer, as attorney-in-fact or otherwise, any
and all documents and other instruments, and to do or accomplish all other
acts or things necessary or appropriate to effect the purposes of such notice
of termination, whether to complete the transfer and endorsement of the
Mortgage Loans and related documents, or otherwise. The Servicer agrees to
cooperate with the Trustee in effecting the termination of the responsibili-
ties and rights of the Servicer hereunder, including, without limitation, the
transfer to the Trustee for the administration by it of all cash amounts that
shall at the time be held by the Servicer and credited by it to the Mortgage
Loan Payment Record, or that have been deposited by the Servicer in the
Certificate Account or thereafter received by the Servicer with respect to
the Mortgage Loans. In addition to any other amounts which are then, or,
notwithstanding the termination of its activities as servicer, may become,
payable to the Servicer under this Agreement, the Servicer shall be entitled
to receive out of any delinquent payment on account of interest on a Mortgage
Loan, due during the period prior to the notice pursuant to this Section 8.01
which terminates the obligation and rights of the Servicer hereunder and re-
ceived after such notice, that portion of such payment which it would have
been entitled to retain pursuant to Section 3.03(ii) if such notice had not
been given.
Section 8.02. Trustee to Act; Appointment of Successor.
----------------------------------------
(a) On and after the time the Servicer receives a notice of termination
pursuant to Section 8.01 or the Servicer's resignation in accordance with the
terms of Section 7.04, and, for so long as the Trust owns Trust Balances of
one or more Common Mortgage Loans (and if and for so long as the Trustee also
acts as servicer under a Prior Trust Pooling and Servicing Agreement
applicable to such Common Mortgage Loans), the Trustee shall be the successor
in all respects to the Servicer in its capacity as servicer under this
Agreement and the transactions set forth or provided for herein and shall be
subject to all the responsibilities, duties and liabilities relating thereto
placed on the Servicer by the terms and provisions hereof; provided, however,
that the responsibilities and duties of the Servicer pursuant to Section 2.02
and Section 2.04, the obligations of the Servicer to make repurchases or
replacements of Mortgage Loans pursuant to Section 3.01 and Section 3.06 and
the obligations of the Servicer to make Monthly Advances pursuant to Section
4.02 shall not be the responsibilities, duties or obligations of the Trustee.
As compensation therefor, the Trustee shall, except as provided in Section
8.01, be entitled to such compensation as the Servicer would have been
entitled to hereunder if no such notice of termination had been given.
Notwithstanding the above, (i) if the Trustee is unwilling to act as
successor Servicer, (ii) if the Trustee is legally unable so to act, (iii)
for so long as the Trust owns one or more Trust Balances of the Common
Mortgage Loans, if the Trustee is not acting as servicer under the Prior
Trust Pooling and Servicing Agreements applicable to such Common Mortgage
Loans, the Trustee may (in the situation described in clause (i)) or shall
(in the situation described in clause (ii) or (iii)) appoint, with the
consent of the Certificate Insurer, or petition a court of competent
jurisdiction to appoint, any established housing and home finance institution
that is then servicing a home equity loan portfolio and having all licenses,
permits and approvals required by applicable law, and having a net worth of
not less than $10,000,000 as the successor to the Servicer hereunder in the
assumption of all or any part of the responsibilities, duties or liabilities
of the Servicer hereunder; provided, however, that, for so long as the Trust
owns Trust Balances of one or more Common Mortgage Loans, any such successor
Servicer shall be the same Person that is then acting as, or has been
designated to act as, servicer under the Prior Trust Pooling and Servicing
Agreements applicable to such Common Mortgage Loans; and provided, further,
that the appointment of any such successor Servicer shall not result in the
reduction, suspension or withdrawal of the ratings assigned to the Investor
Certificates by any Rating Agency without taking into account the Certificate
Insurance Policy. Pending appointment of a successor to the Servicer here-
under, unless the Trustee is prohibited by law from so acting, the Trustee
shall act in such capacity as hereinabove provided. In connection with such
appointment and assumption, the Trustee may make such arrangements for the
compensation of such successor out of payments on Mortgage Loans as it and
such successor shall agree; provided, however, that no such compensation
shall be in excess of that permitted the Servicer hereunder. The Trustee and
such successor shall take such action, consistent with this Agreement, as
shall be necessary to effectuate any such succession.
(b) Any successor, including the Trustee, to the Servicer as servicer
shall during the term of its service as servicer maintain in force (i) a
policy or policies of insurance covering errors and omissions in the
performance of its obligations as servicer hereunder, and (ii) a fidelity
bond in respect of its officers, employees and agents to the same extent as
the Servicer is so required pursuant to Section 3.12. No successor servicer
(other than the Trustee as successor to the Servicer) shall have the right
(i) to maintain possession of the Mortgage Files as set forth in Section
2.01(d) or (ii) to retain and commingle payments on, and collections in
respect of, the Mortgage Loans with its own funds pursuant to Section
3.02(c).
Section 8.03. Notification to Certificateholders.
----------------------------------
Upon any termination or appointment of a successor to the Servicer
pursuant to this Article VIII, the Trustee shall give prompt written notice
thereof (i) to Certificateholders at their respective addresses appearing in
the Certificate Register, (ii) to each Rating Agency at their respective
addresses set forth in Section 11.06, and (iii) to the Certificate Insurer at
its address set forth in Section 11.06.
Section 8.04. Waiver of Past Events of Default.
--------------------------------
The Holders of Investor Certificates evidencing not less than 51% of the
aggregate Percentage Interests of the Investor Certificates together, with
the consent of the Certificate Insurer, may, on behalf of all Holders of
Certificates, waive any Event of Default by the Servicer in the performance
of its obligations hereunder and its consequences, except a default in making
any required deposits to the Certificate Account in accordance with this
Agreement. Upon any such waiver of a past Event of Default, such Event of
Default shall cease to exist and shall be deemed to have been remedied for
every purpose of this Agreement. No such waiver shall extend to any
subsequent or other default or impair any right consequent thereon.
ARTICLE IX
The Trustee
Section 9.01. Duties of Trustee.
-----------------
The Trustee, prior to the occurrence of an Event of Default and after
the curing of all Events of Default which may have occurred, undertakes to
perform such duties and only such duties as are specifically set forth in
this Agreement. If an Event of Default has occurred (which has not been
cured), the Trustee shall exercise such of the rights and powers vested in it
by this Agreement, and use the same degree of care and skill in their
exercise, as a prudent man would exercise or use under the circumstances in
the conduct of his own affairs.
The Trustee, upon receipt of all resolutions, certificates, statements,
opinions, reports, documents, orders or other instruments furnished to the
Trustee which are specifically required to be furnished pursuant to any
provision of this Agreement, shall examine them to determine whether they
conform to the requirements of this Agreement.
No provision of this Agreement shall be construed to relieve the Trustee
from liability for its own negligent action, its own negligent failure to act
or its own misconduct; provided, however, that:
(i) Prior to the occurrence of an Event of Default, and after the
curing of all such Events of Default which may have occurred, the
duties and obligations of the Trustee shall be determined solely by
the express provisions of this Agreement, the Trustee shall not be
liable except for the performance of such duties and obligations as
are specifically set forth in this Agreement, no implied covenants
or obligations shall be read into this Agreement against the
Trustee and, in the absence of bad faith on the part of the
Trustee, the Trustee may conclusively rely, as to the truth of the
statements and the correctness of the opinions expressed therein,
upon any certificates or opinions furnished to the Trustee and
conforming to the requirements of this Agreement;
(ii) The Trustee shall not be personally liable for an error of judgment
made in good faith by a Responsible Officer of the Trustee, unless
it shall be proved that the Trustee was negligent in performing its
duties in accordance with the terms of this Agreement;
(iii) The Trustee shall not be personally liable with respect to any
action taken, suffered or omitted to be taken by it in good faith
in accordance with the direction of the Holders of Investor
Certificates evidencing not less than 25% of the aggregate
Percentage Interests of the Investor Certificates with the consent
of the Certificate Insurer relating to the time, method and place
of conducting any proceeding for any remedy available to the
Trustee, or exercising any trust or power conferred upon the
Trustee, under this Agreement; and
(iv) The Trustee shall not be charged with knowledge of any failure by
the Servicer to comply with the obligations of the Servicer
referred to in clauses (i) and (ii) of Section 8.01 unless a
Responsible Officer of the Trustee at the Corporate Trust Office
obtains actual knowledge of such failure or the Trustee receives
written notice of such failure from the Servicer, the Holders of
Certificates evidencing not less than 25% of the Trust Fund (based
on the outstanding principal balances of the Certificates) or the
Certificate Insurer.
The Trustee shall not be required to expend or risk its own funds or
otherwise incur financial liability in the performance of any of its duties
hereunder, or in the exercise of any of its rights or powers, if there is
reasonable ground for believing that the repayment of such funds or adequate
indemnity against such risk or liability is not reasonably assured to it, and
none of the provisions contained in this Agreement shall in any event require
the Trustee to perform, or be responsible for the manner of performance of,
any of the obligations of the Servicer under this Agreement, except during
such time, if any, as the Trustee shall be the successor to, and be vested
with the rights, duties, powers and privileges of, the Servicer in accordance
with the terms of this Agreement.
Section 9.02. Certain Matters Affecting the Trustee.
-------------------------------------
Except as otherwise provided in Section 9.01:
(i) The Trustee may rely and shall be protected in acting or refraining
from acting upon any resolution, Officer's Certificate, certificate
of auditors or any other certificate, statement, instrument,
opinion, report, notice, request, consent, order, appraisal, bond
or other paper or document believed by it to be genuine and to
have been signed or presented by the proper party or parties;
(ii) The Trustee may consult with counsel and any Opinion of Counsel
shall be full and complete authorization and protection in respect
of any action taken or suffered or omitted by it hereunder in good
faith and in accordance with such Opinion of Counsel;
(iii) The Trustee shall be under no obligation to exercise any of the
rights or powers vested in it by this Agreement, or to institute,
conduct or defend any litigation hereunder or in relation hereto,
at the request, order or direction of any of the
Certificateholders, pursuant to the provisions of this Agreement,
unless such Certificateholders shall have offered to the Trustee
reasonable security or indemnity against the costs, expenses and
liabilities which may be incurred therein or thereby; nothing
contained herein shall, however, relieve the Trustee of the
obligations, upon the occurrence of an Event of Default (which has
not been cured), to exercise such of the rights and powers vested
in it by this Agreement, and to use the same degree of care and
skill in their exercise as a prudent man would exercise or use
under the circumstances in the conduct of his own affairs;
(iv) The Trustee shall not be personally liable for any action taken,
suffered or omitted by it in good faith and believed by it to be
authorized or within the discretion or rights or powers conferred
upon it by this Agreement;
(v) Prior to the occurrence of an Event of Default and after the curing
of all Events of Default which may have occurred, the Trustee shall
not be bound to make any investigation into the facts or matters
stated in any resolution, certificate, statement, instrument,
opinion, report, notice, request, consent, order, approval, bond or
other paper or documents, unless requested in writing to do so by
Holders of Investor Certificates evidencing not less than 25% of
the aggregate Percentage Interests of the Investor Certificates or
the Certificate Insurer; provided, however, that if the payment
within a reasonable time to the Trustee of the costs, expenses or
liabilities likely to be incurred by it in the making of such
investigation is, in the opinion of the Trustee, not reasonably
assured to the Trustee by the security afforded to it by the terms
of this Agreement, the Trustee may require reasonable indemnity
against such cost, expense or liability as a condition to such
proceeding. The reasonable expense of every such examination shall
be paid by the Servicer or, if paid by the Trustee, shall be reim-
bursed by the Servicer upon demand. Nothing in this clause (v)
shall derogate from the obligation of the Servicer to observe any
applicable law prohibiting disclosure of information regarding the
Mortgagors; and
(vi) The Trustee may execute any of the trusts or powers hereunder or
perform any duties hereunder either directly or by or through
agents or attorneys or a custodian.
Section 9.03. Trustee Not Liable for Certificates
-----------------------------------
or Mortgage Loans.
- -------------------------------------
The recitals contained herein and in the Certificates (other than the
signature and countersignature of the Trustee on the Certificates) shall be
taken as the statements of the Servicer, and the Trustee assumes no
responsibility for the correctness of the same. The Trustee makes no
representations as to the validity or sufficiency of this Agreement or of the
Certificates (other than the signature and countersignature of the Trustee on
the Certificates) or of any Mortgage Loan or related document. The Trustee
shall not be accountable for the use or application by the Servicer of any of
the Certificates or of the proceeds of such Certificates, or for the use or
application of any funds paid to the Servicer in respect of the Mortgage
Loans or deposited in or withdrawn from the Certificate Account by the
Servicer.
Section 9.04. Trustee May Own Certificates.
----------------------------
The Trustee in its individual or any other capacity may become the owner
or pledgee of Certificates with the same rights as it would have if it were
not Trustee.
Section 9.05. Servicer to Pay Trustee's Fees and Expenses.
-------------------------------------------
The Servicer covenants and agrees to pay to the Trustee from time to
time, and the Trustee shall be entitled to, reasonable compensation (which
shall not be limited by any provision of law in regard to the compensation of
a trustee of an express trust) for all services rendered by it in the
execution of the trusts hereby created and in the exercise and performance of
any of the powers and duties hereunder of the Trustee, and the Servicer will
pay or reimburse the Trustee upon its request for all reasonable expenses
(including any expenses arising under Section 4.04(d)), disbursements and
advances incurred or made by the Trustee in accordance with any of the
provisions of this Agreement (including the reasonable compensation and the
expenses and disbursements of its counsel and of all persons not regularly in
its employ) except any such expense, disbursement or advance as may arise
from its negligence or bad faith or which is the responsibility of Certi-
ficateholders hereunder. In addition, the Servicer covenants and agrees to
indemnify the Trustee from, and hold it harmless against, any and all losses,
liabilities, damages, claims, legal actions, including any pending or
threatened claims or legal actions, or expenses other than those resulting
from the negligence or bad faith of the Trustee.
Section 9.06. Eligibility Requirements for Trustee.
------------------------------------
The Trustee hereunder shall at all times (i) be a Person having its
principal office in the state of New York or in the same state as that in
which the initial Trustee under this Agreement has its principal office and
organized and doing business under the laws of such State or the United
States of America, authorized under such laws to exercise corporate trust
powers, having a combined capital and surplus of at least $50,000,000 and
subject to supervision or examination by federal or state authority and (ii)
have at all times a long term unsecured debt rating (or the direct or
indirect corporate parent of the Trustee have a long term unsecured debt
rating if the Trustee does not have such a rating) that will not result in
the downgrading or withdrawal of the rating or ratings then assigned to the
Certificates by each Rating Agency. If such Person publishes reports of
condition at least annually, pursuant to law or to the requirements of the
aforesaid supervising or examining authority, then for the purposes of this
Section 9.06, the combined capital and surplus of such Person shall be deemed
to be its combined capital and surplus as set forth in its most recent report
of condition so published. In case at any time the Trustee shall cease to be
eligible in accordance with the provisions of this Section 9.06, the Trustee
shall resign immediately in the manner and with the effect specified in
Section 9.07.
Section 9.07. Resignation or Removal of Trustee.
---------------------------------
The Trustee may at any time resign and be discharged from the trusts
hereby created by giving written notice thereof to the Seller. Upon receiving
such notice of resignation, the Servicer shall promptly appoint a successor
Trustee by written instrument, in duplicate, one copy of which instrument
shall be delivered to the resigning Trustee and one copy to the successor
Trustee; provided, however, that, (i) such appointment does not result in a
reduction or withdrawal of the then current rating of the Investor
Certificates, and (ii) so long as such consent is not unreasonably withheld,
the Certificate Insurer consents to such appointment. The Servicer shall
make a good faith effort to appoint a successor within 30 days of its receipt
of such notice. If the Servicer does not appoint a successor Trustee within
such 30 day period and it is not making a good faith effort to appoint a
successor Trustee, then the Certificate Insurer may appoint a successor
Trustee. The Servicer shall indemnify the Trustee for any loss, liability,
or expense incurred as a result of the Servicer's failure to make a good
faith effort to appoint a successor Trustee. If no successor Trustee shall
have been so appointed and having accepted appointment within 30 days after
the giving of such notice of resignation, the resigning Trustee may petition
any court of competent jurisdiction for the appointment of a successor
Trustee.
If at any time (i) the Trustee shall cease to be eligible in accordance
with the provisions of Section 9.06 and shall fail to resign after written
request therefor by the Seller, (ii) the Seller has delivered to the Trustee
a letter from any Rating Agency to the effect that the rating of the Investor
Certificates has been or is about to be reduced or withdrawn on account of a
reduction in the long-term credit rating of the Trustee or the parent of the
Trustee (if (a) the Trustee proposes to the Seller and the Servicer to enter
into an agreement with the Trustee and the Seller and the Servicer, each in
its sole discretion, elect to enter into such agreement and (b) such
agreement is consented to by the Certificate Insurer and is satisfactory to
the Rating Agencies without resulting in a reduction in or withdrawal of any
rating of the Investor Certificates, then upon the execution and delivery of
such agreement the Seller shall not request such resignation pursuant to this
clause (ii)) and the Trustee shall fail to resign after written request
therefor by the Seller, or (iii) the Trustee shall become incapable of
acting, or shall be adjudged a bankrupt or insolvent, or a receiver of the
Trustee or of its property shall be appointed, or any public officer shall
take charge or control of the Trustee or of its property or affairs for the
purpose of rehabilitation, conservation or liquidation, then the Seller or,
in the case of clause (ii) above, the Servicer may remove the Trustee and
appoint a successor trustee, subject to the following paragraph and to the
consent of the Certificate Insurer to such appointment (which consent shall
not be unreasonably withheld), by written instrument, in duplicate, one copy
of which instrument shall be delivered to the Trustee so removed and one copy
to the successor trustee.
Any resignation or removal of the Trustee and appointment of a successor
Trustee pursuant to any of the provisions of this Section 9.07 shall not
become effective until acceptance of appointment by the successor Trustee as
provided in Section 9.08.
Section 9.08. Successor Trustee.
-----------------
Any successor Trustee appointed as provided in Section 9.07 shall
execute, acknowledge and deliver to the Servicer and to its predecessor
Trustee an instrument accepting such appointment hereunder, and thereupon the
resignation or removal of the predecessor Trustee shall become effective and
such successor trustee, without any further act, deed or conveyance, shall
become fully vested with all the rights, powers, duties and obligations of
its predecessor hereunder, with like effect as if originally named as
Trustee. The Seller, the Servicer and the predecessor Trustee shall execute
and deliver such instruments and do such other things as may reasonably be
required for fully and certainly vesting and confirming in the successor
Trustee all such rights, powers, duties and obligations.
No successor Trustee shall accept appointment as provided in this
Section 9.08 unless at the time of such acceptance such successor Trustee
shall be eligible under the provisions of Section 9.06.
Upon acceptance of appointment by a successor Trustee as provided in
this Section 9.08, the Servicer shall mail notice of the succession of such
Trustee hereunder to all holders of Certificates at their addresses as shown
in the Certificate Register. If the Servicer fails to mail such notice
within 10 days after acceptance of appointment by the successor Trustee, the
successor Trustee shall cause such notice to be mailed at the expense of the
Servicer.
Section 9.09. Merger or Consolidation of Trustee.
----------------------------------
Any corporation into which the Trustee may be merged or converted or
with which it may be consolidated, or any corporation resulting from any
merger, conversion or consolidation to which the Trustee shall be a party, or
any corporation succeeding to the business of the Trustee, shall be the
successor of the Trustee hereunder, provided such corporation shall be
eligible under the provisions of Section 9.06, without the execution or
filing of any paper or any further act on the part of any of the parties
hereto, anything herein to the contrary notwithstanding.
Section 9.10. Appointment of Co-Trustee or
----------------------------
Separate Trustee.
- ------------------------------------
Notwithstanding any other provisions of this Agreement, at any time, for
the purpose of meeting any legal requirements of any jurisdiction in which
any part of the Trust Fund or any Mortgaged Property may at the time be
located, the Servicer and the Trustee acting jointly shall have the power and
shall execute and deliver all instruments to appoint one or more Persons ap-
proved by the Trustee to act as co-trustee or co-trustees, jointly with the
Trustee, or separate trustee or separate trustees, of all or any part of the
Trust Fund, and to vest in such Person or Persons, in such capacity and for
the benefit of the Certificateholders, such title to the Trust Fund, or any
part thereof, and, subject to the other provisions of this Section 9.10, such
powers, duties, obligations, rights and trusts as the Servicer and the
Trustee may consider necessary or desirable. If the Servicer shall not have
joined in such appointment within 15 days after the receipt by it of a
request so to do, or in the case an Event of Default shall have occurred and
be continuing, the Trustee alone shall have the power to make such
appointment. No co-trustee or separate trustee hereunder shall be required
to meet the terms of eligibility as a successor trustee under Section 9.06
and no notice to Certificateholders of the appointment of any co-trustee or
separate trustee shall be required under Section 9.08.
Every separate trustee and co-trustee shall, to the extent permitted by
law, be appointed and act subject to the following provisions and conditions:
(i) All rights, powers, duties and obligations conferred or imposed
upon the Trustee shall be conferred or imposed upon and exercised
or performed by the Trustee and such separate trustee or co-trustee
jointly (provided, however, that such separate trustee or
co-trustee is not authorized to act separately without the Trustee
joining in such act), except to the extent that under any law of
any jurisdiction in which any particular act or acts are to be per-
formed (whether as Trustee hereunder or as successor to the
Servicer hereunder), the Trustee shall be incompetent or unquali-
fied to perform such act or acts, in which event such rights,
powers, duties and obligations (including the holding of title to
the Trust Fund or any portion thereof in any such jurisdiction)
shall be exercised and performed singly by such separate trustee or
co-trustee, but solely at the direction of the Trustee;
(ii) No trustee hereunder shall be held personally liable by reason of
any act or omission of any other trustee hereunder; and
(iii) The Servicer and the Trustee acting jointly may at any time accept
the resignation of or remove any separate trustee or co-trustee.
Any notice, request or other writing given to the Trustee shall be
deemed to have been given to each of the then separate trustees and
co-trustees, as effectively as if given to each of them. Every instrument
appointing any separate trustee or co-trustee shall refer to this Agreement
and the conditions of this Article IX. Each separate trustee and co-trustee,
upon its acceptance of the trusts conferred, shall be vested with the estates
or property specified in its instrument of appointment, either jointly with
the Trustee or separately, as may be provided therein, subject to all the
provisions of this Agreement, specifically including every provision of this
Agreement relating to the conduct of, affecting the liability of, or
affording protection to, the Trustee. Every such instrument shall be filed
with the Trustee and a copy thereof given to the Seller.
Any separate trustee or co-trustee may, at any time, constitute the
Trustee, its agent or attorney-in-fact, with full power and authority, to the
extent not prohibited by law, to do any lawful act under or in respect of
this Agreement on its behalf and in its name. If any separate trustee or
co-trustee shall die, become incapable of acting, resign or be removed, all
of its estates, properties, rights, remedies and trusts shall vest in and be
exercised by the Trustee, to the extent permitted by law, without the
appointment of a new or successor trustee.
Section 9.11. Tax Returns.
-----------
The Trustee, upon request, will furnish the Servicer with all such
information as may be reasonably required and within the Trustee's reasonable
control or knowledge in connection with the Servicer's preparation of all tax
returns of the Trust Fund, and shall, upon request, execute such returns.
Section 9.12. Streit Act.
----------
Any provisions required to be contained in this Agreement by Section 126
of Article 4-A of the New York Real Property Law are hereby incorporated, and
such provisions shall be in addition to those conferred or imposed by this
Agreement; provided, however, that to the extent that such Section 126 shall
not apply to this Agreement, such Section 126 shall not have any effect, and
if such Section 126 should at any time be repealed or cease to apply to this
Agreement, or be construed by judicial decision to be inapplicable, such
Section 126 shall cease to have any further effect upon the provisions of
this Agreement. In case of a conflict between the provisions of this
Agreement and any mandatory provision of Article 4-A of the New York Real
Property Law, such mandatory provisions of such Article 4-A shall prevail,
provided, however, that if such Article 4-A shall not apply to this
Agreement, or be construed by judicial decision to be inapplicable, such
mandatory provisions of such Article 4-A shall cease to have any further
effect upon the provisions of this Agreement.
ARTICLE X
Termination
Section 10.01. Termination.
-----------
(a) The respective obligations and responsibilities of the Servicer,
the Seller and the Trustee created hereby (other than the obligation of the
Trustee to make certain payments to Certificateholders after the final
Distribution Date and the obligation of the Servicer to send certain notices
as hereinafter set forth) shall terminate upon the last action required to be
taken by the Trustee on the final Distribution Date pursuant to this Article
X following the later of (A) payment in full of all amounts owing to the
Certificate Insurer and (B) the earliest of:
(i) the retransfer, under the conditions specified in Section 10.01(b),
to the Servicer of the Investor Certificateholders' interest in
each Mortgage Loan and all property acquired in respect of any
Mortgage Loan remaining in the Trust Fund for an amount equal to
the sum of (A) the Certificate Principal Balance, (B) accrued and
unpaid Certificate Formula Interest through the day preceding the
final Distribution Date, (C) any Unpaid Certificate Interest
Shortfall, and (D) any accrued and unpaid Investor Loss Reduction
Amounts through the day preceding such final Distribution Date;
(ii) the day following the Distribution Date on which the distribution
made to Investor Certificateholders has reduced the Certificate
Principal Balance to zero;
(iii) the final payment or other liquidation (or any Monthly Advance with
respect thereto) of the Trust Balance of the last Mortgage Loan
remaining in the Trust Fund (including without limitation the
disposition of the Mortgage Loans pursuant to Section 10.02) or the
disposition of all property acquired upon foreclosure or deed in
lieu of foreclosure of any Mortgage Loan; and
(iv) the Distribution Date in _________.
provided, however, that in no event shall the trust created hereby continue
beyond the expiration of 21 years from the death of the last survivor of the
descendants of Joseph P. Kennedy, the late ambassador of the United States to
the Court of St. James, living on the date hereof.
(b) The Servicer shall have the right to exercise the option to
retransfer to itself each Mortgage Loan pursuant to Section 10.01(a)(i) on
any Distribution Date on or after the Distribution Date immediately prior to
which the Certificate Principal Balance is less than ten percent (10%) of the
Original Certificate Principal Balance and all amounts due and owing to the
Certificate Insurer for unpaid premiums and unreimbursed draws on the
Certificate Insurance Policy, together with interest thereon as provided
under the Insurance Agreement, have been paid. If such right is exercised
and the Trustee is holding the Mortgage Files, the Servicer shall provide to
the Trustee the certification required by Section 3.07 and the Trustee shall,
promptly following payment of the retransfer price, release to the Servicer
the Mortgage Files pertaining to the Mortgage Loans being retransferred.
(c) Notice of any termination, specifying the Distribution Date (which
shall be a date that would otherwise be a Distribution Date) upon which the
Investor Certificateholders may surrender their Investor Certificates to the
Trustee for payment of the final distribution and cancellation, shall be
given promptly by the Trustee (upon receipt of written directions from the
Servicer to the Trustee no later than the 20th day of the month preceding the
month of such final distribution, if the Servicer is exercising its right to
repurchase the assets of the Trust Fund) by letter to Investor Certificate-
holders and the Certificate Insurer mailed not earlier than the first day and
not later than the tenth day of the month of such final distribution
specifying (A) the Distribution Date upon which final distribution of the
Investor Certificates will be made upon presentation and surrender of
Investor Certificates at the office or agency of the Trustee therein desig-
nated, (B) the amount of any such final distribution and (C) that the Record
Date otherwise applicable to such Distribution Date is not applicable,
distributions being made only upon presentation and surrender of the Investor
Certificates at the office or agency of the Trustee therein specified. In
the event written directions are delivered by the Servicer to the Trustee as
described in the preceding sentence, the Servicer shall deposit in the
Certificate Account before the Distribution Date for such final distribution
in immediately available funds an amount equal to the repurchase price for
the assets of the Trust Fund computed as above provided. Such deposit shall
be in lieu of the deposit otherwise required to be made in respect of such
Distribution Date.
(d) Upon presentation and surrender of the Investor Certificates, the
Trustee shall cause to be distributed to the holders of Investor Certificates
on the Distribution Date for such final distribution, in proportion to the
Percentage Interests of their respective Investor Certificates, an amount
equal to (i) if such final distribution is not being made pursuant to the
retransfer to the Servicer pursuant to Section 10.01(a)(i), the amount
required to be distributed to Investor Certificateholders pursuant to Section
5.01 for such Distribution Date and (ii) if such final distribution is being
made pursuant to such retransfer, the amount specified in
Section 10.01(a)(i). The distribution on such final Distribution Date
pursuant to a retransfer pursuant to Section 10.01(a)(i) shall be in lieu of
the distribution otherwise required to be made on such Distribution Date in
respect of the Certificates. On the final Distribution Date prior to having
made the distributions called for above, the Trustee will withdraw from the
Certificate Account and remit to the Certificate Insurer the lesser of (x)
the amount available for distribution on such final Distribution Date, net of
any portion thereof necessary to pay the amounts described in clauses (d)(i)
and (ii) above and (y) the unpaid amounts due and owing to the Certificate
Insurer for unpaid premiums and unreimbursed draws on the Certificate
Insurance Policy, together with interest thereon as provided under the
Insurance Agreement.
(e) In the event that all of the Investor Certificateholders shall not
surrender their Investor Certificates for final payment and cancellation on
or before such final Distribution Date, the Trustee shall on such date cause
all funds in the Certificate Account not distributed in final distribution to
the Certificate Insurer or Investor Certificateholders to be withdrawn
therefrom and credited to the remaining Investor Certificateholders by
depositing such funds in a separate escrow account for the benefit of such
Investor Certificateholders and the Servicer (if the Servicer has exercised
its right to retransfer the Mortgage Loans) or the Trustee (in any other
case) shall give a second written notice to the remaining Investor
Certificateholders to surrender their Investor Certificates for cancellation
and receive the final distribution with respect thereto. If within one year
after the second notice all the Investor Certificates shall not have been
surrendered for cancellation, any funds deposited in such escrow account and
remaining unclaimed shall be paid by the Trustee to the Servicer and
thereafter Investor Certificateholders shall look only to the Servicer with
respect to any claims in respect of such funds.
Section 10.02. Termination by Certificate Insurer.
----------------------------------
In the event the Servicer does not exercise its option to terminate the
Trust Fund pursuant to this Article X, the Certificate Insurer may do so on
the same terms.
ARTICLE XI
Rapid Amortization Events
Section 11.01. Rapid Amortization Events
-------------------------
If any one of the following events shall occur during the Managed
Amortization Period:
(a) failure on the part of the Servicer (i) to make any payment or
deposit required by the terms of this Agreement, on or before the date
occurring five (5) Business Days after the date such payment or deposit is
required to be made herein, or (ii) duly to observe or perform in any
material respect the covenants set forth in Section 2.04 or (iii) duly to
observe or perform in any material respect any other covenants or agreements
of the Servicer set forth in this Agreement, which failure, in each case,
materially and adversely affects the interests of the Certificateholders or
the Certificate Insurer and which, in the case of clause (iii), continues
unremedied and continues to affect materially and adversely the interests of
the Certificateholders for a period of sixty (60) days after the date on
which written notice of such failure, requiring the same to be remedied,
shall have been given to the Servicer by the Trustee, or to the Servicer and
the Trustee by the Certificate Insurer or the Holders of Investor
Certificates evidencing Percentage Interests aggregating not less than 51%;
(b) any representation or warranty made by the Servicer in this
Agreement shall prove to have been incorrect in any material respect when
made, as a result of which the interests of the Investor Certificateholders
or the Certificate Insurer are materially and adversely affected and which
continues to be incorrect in any material respect and continues to affect
materially and adversely the interests of the Investor Certificateholders or
the Certificate Insurer for a period of sixty (60) days after the date on
which written notice of such failure, requiring the same to be remedied,
shall have been given to the Servicer by the Trustee, or to the Servicer and
the Trustee by either the Certificate Insurer or the Holders of Investor
Certificates evidencing Percentage Interests aggregating not less than 51%;
provided, however, that a Rapid Amortization Event pursuant to this
subparagraph (b) shall not be deemed to have occurred hereunder if the
Servicer have accepted retransfer of the related Mortgage Loan or Mortgage
Loans during such period (or such longer period (not to exceed an additional
60 days) as the Trustee, with the consent of the Certificate Insurer, may
specify) in accordance with the provisions hereof;
(c) the Seller or the Servicer shall go into liquidation, consent to
the appointment of a conservator or receiver or liquidator or similar person
in any insolvency, readjustment of debt, marshalling of assets and
liabilities or similar proceedings of or relating to the Seller or the
Servicer or of or relating to all or substantially all of its property, or a
decree or order of a court or agency or supervisory authority having
jurisdiction in the premises for the appointment of a conservator, receiver,
liquidator or similar person in any insolvency, readjustment of debt,
marshalling of assets and liabilities or similar proceedings, or for the
winding-up or liquidation of its affairs, shall have been entered against the
Seller or the Servicer and such decree or order shall have remained in force
undischarged or unstayed for a period of thirty (30) days; or the Seller or
the Servicer shall admit in writing its inability to pay its debts generally
as they become due, file a petition to take advantage of any applicable
insolvency or reorganization statute, make an assignment for the benefit of
its creditors or voluntarily suspend payment of its obligations;
(d) the Trust shall become subject to registration as an "investment
company" under the Investment Company Act of 1940, as amended;
(e) any Event of Default shall occur;
(f) the aggregate of Insured Payments under the Certificate Insurance
Policy exceeds 1% of the Pool Balance as of the Cut-off Date; or
(g) the Seller or the Servicer becomes subject to a tax lien and not
released within sixty (60) days of its attachment;
then, in the case of any event described in subparagraph (a), (b) or (e)
after the applicable grace period, if any, set forth in such subparagraphs,
either the Certificate Insurer, the Trustee or the Holders of Investor
Certificates evidencing Percentage Interests aggregating more than 51%, with
the consent of the Certificate Insurer, by notice given in writing to the
Seller and the Servicer (and to the Trustee if given by either the
Certificate Insurer or the Investor Certificateholders) may declare that an
early amortization event (a "Rapid Amortization Event") has occurred as of
the date of such notice, and in the case of any event described in
subparagraphs (c), (d), (f) or (g), a Rapid Amortization Event shall occur
without any notice or other action on the part of the Trustee, the
Certificate Insurer or the Investor Certificateholders, immediately upon the
occurrence of such event.
Section 11.02. Additional Rights Upon an Insolvency Event.
------------------------------------------
(a) If the Seller goes into liquidation or consents to the appointment
of a conservator or receiver or liquidator or similar person in any
insolvency, readjustment of debt, marshalling of assets and liabilities or
similar proceedings of or relating to the Seller or of or relating to all or
substantially all its property, or a decree or order of a court or agency or
supervisory authority having jurisdiction in the premises for the appointment
of a conservator or receiver or liquidator or similar person in any
insolvency, readjustment of debt, marshalling of assets and liabilities or
similar proceedings, or for the winding-up or liquidation of its affairs,
shall have been entered against the Seller and such decree shall have
remained in force undischarged or unstayed for a period of 30 days; or the
Seller shall admit in writing its inability to pay its debts generally as
they become due, file a petition to take advantage of any applicable
insolvency or reorganization statute, make an assignment for the benefit of
its creditors or voluntarily suspend payment of its obligations (such
voluntary liquidation, appointment, entering of such decree, admission,
filing, making, suspension or violation or other event described above, an
"Insolvency Event"), (i) the Seller shall on the day of such appointment,
voluntary liquidation, entering of such decree, admission, filing, making,
suspension or inability, as the case may be (the "Appointment Day"), promptly
give notice to the Trustee and the Certificate Insurer of such Insolvency
Event, and (ii) the arrangement among the Certificateholders and the Seller
shall dissolve and the Trust shall be liquidated in accordance with the
following procedures. The Seller shall on the Appointment Day immediately
cease to transfer Additional Balances to the Trust. Notwithstanding any
cessation of the transfer to the Trust of Additional Balances, Additional
Balances transferred to the Trust prior to the occurrence of such Insolvency
Event or violation, and Principal Collections and Interest Collections,
whenever created, accrued in respect of such Mortgage Loans shall continue to
be a part of the Trust, and shall continue to be allocated and paid in
accordance with Article IV. Within fifteen (15) days of the Appointment Day,
the Trustee shall (i) publish a notice in an authorized newspaper that an
Insolvency Event has occurred and that the Trustee intends to sell, dispose
of or otherwise liquidate the Trust assets on commercially reasonable terms
and in a commercially reasonable manner and (ii) send written notice to the
Certificateholders describing the provisions of this Section 11.02 and
requesting instructions from such Holders. Unless within seventy-five (75)
days from the day notice pursuant to clause (i) above is first published the
Trustee shall have received written instructions from Holders of Investor
Certificates evidencing more than 51% of the aggregate Percentage Interests
to the effect that such Certificateholders disapprove of the liquidation of
the Trust assets, the Trustee shall sell, dispose of or otherwise liquidate
the Trust assets in a commercially reasonable manner and on commercially
reasonable terms, which shall include the solicitation of competitive bids.
The Trustee may obtain a prior determination from any such conservator,
receiver or liquidator that the terms and manner of any proposed sale,
disposition or liquidation are commercially reasonable. The provisions of
Sections 11.01 and 11.02 shall not be deemed to be mutually exclusive.
(b) The proceeds from the sale, disposition or liquidation of the Trust
assets pursuant to subsection (a) above shall be treated as collections on
the Mortgage Loans received during the Rapid Amortization Period; provided,
however, that such proceeds will, based on amounts specified in writing to
the Servicer to the Trustee, first be paid to the Certificate Insurer to
reimburse the Certificate Insurer for previously unreimbursed Insured
Payments and other amounts owing under the Insurance Agreement and second be
paid to the Trustee in reimbursement of expenses incurred in connection with
the sale, disposition or liquidation of the Trust assets pursuant to Section
11.02(a); and provided, further, that the Fixed Allocation Percentage of such
remaining proceeds shall be paid to Investor Certificateholders in the
following amounts and order of priority:
(i) all accrued and unpaid interest on the Certificate Principal
Balance through the Accrual Period immediately preceding the
Distribution Date on which such proceeds are distributed to the Investor
Certificateholders; and
(ii) an amount of principal up to the Certificate Principal
Balance.
The Certificate Insurance Policy will not cover any shortfall in the event
such proceeds are insufficient to make a full distribution to Investor
Certificateholders pursuant to Section 11.02(b). On the day following the
final Distribution Date on which such proceeds are distributed to the
Investor Certificateholders, the Trust shall terminate.
(c) The Trustee may appoint an agent or agents to assist with its
responsibilities pursuant to this Article XI with respect to competitive bids
or any other of its duties.
ARTICLE XII
Miscellaneous Provisions
Section 12.01. Amendment.
---------
This Agreement may be amended from time to time by the Servicer, the
Seller and the Trustee, with the consent of the Certificate Insurer so long
as such consent is not unreasonably withheld and without the consent of any
of the Certificateholders, (i) to cure any ambiguity or mistake, (ii) to
correct or supplement any provisions herein or therein which may be
inconsistent with any other provisions herein or therein, as the case may be,
or (iii) to add or delete any other provisions not inconsistent herewith with
respect to matters or questions arising under this Agreement, including
provisions relating to the Trust's ownership of Trust Balances of Common
Mortgage Loans and the issuance of definitive Certificates to Certificate
Owners in the event that book-entry registration of Investor Certificates is
no longer permitted; provided, however, that in each case such action shall
not, as evidenced by an Opinion of Counsel, adversely affect in any material
respect the interests of any Certificateholder.
This Agreement may also be amended from time to time by the Servicer,
the Seller and the Trustee, with the consent of the Holders of Investor
Certificates evidencing Percentage Interests aggregating not less than 66%
and the consent of the Certificate Insurer, for the purpose of adding any
provisions to or changing in any manner or eliminating any of the provisions
of this Agreement or the Certificate Insurance Policy, or of modifying in any
manner the rights of the Holders of Certificates; provided, however, that no
such amendment shall (a) reduce in any manner the amount of, or delay the
timing of, collections of payments on Mortgage Loans or distributions which
are required to be made on any Certificate without the consent of the Holder
of such Certificate or (b) reduce the aforesaid percentage required to
consent to any such amendment, without the consent of the Holders of all
Investor Certificates then outstanding.
Notwithstanding the foregoing, the Agreement may not be amended unless,
in connection with such amendment, an Opinion of Counsel is furnished to the
Trustee that such amendment will not (i) adversely affect the status of the
Investor Certificates as debt; (ii) result in the Trust being taxed at the
entity level; or (iii) result in the Trust being taxed as a taxable mortgage
pool (as defined in Section 7701(i) of the Code).
Not later than the time of obtaining any such consent the Trustee shall
furnish written notification of the substance of such amendment to each
Rating Agency. Promptly after the execution of any such amendment or con-
sent, the Trustee shall furnish written notification of the substance of such
amendment to each Certificateholder.
It shall not be necessary for the consent of Certificateholders under
this Section 12.01 to approve the particular form of any proposed amendment
or consent, but it shall be sufficient if such consent shall approve the
substance thereof. The manner of obtaining such consents and of evidencing
the authorization of the execution thereof by Certificateholders shall be
subject to such reasonable requirements as the Trustee may prescribe.
In connection with any amendment pursuant to this Section 12.01, the
Trustee shall be entitled to receive an Opinion of Counsel to the effect that
such amendment is authorized or permitted by this Agreement. In no event
shall any Opinion of Counsel provided pursuant to this Section 12.01 be an
expense of the Trustee.
Section 12.02. Recordation of Agreement.
------------------------
This Agreement is subject to recordation in all appropriate public
offices for real property records in all the counties or other comparable
jurisdictions in which any or all of the properties subject to the Mortgages
are situated, and in any other appropriate public recording office or
elsewhere, such recordation to be effected by the Servicer and at its expense
on direction by the Trustee, but only upon direction of the Trustee
accompanied by an Opinion of Counsel to the effect that such recordation
materially and beneficially affects the interests of Certificateholders.
For the purpose of facilitating the recordation of this Agreement as
herein provided and for other purposes, this Agreement may be executed
simultaneously in any number of counterparts, each of which counterparts
shall be deemed to be an original, and such counterparts shall constitute but
one and the same instrument.
Section 12.03. Limitation on Rights of Certificateholders.
------------------------------------------
The death or incapacity of any Certificateholder shall not operate to
terminate this Agreement or the Trust Fund, nor entitle such
Certificateholder's legal representatives or heirs to claim an accounting or
to take any action or commence any proceeding in any court for a partition or
winding up of the Trust Fund, nor otherwise affect the rights, obligations
and liabilities of the parties hereto or such party.
No Certificateholder shall have any right to vote (except as provided in
Section 12.01) or in any manner otherwise control the operation and
management of the Trust Fund, or the obligations of the parties hereto, nor
shall anything herein set forth, or contained in the terms of the
Certificates, be construed so as to constitute the Certificateholders from
time to time as partners or members of an association; nor shall any
Certificateholder be under any liability to any third person by reason of any
action taken by the parties to this Agreement pursuant to any provision
hereof.
No Certificateholder shall have any right by virtue or by availing
itself of any provisions of this Agreement to institute any suit, action or
proceeding in equity or at law upon or under or with respect to this
Agreement, unless such Holder previously shall have given to the Trustee a
written notice of default and of the continuance thereof, as hereinbefore
provided, and unless also the Holders of Investor Certificates evidencing
Percentage Interests aggregating not less than 25% shall have made written
request upon the Trustee to institute such action, suit or proceeding in its
own name as Trustee hereunder and shall have offered to the Trustee such
reasonable indemnity as it may require against the costs, expenses and
liabilities to be incurred therein or thereby, and the Trustee, for 60 days
after its receipt of such notice, request and offer of indemnity, shall have
neglected or refused to institute any such action, suit or proceeding. Each
Certificateholder expressly covenants with every other Certificateholder and
the Trustee that no one or more Holders of Certificates shall have any right
in any manner whatever by virtue or by availing itself or themselves of any
provisions of this Agreement to affect, disturb or prejudice the rights of
the Holders of any other of the Certificates, or to obtain or seek to obtain
priority over or preference to any other such Holder, or to enforce any right
under this Agreement, except in the manner herein provided and for the equal,
ratable and common benefit of all Certificateholders. For the protection and
enforcement of the provisions of this Section 12.03, each and every
Certificateholder and the Trustee shall be entitled to such relief as can be
given either at law or in equity.
Section 12.04. (Reserved).
Section 12.05. The Certificate Insurer.
-----------------------
The Certificate Insurer is a third-party beneficiary of this Agreement.
Any right conferred to the Certificate Insurer shall be suspended during any
period in which the Certificate Insurer is in default in its payment
obligations under the Certificate Insurance Policy. During any period of
suspension the Certificate Insurer's rights hereunder shall vest in the
Holders of the Investor Certificates and shall be exercisable by the Holders
of at least a majority in Percentage Interest of the outstanding Investor
Certificates. At such time as the Investor Certificates are no longer
outstanding hereunder and the Certificate Insurer has been reimbursed for all
Insured Payments to which it is entitled hereunder and has been paid all
Premium Amounts due and owing under the Insurance Agreement, the Certificate
Insurer's rights hereunder shall terminate.
Section 12.06. Governing Law.
-------------
THIS AGREEMENT SHALL BE CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE
STATE OF NEW YORK (WITHOUT REGARD TO CONFLICT OF LAWS PRINCIPLES AND THE
APPLICATION OF THE LAWS OF ANY OTHER JURISDICTION), AND THE OBLIGATIONS,
RIGHTS AND REMEDIES OF THE PARTIES HEREUNDER SHALL BE DETERMINED IN
ACCORDANCE WITH SUCH LAWS.
Section 12.07. Notices.
-------
All demands, notices and communications hereunder shall be in writing
and shall be deemed to have been duly given when delivered at or mailed by
certified mail, return receipt requested, to (a) in the case of the Servicer,
Merrill Lynch Credit Corporation, 4802 Deer Lake Drive East, Jacksonville,
Florida 32246, Attention: General Counsel, (b) in the case of the Seller,
MLCC Mortgage Investors, Inc., 4802 Deer Lake Drive East, Jacksonville,
Florida 32246, Attention: President, (c) in the case of the Trustee, at the
Corporate Trust Office, (d) in the case of Moody's, ABS Monitoring
Department, 4th Floor, 99 Church Street, New York, New York 10007, (e) in the
case of the Certificate Insurer, AMBAC Indemnity Corporation, One State
Street Plaza, New York, New York 10004, Attention: Structured Finance-MBS,
(f) in the case of Standard and Poor's, Debt Rating Division, 25 Broadway,
20th Floor, New York, New York 10004, Attention: Asset-Backed Surveillance
Group, or, as to each party, at such other address as shall be designated by
such party in a written notice to each other party. Any notice required or
permitted to be mailed to a Certificateholder shall be given by first class
mail, postage prepaid, at the address of such Holder as shown in the
Certificate Register. Any notice so mailed to a Certificateholder within the
time prescribed in this Agreement shall be conclusively presumed to have been
duly given, whether or not the Certificateholder receives such notice.
Section 12.08. Severability of Provisions.
--------------------------
If any one or more of the covenants, agreements, provisions or terms of
this Agreement shall be for any reason whatsoever held invalid, then such
covenants, agreements, provisions or terms shall be deemed severable from the
remaining covenants, agreements, provisions or terms of this Agreement and
shall in no way affect the validity or enforceability of the other provisions
of this Agreement or of the Certificates or the rights of the Holders
thereof.
Section 12.09. Assignment.
----------
Notwithstanding anything to the contrary contained herein, except as
provided in Sections 7.02 and 7.04, this Agreement may not be assigned by the
Seller or the Servicer without the prior written consent of Holders of
Investor Certificates evidencing Percentage Interests aggregating not less
than 66%.
Section 12.10. Certificates Nonassessable and Fully Paid.
-----------------------------------------
The parties agree that the Certificateholders shall not be personally
liable for obligations of the Trust Fund, that the beneficial ownership
interests represented by the Certificates shall be nonassessable for any
losses or expenses of the Trust Fund or for any reason whatsoever, and that
Certificates upon execution, countersignature and delivery thereof by the
Trustee pursuant to Section 6.01 are and shall be deemed fully paid.
Section 12.11. Counterparts.
------------
This instrument may be executed in any number of counterparts, each of
which so executed shall be deemed to be an original, but all such
counterparts shall together constitute but one and the same instrument.
Section 12.12. Effect of Headings and Table of Contents.
----------------------------------------
The Article and Section headings herein and the Table of Contents are
for convenience only and shall not affect the construction hereof.
Section 12.13. Third Party Beneficiary.
-----------------------
This Agreement shall inure to the benefit of and be binding upon the
parties hereto, and, in addition, shall inure to the benefit of
Certificateholders and, to the extent provided herein, the Certificate
Insurer and their respective successors and permitted assigns. Except as
otherwise provided in this Agreement, no other Person shall have any right or
obligation hereunder.
Section 12.14. Merger and Integration.
----------------------
Except as specifically stated otherwise herein, this Agreement sets
forth the entire understanding of the parties relating to the subject matter
hereof, and all prior understandings, written or oral, and all
contemporaneous oral understandings, are superseded by this Agreement. This
Agreement may not be modified, amended, waived or supplemented except as
provided herein.
* * *
IN WITNESS WHEREOF, the Servicer, the Seller and the Trustee have caused
this Agreement to be duly executed by their respective officers all as of the
day and year first above written.
MERRILL LYNCH CREDIT CORPORATION
By
-------------------------------
Name:
Title:
MLCC MORTGAGE INVESTORS, INC.
By
---------------------------------
Name:
Title:
BANKERS TRUST COMPANY OF
CALIFORNIA, N.A.
as Trustee
By
---------------------------------
Name:
Title:
BANKERS TRUST COMPANY OF
CALIFORNIA, N.A.
as Trustee of ML Home Equity Loan Trust
1989-1, ML Home Equity Loan Trust 1991-2,
ML Home Equity Loan Trust 1993-1, ML Home
Equity Loan Trust 1994-1, ML Home Equity
Loan Trust 1994-2, ML Home Equity Loan
Trust 1995-1, ML Home Equity Loan Trust
1995-2
By
---------------------------------
Name:
Title:
State of )
) ss.:
County of )
On the ___ day of ___, 199_ before me, a notary public in and for
the State of Florida, personally appeared _______________ known to me who,
being by me duly sworn, did depose and say that he is located at 4802 Deer
Lake Drive East, Jacksonville, Florida 32246; that he is a
_____________________ of Merrill Lynch Credit Corporation, a corporation
formed under the laws of the State of Delaware, one of the parties that
executed the foregoing instrument; and that he signed his name thereto by
order of the Board of Directors of said corporation.
--------------------------------
Notary Public
(Notarial Seal)
State of )
) ss.:
County of )
On the ___ day of ___, 1996 before me, a notary public in and for
the State of Florida, personally appeared _________ _____, known to me who,
being by me duly sworn, did depose and say that she is located at 4802 Deer
Lake Drive East, Jacksonville, Florida 32246; that she is an
___________________ of MLCC Mortgage Investors, Inc., a corporation formed
under the laws of the State of Delaware, one of the parties that executed the
foregoing instrument; and that she signed her name thereto by order of the
Board of Directors of said corporation.
--------------------------------
Notary Public
(Notarial Seal)
State of )
) ss.:
County of )
On the ___ day of ___, 199_ before me, a notary public in and for
the State of California, personally appeared ________ __________, known to me
who, being by me duly sworn, did depose and say that she/he is located at
__________________; that she/he is a _____________________ of Bankers Trust
Company of California, N.A., one of the parties that executed the foregoing
instrument; and that she or he signed her or his name thereto under authority
granted by the Board of Directors of said Bank.
- -------------------------------------------------------------------
Notary Public
(Notarial Seal)
State of )
) ss.:
County of )
On the ___ day of ___, 199_ before me, a notary public in and for
the State of ________, personally appeared _________________, known to me
who, being by me duly sworn, did depose and say that she/he resides at
__________________; that she/he is a _____________________ of Bankers Trust
Company of California, N.A., one of the parties that executed the foregoing
instrument; and that she or he signed her or his name thereto under authority
granted by the Board of Directors of said Bank.
- -------------------------------------------------------------------
Notary Public
(Notarial Seal)
EXHIBIT A
UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE
DEPOSITORY TRUST COMPANY TO THE TRUSTEE OR ITS AGENT FOR REGISTRATION OF
TRANSFER, EXCHANGE OR PAYMENT, AND ANY CERTIFICATE ISSUED IS REGISTERED IN
THE NAME OF CEDE & CO. OR SUCH OTHER NAME AS IS REQUESTED BY AN AUTHORIZED
REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY (AND ANY PAYMENT IS MADE TO
CEDE & CO. OR TO SUCH OTHER ENTITY AS IS REQUESTED BY AN AUTHORIZED
REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY), ANY TRANSFER, PLEDGE OR
OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL SINCE
THE REGISTERED OWNER HEREOF, CEDE & CO., HAS AN INTEREST HEREIN.
Initial Certificate Principal
Balance of this Investor
Certificate : $
Certificate Rate : Variable
Original Certificate Principal
Balance of all Investor
Certificates : $
CUSIP No. :
Date of Pooling and
Servicing Agreement :
Certificate No. : 1
Cut-Off Date :
First Distribution
Date: :
Stated Maturity Date :
ML REVOLVING HOME EQUITY LOAN ASSET BACKED CERTIFICATES,
SERIES 199_-_
INVESTOR CERTIFICATE
evidencing a percentage interest in the distributions
allocable to the Investor Certificates evidencing an
undivided interest in a Trust consisting primarily of a
pool of adjustable rate home equity revolving credit line
loans serviced by
MERRILL LYNCH CREDIT CORPORATION
This Certificate does not represent an obligation of or interest in MLCC
Mortgage Investors, Inc. (the "Seller"), Merrill Lynch Credit Corporation or
the Trustee referred to below or any of their affiliates. Neither this
Certificate nor the Mortgage Loans are guaranteed or insured by any
governmental agency or instrumentality.
This certifies that CEDE & CO. is the registered owner of the Percentage
Interest evidenced by this Certificate (obtained by dividing the Initial
Certificate Principal Balance of this Certificate by the Original Certificate
Principal Balance of all Investor Certificates) in certain monthly
distributions with respect to a Trust consisting primarily of a pool of home
equity revolving credit line loans (the "Mortgage Loans"), transferred by the
Seller to the Trustee and serviced by Merrill Lynch Credit Corporation (in
such capacity, the "Servicer", including any successor Servicer under the
Agreement referred to below). The Trust was created pursuant to a Pooling
and Servicing Agreement dated as specified above (the "Agreement") among the
Seller, the Servicer, and Bankers Trust Company of California, N.A., as
trustee (the "Trustee"), a summary of certain of the pertinent provisions of
which is set forth hereafter. To the extent not defined herein, the
capitalized terms used herein have the meanings assigned in the Agreement.
This Certificate is issued under and is subject to the terms, provisions and
conditions of the Agreement, to which Agreement the Holder of this
Certificate by virtue of the acceptance hereof assents and by which such
Holder is bound.
This Certificate is one of the Investor Certificates from a duly
authorized issue of Certificates designated as ML Revolving Home Equity Loan
Asset Backed Certificates, Series 199_-_, representing, to the extent
specified in the Agreement, an undivided interest in: (i) the Mortgage Loans,
to the extent of their Trust Balances, and the proceeds thereof, (ii)
collections in respect of the Trust's interest in the Mortgage Loans received
on or after the Cut-off Date, (iii) an irrevocable and unconditional limited
financial guarantee insurance policy (the "Policy"), (iii) property that
secured a Mortgage Loan and which has been acquired by foreclosure or deed in
lieu of foreclosure or otherwise, (iv) the interest of the Trust in certain
hazard insurance policies covering the Mortgaged Properties, and (v) certain
other property relating to the Mortgage Loans (collectively, the "Trust
Assets").
On each Distribution Date, the Trustee shall distribute to each Investor
Certificateholder of record on the related Record Date (other than the final
distribution) by check mailed to such Certificateholder at the address
appearing in the Certificate Register, or upon written request of a Holder of
an Investor Certificate received by the Trustee at least five Business Days
prior to the related Record Date, by wire transfer (but only if such Certifi-
cateholder is the Depository or such Certificateholder owns of record one or
more Investor Certificates which have principal denominations aggregating at
least $5,000,000), or by such other means of payment as such Certifi-
cateholder and the Trustee shall agree. Distributions among Investor
Certificateholders shall be made in proportion to the Percentage Interests
evidenced by the Investor Certificates held by such Investor
Certificateholders. Notwithstanding the above, the final distribution on
this Certificate will be made after due notice by the Trustee, of the
pendency of such distribution, and only upon presentation and surrender of
this Certificate at the office or agency appointed by the Trustee for that
purpose.
Pursuant to the terms of the Agreement, a distribution will be made
on the 25th day of each month or if such day is not a Business Day, then on
the next succeeding Business Day (the "Distribution Date"), commencing on the
first Distribution Date specified above, to the Person in whose name this
Certificate is registered at the close of business on the last day preceding
the month of such Distribution Date (the "Record Date"), in an amount equal
to the product of the Percentage Interest evidenced by this Certificate and
the amount required to be distributed to Holders of Investor Certificates on
such Distribution Date under the terms of the Agreement.
The Certificates are limited in right of payment to certain
payments on and collections in respect of the Mortgage Loans, all as more
specifically set forth in the Agreement. The Certificateholder, by its
acceptance of this Certificate, agrees that it will look solely to the funds
on deposit in the Certificate Account for payment hereunder, and that the
Trustee in its individual capacity is not personally liable to the
Certificateholders for any amount payable under this Certificate or the
Agreement or, except as expressly provided in the Agreement, subject to any
liability under the Agreement.
As provided in the Agreement, withdrawals from the Certificate
Account may be made from time to time for purposes other than distributions
to the Investor Certificateholders and, subject to certain conditions in the
Agreement, Mortgage Loans may, at the election of the Seller, be removed from
the Trust and transferred to the Seller (as defined in the Agreement).
This Certificate does not purport to summarize the Agreement and
reference is made to the Agreement for the interests, rights and limitations
of rights, benefits, obligations and duties evidenced hereby, and the rights,
duties and immunities of the Trustee.
It is the intention of the Seller and the Investor
Certificateholders that the Investor Certificates will be indebtedness for
federal, state and local income and franchise tax purposes and for purposes
of any other tax imposed on or measured by income. The Seller, the Trustee
and the Holder of this Certificate (or Certificate Owner) by acceptance of
this Certificate (or, in the case of a Certificate Owner, by virtue of such
Certificate Owner's acquisition of a beneficial interest herein) agrees to
treat the Investor Certificates (or beneficial interest therein), for
purposes of federal, state and local income or franchise taxes and any other
tax imposed on or measured by income, as indebtedness secured by the Trust
Assets and to report the transactions contemplated by the Agreement on all
applicable tax returns in a manner consistent with such treatment. Each
Holder of this Certificate agrees that it will cause any Certificate Owner
acquiring an interest in this Certificate through it to comply with the
Agreement as to treatment as indebtedness for federal, state and local income
and franchise tax purposes and for purposes of any other tax imposed on or
measured by income.
The Agreement permits, with certain exceptions therein provided, the
amendment thereof and the modification of the rights and obligations of the
Seller, the Servicer and the Trustee, and the rights of the
Certificateholders under the Agreement, at any time by the Seller, the
Servicer and the Trustee with the consent (i) of the Holders of Investor
Certificates evidencing Percentage Interests aggregating not less than 66%
and (ii) of the Certificate Insurer. Any such consent by the Holder of this
Certificate shall be conclusive and binding on such Holder and upon all
future Holders of this Certificate and of any Certificate issued upon the
transfer hereof or in exchange herefor or in lieu hereof whether or not
notation of such consent is made upon this Certificate. The Agreement also
permits the amendment thereof, in certain limited circumstances, without the
consent of the Holders of any of the Investor Certificates.
As provided in the Agreement and subject to certain limitations therein
set forth, the transfer of this Certificate is registrable in the Certificate
Register of the Certificate Registrar upon surrender of this Certificate for
registration of transfer at the office or agency maintained by the
Certificate Registrar for such purpose, accompanied by a written instrument
of transfer in form satisfactory to the Trustee, if so required by the
Trustee, be duly executed by the Holder hereof or such Holder's attorney duly
authorized in writing, and thereupon one or more new Certificates of
authorized denominations, if applicable, and evidencing the same aggregate
Percentage Interest will be issued to the designated transferee or
transferees.
The Certificates are issuable only as registered Certificates without
coupons in denominations specified in the Agreement. As provided in the
Agreement and subject to certain limitations therein set forth, Certificates
are exchangeable for new Certificates of a like tenor in authorized
denominations (in the case of the Investor Certificates) and evidencing the
same aggregate Percentage Interest, as requested by the Holder surrendering
the same.
No service charge will be made for any such registration of transfer or
exchange, but the Trustee or the Certificate Registrar may require payment of
a sum sufficient to cover any tax or other governmental charge payable in
connection therewith.
The Trustee, the Seller, the Servicer, the Certificate Insurer and the
Certificate Registrar and any agent of the foregoing may treat the Person in
whose name this Certificate is registered as the owner hereof for all
purposes, and neither the Trustee, the Seller, the Servicer, the Certificate
Insurer, the Certificate Registrar nor any such agent shall be affected by
any notice to the contrary.
The obligations and responsibilities created by the Agreement and the
Trust created thereby shall terminate upon distribution to the
Certificateholders, or provision therefor, of the amount required to be so
distributed in accordance with the Agreement upon the later of (A) payment in
full of all amounts owing to the Certificate Insurer and (B) the earliest of:
(i) the retransfer to the Servicer of the Investor Certificateholders'
interest in each Mortgage Loan and all property acquired in respect of any
Mortgage Loan remaining in the Trust Fund for an amount equal to the sum of
(a) the Certificate Principal Balance, (b) accrued and unpaid Certificate
Formula Interest through the day preceding the final Distribution Date, (c)
any Unpaid Certificate Interest Shortfall, and (d) any accrued and unpaid
Investor Loss Reduction Amounts through the day preceding such final
Distribution Date; (ii) the day following the Distribution Date on which the
distribution made to Investor Certificateholders has reduced the Certificate
Principal Balance to zero; (iii) the final payment or other liquidation (or
any Monthly Advance with respect thereto) of the Trust Balance of the last
Mortgage Loan remaining in the Trust Fund (including without limitation the
disposition of the Mortgage Loans) or the disposition of all property
acquired upon foreclosure or deed in lieu of foreclosure of any Mortgage
Loan; and (iv) the Stated Maturity Date.
The Servicer, or in the event the Servicer does not exercise its option
to terminate the Trust Fund, the Certificate Insurer, may effect an early
retirement of the Certificates by paying the retransfer price and accepting
retransfer of the Trust Assets pursuant to the terms of the Agreement on any
Distribution Date after the Certificate Principal Balance is less than or
equal to 10% of the Original Investor Certificate Principal Balance and all
amounts due and owing to the Certificate Insurer have been paid; provided,
however, that in no event shall the Trust continue beyond the expiration of
21 years from the death of certain person named in the Agreement. Upon
retirement of the Certificates in accordance with Section 10.01 of the
Agreement, the Trustee shall execute such documents and instruments of
transfer presented by the Servicer or Certificate Insurer and take such other
actions as the Servicer or Certificate Insurer may reasonably request to
effect the retransfer of the Mortgage Loans to the Servicer or Certificate
Insurer.
Reference is hereby made to the further provisions of this Certificate
set forth on the reverse hereof, which further provisions shall for all
purposes have the same effect as if set forth at this place.
This Certificate shall not be entitled to any benefit under the
Agreement or be valid for any purpose unless manually countersigned by an
authorized officer of the Trustee.
IN WITNESS WHEREOF, the Trustee has caused this Certificate to be duly
executed as of the date set forth.
Dated:
BANKERS TRUST COMPANY OF
CALIFORNIA, N.A.,
not in its individual capacity but solely
as Trustee
------------------------------
Authorized Officer
Countersigned:
BANKERS TRUST COMPANY OF
CALIFORNIA, N.A.,
By:
--------------------------------
Authorized Officer of
Bankers Trust Company of California, N.A.,
not in its individual capacity
but solely as Trustee
EXHIBIT B
THIS CERTIFICATE IS SUBORDINATED IN RIGHT OF PAYMENT TO THE INVESTOR
CERTIFICATES AS DESCRIBED IN THE POOLING AND SERVICING AGREEMENT REFERRED TO
HEREIN.
THIS CERTIFICATE HAS NOT BEEN AND WILL NOT BE REGISTERED UNDER THE SECURITIES
ACT OF 1933, AS AMENDED, OR THE SECURITIES LAWS OF ANY STATE AND MAY NOT BE
RESOLD OR TRANSFERRED UNLESS IT IS REGISTERED PURSUANT TO SUCH ACT AND LAWS
OR IS SOLD OR TRANSFERRED IN TRANSACTIONS WHICH ARE EXEMPT FROM REGISTRATION
UNDER SUCH ACT AND UNDER APPLICABLE STATE LAW AND IS TRANSFERRED IN
ACCORDANCE WITH THE PROVISIONS OF SECTION 6.05 OF THE POOLING AND SERVICING
AGREEMENT REFERRED TO HEREIN.
NEITHER THIS CERTIFICATE NOR ANY INTEREST HEREIN MAY BE TRANSFERRED UNLESS
THE TRANSFEREE DELIVERS TO THE TRUSTEE EITHER A REPRESENTATION LETTER TO THE
EFFECT THAT SUCH TRANSFEREE IS NOT AN EMPLOYEE BENEFIT PLAN SUBJECT TO THE
EMPLOYEE RETIREMENT INCOME SECURITY ACT OF 1974, AS AMENDED, THAT IF SUCH
TRANSFEREE IS AN INSURANCE COMPANY THAT THE TRANSFEREE IS AN INSURANCE
COMPANY WHICH IS PURCHASING THIS CERTIFICATE WITH FUNDS CONTAINED IN AN
"INSURANCE COMPANY GENERAL ACCOUNT" (AS SUCH TERM IS DEFINED IN SECTION V(e)
OF PROHIBITED TRANSACTION CLASS EXEMPTION 95-60 ("PTCE 95-60")) AND THAT THE
PURCHASE AND HOLDING OF THIS CERTIFICATE ARE COVERED UNDER PTCE 95-60 OR A
PLAN SUBJECT TO SECTION 4975 OF THE CODE, OR AN OPINION OF COUNSEL IN
ACCORDANCE WITH THE PROVISIONS OF SECTION 6.05(c) OF THE AGREEMENT REFERRED
TO HEREIN. NOTWITHSTANDING ANYTHING ELSE TO THE CONTRARY HEREIN, ANY
PURPORTED TRANSFER OF THIS CERTIFICATE TO OR ON BEHALF OF AN EMPLOYEE BENEFIT
PLAN SUBJECT TO ERISA OR TO THE CODE WITHOUT THE OPINION OF COUNSEL
SATISFACTORY TO THE TRUSTEE AS DESCRIBED ABOVE SHALL BE VOID AND OF NO
EFFECT.
Date of Pooling and Servicing
Agreement: :
Cut-off Date :
Percentage Interest : 100%
Certificate No. : 1
First Distribution Date :
Stated Maturity Date :
ML REVOLVING HOME MORTGAGE LOAN ASSET BACKED CERTIFICATES,
SERIES 199_-_
SELLER CERTIFICATE
evidencing a percentage interest in the distributions
allocable to the Seller Certificates evidencing an
undivided interest in a Trust consisting primarily of a
pool of adjustable rate home equity loan revolving credit
line loans serviced by
MERRILL LYNCH CREDIT CORPORATION
This Certificate does not represent an obligation of or interest in MLCC
Mortgage Investors, Inc. (the "Seller"), Merrill Lynch Credit Corporation or
the Trustee referred to below or any of their affiliates. Neither this
Certificate nor the underlying Trust Assets are guaranteed or insured by any
governmental agency or instrumentality.
This certifies that ___________________________ is the registered owner
of the Percentage Interest evidenced by this Certificate in the entire
interest not allocated to the Investor Certificates in certain monthly
distributions with respect to a Trust consisting primarily of a pool of
mortgage loans (the "Mortgage Loans"), sold by the Seller and serviced by
Merrill Lynch Credit Corporation (the "Servicer", including any successor
Servicer under the Agreement referred to below). The Trust was created
pursuant to a Pooling and Servicing Agreement dated as specified above (the
"Agreement") among the Seller, the Servicer, and Bankers Trust Company of
California, N.A., as trustee (the "Trustee"), a summary of certain of the
pertinent provisions of which is set forth hereafter. To the extent not
defined herein, the capitalized terms used herein have the meanings assigned
in the Agreement. This Certificate is issued under and is subject to the
terms, provisions and conditions of the Agreement, to which Agreement the
Holder of this Certificate by virtue of the acceptance hereof assents and by
which such Holder is bound.
This Certificate evidences a Seller Certificate from a duly authorized
issue of Certificates designated as ML Revolving Home Equity Loan Asset
Backed Certificates, Series 199_-_, and representing, to the extent specified
in the Agreement, an undivided ownership interest in: (i) the Mortgage Loans,
to the extent of their Trust Balances, and the proceeds thereof, (ii)
collections in respect of the Trust's interest in the Mortgage Loans received
on or after the Cut-off Date, (iii) property that secured a Mortgage Loan and
which has been acquired by foreclosure or deed in lieu of foreclosure or
otherwise, (iv) the interest of the Trust in certain hazard insurance
policies covering the Mortgaged Properties, and (v) certain other property
relating to the Mortgage Loans (collectively, the "Trust Assets").
The certificates are limited in right of payment to certain payments on
and collections in respect of the Trust Assets, all as more specifically set
forth in the Agreement. The Certificateholder, by its acceptance of this
Certificate, agrees that it will look solely to the funds available in
accordance with the terms of the Agreement for payment hereunder and that the
Trustee in its individual capacity is not personally liable to the
Certificateholders for any amount payable under this Certificate or the
Agreement or, except as expressly provided in the Agreement, subject to any
liability under the Agreement.
This Certificate does not purport to summarize the Agreement and
reference is made to the Agreement for the interests, rights and limitations
of rights, benefits, obligations and duties evidenced hereby, and the rights,
duties and immunities of the Trustee.
The Agreement permits, with certain exceptions therein provided, the
amendment thereof and the modification of the rights and obligations of the
Seller, the Servicer and the Trustee, and the rights of the
Certificateholders under the Agreement, at any time by the Seller, the
Servicer and the Trustee with the consent (i) of the Holders of Investor
Certificates evidencing Percentage Interests aggregating not less than 66%
and (ii) of the Certificate Insurer. Any such consent by the Holder of this
Certificate shall be conclusive and binding on such Holder and upon all
future Holders of this Certificate and of any Certificate issued upon the
transfer hereof or in exchange herefor or in lieu hereof whether or not
notation of such consent is made upon this Certificate. The Agreement also
permits the amendment thereof, in certain limited circumstances, without the
consent of the Holders of any of the Investor Certificates.
No transfer of a Seller Certificate shall be made unless such transfer
is exempt from the registration requirements of the Securities Act of 1933,
as amended, and any applicable state securities laws or is made in accordance
with said Act and laws. There shall be delivered to the Trustee and the
Servicer a written Opinion of Counsel acceptable to and in form and substance
satisfactory to the Trustee and the Servicer that such transfer may be made
pursuant to an exemption, describing the applicable exemption and the basis
therefor, from which Act and laws or is being made pursuant to said Act and
laws, which Opinion of Counsel shall not be an expense of the Trustee or the
Servicer, and the Trustee and the Servicer shall require the transferee to
execute an investment letter acceptable to and in form and substance
satisfactory to the Trustee and the Servicer certifying to the Trustee and
the Servicer the facts surrounding such transfer, which Investment letter
shall not be an expense of the Trustee or the Servicer; provided that such
Opinion of Counsel shall not be required in the case of transfers by or to
Merrill Lynch, Pierce, Fenner & Smith Incorporated or an affiliate thereof.
The Holder of a Seller Certificate desiring to effect such transfer shall,
and does hereby agree to, indemnify the Trustee, the Servicer and the
Certificate Insurer against any liability that may result if the transfer is
not so exempt or if not made in accordance with such federal and state laws.
As provided in the Agreement and subject to certain limitations set
forth therein, and subject to the restrictions set forth on the first page
hereof, neither this Certificate nor any legal or beneficial interest herein
may be, directly or indirectly, purchased, transferred, sold, pledged,
assigned or otherwise disposed of, and any proposed transferee hereof shall
not become the registered Holder hereof, without the satisfaction of the
conditions set forth in Section 6.05 of the Agreement.
No service charge will be made for any such registration of Transfer or
exchange, but the Trustee may require payment of a sum sufficient to cover
any tax or other governmental charge payable in connection therewith.
The Trustee, the Servicer, the Certificate Insurer and the Certificate
Registrar and any agent of the foregoing may treat the Person in whose name
this Certificate is registered as the owner hereof for all purposes, and
neither the Trustee, the Servicer, the Certificate Insurer, the Certificate
Registrar nor any such agent shall be affected by any notice to the contrary.
The obligations and responsibilities created by the Agreement and the
Trust created thereby shall terminate upon distribution to the
Certificateholders, or provision therefor, of the amount required to be so
distributed in accordance with the Agreement upon the later of (A) payment in
full of all amounts owing to the Certificate Insurer and (B) the earliest of:
(i) the retransfer to the Servicer of the Investor Certificateholders'
interest in each Mortgage Loan and all property acquired in respect of any
Mortgage Loan remaining in the Trust Fund for an amount equal to the sum of
(a) the Certificate Principal Balance, (b) accrued and unpaid Certificate
Formula Interest through the day preceding the final Distribution Date, (c)
any Unpaid Certificate Interest Shortfall, and (d) any accrued and unpaid
Investor Loss Reduction Amounts through the day preceding such final
Distribution Date; (ii) the day following the Distribution Date on which the
distribution made to Investor Certificateholders has reduced the Certificate
Principal Balance to zero; (iii) the final payment or other liquidation (or
any Monthly Advance with respect thereto) of the Trust Balance of the last
Mortgage Loan remaining in the Trust Fund (including without limitation the
disposition of the Mortgage Loans) or the disposition of all property
acquired upon foreclosure or deed in lieu of foreclosure of any Mortgage
Loan; and (iv) the Distribution Date in ____ ____.
The Servicer, or in the event the Servicer does not exercise its option
to terminate the Trust Fund, the Certificate Insurer, may effect an early
retirement of the Certificates by paying the retransfer price and accepting
retransfer of the Trust Assets pursuant to the terms of the Agreement on any
Distribution Date after the Investor Certificate Principal Balance is less
than or equal to 10% of the Original Investor Certificate Principal Balance
and all amounts due and owing to the Certificate Insurer have been paid;
provided, however, that in no event shall the Trust continue beyond the
expiration of 21 years from the death of certain person named in the
Agreement. Upon retirement of the Certificates in accordance with Section
10.01 of the Agreement, the Trustee shall execute such documents and
instruments of transfer presented by the Servicer or Certificate Insurer and
take such other actions as the Servicer or Certificate Insurer may reasonably
request to effect the retransfer of the Mortgage Loans to the Servicer or
Certificate Insurer.
Any purported Transfer of a Seller Certificate in violation of the
restriction on Transfer will be null and void and vest no rights to the
purported Transferee.
Reference is hereby made to the further provisions of this Certificate
set forth on the reverse hereof, which further provisions shall for all
purposes have the same effect as if set forth at this place.
This Certificate shall not be entitled to any benefit under the
Agreement or be valid for any purpose unless manually countersigned by an
authorized officer of the Trustee.
IN WITNESS WHEREOF, the Trustee has caused this Certificate to be duly
executed as of the date set forth.
Dated:
BANKERS TRUST COMPANY OF
CALIFORNIA, N.A.,
not in its individual capacity but solely
as Trustee
------------------------------
Authorized Officer
Countersigned:
BANKERS TRUST COMPANY OF
CALIFORNIA, N.A.,
By:
--------------------------------
Authorized Officer of
Bankers Trust Company of California, N.A.,
not in its individual capacity
but solely as Trustee
EXHIBIT C
REVERSE OF INVESTOR CERTIFICATE
This Certificate is one of a duly authorized issue of Certificates
designated as ML Revolving Home Equity Loan Asset Backed Certificates, Series
199_-_ (herein called the "Certificates"), and representing, to the extent
specified in the Agreement, an undivided interest in: (i) the Mortgage Loans,
to the extent of their Trust Balances, and the proceeds thereof, (ii)
collections in respect of the Trust's interest in the Mortgage Loans received
on or after the Cut-off Date, (iii) an irrevocable and unconditional limited
financial guarantee insurance policy (the "Policy"), (iii) property that
secured a Mortgage Loan and which has been acquired by foreclosure or deed in
lieu of foreclosure or otherwise, (iv) the interest of the Trust in certain
hazard insurance policies covering the Mortgaged Properties, and (v) certain
other property relating to the Mortgage Loans.
The Certificates are limited in right of payment to certain
payments on and collections in respect of the Mortgage Loans, all as more
specifically set forth in the Agreement. The Certificateholder, by its
acceptance of this Certificate, agrees that it will look solely to the funds
on deposit in the Certificate Account for payment hereunder and that the
Trustee in its individual capacity is not personally liable to the
Certificateholders for any amount payable under this Certificate or the
Agreement or, except as expressly provided in the Agreement, subject to any
liability under the Agreement.
This Certificate does not purport to summarize the Agreement and
reference is made to the Agreement for the interests, rights and limitations
of rights, benefits, obligations and duties evidenced hereby, and the rights,
duties and immunities of the Trustee.
The Agreement permits, with certain exceptions therein provided,
the amendment thereof and the modification of the rights and obligations of
the Seller, the Servicer and the Trustee, and the rights of the
Certificateholders under the Agreement, at any time by the Seller, the
Servicer and the Trustee with the consent (i) of the Holders of Investor
Certificates evidencing Percentage Interests aggregating not less than 66%
and (ii) of the Certificate Insurer. Any such consent by the Holder of this
Certificate shall be conclusive and binding on such Holder and upon all
future Holders of this Certificate and of any Certificate issued upon the
transfer hereof or in exchange herefor or in lieu hereof whether or not
notation of such consent is made upon this Certificate. The Agreement also
permits the amendment thereof, in certain limited circumstances, without the
consent of the Holders of any of the Investor Certificates.
As provided in the Agreement and subject to certain limitations
therein set forth, the transfer of this Certificate is registrable in the
Certificate Register of the Certificate Registrar upon surrender of this
Certificate for registration of transfer at the office or agency maintained
by the Certificate Registrar for such purpose, accompanied by a written
instrument of transfer in form satisfactory to the Trustee, if so required by
the Trustee, be duly executed by the Holder hereof or such Holder's attorney
duly authorized in writing, and thereupon one or more new Certificates of
authorized denominations, if applicable, and evidencing the same aggregate
Percentage Interest will be issued to the designated transferee or
transferees.
The Certificates are issuable only as registered Certificates
without coupons in denominations specified in the Agreement. As provided in
the Agreement and subject to certain limitations therein set forth,
Certificates are exchangeable for new Certificates of a like tenor in
authorized denominations (in the case of the Investor Certificates) and
evidencing the same aggregate Percentage Interest, as requested by the Holder
surrendering the same.
No service charge will be made for any such registration of
transfer or exchange, but the Trustee or the Certificate Registrar may
require payment of a sum sufficient to cover any tax or other governmental
charge payable in connection therewith.
The Trustee, the Seller, the Servicer, the Certificate Insurer and
the Certificate Registrar and any agent of the foregoing may treat the Person
in whose name this Certificate is registered as the owner hereof for all
purposes, and neither the Trustee, the Seller, the Servicer, the Certificate
Insurer, the Certificate Registrar nor any such agent shall be affected by
any notice to the contrary.
The obligations and responsibilities created by the Agreement and
the Trust created thereby shall terminate upon distribution to the
Certificateholders, or provision therefor, of the amount required to be so
distributed in accordance with the Agreement upon the later of (A) payment in
full of all amounts owing to the Certificate Insurer and (B) the earliest of:
(i) the retransfer to the Servicer of the Investor Certificateholders'
interest in each Mortgage Loan and all property acquired in respect of any
Mortgage Loan remaining in the Trust Fund for an amount equal to the sum of
(a) the Certificate Principal Balance, (b) accrued and unpaid Certificate
Formula Interest through the day preceding the final Distribution Date, (c)
any Unpaid Certificate Interest Shortfall, and (d) any accrued and unpaid
Investor Loss Reduction Amounts through the day preceding such final
Distribution Date; (ii) the day following the Distribution Date on which the
distribution made to Investor Certificateholders has reduced the Certificate
Principal Balance to zero; (iii) the final payment or other liquidation (or
any Monthly Advance with respect thereto) of the Trust Balance of the last
Mortgage Loan remaining in the Trust Fund (including without limitation the
disposition of the Mortgage Loans) or the disposition of all property
acquired upon foreclosure or deed in lieu of foreclosure of any Mortgage
Loan; and (iv) the Stated Maturity Date.
FORM OF ASSIGNMENT
FOR VALUE RECEIVED, the undersigned hereby sells, assigns and transfers
unto
(PLEASE INSERT SOCIAL SECURITY* OR TAXPAYER IDENTIFICATION NUMBER OF
ASSIGNEE)
___________________
___________________
- ---------------------------------------------------------------
(Please Print or Typewrite Name and Address of Assignee)
- ---------------------------------------------------------------
the within Certificate, and all rights thereunder, and hereby
does irrevocably constitute and appoint
Attorney
- -------------------------------------------------------
to transfer the within Certificate on the books kept for the
registration thereof, with full power of substitution in the premises.
Dated:
(Signature guaranty)
----------------------------
NOTICE: The signature to this assignment
- ------------------------------
must correspond with the name as it appears upon the face of the within
Certificate in every particular, without alteration or enlargement or any
change whatever.
(*This information, which is voluntary, is being requested to ensure that the
assignee will not be subject to backup withholding under Section 3406 of the
Code.)
EXHIBIT D
REVERSE OF SELLER CERTIFICATE
This Certificate is one of a duly authorized issue of Certificates
designated as ML Revolving Home Equity Loan Asset Backed Certificates, Series
199_-_ (herein called the "Certificates"), and representing, to the extent
specified in the Agreement, an undivided interest in: (i) the Mortgage Loans,
to the extent of their Trust Balances, and the proceeds thereof, (ii)
collections in respect of the Trust's interest in the Mortgage Loans received
on or after the Cut-off Date, (iii) an irrevocable and unconditional limited
financial guarantee insurance policy (the "Policy"), (iii) property that
secured a Mortgage Loan and which has been acquired by foreclosure or deed in
lieu of foreclosure or otherwise, (iv) the interest of the Trust in certain
hazard insurance policies covering the Mortgaged Properties, and (v) certain
other property relating to the Mortgage Loans.
The Certificates are limited in right of payment to certain
payments on and collections in respect of the Mortgage Loans, all as more
specifically set forth in the Agreement. The Certificateholder, by its
acceptance of this Certificate, agrees that it will look solely to the funds
on deposit in the Certificate Account for payment hereunder and that the
Trustee in its individual capacity is not personally liable to the
Certificateholders for any amount payable under this Certificate or the
Agreement or, except as expressly provided in the Agreement, subject to any
liability under the Agreement.
This Certificate does not purport to summarize the Agreement and
reference is made to the Agreement for the interests, rights and limitations
of rights, benefits, obligations and duties evidenced hereby, and the rights,
duties and immunities of the Trustee.
The Agreement permits, with certain exceptions therein provided,
the amendment thereof and the modification of the rights and obligations of
the Seller, the Servicer and the Trustee, and the rights of the
Certificateholders under the Agreement, at any time by the Seller, the
Servicer and the Trustee with the consent (i) of the Holders of Investor
Certificates evidencing Percentage Interests aggregating not less than 66%
and (ii) of the Certificate Insurer. Any such consent by the Holder of this
Certificate shall be conclusive and binding on such Holder and upon all
future Holders of this Certificate and of any Certificate issued upon the
transfer hereof or in exchange herefor or in lieu hereof whether or not
notation of such consent is made upon this Certificate. The Agreement also
permits the amendment thereof, in certain limited circumstances, without the
consent of the Holders of any of the Investor Certificates.
As provided in the Agreement and subject to certain limitations
therein set forth, the transfer of this Certificate is registrable in the
Certificate Register of the Certificate Registrar upon surrender of this
Certificate for registration of transfer at the office or agency maintained
by the Certificate Registrar for such purpose, accompanied by a written
instrument of transfer in form satisfactory to the Trustee, if so required by
the Trustee, be duly executed by the Holder hereof or such Holder's attorney
duly authorized in writing, and thereupon one or more new Certificates of
authorized denominations, if applicable, and evidencing the same aggregate
Percentage Interest will be issued to the designated transferee or
transferees.
The Certificates are issuable only as registered Certificates
without coupons in denominations specified in the Agreement. As provided in
the Agreement and subject to certain limitations therein set forth,
Certificates are exchangeable for new Certificates of a like tenor in
authorized denominations (in the case of the Investor Certificates) and
evidencing the same aggregate Percentage Interest, as requested by the Holder
surrendering the same.
No service charge will be made for any such registration of
transfer or exchange, but the Trustee or the Certificate Registrar may
require payment of a sum sufficient to cover any tax or other governmental
charge payable in connection therewith.
The Trustee, the Seller, the Servicer, the Certificate Insurer and
the Certificate Registrar and any agent of the foregoing may treat the Person
in whose name this Certificate is registered as the owner hereof for all
purposes, and neither the Trustee, the Seller, the Servicer, the Certificate
Insurer, the Certificate Registrar nor any such agent shall be affected by
any notice to the contrary.
The obligations and responsibilities created by the Agreement and
the Trust created thereby shall terminate upon distribution to the
Certificateholders, or provision therefor, of the amount required to be so
distributed in accordance with the Agreement upon the later of (A) payment in
full of all amounts owing to the Certificate Insurer and (B) the earliest of:
(i) the retransfer to the Servicer of the Investor Certificateholders'
interest in each Mortgage Loan and all property acquired in respect of any
Mortgage Loan remaining in the Trust Fund for an amount equal to the sum of
(a) the Certificate Principal Balance, (b) accrued and unpaid Certificate
Formula Interest through the day preceding the final Distribution Date, (c)
any Unpaid Certificate Interest Shortfall, and (d) any accrued and unpaid
Investor Loss Reduction Amounts through the day preceding such final
Distribution Date; (ii) the day following the Distribution Date on which the
distribution made to Investor Certificateholders has reduced the Certificate
Principal Balance to zero; (iii) the final payment or other liquidation (or
any Monthly Advance with respect thereto) of the Trust Balance of the last
Mortgage Loan remaining in the Trust Fund (including without limitation the
disposition of the Mortgage Loans) or the disposition of all property
acquired upon foreclosure or deed in lieu of foreclosure of any Mortgage
Loan; and (iv) the Stated Maturity Date.
FORM OF ASSIGNMENT
FOR VALUE RECEIVED, the undersigned hereby sells, assigns and transfers
unto
(PLEASE INSERT SOCIAL SECURITY* OR TAXPAYER IDENTIFICATION NUMBER OF
ASSIGNEE)
___________________
___________________
- ---------------------------------------------------------------
(Please Print or Typewrite Name and Address of Assignee)
- ---------------------------------------------------------------
the within Certificate, and all rights thereunder, and hereby
does irrevocably constitute and appoint
Attorney
- -------------------------------------------------------
to transfer the within Certificate on the books kept for the
registration thereof, with full power of substitution in the premises.
Dated:
(Signature guaranty)
----------------------------
NOTICE: The signature to this assignment
- ------------------------------
must correspond with the name as it appears upon the face of the within
Certificate in every particular, without alteration or enlargement or any
change whatever.
(*This information, which is voluntary, is being requested to ensure that the
assignee will not be subject to backup withholding under Section 3406 of the
Code.)
EXHIBIT E
(FORM OF NOTICE FOR CERTIFICATE
INSURANCE POLICY)
TO THE CERTIFICATE GUARANTY INSURANCE POLICY
--------------------------------------------
Policy No. ________
NOTICE OF NONPAYMENT AND DEMAND
FOR PAYMENT OF INSURED AMOUNTS
Date: ( )
AMBAC INDEMNITY CORPORATION
One State Street Plaza
New York, New York 10004
Attention: General Counsel
Reference is made to Certificate Guaranty Insurance Policy No. AB0065BE
(the "Policy") issued by AMBAC Indemnity Corporation ("AMBAC"). Terms
capitalized herein and not otherwise defined shall have the meanings
specified in the Policy unless the context otherwise requires.
The Trustee hereby certifies as follows:
1. The Trustee is the Trustee under the Agreement for the Holders;
2. The relevant Distribution Date is (date);
3. Payment on the Certificates in respect of the Distribution Date was
due to be received on ______ under the Agreement, in an amount
equal to $________;
4. There is a Non-Payment of an Insured Amount of $________, of which
$___________ represent amounts described in clauses (a) and (b), or
(y), as the case may be, of the definition thereof.
(5. The Trustee has designated $________ as Preference Amounts in
respect of ________ Distribution Dates; such amount is therefore
also due and owing pursuant to the terms of the Agreement as
aportion of the Insured Amount);
6. The Trustee has not heretofore made a demand for the Insured Amount
in respect of the Distribution Date;
7. The Trustee hereby requests the payment of the Insured Amount be
made by AMBAC under the Policy and directs that payment under the
Policy be made to the following account by bank wire transfer of
federal or other immediately available funds in accordance with the
terms of the Policy to:
___________________ Trustee's account number
8. The Trustee hereby agrees that, following receipt of the Insured
Amount from AMBAC, it shall (a) hold such amounts in trust and
apply the same directly to the distribution payment on the
Certificates when due; (b) not apply such funds for any other
purpose; (c) not commingle such funds with other funds held by the
Trustee; and (d) maintain an accurate record of such payments with
respect to each Certificate and the corresponding claim on the
Policy and proceeds thereof.
By: Trustee
--------------------------
Title:
--------------------------
(Officer)
EXHIBIT F
---------
MORTGAGE LOAN SCHEDULE
A COPY ON ELECTRONIC MEDIUM (FLOPPY DISKETTE) OF THE MORTGAGE LOAN SCHEDULE
HAS BEEN FORWARDED TO THE TRUSTEE FOR THEIR FILES. A COPY OF THE MORTGAGE
LOAN SCHEDULE MAY BE OBTAINED FROM THE TRUSTEE.
October 16, 1996
MLCC Mortgage Investors, Inc.
4802 Deer Lake Drive East
Jacksonville, Florida 32246
Re: MLCC Mortgage Investors, Inc.
Registration Statement on Form S-3
-----------------------------------
Ladies and Gentlemen:
We have acted as counsel for you in connection with the Registration
Statement on Form S-3 (the "Registration Statement"), filed with the
Securities and Exchange Commission under the Securities Act of 1933, as
amended (the "Act"), on the date hereof for the registration under the Act
of Asset Backed Certificates (the "Certificates"). Each series of
Certificates will be issued pursuant to a separate pooling and servicing
agreement (the "Pooling and Servicing Agreement"), among MLCC Mortgage
Investors, Inc. (the "Registrant"), a trustee to be identified in the
prospectus supplement for such series of Certificates and a master servicer
or servicer to be identified in the prospectus supplement for such series of
Certificates. Two forms of Pooling and Servicing Agreements are being filed
as exhibits to the Registration Statement.
We have made such investigation of law as we deemed appropriate and have
examined the proceedings heretofore taken and are familiar with the
procedures proposed to be taken by the Registrant in connection with the
authorization, issuance and sale of the Certificates.
Based on the foregoing, we are of the opinion that:
(i) When each Pooling and Servicing Agreement in respect of which we
have participated as your counsel has been duly authorized by all necessary
corporate action and has been duly executed and delivered, it will constitute
a valid and binding obligation of the Registrant enforceable in accordance
with its terms, subject to applicable bankruptcy, reorganization, insolvency
and similar laws affecting creditors' rights generally and subject, as to
enforceability, to general principles of equity (regardless of whether
enforcement is sought in a proceeding in equity or at law); and
(ii) When the issuance, execution and delivery of the Certificates in
respect of which we have participated as your counsel have been duly
authorized by all necessary corporate action, and when such Certificates have
been duly executed and delivered and sold as described in the Registration
Statement, such Certificates will be legally and validly issued and the
holders of such Certificates will be entitled to the benefits provided by the
Pooling and Servicing Agreement pursuant to which such Certificates were
issued.
In rendering the foregoing opinions, we have assumed the accuracy and
truthfulness of all public records of the Registrant and of all
certifications, documents and other proceedings examined by us that have been
executed or certified by officials of the Registrant acting within the scope
of their official capacities and have not verified the accuracy or
truthfulness thereof. We have also assumed the genuineness of the signatures
appearing upon such public records, certifications, documents and
proceedings. In addition, we have assumed that each such Pooling and
Servicing Agreement and the related Certificates will be executed and
delivered in substantially the form filed as exhibits to the Registration
Statement with such changes acceptable to us, and that such Certificates will
be sold as described in the Registration Statement. We express no opinion
as to the laws of any jurisdiction other than the laws of the State of New
York and the federal laws of the United States of America.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and to the reference to this firm under the heading
"Legal Matters" in the Prospectus forming a part of the Registration
Statement, without implying or admitting that we are "experts" within the
meaning of the Act or the rules and regulations of the Securities and
Exchange Commission issued thereunder, with respect to any part of the
Registration Statement, including this exhibit.
Very truly yours,
/s/ Brown & Wood llp
--------------------
Brown & Wood llp
October 16, 1996
MLCC Mortgage Investors, Inc.
4802 Deer Lake Drive East
Jacksonville, Florida 32246
Re: MLCC Mortgage Investors, Inc.
Registration Statement on Form S-3
----------------------------------
Ladies and Gentlemen:
We have acted as counsel to MLCC Mortgage Investors, Inc., a Delaware
corporation (the "Registrant"), in connection with the issuance and sale of
its Asset Backed Certificates (the "Certificates") that evidence interests
in, or securities backed by, certain pools of mortgage loans. Each series
of Certificates will be issued pursuant to a Pooling and Servicing Agreement
among the Registrant, a trustee and a master servicer, each to be specified
in the prospectus supplement for such series of Certificates. We have
advised the Registrant with respect to certain federal income tax
consequences of the proposed issuance of the Certificates. This advice is
summarized under the headings "Summary of Prospectus -- Certain Federal
Income Tax Consequences" and "Certain Federal Income Tax Consequences" in
both the Prospectus and the Prospectus Supplement, all as part of the
Registration Statement on Form S-3 (the "Registration Statement"), filed with
the Securities and Exchange Commission under the Securities Act of 1933, as
amended (the "Act"), on the date hereof for the registration of such
Certificates under the Act. Such description does not purport to discuss all
possible federal income tax ramifications of the proposed issuance, but with
respect to those tax consequences which are discussed, in our opinion, the
description is accurate in all material respects.
We hereby consent to the filing of this letter as an exhibit to the
Registration Statement and to a reference to this firm (as counsel to the
Registrant) under the heading "Certain Federal Income Tax Consequences" in
the Prospectus forming a part of the Registration Statement, without
implying or admitting that we are "experts" within the meaning of the Act
or the rules and regulations of the Commission issued thereunder, with
respect to any part of the Registration Statement, including this exhibit.
Very truly yours,
/s/ Brown & Wood llp
--------------------
Brown & Wood llp
<PAGE> CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in the Registration Statement
on Form S-3 to be filed October 16, 1996 of our report dated January 22,
1996, on our audits of the consolidated financial statements of MBIA
Insurance Corporation and Subsidiaries as of December 31, 1995 and 1994 and
for the three years ended December 31, 1995. We also consent to the
reference to our firm under the caption "Experts".
/s/ Coopers & Lybrand L.L.P.
----------------------------
Coopers & Lybrand L.L.P.
October 15, 1996
New York, New York
INDEPENDENT AUDITORS' CONSENT
The Board of Directors
AMBAC Indemnity Corporation:
We consent to the use of our report dated January 31, 1996 on the
consolidated financial statements of AMBAC Indemnity Corporation as of
December 31, 1995 and 1994, and for each of the years in the three year
period ended December 31, 1995 included in the Form S-3 of MLCC Mortgage
Investors, Inc., and to the references to our firm under the headings
"Experts" in the Prospectus.
Our report refers to accounting changes adopted by AMBAC Indemnity
Corporation in 1993, which include the financial Accounting Standards
Board's Statements of Financial Accounting Standards No. 109, "Accounting
for Income Taxes," No. 115, "Accounting for Certain Investments in Debt
and Equity Securities," No. 106, "Employers' Accounting for Postretirement
Benefits Other Than Pensions," and No. 112, "Employers' Accounting for
Postemployment Benefits."
/s/ KPMG Peat Marwick LLP
-------------------------
New York, New York KPMG Peat Marwick
October 11, 1996
