SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------------
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report (Date of earliest event reported) June 6, 1996
MERIT Securities Corporation
(Exact name of registrant as specified in charter)
Virginia 03992 54-1736551
(State or other jurisdiction (Commission (IRS Employer
of incorporation) File Number) Identification No.)
2800 East Parham Road, Richmond, Virginia 23228
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (804) 967-5800
- -------------------------------------------------------------------------------
(Former name or former address, if changed since last report.)
<PAGE>
Item 1. Changes in Control of Registrant.
Not Applicable.
Item 2. Acquisition or Disposition of Assets.
Not Applicable.
Item 3. Bankruptcy or Receivership.
Not Applicable.
Item 4. Changes in Registrant's Certifying Accountant.
Not Applicable.
Item 5. Other Events.
On June 6, 1996, the Registrant issued $449,750,000 initial principal
balance of its Collateralized Mortgage Bonds, Series 7, Class A-1 and Class A-5
(the "Bonds") pursuant to the Series 7 Supplement, dated as of May 1, 1996 (the
"Series 7 Supplement"), to the Indenture dated as of November 1, 1994 (the
"Original Indenture" and, collectively with the Series 7 Supplement, the
"Indenture"), between the Registrant and Texas Commerce Bank National
Association, as trustee (the "Trustee"). Capitalized terms used but not defined
herein shall have the meanings assigned to them in the Indenture. The Bonds were
issued with the initial principal amount as set forth below. The Class Interest
Rate and the Stated Maturity of the Bonds are as follows:
Original Class
Principal Interest Stated
Designation Amount Rate Maturity
Class A-1 Bonds $435,000,000 (1) May 28, 2030
Class A-5 Bonds 14,750,000 (1) May 28, 2030
- ------------------
(1) On each Payment Date, the Class Interest Rate for the Class A-1 and
Class A-5 Bonds will be the per annum rate equal to One-Month LIBOR, as
determined (except for the initial Payment Date) on the applicable
Floating Rate Determination Date, plus 0.52%, subject to a cap of
10.00% per annum, accrued during the applicable Accrual Period on the
outstanding principal balance of the Class A-1 and Class A-5 Bonds,
respectively, immediately prior to such Payment Date.
The financial guaranty insurance policy (the "MBIA Policy") issued by
MBIA Insurance Corporation provides an unconditional and irrevocable guarantee
as to payment of Guaranteed Payments, subject to the terms of the MBIA Policy.
As security for the Bonds, the Registrant pledged a pool of one- to
four-family, first lien and second lien Mortgage Loans to the Trustee pursuant
to the Indenture. The Mortgage Loans were purchased by the Registrant in a
privately-negotiated transaction with Resource Mortgage Capital, Inc. ("RMCI")
pursuant to a Sales Agreement, dated May 30, 1996, between the Registrant and
RMCI.
<PAGE>
The Class A-1 and Class A-5 Bonds have been sold by the Registrant to
Lehman Brothers Inc. (the "Underwriter") pursuant to an Underwriting Agreement,
dated as of May 30, 1996, among the Underwriter, the Registrant and RMCI. The
Class A-2, Class A-3 and Class A-4 Bonds have been sold by the Registrant to MSC
I, L.P., a Virginia limited partnership ("MSC"), pursuant to a Purchase
Agreement, dated as of May 30, 1996, between MSC and the Registrant.
The description of the Mortgage Loans pledged to the Trustee pursuant
to the Indenture begins on the following page. The amounts contained in the
following tables have been rounded to the nearest dollar amount or percentage,
as applicable. Asterisks (*) in the following tables indicate values between
0.0% and 0.5%.
<PAGE>
DESCRIPTION OF THE MORTGAGE POOL AND MORTGAGED PREMISES
EXCEPT AS OTHERWISE INDICATED, THE MORTGAGE LOANS UNDERLYING THE MERIT SERIES 7
CLASS A-1, CLASS A-2, CLASS A-3 AND CLASS A-4 BONDS HAVE THE FOLLOWING
CHARACTERISTICS AS OF MAY 1, 1996 (THE "CUT-OFF DATE"):
(DUE TO ROUNDING CONVENTIONS IN THE SCHEDULED PRINCIPAL BALANCE AND PERCENT OF
SCHEDULED PRINCIPAL BALANCE COLUMNS IN EACH OF THE FOLLOWING TABLES, COLUMN
TOTALS MAY NOT EQUAL THE SUM OF THE AMOUNTS IN SUCH COLUMNS.)
CURRENT SCHEDULED PRINCIPAL BALANCES
<TABLE>
<CAPTION>
CURRENT SCHEDULED PRINCIPAL NUMBER OF LOANS SCHEDULED PRINCIPAL BALANCE PERCENT OF SCHEDULED PRINCIPAL
BALANCES ($) ($) BALANCE (%)
<S> <C>
1- 50,000 402 14,797,056 3
50,001- 100,000 1052 78,531,131 15
100,001- 150,000 674 82,575,764 15
150,001- 203,150 361 62,687,256 12
203,151- 250,000 198 44,793,761 8
250,001- 300,000 154 42,056,478 8
300,001- 350,000 106 34,470,499 6
350,001- 400,000 77 29,122,656 5
400,001- 450,000 41 17,562,793 3
450,001- 500,000 35 16,785,174 3
500,001- 550,000 23 12,159,734 2
550,001- 600,000 30 17,385,157 3
600,001- 650,000 30 19,117,555 4
650,001- 700,000 11 7,494,529 2
700,001- 800,000 24 18,084,712 3
800,001- 900,000 7 6,042,993 1
900,001-1,000,000 12 11,796,344 2
1,000,001-1,500,000 20 24,699,400 5
TOTALS 3257 540,162,992 100
</TABLE>
The average Scheduled Principal Balance is approximately $165,847.
The maximum Scheduled Principal Balance is approximately $1,500,000.
The minimum Scheduled Principal Balance is approximately $9,937.
<PAGE>
GROSS MARGINS FOR ARM LOANS
<TABLE>
<CAPTION>
GROSS MARGINS (%) NUMBER OF LOANS SCHEDULED PRINCIPAL BALANCE PERCENT OF SCHEDULED PRINCIPAL
<S> <C> ($) BALANCE (%)
2.250-2.749 5 718,892 *
2.750-2.999 231 110,559,070 25
3.000-3.249 171 51,143,939 12
3.250-3.499 89 23,408,339 5
3.500-3.749 90 21,593,159 5
3.750-3.999 121 24,861,463 6
4.000-4.249 57 14,934,194 3
4.250-4.499 42 8,121,222 2
4.500-4.749 42 6,478,016 1
4.750-4.999 71 11,927,910 3
5.000-9.850 1491 169,629,307 38
TOTALS 2410 443,375,511 100
</TABLE>
The weighted average Gross Margin is approximately 4.32%.
<PAGE>
LOAN PURPOSE
<TABLE>
<CAPTION>
LOAN PURPOSE NUMBER OF LOANS SCHEDULED PRINCIPAL BALANCE PERCENT OF SCHEDULED PRINCIPAL
($) BALANCE (%)
<S> <C>
Refinance (Cash-Out) 1666 221,277,822 41
Purchase 907 170,122,133 31
Refinance (No Cash-Out) 684 148,763,037 28
TOTALS 3257 540,162,992 100
</TABLE>
<PAGE>
ORIGINAL LOAN-TO-COLLATERAL-VALUE RATIOS
<TABLE>
<CAPTION>
ORIGINAL LOAN-TO-COLLATERAL VALUE NUMBER OF LOANS SCHEDULED PRINCIPAL BALANCE PERCENT OF SCHEDULED PRINCIPAL
RATIOS (%) ($) BALANCE (%)
<S> <C>
50.00 and Below 252 43,562,071 8
50.01- 55.00 84 13,922,772 3
55.01- 60.00 155 25,811,835 5
60.01- 65.00 227 37,879,949 7
65.01- 70.00 429 72,232,324 13
70.01- 75.00 593 95,542,723 18
75.01- 80.00 1031 178,970,788 33
80.01- 85.00 227 31,698,484 6
85.01- 90.00 147 23,568,588 4
90.01- 95.00 106 15,954,016 3
95.01-100.00 5 927,157 *
100.01-135.00 1 92,285 *
TOTALS 3257 540,162,992 100
</TABLE>
The weighted average original loan-to-collateral-value ratio is
approximately 72.37%.
The maximum Scheduled Principal Balance with an original
loan-to-collateral-value ratio greater than 90% is approximately $430,000.
Approximately 50% of the Mortgage Loans with an original
loan-to-collateral-value ratio greater than 80% are covered by a Primary
Mortgage Insurance Policy.
<PAGE>
ORIGINAL LOAN-TO-VALUE RATIOS
<TABLE>
<CAPTION>
ORIGINAL LOAN-TO-VALUE SCHEDULED PRINCIPAL BALANCE PERCENT OF SCHEDULED PRINCIPAL
RATIOS (%) NUMBER OF LOANS ($) BALANCE (%)
<S> <C>
50.00 and Below 252 43,562,071 8
50.01- 55.00 84 13,922,772 3
55.01- 60.00 155 25,811,835 5
60.01- 65.00 227 37,879,949 7
65.01- 70.00 429 72,232,324 13
70.01- 75.00 592 94,342,723 17
75.01- 80.00 1025 175,213,679 32
80.01- 85.00 227 31,698,484 6
85.01- 90.00 149 25,259,588 5
90.01- 95.00 108 17,023,156 3
95.01-100.00 8 3,124,126 1
100.01-135.00 1 92,285 *
TOTALS 3257 540,162,992 100
</TABLE>
The weighted average original loan-to-value ratio is approximately
72.52%.
The maximum Scheduled Principal Balance with an original loan-to-value
ratio greater than 90% is approximately $1,200,000.
Approximately 50% of the Mortgage Loans with an original loan-to-value
ratio greater than 80% are covered by a Primary Mortgage Insurance Policy.
<PAGE>
MAXIMUM LIFETIME NOTE RATES FOR ARM LOANS
<TABLE>
<CAPTION>
MAXIMUM LIFETIME NOTE RATES NUMBER OF LOANS SCHEDULED PRINCIPAL BALANCE PERCENT OF SCHEDULED PRINCIPAL
(%) ($) BALANCE (%)
<S> <C>
9.625- 9.999 1 251,565 *
10.000-10.499 1 308,200 *
10.500-10.999 2 348,051 *
11.000-11.499 7 1,225,165 *
11.500-11.999 28 8,295,596 2
12.000-12.499 178 89,798,093 20
12.500-12.999 199 69,188,223 16
13.000-13.499 74 21,807,815 5
13.500-13.999 116 25,439,362 6
14.000-14.499 132 23,758,923 5
14.500-14.999 212 35,942,912 8
15.000-15.499 184 28,473,611 6
15.500-15.999 294 39,732,231 9
16.000-16.499 225 29,982,190 7
16.500-16.999 248 27,562,285 6
17.000-17.499 108 10,793,113 3
17.500-17.999 157 13,825,500 3
18.000-18.499 60 5,074,502 1
18.500-19.999 128 9,017,352 2
20.000-22.500 56 2,550,822 1
TOTALS 2410 443,375,511 100
</TABLE>
The weighted average maximum lifetime Note Rate is approximately 14.33% per
annum.
<PAGE>
MINIMUM LIFETIME NOTE RATES FOR ARM LOANS
<TABLE>
<CAPTION>
MINIMUM LIFETIME NOTE RATES SCHEDULED PRINCIPAL BALANCE PERCENT OF SCHEDULED PRINCIPAL
(%) NUMBER OF LOANS ($) BALANCE (%)
<S> <C>
2.750-3.999 255 117,780,480 27
4.000-4.499 19 5,741,565 1
4.500-4.999 144 44,414,490 10
5.000-5.499 46 13,554,783 3
5.500-5.999 102 24,203,997 6
6.000-6.499 58 14,348,552 3
6.500-6.999 67 13,506,393 3
7.000-7.499 40 6,885,053 2
7.500-7.999 161 22,501,678 5
8.000-8.499 133 20,800,703 5
8.500-8.999 263 41,126,686 9
9.000-9.499 205 27,944,003 6
9.500-15.500 917 90,567,128 20
TOTALS 2410 443,375,511 100
</TABLE>
The weighted average minimum lifetime Note Rate is approximately 6.58% per
annum.
In no case will the minimum lifetime Note Rate of a Mortgage Loan be less
than the Gross Margin of such Mortgage Loan.
<PAGE>
NEXT INTEREST ADJUSTMENT DATE FOR ARM LOANS
<TABLE>
<CAPTION>
ADJUSTMENT DATE NUMBER OF LOANS SCHEDULED PRINCIPAL BALANCE PERCENT OF SCHEDULED PRINCIPAL
($) BALANCE (%)
<S> <C>
June 1, 1996 143 19,232,871 4
July 1, 1996 123 18,169,508 4
August 1, 1996 191 21,987,250 5
September 1, 1996 600 71,591,494 16
October 1, 1996 171 31,978,614 7
November 1, 1996 189 31,070,817 7
December 1, 1996 15 2,645,122 1
January 1, 1997 3 495,160 *
February 1, 1997 50 13,520,635 3
March 1, 1997 104 31,138,184 7
April 1, 1997 82 17,217,068 4
May 1, 1997 63 11,076,114 3
June 1, 1997 20 3,566,570 1
July 1, 1997 1 59,822 *
December 1, 1997 1 118,236 *
March 1, 1998 1 67,921 *
August 1, 1998 1 93,719 *
September 1, 1998 1 251,217 *
November 1, 1998 19 2,643,767 1
December 1, 1998 47 5,682,497 1
January 1, 1999 81 10,806,356 2
February 1, 1999 51 7,156,802 2
March 1, 1999 74 12,309,067 3
April 1, 1999 86 13,828,842 3
May 1, 1999 59 6,650,450 2
June 1, 1999 20 2,204,560 1
August 1, 1999 1 103,424 *
September 1, 1999 1 314,393 *
November 1, 1999 2 264,548 *
December 1, 1999 3 367,882 *
January 1, 2000 1 100,061 *
February 1, 2000 5 2,113,750 *
April 1, 2000 1 161,784 *
May 1, 2000 3 687,220 *
June 1, 2000 2 396,260 *
July 1, 2000 4 1,463,499 *
August 1, 2000 8 4,825,948 1
September 1, 2000 33 18,237,593 4
October 1, 2000 25 13,053,386 3
<PAGE>
November 1, 2000 35 20,861,741 5
December 1, 2000 30 15,799,417 4
January 1, 2001 42 22,802,522 5
February 1, 2001 12 3,755,730 1
November 1, 2004 1 168,172 *
July 1, 2005 1 868,797 *
August 1, 2005 4 1,466,721 *
TOTALS 2410 443,375,511 100
</TABLE>
The Weighted Next Interest Adjustment Date is March 1, 1998.
<PAGE>
CURRENT NOTE RATES
<TABLE>
<CAPTION>
CURRENT NOTE RATES (%) NUMBER OF LOANS SCHEDULED PRINCIPAL BALANCE PERCENT OF SCHEDULED PRINCIPAL
($) BALANCE (%)
<S> <C>
5.125- 5.999 9 1,864,997 *
6.000- 6.499 26 8,337,915 2
6.500- 6.999 172 54,785,065 10
7.000- 7.249 81 35,043,250 6
7.250- 7.499 144 67,789,566 13
7.500- 7.749 73 19,536,874 4
7.750- 7.999 169 36,627,588 7
8.000- 8.249 99 16,365,153 3
8.250- 8.499 126 23,774,321 4
8.500- 8.749 195 31,256,460 6
8.750- 8.999 272 40,574,488 8
9.000- 9.249 170 23,552,172 4
9.250- 9.499 180 22,825,665 4
9.500- 9.749 171 21,914,646 4
9.750- 9.999 294 34,290,921 6
10.000-16.500 1076 101,623,911 19
TOTALS 3257 540,162,992 100
</TABLE>
The weighted average current Note Rate is approximately 8.60% per annum.
The weighted average current Note Rate of the Fixed Mortgage Loans is
approximately 9.47% per annum.
The weighted average current Note Rate of the ARM Mortgage Loans is
approximately 8.41% per annum.
Approximately 10% of the Mortgage Loans have passed their first Interest
Adjustment Date.
<PAGE>
OCCUPANCY OF MORTGAGED PREMISES
<TABLE>
<CAPTION>
OCCUPANCY TYPE* NUMBER OF LOANS SCHEDULED PRINCIPAL BALANCE PERCENT OF SCHEDULED PRINCIPAL
($) BALANCE (%)
<S> <C>
Primary Home 2979 505,187,448 93
Second Home 144 24,902,482 5
Investor 134 10,073,062 2
TOTALS 3257 540,162,992 100
</TABLE>
* As represented by the Borrower on the Mortgage Loan application.
<PAGE>
ORIGINATION PROGRAM
<TABLE>
<CAPTION>
ORIGINATION PROGRAM NUMBER OF LOANS SCHEDULED PRINCIPAL BALANCE PERCENT OF SCHEDULED PRINCIPAL
($) BALANCE (%)
<S> <C>
Full Documentation 2120 358,606,375 66
Limited Documentation 1137 181,556,617 34
TOTALS 3257 540,162,992 100
</TABLE>
<PAGE>
PROPERTY TYPES OF MORTGAGED PREMISES
<TABLE>
<CAPTION>
PROPERTY TYPE NUMBER OF LOANS SCHEDULED PRINCIPAL BALANCE PERCENT OF SCHEDULED PRINCIPAL
($) BALANCE (%)
<S> <C>
Single Family Detached 2769 467,845,758 87
Single Family Attached 136 15,203,228 3
Low Rise Condominium 115 13,684,599 2
Manufactured Housing 62 3,958,919 1
Planned Unit Development 53 10,172,096 2
Cooperative 48 15,034,720 3
Deminimus PUD 27 3,173,291 1
Townhouse 20 2,032,396 *
Condominium 16 7,368,759 1
High Rise Condominium 11 1,689,226 *
TOTALS 3257 540,162,992 100
</TABLE>
<PAGE>
REMAINING TERM TO STATED MATURITY
<TABLE>
<CAPTION>
REMAINING TERM (MONTHS) NUMBER OF LOANS SCHEDULED PRINCIPAL BALANCE PERCENT OF SCHEDULED PRINCIPAL
($) BALANCE (%)
<S> <C>
40- 180 170 12,768,916 2
181-300 20 2,040,120 *
301-320 72 11,551,353 2
321-330 32 5,020,735 1
331-340 37 5,185,749 1
341-350 171 27,264,364 5
351-355 530 123,947,365 23
356 290 53,948,104 10
357 327 48,275,839 9
358 821 121,743,681 23
359 402 69,753,016 13
360 385 58,663,750 11
TOTALS 3257 540,162,992 100
</TABLE>
The weighted average remaining term to stated maturity is approximately 350
months.
<PAGE>
STATE DISTRIBUTION OF MORTGAGED PREMISES
<TABLE>
<CAPTION>
STATE (2% OR GREATER NUMBER OF LOANS SCHEDULED PRINCIPAL BALANCE PERCENT OF SCHEDULED PRINCIPAL
CONCENTRATION) ($) BALANCE (%)
<S> <C>
California 962 209,750,083 39
Maryland 179 32,844,325 6
Pennsylvania 157 28,087,336 5
Virginia 162 23,497,228 4
Colorado 151 21,805,657 4
Illinois 154 20,515,573 4
New York 69 19,596,789 4
Utah 127 16,606,094 3
Washington 112 15,284,703 3
Florida 108 14,343,893 3
Georgia 100 12,868,112 2
Oregon 90 11,911,436 2
Other* 886 113,051,763 21
TOTALS 3257 540,162,992 100
</TABLE>
*Other includes: Alabama, Arizona, Arkansas, Connecticut, Delaware, Hawaii,
Idaho, Indiana, Iowa, Kansas, Kentucky, Louisiana, Maine, Massachusetts,
Michigan, Minnesota, Mississippi, Missouri, Montana, Nevada, New Hampshire, New
Jersey, New Mexico, North Carolina, Ohio, Oklahoma, South Carolina, Tennessee,
Texas, Washington DC, West Virginia, Wisconsin, Wyoming.
DESCRIPTION OF THE MORTGAGE POOL AND MORTGAGED PREMISES
EXCEPT AS OTHERWISE INDICATED, THE FIXED RATE MORTGAGE LOANS UNDERLYING THE
MERIT SERIES 7 CLASS A-1, CLASS A-2, CLASS A-3 AND CLASS A-4 BONDS HAVE THE
FOLLOWING CHARACTERISTICS AS OF MAY 1, 1996 (THE "CUT-OFF DATE"): (DUE TO
ROUNDING CONVENTIONS IN THE SCHEDULED PRINCIPAL BALANCE AND PERCENT OF SCHEDULED
PRINCIPAL BALANCE COLUMNS IN EACH OF THE FOLLOWING TABLES, COLUMN TOTALS MAY NOT
EQUAL THE SUM OF THE AMOUNTS IN SUCH COLUMNS.)
<TABLE>
<CAPTION>
CURRENT SCHEDULED PRINCIPAL BALANCES
CURRENT SCHEDULED PRINCIPAL NUMBER OF LOANS SCHEDULED PRINCIPAL BALANCE PERCENT OF SCHEDULED PRINCIPAL
BALANCES ($) ($) BALANCE (%)
<S> <C> <C> <C>
1- 50,000 152 5,937,744 6
50,001- 100,000 327 23,654,057 24
100,001- 150,000 173 21,291,353 22
150,001- 203,150 107 18,656,882 19
203,151- 250,000 40 8,835,989 9
250,001- 300,000 17 4,583,775 5
300,001- 350,000 14 4,541,126 5
350,001- 400,000 7 2,596,502 3
400,001- 450,000 2 824,120 1
450,001- 500,000 2 922,473 1
500,001- 550,000 2 1,041,210 1
600,001- 650,000 1 618,438 1
700,001- 800,000 1 750,000 1
1,000,001-1,500,000 2 2,533,812 2
TOTALS 847 96,787,481 100
</TABLE>
The average Scheduled Principal Balance is approximately $114,271.
The maximum Scheduled Principal Balance is approximately $1,300,000.
The minimum Scheduled Principal Balance is approximately $9,937.
<PAGE>
LOAN PURPOSE
<TABLE>
<CAPTION>
LOAN PURPOSE NUMBER OF LOANS SCHEDULED PRINCIPAL BALANCE PERCENT OF SCHEDULED PRINCIPAL
($) BALANCE (%)
<S> <C> <C> <C>
Refinance (Cash-Out) 440 46,148,483 48
Purchase 230 26,934,199 28
Refinance (No Cash-Out) 177 23,704,799 24
TOTALS 847 96,787,481 100
</TABLE>
<PAGE>
ORIGINAL LOAN-TO-COLLATERAL-VALUE RATIOS
<TABLE>
<CAPTION>
ORIGINAL LOAN-TO-COLLATERAL VALUE NUMBER OF LOANS SCHEDULED PRINCIPAL BALANCE PERCENT OF SCHEDULED PRINCIPAL
RATIOS (%) ($) BALANCE (%)
<S> <C> <C> <C>
50.00 and Below 84 6,376,762 7
50.01- 55.00 20 3,108,211 3
55.01- 60.00 43 3,776,743 4
60.01- 65.00 58 6,604,653 7
65.01- 70.00 110 12,039,924 12
70.01- 75.00 104 13,059,796 13
75.01- 80.00 267 32,235,611 33
80.01- 85.00 55 4,763,558 5
85.01- 90.00 39 5,328,080 6
90.01- 95.00 62 8,904,701 9
95.01-100.00 4 497,157 1
100.01-135.00 1 92,285 *
TOTALS 847 96,787,481 100
</TABLE>
The weighted average original loan-to-collateral-value ratio is approximately
74.10%.
The maximum Scheduled Principal Balance with an original
loan-to-collateral-value ratio greater than 90% is approximately $308,563.
Approximately 82% of the Mortgage Loans with an original
loan-to-collateral-value ratio greater than 80% are covered by a Primary
Mortgage Insurance Policy.
<PAGE>
ORIGINAL LOAN-TO-VALUE RATIOS
<TABLE>
<CAPTION>
ORIGINAL LOAN-TO-VALUE RATIOS (%) NUMBER OF LOANS SCHEDULED PRINCIPAL BALANCE PERCENT OF SCHEDULED PRINCIPAL
($) BALANCE (%)
<S> <C> <C> <C>
50.00 and Below 84 6,376,762 7
50.01- 55.00 20 3,108,211 3
55.01- 60.00 43 3,776,743 4
60.01- 65.00 58 6,604,653 7
65.01- 70.00 110 12,039,924 12
70.01- 75.00 104 13,059,796 13
75.01- 80.00 267 32,235,611 33
80.01- 85.00 55 4,763,558 5
85.01- 90.00 39 5,328,080 6
90.01- 95.00 62 8,904,701 9
95.01-100.00 4 497,157 1
100.01-135.00 1 92,285 *
TOTALS 847 96,787,481 100
</TABLE>
The weighted average original loan-to-value ratio is approximately 74.10%.
The maximum Scheduled Principal Balance with an original loan-to-value ratio
greater than 90% is approximately $308,563.
Approximately 82% of the Mortgage Loans with an original loan-to-value ratio
greater than 80% are covered by a Primary Mortgage Insurance Policy.
<PAGE>
NET RATES
<TABLE>
<CAPTION>
NET RATES (%) NUMBER OF LOANS SCHEDULED PRINCIPAL BALANCE PERCENT OF SCHEDULED PRINCIPAL
($) BALANCE (%)
<S> <C> <C> <C>
6.725- 6.999 3 432,960 *
7.000- 7.249 9 1,335,567 1
7.250- 7.499 14 1,826,680 2
7.500- 7.749 30 3,881,301 4
7.750- 7.999 44 6,522,603 7
8.000- 8.249 88 11,938,084 12
8.250- 8.499 96 13,286,282 14
8.500- 8.749 71 9,382,410 10
8.750- 8.999 66 7,771,893 8
9.000- 9.249 70 8,904,316 9
9.250- 9.499 69 6,738,131 7
9.500- 9.749 35 3,127,801 3
9.750- 9.999 59 7,501,111 8
10.000-15.875 193 14,138,342 15
TOTALS 847 96,787,481 100
</TABLE>
The weighted average Net Rate is approximately 9.00% per annum.
<PAGE>
CURRENT NOTE RATES
<TABLE>
<CAPTION>
CURRENT NOTE RATES (%) NUMBER OF LOANS SCHEDULED PRINCIPAL BALANCE PERCENT OF SCHEDULED PRINCIPAL
($) BALANCE (%)
<S> <C> <C> <C>
7.125- 7.999 24 3,435,719 4
8.000- 8.249 32 4,040,789 4
8.250- 8.499 40 5,703,803 6
8.500- 8.749 88 12,079,220 12
8.750- 8.999 100 13,869,348 14
9.000- 9.249 67 9,116,121 9
9.250- 9.499 63 7,524,097 8
9.500- 9.749 51 6,836,586 7
9.750- 9.999 79 8,207,208 9
10.000-16.500 303 25,974,590 27
TOTALS 847 96,787,481 100
</TABLE>
The weighted average current Note Rate is approximately 9.47% per annum.
<PAGE>
OCCUPANCY OF MORTGAGED PREMISES
<TABLE>
<CAPTION>
OCCUPANCY TYPE* NUMBER OF LOANS SCHEDULED PRINCIPAL BALANCE PERCENT OF SCHEDULED PRINCIPAL
($) BALANCE (%)
<S> <C> <C> <C>
Primary Home 767 90,882,509 94
Investor 64 4,263,609 4
Second Home 16 1,641,363 2
TOTALS 847 96,787,481 100
</TABLE>
* As represented by the Borrower on the Mortgage Loan application.
<PAGE>
ORIGINATION PROGRAM
<TABLE>
<CAPTION>
ORIGINATION PROGRAM NUMBER OF LOANS SCHEDULED PRINCIPAL BALANCE PERCENT OF SCHEDULED PRINCIPAL
($) BALANCE (%)
<S> <C> <C> <C>
Full Documentation 511 54,723,441 57
Limited Documentation 336 42,064,040 43
TOTALS 847 96,787,481 100
</TABLE>
<PAGE>
PROPERTY TYPES OF MORTGAGED PREMISES
<TABLE>
<CAPTION>
PROPERTY TYPE NUMBER OF LOANS SCHEDULED PRINCIPAL BALANCE PERCENT OF SCHEDULED PRINCIPAL
($) BALANCE (%)
<S> <C> <C> <C>
Single Family Detached 708 85,356,375 88
Manufactured Housing 45 2,573,200 3
Low Rise Condominium 35 3,538,667 4
Single Family Attached 32 2,776,682 3
Deminimus PUD 13 1,161,624 1
Townhouse 6 588,111 1
Planned Unit Development 4 336,746 *
High Rise Condominium 4 456,076 *
TOTALS 847 96,787,481 100
</TABLE>
<PAGE>
REMAINING TERM TO STATED MATURITY
<TABLE>
<CAPTION>
REMAINING TERM (MONTHS) NUMBER OF LOANS SCHEDULED PRINCIPAL BALANCE PERCENT OF SCHEDULED PRINCIPAL
($) BALANCE (%)
<S> <C> <C> <C>
40-180 134 10,848,161 11
181-230 1 35,306 *
231-300 6 565,946 1
301-320 71 11,360,152 12
321-330 31 4,680,576 5
331-340 31 4,143,878 4
341-350 2 401,719 *
351-355 75 6,193,179 6
356 63 5,195,561 5
357 53 5,879,004 6
358 140 17,161,613 18
359 129 16,237,316 17
360 111 14,085,070 15
TOTALS 847 96,787,481 100
</TABLE>
The weighted average remaining term to stated maturity is approximately 329
months.
<PAGE>
STATE DISTRIBUTION OF MORTGAGED PREMISES
<TABLE>
<CAPTION>
STATE (5% OR GREATER NUMBER OF LOANS SCHEDULED PRINCIPAL BALANCE PERCENT OF SCHEDULED PRINCIPAL
CONCENTRATION) ($) BALANCE (%)
<S> <C> <C> <C>
California 216 30,348,842 31
Maryland 58 9,574,818 10
Florida 55 5,058,153 5
Georgia 40 3,855,501 4
Washington 31 3,726,001 4
Oregon 28 3,610,403 4
Colorado 30 3,513,694 4
North Carolina 44 3,364,992 3
New York 19 3,175,060 3
Tennessee 50 3,160,963 3
Virginia 32 3,131,277 3
Pennsylvania 34 2,763,516 3
New Jersey 17 2,491,082 3
Texas 23 2,425,262 3
Utah 22 2,331,145 2
Arizona 19 2,002,814 2
Other* 129 12,253,958 13
TOTALS 847 96,787,481 100
</TABLE>
*Other includes: Connecticut, Delaware, Hawaii, Idaho, Illinois, Indiana,
Kansas, Massachusetts, Minnesota, Missouri, Montana, Nevada, New Mexico, Ohio,
Oklahoma, South Carolina, Washington DC, Wisconsin, Wyoming.
DESCRIPTION OF THE MORTGAGE POOL AND MORTGAGED PREMISES
EXCEPT AS OTHERWISE INDICATED, THE ARM MORTGAGE LOANS UNDERLYING THE MERIT
SERIES 7 CLASS A-1, CLASS A-2, CLASS A-3 AND CLASS A-4 BONDS HAVE THE
FOLLOWING CHARACTERISTICS AS OF MAY 1, 1996 (THE "CUT-OFF DATE"): (DUE TO
ROUNDING CONVENTIONS IN THE SCHEDULED PRINCIPAL BALANCE AND PERCENT OF SCHEDULED
PRINCIPAL BALANCE COLUMNS IN EACH OF THE FOLLOWING TABLES, COLUMN TOTALS MAY NOT
EQUAL THE SUM OF THE AMOUNTS IN SUCH COLUMNS.)
CURRENT SCHEDULED PRINCIPAL BALANCES
<TABLE>
<CAPTION>
CURRENT SCHEDULED PRINCIPAL NUMBER OF LOANS SCHEDULED PRINCIPAL BALANCE PERCENT OF SCHEDULED PRINCIPAL
BALANCES ($) ($) BALANCE (%)
<S> <C>
1- 50,000 250 8,859,311 2
50,001- 100,000 725 54,877,075 12
100,001- 150,000 501 61,284,411 14
150,001- 203,150 254 44,030,374 10
203,151- 250,000 158 35,957,771 8
250,001- 300,000 137 37,472,704 8
300,001- 350,000 92 29,929,373 7
350,001- 400,000 70 26,526,153 6
400,001- 450,000 39 16,738,673 4
450,001- 500,000 33 15,862,701 4
500,001- 550,000 21 11,118,524 2
550,001- 600,000 30 17,385,157 4
600,001- 650,000 29 18,499,117 4
650,001- 700,000 11 7,494,529 2
700,001- 800,000 23 17,334,712 4
800,001- 900,000 7 6,042,993 1
900,001-1,000,000 12 11,796,345 3
1,000,001-1,500,000 18 22,165,588 5
TOTALS 2410 443,375,511 100
</TABLE>
The average Scheduled Principal Balance is approximately $183,973.
The maximum Scheduled Principal Balance is approximately $1,500,000.
The minimum Scheduled Principal Balance is approximately $9,968.
<PAGE>
GROSS MARGINS FOR ARM LOANS
<TABLE>
<CAPTION>
GROSS MARGINS (%) NUMBER OF LOANS SCHEDULED PRINCIPAL BALANCE PERCENT OF SCHEDULED PRINCIPAL
($) BALANCE (%)
<S> <C>
2.250-2.749 5 718,892 *
2.750-2.999 231 110,559,070 25
3.000-3.249 171 51,143,939 12
3.250-3.499 89 23,408,339 5
3.500-3.749 90 21,593,159 5
3.750-3.999 121 24,861,463 6
4.000-4.249 57 14,934,194 3
4.250-4.499 42 8,121,222 2
4.500-4.999 113 18,405,926 4
5.000-9.850 1491 169,629,307 38
TOTALS 2410 443,375,511 100
</TABLE>
The weighted average Gross Margin is approximately 4.32%.
<PAGE>
LOAN PURPOSE
<TABLE>
<CAPTION>
LOAN PURPOSE NUMBER OF LOANS SCHEDULED PRINCIPAL BALANCE PERCENT OF SCHEDULED PRINCIPAL
($) BALANCE (%)
<S> <C>
Refinance (Cash-Out) 1226 175,129,339 40
Purchase 677 143,187,934 32
Refinance (No Cash-Out) 507 125,058,238 28
TOTALS 2410 443,375,511 100
</TABLE>
<PAGE>
ORIGINAL LOAN-TO-COLLATERAL-VALUE RATIOS
<TABLE>
<CAPTION>
ORIGINAL LOAN-TO-COLLATERAL VALUE NUMBER OF LOANS SCHEDULED PRINCIPAL BALANCE PERCENT OF SCHEDULED PRINCIPAL
RATIOS (%) ($) BALANCE (%)
<S> <C>
50.00 and Below 168 37,185,308 8
50.01- 55.00 64 10,814,561 2
55.01- 60.00 112 22,035,092 5
60.01- 65.00 169 31,275,296 7
65.01- 70.00 319 60,192,400 14
70.01- 75.00 489 82,482,928 19
75.01- 80.00 764 146,735,177 33
80.01- 85.00 172 26,934,926 6
85.01- 90.00 108 18,240,508 4
90.01- 95.00 44 7,049,315 2
95.01-100.00 1 430,000 *
TOTALS 2410 443,375,511 100
</TABLE>
The weighted average original loan-to-collateral-value ratio is approximately
71.99%.
The maximum Scheduled Principal Balance with an original
loan-to-collateral-value ratio greater than 90% is approximately $430,000.
Approximately 39% of the Mortgage Loans with an original
loan-to-collateral-value ratio greater than 80% are covered by a Primary
Mortgage Insurance Policy.
<PAGE>
ORIGINAL LOAN-TO-VALUE RATIOS
<TABLE>
<CAPTION>
ORIGINAL LOAN-TO-VALUE RATIOS (%) NUMBER OF LOANS SCHEDULED PRINCIPAL BALANCE PERCENT OF SCHEDULED PRINCIPAL
($) BALANCE (%)
<S> <C>
50.00 and Below 168 37,185,308 8
50.01- 55.00 64 10,814,561 2
55.01- 60.00 112 22,035,092 5
60.01- 65.00 169 31,275,296 7
65.01- 70.00 319 60,192,400 14
70.01- 75.00 488 81,282,928 18
75.01- 80.00 758 142,978,068 32
80.01- 85.00 172 26,934,926 6
85.01- 90.00 110 19,931,508 5
90.01- 95.00 46 8,118,455 2
95.01-100.00 4 2,626,969 1
TOTALS 2410 443,375,511 100
</TABLE>
The weighted average original loan-to-value ratio is approximately 72.17%.
The maximum Scheduled Principal Balance with an original loan-to-value ratio
greater than 90% is approximately $1,200,000.
Approximately 39% of the Mortgage Loans with an original loan-to-value ratio
greater than 80% are covered by a Primary Mortgage Insurance Policy.
<PAGE>
MAXIMUM LIFETIME NOTE RATES FOR ARM LOANS
<TABLE>
<CAPTION>
MAXIMUM LIFETIME NOTE RATES NUMBER OF LOANS SCHEDULED PRINCIPAL BALANCE PERCENT OF SCHEDULED PRINCIPAL
(%) ($) BALANCE (%)
<S> <C>
9.625- 9.999 1 251,565 *
10.000-10.499 1 308,200 *
10.500-10.999 2 348,051 *
11.000-11.499 7 1,225,165 *
11.500-11.999 28 8,295,596 2
12.000-12.499 178 89,798,093 20
12.500-12.999 199 69,188,223 16
13.000-13.499 74 21,807,815 5
13.500-13.999 116 25,439,362 6
14.000-14.499 132 23,758,923 5
14.500-14.999 212 35,942,912 8
15.000-15.499 184 28,473,611 6
15.500-15.999 294 39,732,231 9
16.000-16.499 225 29,982,190 7
16.500-16.999 248 27,562,285 6
17.000-17.499 108 10,793,113 3
17.500-17.999 157 13,825,500 3
18.000-18.499 60 5,074,502 1
18.500-19.999 128 9,017,352 2
20.000-22.500 56 2,550,822 1
TOTALS 2410 443,375,511 100
</TABLE>
The weighted average maximum lifetime Note Rate is approximately 14.33% per
annum.
<PAGE>
MINIMUM LIFETIME NOTE RATES FOR ARM LOANS
<TABLE>
<CAPTION>
MINIMUM LIFETIME NOTE RATES NUMBER OF LOANS SCHEDULED PRINCIPAL BALANCE PERCENT OF SCHEDULED PRINCIPAL
(%) ($) BALANCE (%)
<S> <C>
2.750- 3.999 255 117,780,480 27
4.000- 4.499 19 5,741,565 1
4.500- 4.999 144 44,414,490 10
5.000- 5.499 46 13,554,783 3
5.500- 5.999 102 24,203,997 6
6.000- 6.499 58 14,348,552 3
6.500- 6.999 67 13,506,393 3
7.000- 7.499 40 6,885,053 2
7.500- 7.999 161 22,501,678 5
8.000- 8.499 133 20,800,703 5
8.500- 8.999 263 41,126,686 9
9.000- 9.499 205 27,944,003 6
9.500-15.500 917 90,567,128 20
TOTALS 2410 443,375,511 100
</TABLE>
The weighted average minimum lifetime Note Rate is approximately 6.58% per
annum.
In no case will the minimum lifetime Note Rate of a Mortgage Loan be less
than the Gross Margin of such Mortgage Loan.
<PAGE>
NEXT INTEREST ADJUSTMENT DATE FOR ARM LOANS
<TABLE>
<CAPTION>
ADJUSTMENT DATE NUMBER OF LOANS SCHEDULED PRINCIPAL BALANCE PERCENT OF SCHEDULED PRINCIPAL
($) BALANCE (%)
<S> <C>
June 1, 1996 143 19,232,871 4
July 1, 1996 123 18,169,508 4
August 1, 1996 191 21,987,250 5
September 1, 1996 600 71,591,494 16
October 1, 1996 171 31,978,614 7
November 1, 1996 189 31,070,817 7
December 1, 1996 15 2,645,122 1
January 1, 1997 3 495,160 *
February 1, 1997 50 13,520,635 3
March 1, 1997 104 31,138,184 7
April 1, 1997 82 17,217,068 4
May 1, 1997 63 11,076,114 3
June 1, 1997 20 3,566,570 1
July 1, 1997 1 59,822 *
December 1, 1997 1 118,236 *
March 1, 1998 1 67,921 *
August 1, 1998 1 93,719 *
September 1, 1998 1 251,217 *
November 1, 1998 19 2,643,767 1
December 1, 1998 47 5,682,497 1
January 1, 1999 81 10,806,356 2
February 1, 1999 51 7,156,802 2
March 1, 1999 74 12,309,067 3
April 1, 1999 86 13,828,842 3
May 1, 1999 59 6,650,450 2
June 1, 1999 20 2,204,560 1
August 1, 1999 1 103,424 *
September 1, 1999 1 314,393 *
November 1, 1999 2 264,548 *
December 1, 1999 3 367,882 *
January 1, 2000 1 100,061 *
February 1, 2000 5 2,113,750 *
April 1, 2000 1 161,784 *
May 1, 2000 3 687,220 *
June 1, 2000 2 396,260 *
July 1, 2000 4 1,463,499 *
August 1, 2000 8 4,825,948 1
September 1, 2000 33 18,237,593 4
October 1, 2000 25 13,053,386 3
November 1, 2000 35 20,861,741 5
December 1, 2000 30 15,799,417 4
January 1, 2001 42 22,802,522 5
February 1, 2001 12 3,755,730 1
November 1, 2004 1 168,172 *
July 1, 2005 1 868,797 *
August 1, 2005 4 1,466,721 *
TOTALS 2410 443,375,511 100
</TABLE>
The Weighted Next Interest Adjustment Date is March 1, 1998.
<PAGE>
CURRENT NOTE RATES
<TABLE>
<CAPTION>
CURRENT NOTE RATES NUMBER OF LOANS SCHEDULED PRINCIPAL BALANCE PERCENT OF SCHEDULED PRINCIPAL
(%) ($) BALANCE (%)
<S> <C>
5.125- 5.999 9 1,864,997 1
6.000- 6.499 26 8,337,915 2
6.500- 6.999 172 54,785,065 12
7.000- 7.249 80 34,904,111 8
7.250- 7.499 142 67,495,746 15
7.500- 7.749 67 18,555,456 4
7.750- 7.999 154 34,606,246 8
8.000- 8.249 67 12,324,365 3
8.250- 8.499 86 18,070,518 4
8.500- 8.749 107 19,177,239 4
8.750- 8.999 172 26,705,140 6
9.000- 9.249 103 14,436,051 3
9.250- 9.499 117 15,301,568 4
9.500- 9.749 120 15,078,060 3
9.750- 9.999 215 26,083,712 6
10.000-16.500 773 75,649,322 17
TOTALS 2410 443,375,511 100
</TABLE>
The weighted average current Note Rate is approximately 8.41% per annum.
Approximately 10% of the Mortgage Loans have passed their first Interest
Adjustment Date.
<PAGE>
OCCUPANCY OF MORTGAGED PREMISES
<TABLE>
<CAPTION>
OCCUPANCY TYPE* NUMBER OF LOANS SCHEDULED PRINCIPAL BALANCE PERCENT OF SCHEDULED PRINCIPAL
($) BALANCE (%)
<S> <C>
Primary Home 2212 414,304,939 94
Second Home 128 23,261,119 5
Investor 70 5,809,453 1
TOTALS 2410 443,375,511 100
</TABLE>
* As represented by the Borrower on the Mortgage Loan application.
<PAGE>
ORIGINATION PROGRAM
<TABLE>
<CAPTION>
ORIGINATION PROGRAM NUMBER OF LOANS SCHEDULED PRINCIPAL BALANCE PERCENT OF SCHEDULED PRINCIPAL
($) BALANCE (%)
<S> <C>
Full Documentation 1609 303,882,934 69
Limited Documentation 801 139,492,577 31
TOTALS 2410 443,375,511 100
</TABLE>
<PAGE>
PROPERTY TYPES OF MORTGAGED PREMISES
<TABLE>
<CAPTION>
PROPERTY TYPE NUMBER OF LOANS SCHEDULED PRINCIPAL BALANCE PERCENT OF SCHEDULED PRINCIPAL
($) BALANCE (%)
<S> <C>
Single Family Detached 2061 382,489,383 86
Single Family Attached 104 12,426,547 3
Low Rise Condominium 80 10,145,932 2
Planned Unit Development 49 9,835,350 2
Cooperative 48 15,034,720 4
Manufactured Housing 17 1,385,719 *
Condominium 16 7,368,759 2
Townhouse 14 1,444,285 *
Deminimus PUD 14 2,011,666 1
High Rise Condominium 7 1,233,150 *
TOTALS 2410 443,375,511 100
</TABLE>
<PAGE>
REMAINING TERM TO STATED MATURITY
<TABLE>
<CAPTION>
REMAINING TERM (MONTHS) NUMBER OF LOANS SCHEDULED PRINCIPAL BALANCE PERCENT OF SCHEDULED PRINCIPAL
($) BALANCE (%)
<S> <C>
40-180 36 1,920,755 *
231-300 13 1,438,869 *
301-320 1 191,201 *
321-330 1 340,159 *
331-340 6 1,041,871 *
341-350 169 26,862,644 6
351-355 455 117,754,186 27
356 227 48,752,543 11
357 274 42,396,835 10
358 681 104,582,068 24
359 273 53,515,700 12
360 274 44,578,680 10
TOTALS 2410 443,375,511 100
</TABLE>
The weighted average remaining term to stated maturity is approximately 355
months.
<PAGE>
STATE DISTRIBUTION OF MORTGAGED PREMISES
<TABLE>
<CAPTION>
STATE (2% OR GREATER NUMBER OF LOANS SCHEDULED PRINCIPAL BALANCE PERCENT OF SCHEDULED PRINCIPAL
CONCENTRATION) ($) BALANCE (%)
<S> <C>
California 746 179,401,241 40
Pennsylvania 123 25,323,820 6
Maryland 121 23,269,507 5
Virginia 130 20,365,952 5
Illinois 136 18,714,971 4
Colorado 121 18,291,963 4
New York 50 16,421,729 4
Utah 105 14,274,948 3
Washington 81 11,558,702 3
Florida 53 9,285,740 2
Massachusetts 14 9,026,366 2
Georgia 60 9,012,611 2
Other* 670 88,427,961 20
TOTALS 2410 443,375,511 100
</TABLE>
*Other includes: Alabama, Arizona, Arkansas, Connecticut, Delaware, Hawaii,
Idaho, Indiana, Iowa, Kansas, Kentucky, Louisiana, Maine, Michigan, Minnesota,
Mississippi, Missouri, Montana, Nevada, New Hampshire, New Jersey, New Mexico,
North Carolina, Ohio, Oklahoma, Oregon, South Carolina, Tennessee, Texas,
Washington DC, West Virginia, Wisconsin, Wyoming.
<PAGE>
DESCRIPTION OF THE MORTGAGE POOL AND MORTGAGED PREMISES
EXCEPT AS OTHERWISE INDICATED, THE MORTGAGE LOANS UNDERLYING THE MERIT SERIES 7
CLASS A-5 BONDS HAVE THE FOLLOWING CHARACTERISTICS AS OF MAY 1, 1996 (THE
"CUT-OFF DATE"): (DUE TO ROUNDING CONVENTIONS IN THE SCHEDULED PRINCIPAL BALANCE
AND PERCENT OF SCHEDULED PRINCIPAL BALANCE COLUMNS IN EACH OF THE FOLLOWING
TABLES, COLUMN TOTALS MAY NOT EQUAL THE SUM OF THE AMOUNTS IN SUCH COLUMNS.)
CURRENT SCHEDULED PRINCIPAL BALANCES
<TABLE>
<CAPTION>
CURRENT SCHEDULED PRINCIPAL NUMBER OF LOANS SCHEDULED PRINCIPAL BALANCE PERCENT OF SCHEDULED PRINCIPAL
BALANCES ($) ($) BALANCE (%)
<S> <C>
1- 50,000 221 6,328,144 37
50,001- 100,000 58 3,981,230 23
100,001- 150,000 12 1,489,393 9
150,001- 203,150 6 1,171,108 7
203,151- 250,000 1 232,234 1
250,001- 300,000 1 251,500 2
300,001- 350,000 1 325,000 2
350,001- 400,000 1 400,000 2
550,001- 600,000 1 589,000 3
600,001- 650,000 1 650,000 4
650,001- 700,000 1 700,000 4
900,001-1,000,000 1 972,000 6
TOTALS 305 17,089,609 100
</TABLE>
The average Scheduled Principal Balance is approximately $56,032.
The maximum Scheduled Principal Balance is approximately $972,000.
The minimum Scheduled Principal Balance is approximately $11,063.
<PAGE>
Gross Margins for ARM Loans
<TABLE>
<CAPTION>
Gross Margins (%) Number of Loans Scheduled Principal Balance Percent of Scheduled Principal
($) Balance (%)
<S> <C>
2.750-2.750 6 3,636,000 100
Totals 6 3,636,000 100
</TABLE>
The weighted average Gross Margin is approximately 2.75%.
<PAGE>
Loan Purpose
<TABLE>
<CAPTION>
Loan Purpose Number of Loans Scheduled Principal Balance Percent of Scheduled Principal
($) Balance (%)
<S> <C>
Refinance (Cash-Out) 251 13,166,253 77
Purchase 28 2,514,904 15
Refinance (No Cash-Out) 26 1,408,452 8
Totals 305 17,089,609 100
</TABLE>
<PAGE>
Original Loan-to-Collateral-Value Ratios
<TABLE>
<CAPTION>
Original Loan-to-Collateral Value Number of Loans Scheduled Principal Balance Percent of Scheduled Principal
Ratios (%) ($) Balance (%)
<S> <C>
50.00 and Below 294 14,109,921 83
50.01-55.00 2 1,350,000 8
55.01-60.00 2 171,032 1
60.01-65.00 1 400,000 2
65.01-70.00 1 37,281 *
70.01-75.00 1 136,818 1
75.01-80.00 3 767,254 4
80.01-85.00 1 117,303 1
Totals 305 17,089,609 100
</TABLE>
The weighted average original loan-to-collateral-value ratio is approximately
28.65%.
None of the Mortgage Loans with an original loan-to-collateral-value ratio
greater than 80% are covered by a Primary Mortgage Insurance Policy.
<PAGE>
Original Loan-to-Value Ratios
<TABLE>
<CAPTION>
Original Loan-to-Value Ratios (%) Number of Loans Scheduled Principal Balance Percent of Scheduled Principal
($) Balance (%)
<S> <C>
50.00 and Below 294 14,109,921 83
50.01-55.00 2 1,350,000 8
55.01-60.00 2 171,032 1
60.01-65.00 1 400,000 2
65.01-70.00 1 37,281 *
70.01-75.00 1 136,818 1
75.01-80.00 3 767,254 4
80.01-85.00 1 117,303 1
Totals 305 17,089,609 100
</TABLE>
The weighted average original loan-to-value ratio is approximately 28.65%.
None of the Mortgage Loans with an original loan-to-value ratio greater than
80% are covered by a Primary Mortgage Insurance Policy.
<PAGE>
Maximum Lifetime Note Rates for ARM Loans
<TABLE>
<CAPTION>
Maximum Lifetime Note Rates Number of Loans Scheduled Principal Balance Percent of Scheduled Principal
(%) ($) Balance (%)
<S> <C>
12.250-12.499 4 2,347,000 65
12.500-12.750 2 1,289,000 35
Totals 6 3,636,000 100
</TABLE>
The weighted average maximum lifetime Note Rate is approximately 12.41% per
annum.
<PAGE>
Minimum Lifetime Note Rates for ARM Loans
<TABLE>
<CAPTION>
Minimum Lifetime Note Rates Number of Loans Scheduled Principal Balance Percent of Scheduled Principal
(%) ($) Balance (%)
<S> <C>
2.750-2.750 6 3,636,000 100
Totals 6 3,636,000 100
</TABLE>
The weighted average minimum lifetime Note Rate is approximately 2.75% per
annum.
In no case will the minimum lifetime Note Rate of a Mortgage Loan be less
than the Gross Margin of such Mortgage Loan.
<PAGE>
Next Interest Adjustment Date for ARM Loans
<TABLE>
<CAPTION>
Adjustment Date Number of Loans Scheduled Principal Balance Percent of Scheduled Principal
($) Balance (%)
<S> <C>
September 1, 2000 1 700,000 19
October 1, 2000 2 1,622,000 45
November 1, 2000 1 400,000 11
December 1, 2000 2 914,000 25
Totals 6 3,636,000 100
</TABLE>
The Weighted Next Interest Adjustment Date is November 1, 2000.
<PAGE>
Current Note Rates
<TABLE>
<CAPTION>
Current Note Rates (%) Number of Loans Scheduled Principal Balance Percent of Scheduled Principal
($) Balance (%)
<S> <C>
7.250- 8.249 6 3,636,000 21
8.250- 9.499 31 1,016,371 6
9.500- 9.999 34 1,443,506 9
10.000-10.499 34 1,457,835 9
10.500-10.749 28 1,729,705 10
10.750-10.999 21 1,425,842 8
11.000-11.249 20 904,225 5
11.250-11.499 21 962,711 6
11.500-11.749 18 889,426 5
11.750-11.999 20 758,018 5
12.000-12.999 44 1,774,893 10
13.000-16.500 28 1,091,077 6
Totals 305 17,089,609 100
</TABLE>
The weighted average current Note Rate is approximately 10.29% per annum.
The weighted average current Note Rate of the Fixed Mortgage Loans is
approximately 11.07% per annum.
The weighted average current Note Rate of the ARM Mortgage Loans is
approximately 7.41% per annum.
None of the Mortgage Loans have passed their first Interest Adjustment Date.
<PAGE>
Occupancy of Mortgaged Premises
<TABLE>
<CAPTION>
Occupancy Type* Number of Loans Scheduled Principal Balance Percent of Scheduled Principal
($) Balance (%)
<S> <C>
Primary Home 296 15,060,225 88
Investor 5 375,447 2
Second Home 4 1,653,937 10
Totals 305 17,089,609 100
</TABLE>
* As represented by the Borrower on the Mortgage Loan application.
<PAGE>
Origination Program
<TABLE>
<CAPTION>
Origination Program Number of Loans Scheduled Principal Balance Percent of Scheduled Principal
($) Balance (%)
<S> <C>
Full Documentation 252 14,028,304 82
Limited Documentation 53 3,061,305 18
Totals 305 17,089,609 100
</TABLE>
<PAGE>
Property Types of Mortgaged Premises
<TABLE>
<CAPTION>
Property Type Number of Loans Scheduled Principal Balance Percent of Scheduled Principal
($) Balance (%)
<S> <C>
Single Family Detached 289 15,082,070 88
Planned Unit Development 4 380,808 2
Low Rise Condominium 3 55,943 *
Single Family Attached 3 143,327 1
Townhouse 2 96,981 1
Deminimus PUD 2 41,480 *
Condominium 2 1,289,000 8
Totals 305 17,089,609 100
</TABLE>
<PAGE>
Remaining Term to Stated Maturity
<TABLE>
<CAPTION>
Remaining Term (Months) Number of Loans Scheduled Principal Balance Percent of Scheduled Principal
($) Balance (%)
<S> <C>
40-180 267 12,079,821 71
181-230 5 216,435 1
231-300 26 1,114,966 7
351-355 6 3,636,000 21
356 1 42,387 *
Totals 305 17,089,609 100
</TABLE>
The weighted average remaining term to stated maturity is approximately 218
months.
<PAGE>
State Distribution of Mortgaged Premises
<TABLE>
<CAPTION>
State (2% or greater Number of Loans Scheduled Principal Balance Percent of Scheduled Principal
concentration) ($) Balance (%)
<S> <C>
California 108 6,366,756 37
Utah 57 2,003,828 12
Maryland 24 1,704,377 10
Pennsylvania 12 1,563,596 9
Virginia 29 1,333,125 8
Montana 1 700,000 4
Massachusetts 1 589,000 3
Oregon 15 493,415 3
Florida 11 367,565 2
Other* 47 1,967,947 12
Totals 305 17,089,609 100
</TABLE>
*Other includes: Arizona, Colorado, Connecticut, Georgia, Illinois,
Minnesota, Missouri, New Mexico, North Carolina, Oklahoma,South
Carolina,Tennessee,Washington,Washington DC.
DESCRIPTION OF THE MORTGAGE POOL AND MORTGAGED PREMISES
EXCEPT AS OTHERWISE INDICATED, THE FIXED RATE MORTGAGE LOANS UNDERLYING THE
MERIT SERIES 7 CLASS A-5 BONDS HAVE THE FOLLOWING CHARACTERISTICS AS OF MAY 1,
1996 (THE "CUT-OFF DATE"): (DUE TO ROUNDING CONVENTIONS IN THE SCHEDULED
PRINCIPAL BALANCE AND PERCENT OF SCHEDULED PRINCIPAL BALANCE COLUMNS IN EACH OF
THE FOLLOWING TABLES, COLUMN TOTALS MAY NOT EQUAL THE SUM OF THE AMOUNTS IN SUCH
COLUMNS.)
CURRENT SCHEDULED PRINCIPAL BALANCES
<TABLE>
<CAPTION>
CURRENT SCHEDULED PRINCIPAL NUMBER OF LOANS SCHEDULED PRINCIPAL BALANCE PERCENT OF SCHEDULED PRINCIPAL
BALANCES ($) ($) BALANCE (%)
<S> <C>
1- 50,000 221 6,328,144 47
50,001-100,000 58 3,981,230 29
100,001-150,000 12 1,489,393 11
150,001-203,150 6 1,171,108 9
203,151-250,000 1 232,234 2
250,001-300,000 1 251,500 2
TOTALS 299 13,453,609 100
</TABLE>
The average Scheduled Principal Balance is approximately $44,995.
The maximum Scheduled Principal Balance is approximately $251,500.
The minimum Scheduled Principal Balance is approximately $11,063.
<PAGE>
LOAN PURPOSE
<TABLE>
<CAPTION>
LOAN PURPOSE NUMBER OF LOANS SCHEDULED PRINCIPAL BALANCE PERCENT OF SCHEDULED PRINCIPAL
($) BALANCE (%)
<S> <C>
Refinance (Cash-Out) 249 11,794,253 88
Refinance (No Cash-Out) 25 758,452 5
Purchase 25 900,904 7
TOTALS 299 13,453,609 100
</TABLE>
<PAGE>
ORIGINAL LOAN-TO-COLLATERAL-VALUE RATIOS
<TABLE>
<CAPTION>
ORIGINAL LOAN-TO-COLLATERAL VALUE NUMBER OF LOANS SCHEDULED PRINCIPAL BALANCE PERCENT OF SCHEDULED PRINCIPAL
RATIOS (%) ($) BALANCE (%)
<S> <C>
50.00 and Below 292 12,812,921 95
55.01-60.00 2 171,032 1
65.01-70.00 1 37,281 *
70.01-75.00 1 136,818 1
75.01-80.00 2 178,254 2
80.01-85.00 1 117,303 1
TOTALS 299 13,453,609 100
</TABLE>
The weighted average original loan-to-collateral-value ratio is approximately
22.65%.
None of the Mortgage Loans with an original loan-to-collateral-value ratio
greater than 80% are covered by a Primary Mortgage Insurance Policy.
<PAGE>
ORIGINAL LOAN-TO-VALUE RATIOS
<TABLE>
<CAPTION>
ORIGINAL LOAN-TO-VALUE RATIOS (%) NUMBER OF LOANS SCHEDULED PRINCIPAL BALANCE PERCENT OF SCHEDULED PRINCIPAL
($) BALANCE (%)
<S> <C>
50.00 and Below 292 12,812,921 95
55.01-60.00 2 171,032 1
65.01-70.00 1 37,281 *
70.01-75.00 1 136,818 1
75.01-80.00 2 178,254 2
80.01-85.00 1 117,303 1
TOTALS 299 13,453,609 100
</TABLE>
The weighted average original loan-to-value ratio is approximately 22.65%.
None of the Mortgage Loans with an original loan-to-value ratio greater than
80% are covered by a Primary Mortgage Insurance Policy.
<PAGE>
NET RATES
<TABLE>
<CAPTION>
NET RATES (%) NUMBER OF LOANS SCHEDULED PRINCIPAL BALANCE PERCENT OF SCHEDULED PRINCIPAL
($) BALANCE (%)
<S> <C>
7.745- 7.999 4 133,033 1
8.000- 8.999 34 1,235,820 9
9.000- 9.249 23 960,709 7
9.250- 9.499 17 624,182 5
9.500- 9.749 16 797,269 6
9.750- 9.999 27 1,594,969 12
10.000-10.249 24 1,480,823 11
10.250-10.499 18 887,108 7
10.500-10.749 19 1,004,938 7
10.750-10.999 21 941,808 7
11.000-11.249 18 761,665 6
11.250-11.499 9 267,093 2
11.500-11.749 13 643,536 5
11.750-11.999 10 412,177 3
12.000-12.249 9 197,545 1
12.250-12.499 11 522,783 4
12.500-12.749 8 210,474 2
12.750-12.999 5 340,536 3
13.000-13.249 4 196,112 1
13.250-13.499 2 44,434 *
13.500-13.749 1 22,825 *
13.750-13.999 1 39,643 *
14.000-14.999 3 72,788 1
15.000-15.870 2 61,339 *
TOTALS 299 13,453,609 100
</TABLE>
The weighted average Net Rate is approximately 10.49% per annum.
<PAGE>
CURRENT NOTE RATES
<TABLE>
<CAPTION>
CURRENT NOTE RATES (%) NUMBER OF LOANS SCHEDULED PRINCIPAL BALANCE PERCENT OF SCHEDULED PRINCIPAL
($) BALANCE (%)
<S> <C>
8.250- 9.499 31 1,016,371 7
9.500- 9.999 34 1,443,506 11
10.000-10.499 34 1,457,835 11
10.500-10.749 28 1,729,705 13
10.750-10.999 21 1,425,842 10
11.000-11.249 20 904,225 7
11.250-11.499 21 962,711 7
11.500-11.749 18 889,426 7
11.750-11.999 20 758,018 6
12.000-12.999 44 1,774,893 13
13.000-16.500 28 1,091,077 8
TOTALS 299 13,453,609 100
</TABLE>
The weighted average current Note Rate is approximately 11.07% per annum.
<PAGE>
OCCUPANCY OF MORTGAGED PREMISES
<TABLE>
<CAPTION>
OCCUPANCY TYPE* NUMBER OF LOANS SCHEDULED PRINCIPAL BALANCE PERCENT OF SCHEDULED PRINCIPAL
($) BALANCE (%)
<S> <C>
Primary Home 293 13,038,225 97
Investor 5 375,447 3
Second Home 1 39,937 *
TOTALS 299 13,453,609 100
</TABLE>
* As represented by the Borrower on the Mortgage Loan application.
<PAGE>
ORIGINATION PROGRAM
<TABLE>
<CAPTION>
ORIGINATION PROGRAM NUMBER OF LOANS SCHEDULED PRINCIPAL BALANCE PERCENT OF SCHEDULED PRINCIPAL
($) BALANCE (%)
<S> <C>
Full Documentation 246 10,392,304 77
Limited Documentation 53 3,061,305 23
TOTALS 299 13,453,609 100
</TABLE>
<PAGE>
PROPERTY TYPES OF MORTGAGED PREMISES
<TABLE>
<CAPTION>
PROPERTY TYPE NUMBER OF LOANS SCHEDULED PRINCIPAL BALANCE PERCENT OF SCHEDULED PRINCIPAL
($) BALANCE (%)
<S> <C>
Single Family Detached 285 12,735,070 95
Planned Unit Development 4 380,808 3
Low Rise Condominium 3 55,943 *
Single Family Attached 3 143,327 1
Townhouse 2 96,981 1
Deminimus PUD 2 41,480 *
TOTALS 299 13,453,609 100
</TABLE>
<PAGE>
REMAINING TERM TO STATED MATURITY
<TABLE>
<CAPTION>
REMAINING TERM (MONTHS) NUMBER OF LOANS SCHEDULED PRINCIPAL BALANCE PERCENT OF SCHEDULED PRINCIPAL
($) BALANCE (%)
<S> <C>
40-180 267 12,079,821 90
181-230 5 216,435 2
231-300 26 1,114,966 8
356 1 42,387 *
TOTALS 299 13,453,609 100
</TABLE>
The weighted average remaining term to stated maturity is approximately 181
months.
<PAGE>
STATE DISTRIBUTION OF MORTGAGED PREMISES
<TABLE>
<CAPTION>
STATE (5% OR GREATER NUMBER OF LOANS SCHEDULED PRINCIPAL BALANCE PERCENT OF SCHEDULED PRINCIPAL
CONCENTRATION) ($) BALANCE (%)
<S> <C>
California 106 5,069,756 38
Utah 57 2,003,828 15
Maryland 24 1,704,377 13
Virginia 29 1,333,125 10
Pennsylvania 10 513,596 4
Oregon 15 493,415 3
Florida 11 367,565 3
Colorado 7 329,206 2
New Mexico 5 305,350 2
Other* 35 1,333,391 10
TOTALS 299 13,453,609 100
</TABLE>
*Other includes: Arizona, Connecticut, Georgia, Illinois, Minnesota,
Missouri, North Carolina, Oklahoma, South Carolina, Tennessee, Washington,
Washington DC.
DESCRIPTION OF THE MORTGAGE POOL AND MORTGAGED PREMISES
EXCEPT AS OTHERWISE INDICATED, THE ARM MORTGAGE LOANS UNDERLYING THE MERIT
SERIES 7 CLASS A-5 BONDS HAVE THE FOLLOWING CHARACTERISTICS AS OF MAY
1, 1996 (THE "CUT-OFF DATE"): (DUE TO ROUNDING CONVENTIONS IN THE SCHEDULED
PRINCIPAL BALANCE AND PERCENT OF SCHEDULED PRINCIPAL BALANCE COLUMNS IN EACH OF
THE FOLLOWING TABLES, COLUMN TOTALS MAY NOT EQUAL THE SUM OF THE AMOUNTS IN SUCH
COLUMNS.)
CURRENT SCHEDULED PRINCIPAL BALANCES
<TABLE>
<CAPTION>
CURRENT SCHEDULED PRINCIPAL NUMBER OF LOANS SCHEDULED PRINCIPAL BALANCE PERCENT OF SCHEDULED PRINCIPAL
BALANCES ($) ($) BALANCE (%)
<S> <C>
300,001-350,000 1 325,000 9
350,001-400,000 1 400,000 11
550,001-600,000 1 589,000 16
600,001-650,000 1 650,000 18
650,001-700,000 1 700,000 19
900,001-1,000,000 1 972,000 27
TOTALS 6 3,636,000 100
</TABLE>
The average Scheduled Principal Balance is approximately $606,000.
The maximum Scheduled Principal Balance is approximately $972,000.
The minimum Scheduled Principal Balance is approximately $325,000.
<PAGE>
GROSS MARGINS FOR ARM LOANS
<TABLE>
<CAPTION>
GROSS MARGINS (%) NUMBER OF LOANS SCHEDULED PRINCIPAL BALANCE PERCENT OF SCHEDULED PRINCIPAL
($) BALANCE (%)
<S> <C>
2.750-2.750 6 3,636,000 100
TOTALS 6 3,636,000 100
</TABLE>
The weighted average Gross Margin is approximately 2.75%.
<PAGE>
LOAN PURPOSE
<TABLE>
<CAPTION>
LOAN PURPOSE NUMBER OF LOANS SCHEDULED PRINCIPAL BALANCE PERCENT OF SCHEDULED PRINCIPAL
($) BALANCE (%)
<S><C>
Purchase 3 1,614,000 44
Refinance (Cash-Out) 2 1,372,000 38
Refinance (No Cash-Out) 1 650,000 18
TOTALS 6 3,636,000 100
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
ORIGINAL LOAN-TO-COLLATERAL-VALUE RATIOS
ORIGINAL LOAN-TO-COLLATERAL VALUE NUMBER OF LOANS SCHEDULED PRINCIPAL BALANCE PERCENT OF SCHEDULED PRINCIPAL
RATIOS (%) ($) BALANCE (%)
<S> <C>
50.00 and Below 2 1,297,000 36
50.01-55.00 2 1,350,000 37
60.01-65.00 1 400,000 11
75.01-80.00 1 589,000 16
TOTALS 6 3,636,000 100
</TABLE>
The weighted average original loan-to-collateral-value ratio is approximately
50.82%.
None of the Mortgage Loans with an original loan-to-collateral-value ratio
greater than 80% are covered by a Primary Mortgage Insurance Policy.
<PAGE>
ORIGINAL LOAN-TO-VALUE RATIOS
<TABLE>
<CAPTION>
ORIGINAL LOAN-TO-VALUE RATIOS (%) NUMBER OF LOANS SCHEDULED PRINCIPAL BALANCE PERCENT OF SCHEDULED PRINCIPAL
($) BALANCE (%)
<S> <C>
50.00 and Below 2 1,297,000 36
50.01-55.00 2 1,350,000 37
60.01-65.00 1 400,000 11
75.01-80.00 1 589,000 16
TOTALS 6 3,636,000 100
</TABLE>
The weighted average original loan-to-value ratio is approximately 50.82%.
None of the Mortgage Loans with an original loan-to-value ratio greater than 80%
are covered by a Primary Mortgage Insurance Policy.
<PAGE>
MAXIMUM LIFETIME NOTE RATES FOR ARM LOANS
<TABLE>
<CAPTION>
MAXIMUM LIFETIME NOTE RATES NUMBER OF LOANS SCHEDULED PRINCIPAL BALANCE PERCENT OF SCHEDULED PRINCIPAL
(%) ($) BALANCE (%)
<S> <C>
12.250-12.499 4 2,347,000 65
12.500-12.749 1 589,000 16
12.750-12.750 1 700,000 19
TOTALS 6 3,636,000 100
</TABLE>
The weighted average maximum lifetime Note Rate is approximately 12.41% per
annum.
<PAGE>
MINIMUM LIFETIME NOTE RATES FOR ARM LOANS
<TABLE>
<CAPTION>
MINIMUM LIFETIME NOTE RATES NUMBER OF LOANS SCHEDULED PRINCIPAL BALANCE PERCENT OF SCHEDULED PRINCIPAL
(%) ($) BALANCE (%)
<S> <C>
2.750-2.750 6 3,636,000 100
TOTALS 6 3,636,000 100
</TABLE>
The weighted average minimum lifetime Note Rate is approximately 2.75% per
annum.
In no case will the minimum lifetime Note Rate of a Mortgage Loan be less
than the Gross Margin of such Mortgage Loan.
<PAGE>
NEXT INTEREST ADJUSTMENT DATE FOR ARM LOANS
<TABLE>
<CAPTION>
ADJUSTMENT DATE NUMBER OF LOANS SCHEDULED PRINCIPAL BALANCE PERCENT OF SCHEDULED PRINCIPAL
($) BALANCE (%)
<S> <C>
September 1, 2000 1 700,000 19
October 1, 2000 2 1,622,000 45
November 1, 2000 1 400,000 11
December 1, 2000 2 914,000 25
TOTALS 6 3,636,000 100
</TABLE>
The Weighted Next Interest Adjustment Date is November 1, 2000.
<PAGE>
CURRENT NOTE RATES
<TABLE>
<CAPTION>
CURRENT NOTE RATES (%) NUMBER OF LOANS SCHEDULED PRINCIPAL BALANCE PERCENT OF SCHEDULED PRINCIPAL
($) BALANCE (%)
<S> <C>
7.250-7.499 4 2,347,000 65
7.500-7.749 1 589,000 16
7.750-7.750 1 700,000 19
TOTALS 6 3,636,000 100
</TABLE>
The weighted average current Note Rate is approximately 7.41% per annum.
None of the Mortgage Loans have passed their first Interest Adjustment Date.
<PAGE>
OCCUPANCY OF MORTGAGED PREMISES
<TABLE>
<CAPTION>
OCCUPANCY TYPE* NUMBER OF LOANS SCHEDULED PRINCIPAL BALANCE PERCENT OF SCHEDULED PRINCIPAL
($) BALANCE (%)
<S> <C>
Second Home 3 1,614,000 44
Primary Home 3 2,022,000 56
TOTALS 6 3,636,000 100
</TABLE>
* As represented by the Borrower on the Mortgage Loan application.
<PAGE>
ORIGINATION PROGRAM
<TABLE>
<CAPTION>
ORIGINATION PROGRAM NUMBER OF LOANS SCHEDULED PRINCIPAL BALANCE PERCENT OF SCHEDULED PRINCIPAL
($) BALANCE (%)
<S> <C>
Full Documentation 6 3,636,000 100
TOTALS 6 3,636,000 100
</TABLE>
<PAGE>
PROPERTY TYPES OF MORTGAGED PREMISES
<TABLE>
<CAPTION>
PROPERTY TYPE NUMBER OF LOANS SCHEDULED PRINCIPAL BALANCE PERCENT OF SCHEDULED PRINCIPAL
($) BALANCE (%)
<S> <C>
Single Family Detached 4 2,347,000 65
Condominium 2 1,289,000 35
TOTALS 6 3,636,000 100
</TABLE>
<PAGE>
REMAINING TERM TO STATED MATURITY
<TABLE>
<CAPTION>
REMAINING TERM (MONTHS) NUMBER OF LOANS SCHEDULED PRINCIPAL BALANCE PERCENT OF SCHEDULED PRINCIPAL
($) BALANCE (%)
<S> <C>
352 1 700,000 19
353 2 1,622,000 45
354 1 400,000 11
355 2 914,000 25
TOTALS 6 3,636,000 100
</TABLE>
The weighted average remaining term to stated maturity is approximately 353
months.
<PAGE>
<TABLE>
<CAPTION>
STATE DISTRIBUTION OF MORTGAGED PREMISES
STATE (2% OR GREATER NUMBER OF LOANS SCHEDULED PRINCIPAL BALANCE PERCENT OF SCHEDULED PRINCIPAL
CONCENTRATION) ($) BALANCE (%)
<S> <C>
California 2 1,297,000 36
Pennsylvania 2 1,050,000 29
Montana 1 700,000 19
Massachusetts 1 589,000 16
Other* 0 0 *
TOTALS 6 3,636,000 100
</TABLE>
*Other includes:
<PAGE>
Item 6. Resignations of Registrant's Directors.
Not Applicable.
Item 7. Financial Statements, Pro Forma Financial Information and Exhibits.
Not Applicable.
Exhibits
4.1 Copy of the Series 7 Supplement, dated as of May 1, 1996, to
Indenture, dated as of November 1, 1994, by and between the
Registrant and Texas Commerce Bank National Association, as
Trustee (Schedules and Exhibit C available upon request of the
Trustee).
99.1 Copy of the Financial Guaranty Insurance Policy issued by MBIA
Insurance Corporation.
<PAGE>
Signatures
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
June 6, 1996 MERIT SECURITIES CORPORATION
By: /s/ Lisa R. Cooke
Name: Lisa R. Cooke
Title: Vice President
<PAGE>
INDEX TO EXHIBITS
Page
4.1 Copy of the Series 7 Supplement, dated as of May 1, 1995, to
Indenture, dated as of November, 1994, by and between the
Registrant and Texas Commerce Bank National Association, as
Trustee (Schedules and Exhibit C available upon request of the
Trustee)..................................................
99.1 Copy of the Financial Guaranty Insurance Policy issued by MBIA
Insurance Corporation.....................................
MERIT SECURITIES CORPORATION,
as Issuer,
AND
TEXAS COMMERCE BANK NATIONAL ASSOCIATION,
as Trustee
-------------
SERIES 7 SUPPLEMENT
Dated as of May 1, 1996
TO
INDENTURE
Dated as of November 1, 1994
-------------
COLLATERALIZED MORTGAGE BONDS
Series 7
<PAGE>
TABLE OF CONTENTS
Page
PRELIMINARY STATEMENT ...........................................S-1
GRANTING CLAUSES ...........................................S-1
SECTION 1. Certain Defined Terms.............................S-2
SECTION 2. Designation; Principal Amount; Maturity..........S-16
SECTION 3. Date of the Bonds................................S-17
SECTION 4. Book-Entry Bonds.................................S-17
SECTION 5. Denominations....................................S-18
SECTION 6. Determination of Interest Payments...............S-18
SECTION 7. Application of Funds.............................S-20
SECTION 8. Places for Payment...............................S-21
SECTION 9. Redemption.......................................S-21
SECTION 10. Additional and Subordinated Bonds................S-22
SECTION 11. Default..........................................S-23
SECTION 12. Repurchase of Mortgage Collateral................S-25
SECTION 13. Custodial Reserve Fund...........................S-25
SECTION 14. Certain Matters Regarding MBIA and the MBIA
Policy...........................................S-25
SECTION 15. Additional Obligations and Covenants of the
Trustee.....................................S-30
SECTION 16. Notice to the Rating Agencies and to MBIA........S-30
SECTION 17. Monthly Remittance Report........................S-31
(i)
<PAGE>
Page
SECTION 18. Purchase of Delinquent Mortgage Loans by Issuer..S-31
SECTION 19. Additional Covenants of the Issuer...............S-31
SECTION 20. Amendments to Indenture..........................S-32
SECTION 21. Amendments to Definitions........................S-37
SECTION 22. Direction to Trustee.............................S-37
SECTION 23. Ratification of Indenture........................S-37
SECTION 24. Form of Bonds....................................S-37
SECTION 25. Schedules........................................S-37
SECTION 26. Counterparts.....................................S-37
SECTION 27. GOVERNING LAW....................................S-38
SCHEDULE I-A FIRST POOL MORTGAGE LOANS
SCHEDULE I-B SECOND POOL MORTGAGE LOANS
SCHEDULE II INTEREST FUND LOANS
EXHIBIT A-1 FORM OF CLASS A-1 BONDS
EXHIBIT A-2 FORM OF CLASS A-2 BONDS
EXHIBIT A-3 FORM OF CLASS A-3 BONDS
EXHIBIT A-4 FORM OF CLASS A-4 BONDS
EXHIBIT A-5 FORM OF CLASS A-5 BONDS
EXHIBIT B PARAMETERS FOR ADDITIONAL MORTGAGE COLLATERAL
EXHIBIT C MBIA POLICY
(ii)
<PAGE>
SERIES 7 SUPPLEMENT
THIS SERIES 7 SUPPLEMENT (this "Series Supplement"), dated as of May 1,
1996, by and between MERIT SECURITIES CORPORATION, a Virginia corporation (the
"Issuer"), and TEXAS COMMERCE BANK NATIONAL ASSOCIATION, a national banking
association, as trustee (the "Trustee"), under an Indenture dated as of November
1, 1994 (the "Original Indenture" and, as supplemented by this Series
Supplement, the "Indenture"), recites and provides as follows:
PRELIMINARY STATEMENT
Sections 4.01, 4.02 and 10.01 of the Original Indenture provide, among
other things, that the Issuer, when authorized by its Board of Directors, and
the Trustee may at any time and from time to time enter into an indenture
supplemental to the Original Indenture for the purpose of authorizing a Series
of Bonds and to specify certain terms of each Series of Bonds. The Board of
Directors of the Issuer has duly authorized the creation of a Series of Bonds
with an aggregate principal amount of $528,550,000, to be known as the
Collateralized Mortgage Bonds, Series 7 (the "Bonds"), which will consist of
five Classes of Bonds designated as provided herein.
GRANTING CLAUSES
(a) To secure the payment of the principal of and interest on the Bonds
in accordance with their terms, all of the sums payable under the Original
Indenture and this Series Supplement with respect to the Bonds and the
performance of the covenants with respect to the Bonds contained in the Original
Indenture and this Series Supplement, the Issuer hereby Grants to the Trustee,
in trust and as collateral security as provided in the Original Indenture and
this Series Supplement, for the benefit of the Holders of the Bonds and MBIA,
all of the Issuer's right, title and interest in and to any and all benefits
accruing to the Issuer from (i) the Mortgage Loans listed in Schedule I-A and
Schedule I-B (collectively referred to herein as "Schedule I") to this Series
Supplement (the "Mortgage Loans") that the Issuer is causing to be delivered to
the Trustee herewith (and all substitutions therefor as provided by Section 3.11
of the Original Indenture), together with the related Loan Documents and the
Issuer's interest in any Mortgaged Premises that secured a Mortgage Loan but
that is acquired by foreclosure or deed in lieu of foreclosure after the
Delivery Date, all Monthly Payments due after May 1, 1996 and all Curtailments
or other principal prepayments received with respect to the Mortgage Loans paid
by the Borrower after May 23, 1996, (ii) any Substitute Mortgage Loans, (iii)
the Sales Agreement, except that the Issuer shall retain its right to fees under
Section 9 thereof and shall retain and assign its right to indemnification under
Section 13 thereof, respectively, (iv) the Servicing Agreements (including any
Additional Collateral held pursuant to the TBC Servicing Agreement), (v) the
Master Servicing Agreement, (vi) any subservicing agreements, (vii) the Custody
Agreement, (viii) the Standard Hazard Insurance Policies and the Primary
Mortgage Insurance Policies, if any, for the Mortgage Loans, (ix) the Title
Insurance Policies, or other evidence of title permitted by the terms of the
Custody Agreement, for the Mortgage Loans, (x) the Collateral Proceeds Account,
the Custodial Reserve Fund and the Surplus Account,
S-1
<PAGE>
whether in the form of cash, instruments, securities or other properties, and
(xi) the proceeds of all the foregoing (including, but not by way of limitation,
all cash, proceeds, accounts, accounts receivable, notes, drafts, acceptances,
chattel paper, checks, deposit accounts, rights to payment of any and every kind
and other forms of obligations and receivables that at any time constitute all
or part or are included in the proceeds of any of the foregoing) (items (i)
through (xi) collectively, the "Trust Estate") to secure the Bonds.
(b) The Trustee acknowledges such Grant, accepts the trusts hereunder
in accordance with the provisions hereof and of the Original Indenture and
agrees to perform the duties herein or therein required in accordance with
Article Seven of the Original Indenture to the end that the interests of the
Bondholders and MBIA may be adequately and effectively protected.
(c) The Trustee agrees that it will hold the MBIA Policy in trust, and
that it will hold any proceeds of any claim made upon the MBIA Policy, solely
for the use and benefit of the Bondholders in accordance with the terms hereof
and of the MBIA Policy.
SECTION 1. CERTAIN DEFINED TERMS.
With respect to the Bonds and in addition to the definitions set forth
in Section 1.01 of the Original Indenture, the following provisions shall govern
the defined terms set forth below. Capitalized words and phrases used herein but
not defined herein or in the Original Indenture shall have the meanings set
forth in the Standard Provisions.
"ACCRUAL DATE": With respect to each Payment Date, the 27th day of each
month with respect to the Class A-1 and Class A-5 Bonds, and the last day of the
preceding calendar month with respect to the Class A-2, Class A-3 and Class A-4
Bonds.
"ACCRUAL PERIOD": With respect to each Payment Date, (a) for the Class
A-1 and Class A-5 Bonds, the period commencing on the 28th day of the preceding
month through the 27th day of the month in which such Payment Date is deemed to
occur (except that the first Accrual Period for the Class A-1 and Class A-5
Bonds will be the period from the Delivery Date through June 27, 1996); and (b)
for the Class A-2 Bonds, Class A-3 Bonds and the Class A-4 Bonds, the calendar
month preceding the month in which such Payment Date is deemed to occur.
"ADDITIONAL BONDS": Series 7 Bonds initially issued after the Delivery
Date pursuant to Section 10 hereof that rank pari passu with the Bonds
originally issued on the Delivery Date.
"ADDITIONAL COLLATERAL": Collateral, other than real estate or shares
of stock in a cooperative housing corporation, held with respect to Mortgage
Loans pursuant to the TBC Servicing Agreement, generally consisting of
marketable securities.
"ADDITIONAL MORTGAGE COLLATERAL": Mortgage Loans pledged to the
Trustee following the Delivery Date in connection with the issuance of
Additional Bonds pursuant to Section 10
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hereof, provided that following such pledge, aggregate Mortgage Loans then
pledged to secure the Bonds are within the parameters set forth in Exhibit B
attached hereto.
"ADMINISTRATIVE COST RATE": For each Mortgage Loan, the rate per annum
set forth on Schedule I hereto, which rate shall be equal to the sum of the
Master Servicing Fee Rate, the Servicing Fee Rate and the MBIA Premium Rate, in
each case attributable to that Mortgage Loan.
"ARM FIRST POOL MORTGAGE LOANS": The Mortgage Loans listed in Schedule
I-A to this Series Supplement that pay interest at an adjustable rate.
"ARM/HIGH STRIP EXCESS LOSS AMOUNT": On each Payment Date, an amount
equal to the product of (i) the Excess Loss Amount and (ii) a fraction equal to
(A) any Realized Losses attributable to the ARM First Pool Mortgage Loans and
the High Strip incurred during the related Prepayment Period divided by (B) the
total Realized Losses incurred during the related Prepayment Period.
"ARM/HIGH STRIP PRINCIPAL PAYMENT AMOUNT":
(a) on each Payment Date on which (i) the
Overcollateralization Amount is greater than zero but less than the
Target Overcollateralization Amount and (ii) the claims-paying ability
of MBIA is rated no lower than the second highest long term rating
category by any Rating Agency, the amount, if any, by which (i) the
aggregate Scheduled Principal Balance of the ARM First Pool Mortgage
Loans and the High Strip as of the immediately preceding Payment Date
(or the Cut-off Date, in the case of the first Payment Date) exceeds
(ii) the aggregate Scheduled Principal Balance of the ARM First Pool
Mortgage Loans and the High Strip as of the current Payment Date
(without regard to the decline in the Scheduled Principal Balance of
the ARM First Pool Mortgage Loans and the High Strip attributable to
any Realized Losses incurred in the related Prepayment Period);
(b) on each Payment Date on which (i) the
Overcollateralization Amount is greater than zero but less than the
Target Overcollateralization Amount and (ii) the claims-paying ability
of MBIA is rated lower than the second highest long term rating
category by any Rating Agency, the amount, if any, by which (i) the
aggregate Scheduled Principal Balance of the ARM First Pool Mortgage
Loans and the High Strip as of the immediately preceding Payment Date
(or the Cut-off Date, in the case of the first Payment Date) exceeds
(ii) the sum of (A) the aggregate Scheduled Principal Balance of the
ARM First Pool Mortgage Loans and the High Strip as of the current
Payment Date and (B) the ARM/High Strip Excess Loss Amount;
(c) on each Payment Date on which (i) the
Overcollateralization Amount is greater than or equal to the Target
Overcollateralization Amount (but only to the extent that the
Overcollateralization Amount continues to equal or exceed the Target
Overcollateralization Amount) and (ii) the claims-paying ability of
MBIA is not rated
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lower than the second highest long term rating category by any Rating
Agency, the product of (x) the Bond Payment Percentage for the First
Pool Bonds and (y) the amount, if any, by which (i) the aggregate
Scheduled Principal Balance of the ARM First Pool Mortgage Loans and
the High Strip as of the immediately preceding Payment Date (or the
Cut-off Date, in the case of the first Payment Date) exceeds (ii) the
aggregate Scheduled Principal Balance of the ARM First Pool Mortgage
Loans and the High Strip as of the current Payment Date (without regard
to the decline in the Scheduled Principal Balance of the ARM First Pool
Mortgage Loans and the High Strip attributable to any Realized Losses
incurred in the related Prepayment Period);
(d) on each Payment Date on which (i) the
Overcollateralization Amount is greater than or equal to the Target
Overcollateralization Amount (but only to the extent that the
Overcollateralization Amount continues to equal or exceed the Target
Overcollateralization Amount) and (ii) the claims-paying ability of
MBIA is rated lower than the second highest long term rating category
by any Rating Agency, the product of (x) the Bond Payment Percentage
for the First Pool Bonds and (y) the amount, if any, by which (i) the
aggregate Scheduled Principal Balance of the ARM First Pool Mortgage
Loans and the High Strip as of the immediately preceding Payment Date
(or the Cut-off Date, in the case of the first Payment Date) exceeds
(ii) the sum of (A) the aggregate Scheduled Principal Balance of the
ARM First Pool Mortgage Loans and the High Strip as of the current
Payment Date and (B) the ARM/High Strip Excess Loss Amount; and
(e) on each Payment Date on which the Overcollateralization
Amount is less than or equal to zero, the greater of (i) the amount by
which (A) the aggregate principal amount of the First Pool Bonds
outstanding exceeds (B) the aggregate Scheduled Principal Balance of
the First Pool Mortgage Loans as of the current Payment Date, less the
Low Strip Principal Payment Amount on such Payment Date and (ii) the
amount by which (A) the Scheduled Principal Balance of the ARM First
Pool Mortgage Loans and the High Strip as of the immediately preceding
Payment Date (or the Cut-off Date in the case of the first Payment
Date) exceeds (B) the Scheduled Principal Balance of the ARM First Pool
Mortgage Loans and the High Strip as of the current Payment Date
(without regard to the decline in the Scheduled Principal Balance of
the ARM First Pool Mortgage Loans and the High Strip attributable to
any Realized Losses incurred in the related Prepayment Period).
"ARM LOANS": Collectively, the ARM First Pool Mortgage Loans and the
ARM Second Pool Mortgage Loans.
"ARM SECOND POOL MORTGAGE LOANS": The Mortgage Loans listed in
Schedule I-B to this Series Supplement that pay interest at an adjustable rate.
"AVAILABLE FUNDS": The Available Funds on any Payment Date will equal
(a) the sum of the following:
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(i) all payments of interest (including Month End Interest paid by
the Master Servicer) and principal with respect to the
Mortgage Loans and any amounts in respect of any REO
(including Liquidation Proceeds (net of liquidation expenses)
and Insurance Proceeds) collected with respect to and during
the related Due Period (or Prepayment Period, in the case of
unscheduled prepayments and other Liquidation Proceeds) and
deposited in the Collateral Proceeds Account;
(ii) any Advance of principal or interest due on a Mortgage Loan
during the related Due Period and deposited in the Collateral
Proceeds Account;
(iii) any Monthly Payments with respect to the Mortgage Loans due
during, but collected prior to, the related Due Period; and
(iv) all amounts received during the related Prepayment Period in
connection with (A) the purchase of any Mortgage Loan due to
the delivery of defective loan documentation or otherwise, or
(B) the purchase of a Converted Mortgage Loan;
less (b) the sum of the following:
(i) one-twelfth of the applicable Administrative Cost Rate
multiplied by the Scheduled Principal Balance for each
Mortgage Loan (plus any additional fees payable to a Special
Servicer, if any, with respect to certain Defaulted Mortgage
Loans);
(ii) all amounts required as reimbursement for any Advances
previously made on a Mortgage Loan upon the Liquidation of
such Mortgage Loan;
(iii) all amounts required to be reimbursed for any Non-Recoverable
Advances previously made with respect to the Mortgage Loans;
and
(iv) from and after the occurrence of an Event of Default, all sums
due under the Indenture to the Trustee associated with the
disposition of all or a portion of the Trust Estate or the
exercise of any of the other remedies set forth in Article Six
of the Indenture.
"BOND PAYMENT PERCENTAGE": On each Payment Date, 100%; except that if
on any Payment Date (a) the Overcollateralization Amount is greater than or
equal to the Target Overcollateralization Amount but only to the extent that the
Overcollateralization Amount continues to equal or exceed the Target
Overcollateralization Amount, and (b) over the prior six months, the average
Unpaid Principal Balance of the Mortgage Loans delinquent 60 days or more
(including for this purpose any Mortgage Loans in foreclosure and REO) has not
exceeded 4% of the average aggregate Unpaid Principal Balance of all Mortgage
Loans, then the Bond Payment Percentage for purposes of the ARM/High Strip
Principal Payment Amount and the Low Strip Principal Payment Amount for such
Payment Date will be the First Pool Bond
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Percentage, and the Bond Payment Percentage for purposes of the Second Pool
Principal Payment Amount for such Payment Date will be the Class A-5 Bond
Percentage.
"BONDS": The Class A-1, Class A-2, Class A-3, Class A-4 and Class A-5
Bonds.
"CLASS A-1 INTEREST RATE": On each Payment Date, the Class Interest
Rate for the Class A-1 Bonds will equal the per annum rate equal to One-Month
LIBOR, as determined on the applicable Floating Rate Determination Date, plus
0.52%, subject to a cap of 10.00% per annum, except that (i) the Class A-1
Interest Rate for the first Payment Date is 5.9575% and (ii) the Class A-1
Interest Rate for any Payment Date following the first Payment Date on which the
Issuer has the option to redeem the Bonds shall be the per annum rate equal to
One-Month LIBOR, as determined on the applicable Floating Rate Determination
Date, plus 1.04%, subject to a cap of 10.52% per annum, provided that, if the
Issuer redeems the Class A-1 Bonds through an Affiliate and the Class A-1 Bonds
remain Outstanding following such purchase, the Class A-1 Interest Rate shall
not be thereafter increased as provided in this clause (ii).
"CLASS A-2 INTEREST RATE": On each Payment Date, the Class Interest
Rate for the Class A-2 Bonds will equal, subject to a cap of 15.00% per annum,
(a) twelve times the sum of (i) the amount of interest at the per annum rate
equal to the weighted average (by principal balance) of the Net Rates on the
First Pool Mortgage Loans, accrued during the applicable Accrual Period for the
Class A-2 Bonds on the outstanding principal balance of the Class A-2 Bonds
immediately prior to such Payment Date; (ii) the amount of interest at the per
annum rate equal to the excess of (x) the weighted average (by principal
balance) of the Net Rates on the ARM First Pool Mortgage Loans and the High
Strip Interest Rate on the High Strip over (y) the Class A-1 Interest Rate,
accrued during the applicable Accrual Period for the Class A-2 Bonds on a
notional principal balance equal to the outstanding principal balance of the
Class A-1 Bonds immediately prior to such Payment Date; and (iii) the amount of
interest at the per annum rate equal to the excess of the Low Strip Interest
Rate over the Class Interest Rate on the Class A-3 Bonds, accrued during the
applicable Accrual Period for the Class A-3 Bonds on a notional principal
balance equal to the outstanding principal balance of the Class A-3 Bonds
immediately prior to such Payment Date, divided by (b) the outstanding principal
balance of the Class A-2 Bonds immediately prior to such Payment Date. For the
initial Payment Date, the Class Interest Rate on the Class A-2 Bonds will be
15.00% per annum.
"CLASS A-3 INTEREST RATE": The Class Interest Rate for the Class A-3
Bonds is 7.00% per annum.
"CLASS A-4 INTEREST RATE": The Class Interest Rate for the Class A-4
Bonds is 7.50% per annum.
"CLASS A-5 BOND PERCENTAGE": On each Payment Date, the aggregate
outstanding principal balance of the Class A-5 Bonds divided by the then
aggregate Scheduled Principal Balance of the Second Pool Mortgage Loans as of
such Payment Date (but may not be more than 100%).
S-6
<PAGE>
"CLASS A-5 INTEREST RATE": On each Payment Date, the Class Interest
Rate for the Class A-5 Bonds will equal the per annum rate equal to One-Month
LIBOR, as determined on the applicable Floating Rate Determination Date, plus
0.52%, subject to a cap of 10.00% per annum except that (i) the Class A-5
Interest Rate for the first Payment Date is 5.9575% and (ii) the Class A-5
Interest Rate for any Payment Date following the first Payment Date on which the
Issuer has the option to redeem the Bonds shall be the per annum rate equal to
One-Month LIBOR, as determined on the applicable Floating Rate Determination
Date, plus 1.04%, subject to a cap of 10.52% per annum, provided that, if the
Issuer redeems the Class A-5 Bonds through an Affiliate and the Class A-5 Bonds
remain Outstanding following such purchase, the Class A-5 Interest Rate shall
not be thereafter increased as provided in this clause (ii).
"CLASS INTEREST RATE": With respect to a Payment Date, the Class A-1
Interest Rate, Class A-2 Interest Rate, Class A-3 Interest Rate, Class A-4
Interest Rate or Class A-5 Interest Rate, as applicable.
"CLEARING AGENCY": The Depository Trust Company or any successor
depository selected by the Issuer.
"CONVERTED MORTGAGE LOAN": An ARM Loan with respect to which the
Borrower has complied with the applicable requirements of the Note to convert
the Note Rate to a fixed rate of interest, and such conversion has been
processed by the applicable Servicer. If a Converted Mortgage Loan is not
repurchased by the Participant, it shall be treated for purposes of the ARM/High
Strip Principal Payment Amount and the Low Strip Principal Payment Amount as an
ARM Loan.
"CPR": Constant Prepayment Rate, as calculated in accordance with
industry standards.
"CURTAILMENT": Any partial prepayment of principal on a Mortgage Loan
which otherwise is current.
"CUSTODY AGREEMENT": The custody agreement between the Trustee and
Texas Commerce Bank National Association, as custodian, dated as of June 6,
1996.
"CUT-OFF DATE": May 1, 1996.
"DEFICIENCY AMOUNT": With respect to any Payment Date, the excess, if
any, of (i) the Payment Amount over (ii) Available Funds.
"DELIVERY DATE": June 6, 1996.
"ELIGIBLE INVESTMENTS": For purposes of the definition of Eligible
Investments in the Indenture, references to long-term debt ratings in one of the
two highest applicable categories from each Rating Agency shall be deemed to be
ratings of "AA" or higher by S&P and "Aa2" or higher by Moody's Investors
Service and references to commercial paper or short-term debt
S-7
<PAGE>
ratings in the highest applicable category from each Rating Agency shall be
deemed to be "A-1" by S&P and "P-1" by Moody's Investors Service.
"ERISA": The Employee Retirement Income Security Act of 1974, as
amended.
"EXCESS LOSS AMOUNT": On each Payment Date, the amount, if any, by
which Realized Losses incurred during the related Prepayment Period exceed the
excess of (i) one month's interest at the weighted average (by principal
balance) Net Rate of the Mortgage Loans on the Overcollateralization Amount (to
the extent of Available Funds attributable to interest received or advanced with
respect to the Mortgage Loans on such Payment Date in excess of the lesser of
the amounts described in clauses (i)(A) and (i)(B) of the definition of
"Interest Rate Coverage Amount") over (ii) any Interest Rate Coverage Amount.
"FIRST POOL BOND PERCENTAGE": On each Payment Date, the aggregate
outstanding principal balance of the First Pool Bonds divided by the then
aggregate Scheduled Principal Balance of the First Pool Mortgage Loans as of
such Payment Date (but may not be more than 100%).
"FIRST POOL BONDS": The Class A-1, Class A-2, Class A-3 and Class A-4
Bonds.
"FIRST POOL MORTGAGE LOANS": The Mortgage Loans listed in Schedule I-A
to this Series Supplement.
"FIXED FIRST POOL MORTGAGE LOANS": The Mortgage Loans listed in
Schedule I-A to this Series Supplement that pay interest at a fixed rate.
"FLOATING RATE DETERMINATION DATE": For each Accrual Period for the
Class A-1 and Class A-5 Bonds after the initial Accrual Period, the second
London Banking Day prior to the commencement of such Accrual Period.
"HIGH STRIP": The aggregate of the Scheduled Principal Balance of each
Fixed First Pool Mortgage Loan multiplied by a fraction (not greater than one)
the numerator of which is equal to the Net Rate on such Mortgage Loan less the
Low Strip Interest Rate (but not less than zero) and the denominator of which is
equal to the High Strip Interest Rate less the Low Strip Interest Rate.
"HIGH STRIP INTEREST RATE": 10.00% per annum.
"INSURANCE AGREEMENT": The insurance agreement dated as of May 1, 1996
by and among MBIA, Resource, the Issuer and the Trustee.
"INSURED PAYMENT": (1) On any Payment Date, any Deficiency Amount and
(2) any Preference Amount.
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"INTEREST PAYMENT AMOUNT": On each Payment Date, the Interest Payment
Amount for each Class of Bonds will equal interest at the applicable Class
Interest Rate for the applicable Accrual Period on the outstanding principal
balance of each Class of Bonds immediately prior to such Payment Date.
"INTEREST RATE COVERAGE AMOUNT": On each Payment Date, the lesser of
(i) the amount by which (A) interest accrued at the applicable Class Interest
Rates on all Classes of Bonds for the applicable Accrual Period exceeds (B)
interest accrued during the applicable Due Period at a rate equal to the
weighted average (by principal balance) Net Rate of the Mortgage Loans on the
aggregate outstanding principal balance of the Bonds immediately preceding such
Payment Date (to the extent of Available Funds attributable to interest received
or advanced with respect to the Mortgage Loans on such Payment Date) and (ii)
one month's interest at the weighted average (by principal balance) Net Rate of
the Mortgage Loans on the Overcollateralization Amount (to the extent of
Available Funds attributable to interest received or advanced with respect to
the Mortgage Loans on such Payment Date in excess of the amount described in
clause (i)(B) of this definition).
"LONDON BANKING DAY": Any day on which commercial banks and foreign
exchange markets settle payments in London and New York City.
"LONG BEACH": Long Beach Mortgage Company, a Delaware corporation, or
its successors and assigns.
"LONG BEACH SERVICING AGREEMENT": The Seller's Warranties and Servicing
Agreement, dated as of March 1, 1996, by and between Long Beach and Saxon
Mortgage, Inc.
"LOW STRIP": The aggregate of the Scheduled Principal Balance of each
Fixed First Pool Mortgage Loan multiplied by a fraction (not greater than one)
the numerator of which is equal to the High Strip Interest Rate less the Net
Rate on such Mortgage Loan (but not less than zero) and the denominator of which
is equal to the High Strip Interest Rate less the Low Strip Interest Rate.
"LOW STRIP EXCESS LOSS AMOUNT": On each Payment Date, an amount equal
to the product of (i) the Excess Loss Amount and (ii) a fraction equal to any
Realized Losses attributable to the Low Strip incurred during the related
Prepayment Period divided by the total Realized Losses incurred during the
related Prepayment Period.
"LOW STRIP INTEREST RATE": 7.50% per annum.
"LOW STRIP PRINCIPAL PAYMENT AMOUNT":
(a) on each Payment Date on which (i) the
Overcollateralization Amount is greater than zero but less than the
Target Overcollateralization Amount and (ii) the claims-paying ability
of MBIA is rated no lower than the second highest long term rating
category by
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any Rating Agency, the amount, if any, by which (i) the Low Strip as of
the immediately preceding Payment Date (or the Cut-off Date, in the
case of the first Payment Date) exceeds (ii) the Low Strip as of the
current Payment Date (without regard to the decline in the Low Strip
attributable to any Realized Losses incurred in the related Prepayment
Period);
(b) on each Payment Date on which (i) the
Overcollateralization Amount is greater than zero but less than the
Target Overcollateralization Amount and (ii) the claims-paying ability
of MBIA is rated lower than the second highest long term rating
category by any Rating Agency, the amount, if any, by which (i) the Low
Strip as of the immediately preceding Payment Date (or the Cut-off
Date, in the case of the first Payment Date) exceeds (ii) the sum of
(A) the Low Strip as of the current Payment Date and (B) the Low Strip
Excess Loss Amount;
(c) on each Payment Date on which (i) the
Overcollateralization Amount is greater than or equal to the Target
Overcollateralization Amount (but only to the extent that the
Overcollateralization Amount continues to equal or exceed the Target
Overcollateralization Amount) and (ii) the claims-paying ability of
MBIA is not rated lower than the second highest long term rating
category by any Rating Agency, the product of (x) the Bond Payment
Percentage for the First Pool Bonds and (y) the amount, if any, by
which (i) the Low Strip as of the immediately preceding Payment Date
(or the Cut-off Date, in the case of the first Payment Date) exceeds
(ii) the Low Strip as of the current Payment Date (without regard to
the decline in the Low Strip attributable to any Realized Losses
incurred in the related Prepayment Period);
(d) on each Payment Date on which (i) the
Overcollateralization Amount is greater than or equal to the Target
Overcollateralization Amount (but only to the extent that the
Overcollateralization Amount continues to equal or exceed the Target
Overcollateralization Amount) and (ii) the claims-paying ability of
MBIA is rated lower than the second highest long term rating category
by any Rating Agency, the product of (x) the Bond Payment Percentage
for the First Pool Bonds and (y) the amount, if any, by which (i) the
Low Strip as of the immediately preceding Payment Date (or the Cut-off
Date, in the case of the first Payment Date) exceeds (ii) the sum of
(A) the Low Strip as of the current Payment Date and (B) the Low Strip
Excess Loss Amount; and
(e) on each Payment Date on which the Overcollateralization
Amount is less than or equal to zero, the greater of (i) the amount by
which (A) the aggregate principal amount of the Class A-3 and Class A-4
Bonds outstanding exceeds (B) the Low Strip as of the current Payment
Date and (ii) the amount by which (A) the Low Strip as of the
immediately preceding Payment Date (or the Cut-off Date in the case of
the first Payment Date) exceeds (B) the Low Strip as of the current
Payment Date (without regard to the decline in the Low Strip
attributable to any Realized Losses incurred in the related Prepayment
Period).
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"MASTER SERVICER": Resource, its permitted successors and assigns.
"MASTER SERVICING AGREEMENT": The master servicing agreement dated as
of May 1, 1996 by and between the Issuer and the Master Servicer, which
incorporates therein the Standard Terms to the Master Servicing Agreement, June
1, 1995 Edition.
"MASTER SERVICING FEE RATE": For each Mortgage Loan, the rate per annum
designated as the Master Servicing Rate for such Mortgage Loan in the Master
Servicing Agreement, which shall include the Trustee Fee Rate.
"MBIA": MBIA Insurance Corporation, a stock insurance company organized
and created under the laws of the State of New York and any successors thereto.
"MBIA DEFAULT": The existence and continuance of any of the following:
(a) an MBIA Payment Default; or
(b) (i) the entry by a court having jurisdiction in the
premises of (A) a decree or order for relief in respect of MBIA in an
involuntary case or proceeding under any applicable United States
federal or state bankruptcy, insolvency, rehabilitation, reorganization
or other similar law or (B) a decree or order adjudging MBIA a bankrupt
or insolvent, or approving as properly filed a petition seeking
reorganization, rehabilitation, arrangement, adjustment or composition
of or in respect of MBIA under any applicable United States federal or
state law, or appointing a custodian, receiver, liquidator,
rehabilitator, assignee, trustee, sequestrator or other similar
official of MBIA or of any substantial part of its property, or
ordering the winding-up or liquidation of its affairs and the
continuance of any such decree or order for relief or any such other
decree or order unstayed and in effect for a period of 60 consecutive
days; or
(ii) the commencement by MBIA of a voluntary case or
proceeding under any applicable United States federal or state
bankruptcy, insolvency, reorganization or other similar law or of any
other case or proceeding to be adjudicated a bankrupt or insolvent, or
the consent of MBIA to the entry of a decree or order for relief in
respect of MBIA in an involuntary case or proceeding under any
applicable United States federal or state bankruptcy or insolvency case
or proceeding against MBIA, or the filing by MBIA of a petition or
answer or consent seeking reorganization or relief under any applicable
United States federal or state law, or the consent by MBIA to the
filing of such petition or to the appointment of or the taking
possession by a custodian, receiver, liquidator, assignee, trustee,
sequestrator or similar official of MBIA or of any substantial part of
its property, or the failure of MBIA to pay its debts generally as they
become due, or the admission by MBIA in writing of its inability to pay
its debts generally as they become due, or the taking of corporate
action by MBIA in furtherance of any such action.
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"MBIA PAYMENT DEFAULT": Failure by MBIA to make an Insured Payment
required under the MBIA Policy in accordance with its terms.
"MBIA POLICY": The irrevocable financial guaranty insurance policy
(Policy No. 21296) including any endorsements thereto, issued by MBIA with
respect to the Bonds, in the form attached hereto as Exhibit C.
"MBIA PREMIUM RATE": For each Mortgage Loan, the rate set forth in the
Insurance Agreement.
"MBIA REIMBURSEMENT AMOUNT": An amount equal to the following to the
extent that any such amounts have not previously been reimbursed to MBIA:
(a) a sum equal to the total of all amounts paid by MBIA
under the MBIA Policy;
(b) any and all out-of-pocket charges, fees, costs and
expenses that MBIA may reasonably pay or incur, including, but not
limited to, attorneys' and accountants' fees and expenses, in
connection with (i) in the event of payments under the MBIA Policy, any
accounts established to facilitate payments under the MBIA Policy or
other administrative expenses relating to such payments under the MBIA
Policy, and (ii) the enforcement, defense or preservation of any rights
in respect of the MBIA Policy and related documents, including
defending, monitoring or participating in any litigation or proceeding
(including any insolvency or bankruptcy proceeding relating to the MBIA
Policy and related documents or any party thereto);
(c) any payments made by MBIA on behalf of, or advanced
to, the Trust Estate; and
(d) with respect to each amount described in clauses (a)
through (c) that is reimbursed to MBIA, interest on such amount at the
Late Payment Rate (as defined in the Insurance Agreement).
"MERITECH": Meritech Mortgage Services, Inc., a Texas corporation, or
its successors and assigns.
"MERITECH SERVICING AGREEMENT": The Servicing Agreement dated May 1,
1996 by and between the Issuer and Meritech, which incorporates therein the
Standard Terms to Meritech Servicing Agreement, June 1, 1995 edition.
"MORTGAGE LOANS": The Mortgage Loans listed in Schedule I to this
Series Supplement.
"MORTGAGE POOL": Either all of the First Pool Mortgage Loans or all of
the Second Pool Mortgage Loans, as the case may be.
S-12
<PAGE>
"ONE-MONTH LIBOR": For each applicable Accrual Period, the per annum
rate established in accordance with the provisions of Section 6(b) hereof.
"OVERCOLLATERALIZATION AMOUNT": On each Payment Date, before giving
effect to any payments to be made on such Payment Date, the difference between
(i) the aggregate Scheduled Principal Balance of the Mortgage Loans and (ii) the
outstanding principal balance of the Bonds (which difference may be a negative
number).
"PAYMENT AMOUNT": On any Payment Date, the sum of the Interest Payment
Amounts for each Class of Bonds and the Principal Payment Amount.
"PAYMENT DATE": The twenty-eighth day of each month (or, if such day is
not a Business Day, the next succeeding Business Day), commencing in June 1996.
For accounting purposes only, the Payment Date for a month will be deemed to
occur on the 28th day of the month without regard to whether such day is a
Business Day.
"PREFERENCE AMOUNT": Any amount previously distributed to the
Bondholders 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.
"PRINCIPAL PAYMENT AMOUNT": On any Payment Date, the sum of the
ARM/High Strip Principal Payment Amount, the Low Strip Principal Payment Amount,
and the Second Pool Principal Payment Amount.
"PURCHASE PRICE": With respect to a Mortgage Loan purchased from the
Trust Estate in accordance with Section 12 hereof, an amount equal to the Unpaid
Principal Balance of the Mortgage Loan plus (i) if such Mortgage Loan is
repurchased during a Prepayment Period that ends during the calendar month in
which the repurchase occurs, accrued and unpaid interest thereon at the
applicable Net Rate to the date of purchase, or (ii) if such Mortgage Loan is
repurchased during a Prepayment Period that does not end during the calendar
month in which the repurchase occurs, accrued and unpaid interest thereon at the
applicable Net Rate through the end of the calendar month in which the purchase
occurs.
"RATING AGENCY": Each of Moody's Investors Service, Inc. and S&P.
"REDEMPTION PRICE": An amount equal to 100% of the aggregate
Outstanding principal balance of the Class of Bonds redeemed plus accrued and
unpaid interest through the applicable Accrual Date.
"RESOURCE": Resource Mortgage Capital, Inc., a Virginia corporation.
"S&P": Standard & Poor's Rating Services, a division of The
McGraw-Hill Companies, Inc.
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"SALES AGREEMENT": The Sales Agreement relating to the Mortgage Loans,
by and between the Issuer and Resource, dated as of May 30, 1996.
"SECOND POOL EXCESS LOSS AMOUNT": On each Payment Date, an amount equal
to the product of (i) the Excess Loss Amount and (ii) a fraction equal to any
Realized Losses attributable to the Second Pool Mortgage Loans incurred during
the related Prepayment Period divided by the total Realized Losses incurred
during the related Prepayment Period.
"SECOND POOL MORTGAGE LOANS": The Mortgage Loans listed in Schedule I-B
to this Series Supplement.
"SECOND POOL PRINCIPAL PAYMENT AMOUNT":
(a) on each Payment Date on which (i) the
Overcollateralization Amount is greater than zero but less than the
Target Overcollateralization Amount and (ii) the claims-paying ability
of MBIA is rated no lower than the second highest long term rating
category by any Rating Agency, the amount, if any, by which (i) the
aggregate Scheduled Principal Balance of the Second Pool Mortgage Loans
as of the immediately preceding Payment Date (or the Cut-off Date, in
the case of the first Payment Date) exceeds (ii) the aggregate
Scheduled Principal Balance of the Second Pool Mortgage Loans as of the
current Payment Date (without regard to the decline in the Scheduled
Principal Balance of the Second Pool Mortgage Loans attributable to any
Realized Losses incurred in the related Prepayment Period);
(b) on each Payment Date on which (i) the
Overcollateralization Amount is greater than zero but less than the
Target Overcollateralization Amount and (ii) the claims-paying ability
of MBIA is rated lower than the second highest long term rating
category by any Rating Agency, the amount, if any, by which (i) the
aggregate Scheduled Principal Balance of the Second Pool Mortgage Loans
as of the immediately preceding Payment Date (or the Cut-off Date, in
the case of the first Payment Date) exceeds (ii) the sum of (A) the
aggregate Scheduled Principal Balance of the Second Pool Mortgage Loans
as of the current Payment Date and (B) the Second Pool Excess Loss
Amount;
(c) on each Payment Date on which (i) the
Overcollateralization Amount is greater than or equal to the Target
Overcollateralization Amount (but only to the extent that the
Overcollateralization Amount continues to equal or exceed the Target
Overcollateralization Amount) and (ii) the claims-paying ability of
MBIA is not rated lower than the second highest long term rating
category by any Rating Agency, the product of (x) the Bond Payment
Percentage for the Class A-5 Bonds and (y) the amount, if any, by which
(i) the aggregate Scheduled Principal Balance of the Second Pool
Mortgage Loans as of the immediately preceding Payment Date (or the
Cut-off Date, in the case of the first Payment Date) exceeds (ii) the
aggregate Scheduled Principal Balance of the Second Pool Mortgage Loans
as of the current Payment Date (without regard to
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the decline in the Scheduled Principal Balance of the Second Pool
Mortgage Loans attributable to any Realized Losses incurred in the
related Prepayment Period);
(d) on each Payment Date on which the Overcollateralization
Amount is greater than or equal to the Target Overcollateralization
Amount (but only to the extent that the Overcollateralization Amount
continues to equal or exceed the Target Overcollateralization Amount)
and the claims-paying ability of MBIA is rated lower than the second
highest long term rating category by any Rating Agency, the product of
(x) the Bond Payment Percentage for the Class A-5 Bonds and (y) the
amount, if any, by which (i) the aggregate Scheduled Principal Balance
of the Second Pool Mortgage Loans as of the immediately preceding
Payment Date (or the Cut-off Date, in the case of the first Payment
Date) exceeds (ii) the sum of (A) the aggregate Scheduled Principal
Balance of the Second Pool Mortgage Loans as of the current Payment
Date and (B) the Second Pool Excess Loss Amount; and
(e) on each Payment Date on which the Overcollateralization
Amount is less than or equal to zero, the amount by which (i) the
aggregate principal amount of the Class A- 5 Bonds outstanding exceeds
(ii) the aggregate Scheduled Principal Balance of the Second Pool
Mortgage Loans as of the current Payment Date.
"SERIES YEAR REPORTING DATE": June 1 of each year, commencing June 1,
1997.
"SERVICER": Each of The Boston Company, Long Beach, and Meritech.
"SERVICING AGREEMENTS": The Meritech Servicing Agreement, the Long
Beach Servicing Agreement and the TBC Servicing Agreement.
"SERVICING FEE RATE": For each Mortgage Loan, the rate per annum
designated as the Servicing Fee Rate for such Mortgage Loan in the applicable
Servicing Agreement.
"SERVICING DELINQUENCY TRIGGER EVENT": With respect to any Payment
Date, the existence of the following condition: the aggregate Scheduled
Principal Balance of the Mortgage Loans covered by the Meritech Servicing
Agreement that are delinquent 60 days or more as of the related Determination
Date (including Mortgage Loans in foreclosure and REO) exceeds 10% of the
aggregate Scheduled Principal Balance of the Mortgage Loans covered by the
Meritech Servicing Agreement as of such Determination Date.
"SERVICING LOSS TRIGGER EVENT": With respect to any Payment Date, the
existence of either of the following conditions: the aggregate Realized Losses
with respect to the Mortgage Loans covered by the Meritech Servicing Agreement
(i) occurring since the Cut-off Date exceeds the amounts specified below during
the periods indicated below:
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Aggregate Realized Losses with respect to
Meritech Loans as a Percentage of
Mortgage Loan Scheduled Principal
Balance with respect to Meritech Loans as
Period of the Cut-off Date
June 1, 1996 - May 31, 1997 1.30%
June 1, 1997 - May 31, 1998 1.65%
June 1, 1998 - May 31, 1999 2.05%
June 1, 1999 - May 31, 2000 2.50%
June 1, 2000 - thereafter 3.00%
or (ii) for any twelve-month period is greater than or equal to 1.0% of the
aggregate Scheduled Principal Balance of the Mortgage Loans serviced by Meritech
as of the beginning of such twelve-month period.
"STANDARD PROVISIONS": With respect to the Mortgage Loans serviced by
Meritech, the provisions of the Saxon Servicing Guide for Credit Sensitive
Loans, October 1, 1995 edition, as amended.
"SURPLUS": On any Payment Date, the difference between (a) Available
Funds and (b) the sum of the Payment Amount for such Payment Date and the MBIA
Reimbursement Amount for such Payment Date.
"TARGET OVERCOLLATERALIZATION AMOUNT": On any Payment Date, an amount
equal to the product of (i) twice the percentage represented by the initial
Overcollateralization Amount and (ii) the aggregate Scheduled Principal Balance
of the Mortgage Loans.
"TBC SERVICING AGREEMENT": The Mortgage Loan Sale, Warranties, and
Servicing Agreement dated as of April 1, 1996 between The Boston Company and the
Seller.
"THE BOSTON COMPANY": Boston Safe Deposit and Trust Company, a
Massachusetts trust company, or its successors and assigns.
"TRUSTEE FEE RATE": The rate of 0.005% per annum for each Mortgage
Loan.
SECTION 2. DESIGNATION; PRINCIPAL AMOUNT; MATURITY.
The Bonds shall be designated generally as the Issuer's Collateralized
Mortgage Bonds, Series 7. The aggregate principal amount of Bonds that may be
authenticated and delivered under this Series Supplement is limited to
$528,550,000, except for Bonds authenticated and delivered upon registration of,
transfer of or in exchange for, or in lieu of, other Bonds pursuant to Sections
3.04, 3.05 or 3.06 of the Original Indenture. The aggregate principal amount of
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Bonds shall be divided among five Classes, having designations, initial
principal amounts, Bond Interest Rates and Stated Maturities as follows:
INITIAL BOND
PRINCIPAL INTEREST STATED
DESIGNATION AMOUNT RATE MATURITY
Class A-1 $435,000,000 (1) May 28, 2030
Class A-2 $ 45,500,000 (2) May 28, 2030
Class A-3 $ 26,300,000 (3) May 28, 2030
Class A-4 $ 7,000,000 (4) May 28, 2030
Class A-5 $ 14,750,000 (5) May 28, 2030
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(1) The Class A-1 Interest Rate.
(2) The Class A-2 Interest Rate.
(3) The Class A-3 Interest Rate.
(4) The Class A-4 Interest Rate.
(5) The Class A-5 Interest Rate.
SECTION 3. DATE OF THE BONDS.
The Bonds that are authenticated and delivered by the Trustee to or
upon the order of the Issuer on the Delivery Date shall be dated the Delivery
Date. All other Bonds that are authenticated after the Delivery Date for any
other purpose under the Indenture shall be dated the date of their
authentication or as otherwise provided in the indenture supplement authorizing
their issuance.
SECTION 4. BOOK-ENTRY BONDS.
The Bonds shall be Book-Entry Bonds and each Class of Bonds shall be
issued initially as one or more certificates in the name of the Clearing Agency
or its nominee. For all purposes, the Trustee shall deal with the Clearing
Agency as Holder of such Book-Entry Bonds. The rights of Beneficial Owners of
the Book-Entry Bonds shall be limited to those established by law and agreements
between such Beneficial Owners and the Clearing Agency and Clearing Agency
Participants. The Beneficial Owners of the Book-Entry Bonds shall not be
entitled to certificated securities for the Book-Entry Bonds as to which they
are the Beneficial Owners, except as provided below. Requests and directions
from, and votes of, the Clearing Agency, as Holder, shall not be deemed to be
inconsistent if they are made with respect to different Beneficial Owners.
Without the consent of the Issuer and the Trustee, a Book-Entry Bond may not be
transferred by the Clearing Agency except to another Clearing Agency that agrees
to hold the Book-Entry Bond for the account of the respective Clearing Agency
Participants and Beneficial Owners.
None of the Issuer, the Master Servicer, MBIA or the Trustee will have
any liability for any aspect of the records relating to or payment made on
account of Beneficial Owners of the
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Book-Entry Bonds held by the Clearing Agency, or for maintaining, supervising or
reviewing any records relating to such Beneficial Owners.
The Book-Entry Bonds will be issued in fully registered, certificated
form to Beneficial Owners of Book-Entry Bonds or their nominees, rather than to
the Clearing Agency or its nominee, only if (a) the Issuer advises the Trustee
in writing that the Clearing Agency is no longer willing or able to discharge
properly its responsibilities as depository with respect to the Book-Entry Bonds
and the Issuer is unable to locate a qualified successor within 30 days or (b)
the Issuer, at its option, elects to terminate the book-entry system operating
through the Clearing Agency.
Upon the occurrence of either event described in the immediately
preceding paragraph, the Trustee is required to notify the Clearing Agency,
which in turn will notify all Beneficial Owners of Book-Entry Bonds through
Clearing Agency Participants, of the availability of Certificated Bonds. Upon
surrender by the Clearing Agency of the certificates representing the Book-Entry
Bonds and receipt of instructions for re-registration, the Trustee will reissue
the Book-Entry Bonds as Certificated Bonds to the Beneficial Owners identified
in writing by the Clearing Agency. Such Certificated Bonds shall not constitute
Book-Entry Bonds.
SECTION 5. DENOMINATIONS.
Each Class of Bonds will be registered in one or more certificates in
the name of a nominee of the Clearing Agency, and beneficial interests will be
held by investors through the book-entry facilities of the Clearing Agency in
minimum denominations of $100,000 and increments of $1,000 in excess thereof,
except that one Bond of each Class may be issued in a different denomination.
SECTION 6. DETERMINATION OF INTEREST PAYMENTS.
(a) Each Class of Bonds will be entitled to receive on each Payment
Date an amount equal to the Interest Payment Amount for such Class for such
Payment Date.
(b) With respect to the Class A-1 and Class A-5 Bonds, One-Month LIBOR
shall be determined as follows:
On each Floating Rate Determination Date, the Master Servicer will
determine the arithmetic mean of the London Interbank Offered Rate ("LIBOR")
quotations for one-month Eurodollar deposits ("One-Month LIBOR") for the
succeeding Accrual Period for the Class A-1 and Class A-5 Bonds on the basis of
the offered LIBOR quotations provided to the Master Servicer as of 11:00 a.m.
(London time) on such Floating Rate Determination Date. As used herein with
respect to a Floating Rate Determination Date, "Reference Banks" means four
leading banks engaged in transactions in Eurodollar deposits in the
International Eurocurrency market (i) with an established place of business in
London, (ii) whose quotations appear on the Bloomberg Screen LIUS01M Index Page
on the Floating Rate Determination Date in question
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and (iii) which have been designated as such by the Master Servicer and are able
and willing to provide such quotations to the Master Servicer on each Floating
Rate Determination Date; and "Bloomberg Screen LIUS01M Index Page" means the
display designated as page "LIUS01M" on the Bloomberg Financial Markets
Commodities News (or such other pages as may replace such page on that service
for the purpose of displaying LIBOR quotations of major banks). If any Reference
Bank should be removed from the Bloomberg Screen LIUS01M Index Page or in any
other way fails to meet the qualifications of a Reference Bank, the Master
Servicer may, in its sole discretion, designate an alternative Reference Bank.
On each Floating Rate Determination Date, One-Month LIBOR for the next
succeeding Accrual Period for the Class A-1 and Class A-5 Bonds will be
established by the Master Servicer as follows:
(i) If on any Floating Rate Determination Date two or more
of the Reference Banks provide offered One-Month LIBOR quotations on
the Bloomberg Screen LIUS01M Index Page, One-Month LIBOR for the next
Accrual Period for the Class A- 1 and Class A-5 Bonds will be the
arithmetic mean of such offered quotations (rounding such arithmetic
mean if necessary to the nearest five decimal places).
(ii) If on any Floating Rate Determination Date only one or
none of the Reference Banks provides such offered quotations,
One-Month LIBOR for the next Accrual Period for the Class A-1 and
Class A-5 Bonds will be the higher of (x) One- Month LIBOR as
determined on the previous Floating Rate Determination Date and (y)
the Reserve Interest Rate. The "Reserve Interest Rate" will be the
rate per annum that the Master Servicer determines to be either (A)
the arithmetic mean (rounding such arithmetic mean if necessary to
the nearest five decimal places) of the one-month Eurodollar lending
rate that New York City banks selected by the Master Servicer are
quoting, on the relevant Floating Rate Determination Date, to the
principal London offices of at least two leading banks in the London
interbank market or (B) in the event that the Master Servicer can
determine no such arithmetic mean, the lowest one-month Eurodollar
lending rate that the New York City banks selected by the Master
Servicer are quoting on such Floating Rate Determination Date to
leading European banks.
(iii) If on any Floating Rate Determination Date the Master
Servicer is required but is unable to determine the Reserve Interest
Rate in the manner provided in paragraph (ii) above, One-Month LIBOR
for the next applicable Accrual Period will be One-Month LIBOR as
determined on the previous Floating Rate Determination Date.
Notwithstanding the foregoing, One-Month LIBOR for the next succeeding
Accrual Period shall not be based on One-Month LIBOR for the previous Accrual
Period on the Class A-1 and Class A-5 Bonds for two consecutive Floating Rate
Determination Dates. If, under the priorities described above, One-Month LIBOR
for the next succeeding Accrual Period on the Class A-1 and Class A-5 Bonds
would be based on One-Month LIBOR for the previous Floating Rate Determination
Date for the second consecutive Floating Rate Determination Date, the
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Master Servicer shall select an alternative index (over which the Master
Servicer has no control) used for determining one-month Eurodollar lending rates
that is calculated and published (or otherwise made available) by an independent
third party.
The establishment of One-Month LIBOR (or an alternative index) by the
Master Servicer and the Master Servicer's subsequent calculation of the Class
A-1 and Class A-5 Interest Rate for the relevant Accrual Period, in the absence
of manifest error, will be final and binding.
SECTION 7. APPLICATION OF FUNDS.
(a) On each Payment Date, the Trustee shall distribute or cause to be
distributed Available Funds from the Collateral Proceeds Account in the
following order of priority:
(i) To each Holder of the Bonds on the Record Date relating
to such Payment Date, the appropriate portion of the Interest Payment
Amount for the appropriate Class;
(ii) To each Holder of the Bonds on the Record Date relating
to such Payment Date, the applicable portion of the Principal Payment
Amount determined in accordance with the priorities set forth in
Sections 7(b), (c) and (d) hereof;
(iii) To MBIA, the MBIA Reimbursement Amount; and
(iv) To the Surplus Account, the amount of Surplus to be
released from the lien of the Indenture and paid to the Issuer or the
Issuer's designee in accordance with Section 13.05 of the Original
Indenture.
(b) On each Payment Date, the ARM/High Strip Principal Payment Amount
will be applied to pay principal on the Bonds in the following order of
priority:
FIRST, to pay principal on a pro rata basis to the Holders of
the Class A-1 Bonds until paid in full; and
SECOND, to pay principal on a pro rata basis to the Holders of
the Class A-2 Bonds until paid in full.
(c) On each Payment Date, the Low Strip Principal Payment Amount will
be applied to pay principal on the Bonds in the following order of priority:
FIRST, to pay principal on a pro rata basis to the Holders of
the Class A-3 Bonds until paid in full;
SECOND, to pay principal on a pro rata basis to the Holders of
the Class A-4 Bonds until paid in full; and
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THIRD, to pay principal on a pro rata basis to the Holders of
the Class A-2 Bonds until paid in full.
(d) On each Payment Date, the Second Pool Principal Payment Amount will
be applied to pay principal on a pro rata basis on the Class A-5 Bonds until
paid in full.
(e) All payments made with respect to each Class of Bonds on each
Payment Date shall be allocated pro rata among the Outstanding Bonds of such
Class.
(f) All payments or allocations of amounts in the Collateral Proceeds
Account, Custodial Reserve Fund, and Surplus Account and all payments made by
the Trustee under any section hereof or under the Original Indenture shall be
made in accordance with written instructions of the Issuer or its designee.
(g) The Issuer has deposited $82,626.97 into the Collateral Proceeds
Account on the Delivery Date, which represents one month's interest on the
Mortgage Loans set forth in Schedule II hereto, which Mortgage Loans have a
first Due Date with respect to the Issuer of July 1, 1996.
SECTION 8. PLACES FOR PAYMENT.
Payments to the Holders of each Class of Bonds on any Payment Date will
be made to the Holders of record of the respective Class on the related Record
Date. Payments on the Book-Entry Bonds shall be made to the Clearing Agency by
wire transfer. The Trustee may charge any Holder its standard wire transfer fee
for any payment made by wire transfer.
SECTION 9. REDEMPTION.
The Issuer may, at its option, redeem any Class of Bonds, in whole, but
not in part, on any Payment Date on or after the earlier of (i) May 28, 2003,
and (ii) the Payment Date on which, after taking into account payments of
principal to be made on such Payment Date, the aggregate Outstanding principal
balance of the Bonds is less than 35% of the aggregate principal balance of the
Bonds issued (including Additional Bonds). In addition, the Issuer may redeem a
Class or Classes of Bonds in whole, but not in part, at any time upon a
determination by the Issuer, based upon an Opinion of Counsel, which Opinion of
Counsel shall not be an expense of the Trust Estate, that a substantial risk
exists that Bonds of the Class to be redeemed will not be treated for federal
income tax purposes as evidences of indebtedness. Until each Class of Bonds is
retired, any optional redemption of a Class of Bonds shall be treated as a
purchase of such Bonds, with the result that there will be no acceleration of
principal payments on any Class of Bonds not redeemed. Any redemption of a Class
of Bonds shall be made at the Redemption Price for such Class.
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SECTION 10. ADDITIONAL AND SUBORDINATED BONDS.
(a) Additional Bonds.
(I) Within six months following the Closing Date, the Issuer
may pledge Additional Mortgage Collateral to the Trustee and issue
Additional Bonds that rank pari passu with the Bonds originally issued
on the Delivery Date. The Additional Bonds may be one or more
outstanding Classes of Bonds or may represent one or more new Classes
of Bonds; provided, however, that the issuance thereof will be subject
to satisfaction of the following conditions: (i) confirmation by each
Rating Agency that the pledge of Additional Mortgage Collateral and
other additional Collateral, if any, and the corresponding issuance of
Additional Bonds will not result in the downgrading of the credit
rating of any outstanding Class of Bonds (without regard to the MBIA
Policy), (ii) the written approval of MBIA and the issuance of an MBIA
policy with respect to such Additional Bonds, (iii) the pledge of
Additional Mortgage Collateral will effect no change in the Class
Interest Rate, Stated Maturity Date or Payment Dates of any Outstanding
Class of Bonds without the consent of each Bondholder affected thereby,
(iv) without the consent of each Bondholder affected thereby, the
weighted average life of each Outstanding Class of Bonds (without
redemption) calculated at 21% CPR will not vary by more than 0.05% from
the weighted average life of such Class disclosed in the offering
document for such Class, and (v) delivery to the Trustee of an Opinion
of Counsel to the effect that: (A) such Additional Bonds will be
treated as indebtedness for federal income and franchise tax purposes,
(B) such issuance will not adversely affect the characterization of any
Outstanding Bonds for federal income or franchise tax purposes, and (C)
such issuance will not cause a taxable event to the Holders of any
Outstanding Bonds.
(II) The issuance of Additional Bonds shall be evidenced by a
supplement to this Indenture Supplement. The Trustee shall be
authorized to issue such Bonds upon (i) receipt of an Issuer Order
accompanied by a form of supplement and the written consent of each
Rating Agency and MBIA; (ii) receipt of an MBIA policy with respect to
the Additional Bonds (or an endorsement of the MBIA Policy), (iii)
receipt of an Opinion of Counsel to the general effect set forth in
Section 4.01(3) of the Original Indenture; (iv) receipt of an
Accountants' Certificate to the effect that the pledge of Additional
Mortgage Collateral does not cause the Mortgage Loans securing the
Bonds to vary by more than the parameters set forth in Exhibit B
attached hereto and that the weighted average life of each Class of
Bonds is within the permitted variance; (v) consents of each Bondholder
affected, but only to the extent that any of the characteristics set
forth in Section 10(a)(I)(iii) or (a)(I)(iv) are modified with respect
to any Class of Bonds; and (vi) receipt of an Opinion of Counsel as to
various tax matters as described in clause (v) of Section 10(a)(I)
above.
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(b) Subordinated Bonds.
(I) The Issuer may issue one or more classes of additional
bonds secured by the Trust Estate that are subordinated ("Subordinated
Bonds") to the Bonds originally issued on the Delivery Date; provided,
however, that the issuance thereof will be subject to satisfaction of
the following conditions: (i) confirmation by each Rating Agency that
the issuance of the Subordinated Bonds will not result in the
downgrading of the credit rating of any outstanding Class of Bonds
(without regard to the MBIA Policy), (ii) the written approval of MBIA,
and (iii) delivery to the Trustee of an Opinion of Counsel to the
effect that: (A) such Subordinated Bonds will be treated as
indebtedness for federal income and franchise tax purposes, (B) such
issuance will not adversely affect the characterization of any
Outstanding Bonds for federal income or franchise tax purposes, and (C)
such issuance will not cause a taxable event to the Holders of any
Outstanding Bonds.
(II) The issuance of Subordinated Bonds shall be evidenced by
a supplement to this Indenture Supplement. The Trustee shall be
authorized to issue such Bonds upon (i) receipt of an Issuer Order
accompanied by a form of supplement and the written consent of each
Rating Agency and MBIA; (ii) receipt of an Opinion of Counsel to the
general effect set forth in Section 4.01(3) of the Original Indenture;
and (iv) receipt of an Opinion of Counsel as to various tax matters as
described in clause (iii) of Section 10(b)(I) above.
SECTION 11. DEFAULT.
(a) An Event of Default with respect to a Bond means any one of the
following events (whatever the reason for such Event of Default and whether it
shall be voluntary or involuntary or be effected by operation of law or pursuant
to any judgment, decree or order of any court or any order, rule or regulation
of any administrative or governmental body):
(i) On any Payment Date, Default in the payment of the
Interest Payment Amount or the Principal Payment Amount to the
Bondholders as described herein, which Default shall continue for a
period of five days; or
(ii) a failure of payment in full of the principal amount
of any Bond by its Stated Maturity; or
(iii) Default in the performance, or breach, of any covenant
or warranty of the Issuer in the Original Indenture or in this Series
Supplement (other than a Default in the performance of or breach of
any covenant or warranty addressed in Section 11(a)(i) and (ii)
hereof) or in Article Nine of the Original Indenture, and continuance
of such Default or breach for a period of 60 days after there shall
have been given, by registered or certified mail, to the Issuer by
the Trustee or to the Issuer and the Trustee by MBIA, or, during the
existence of a MBIA Default, by the Holders of at least 25%
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in then Outstanding principal balance of the Bonds, a written notice
specifying such Default or breach and requiring it to be remedied and
stating that such notice is a "Notice of Default" under the
Indenture; or
(iv) the entry of a decree or order by a court having
jurisdiction in the premises adjudging the Issuer bankrupt or
insolvent, or approving as properly filed a petition seeking
reorganization, arrangement, adjustment or composition of or in
respect of the Issuer under the Federal Bankruptcy Code or any other
applicable federal or state law, or appointing a receiver,
liquidator, assignee, or sequestrator (or other similar official) of
the Issuer or of any substantial part of its property, or ordering
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 90
consecutive days; or
(v) the institution by the Issuer of proceedings to be
adjudicated as bankrupt or insolvent, or the consent by it to the
institution of bankruptcy or insolvency proceedings against it, or
the filing by it of a petition or answer or consent seeking
reorganization or relief under the Federal Bankruptcy Code or any
other similar applicable federal or state law, or the consent by it
to the filing of any such petition or to the appointment of a
receiver, liquidator, assignee, trustee or sequestrator (or other
similar official) of the Issuer or of any substantial part of its
property, or the making by it of an assignment for the benefit of
creditors, or the admission by it in writing of its inability to pay
its debts generally as they become due, or the taking of corporate
action by the Issuer in furtherance of any such action.
(b) If on any Payment Date the Payment Amount exceeds Available Funds
for that Payment Date and MBIA defaults on its obligations under the MBIA Policy
(and the Bonds have not been declared due and payable following an Event of
Default and there is not an optional redemption of all the Bonds pursuant to
Section 9 hereof), then the Available Funds for such Payment Date (and any
amounts on deposit in the Discount Principal Reserve Account) shall be applied
for the following purposes and in the following order of priority:
(i) to pay to the Holders of each Class of Bonds, pro rata,
all unpaid interest accrued in respect of such Class of Bonds during
the applicable Accrual Period with respect to such Payment Date; and
(ii) to pay to the Holders of each Class of Bonds, pro rata,
by principal balance all principal due and unpaid.
(c) Each Bondholder shall be deemed to have agreed, by its acceptance
of its Bond, not to file, or join in filing, any petition in bankruptcy or
commence any similar proceeding in respect of the Issuer and to treat its Bonds
as debt instruments for purposes of federal and state income tax, franchise tax
and any other tax measured in whole or in part by income.
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(d) Upon the occurrence of an Event of Default under Section 10.01 of
the Standard Terms to Master Servicing Agreement, the Trustee shall, at the
direction of MBIA, or during the existence of an MBIA Default, at the direction
of the Holders of at least 51% of the aggregate Outstanding principal balance of
any Class of Bonds, and may without such direction (but with the consent of MBIA
unless there exists an MBIA Default), enforce any of the remedies set forth in
such Master Servicing Agreement.
SECTION 12. REPURCHASE OF MORTGAGE COLLATERAL.
The Trustee shall release from the lien of the Indenture any Mortgage
Loan that has been repurchased in accordance with the terms of the Sales
Agreement. In order to obtain such release, the Issuer must remit, or cause to
be remitted, to the Trustee the amount of the Purchase Price for such Mortgage
Loan, which the Trustee shall treat as a prepayment in full of such Mortgage
Loan.
SECTION 13. CUSTODIAL RESERVE FUND.
The Trustee shall establish and maintain a Custodial Reserve Fund
pursuant to and for the purposes specified in Section 12.06 of the Original
Indenture. In each Monthly Remittance Report the Issuer shall identify the
premium due and payable to MBIA with respect to the MBIA Policy for the
following month pursuant to the Insurance Agreement.
SECTION 14. CERTAIN MATTERS REGARDING MBIA AND THE MBIA POLICY.
(a) Rights of MBIA to Exercise Certain Rights of Bondholders. By
accepting its Bond, each Bondholder agrees that unless an MBIA Default exists,
MBIA shall have the right to exercise the Voting Rights of the Bondholders with
respect to all matters, including without limitation the following matters
without any further consent of the Bondholders, to the extent such rights are
provided for in the Original Indenture or herein:
(i) the right to direct the Trustee to terminate the
rights and obligations of the Master Servicer under the Master
Servicing Agreement in the event of a default by the Master
Servicer;
(ii) the right to consent to or direct any waivers of
defaults by the Master Servicer;
(iii) the right to remove the Trustee pursuant to the
Original Indenture;
(iv) the right to institute proceedings against the Master
Servicer in the event of default by the Master Servicer, and
refusal of the Trustee to institute such proceedings;
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(v) the right to direct foreclosures upon Mortgage Loans
upon failure of the Master Servicer to do so;
(vi) the right to require Resource to repurchase or
substitute Mortgage Loans pursuant to the Sales Agreement;
(vii) the right to accelerate maturity of the Bonds or
rescind a declaration of acceleration pursuant to Section 6.02 of
the Original Indenture;
(viii) the right to direct the exercise of all remedies
pursuant to Section 6.05 of the Original Indenture;
(ix) the right to request that the Trustee take possession
of and retain the Trust Estate pursuant to Section 6.05 of the
Original Indenture or to rescind such election by the Trustee
pursuant to the same section; and
(x) the right to waive any past Default pursuant to
Section 6.15 of the Original Indenture.
In addition, unless an MBIA Default exists, MBIA's consent will be
required prior to, among other things, (i) the appointment of any successor
Trustee, Master Servicer or Servicer or (ii) any amendment to the Indenture,
provided, however, that MBIA shall not unreasonably withhold, condition or delay
its consent. Each Bondholder agrees that, unless an MBIA Default exists, the
rights specifically set forth above may be exercised by the Bondholders only
with the prior written consent of MBIA.
(b) Issuer to Act Solely with Consent of MBIA. Unless an MBIA Default
exists, the Issuer shall not exercise the right to appoint a co-trustee pursuant
to Section 7.14 of the Original Indenture or successor trustee pursuant to
Section 7.10 of the Original Indenture without the prior written consent of MBIA
(except to the extent failure to exercise such rights would adversely affect the
interests of the Issuer).
Unless an MBIA Default exists, the Issuer shall not undertake any
litigation with respect to the Trust Estate (other than litigation to enforce
its rights hereunder) or terminate any Servicing Agreement pursuant to Section
12.16 of the Original Indenture without the prior consent of MBIA.
(c) Trustee To Act Solely with Consent of MBIA. Unless an MBIA Default
exists, the Trustee shall not exercise the right to:
(i) terminate the rights and obligations of the Master
Servicer as Master Servicer or consent to the resignation of the
Master Servicer pursuant to the Master Servicing Agreement;
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(ii) agree to any amendment of the Indenture pursuant to
Article Ten of the Original Indenture;
(iii) undertake any litigation pursuant to the Indenture
or incur any expenses reimbursable pursuant to Section 7.03 of the
Original Indenture;
(iv) exercise any of the remedies set forth in Section
6.04 of the Original Indenture;
(v) agree to an amendment of the articles of incorporation
of the Issuer without written confirmation from the Rating Agencies
that such amendment will not adversely affect the then current
ratings of the Outstanding Bonds without regard to the guaranty
provided by the MBIA Policy;
(vi) appoint co-trustees or separate trustees pursuant to
Section 7.14 of the Original Indenture; or
(vii) agree to any amendment to, or grant any waiver of
rights under, the Servicing Agreements, Master Servicing Agreement
or Custody Agreement (except as required pursuant to Section 20
hereof) in a manner that may reasonably be expected to materially
adversely affect the rights and interests of MBIA;
without the prior written consent of MBIA, which shall not be unreasonably
withheld (except to the extent failure to exercise such rights would adversely
affect the interests of the Trustee).
(d) Trust Estate and Accounts Held for Benefit of MBIA and the
Bondholders. The Trustee shall hold the Trust Estate and the Trustee Mortgage
Loan Files for the benefit of the Bondholders and, unless an MBIA Default
exists, MBIA, and all references in the Indenture and in the Bonds to the
benefit of Holders of the Bonds shall, unless an MBIA Default exists, be deemed
to include MBIA. The Trustee shall, unless an MBIA Default exists, cooperate in
all reasonable respects with any reasonable request by MBIA for action to
preserve or enforce MBIA's rights or interests under the Indenture and the
Bonds.
(e) Claims Upon the MBIA Policy.
(i) If, by noon, New York City time, on the third Business
Day prior to a Payment Date, the Trustee receives notice from the
Master Servicer that the Available Funds for such Payment Date will
be insufficient to pay the Payment Amount on such Payment Date and
specifying such Deficiency Amount, the Trustee shall complete a
notice in the form of Exhibit A to the MBIA Policy (a "Notice") and
submit such Notice to MBIA or its agent (with a copy to the
Bondholders), as set forth in the MBIA Policy, not later than 12:00
noon New York City time on the second business Day preceding such
Payment Date as a claim for an Insured Payment in an amount equal
to such Deficiency Amount.
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(ii) The Trustee shall (i) receive as attorney-in-fact of
each Bondholder any Insured Payment from MBIA or on behalf of MBIA
and (ii) disburse such Insured Payment to such Bondholders as set
forth in Section 7 hereof for the benefit of the related
Bondholders. Any Insured Payment received by the Trustee shall be
held by the Trustee uninvested. Insured Payments disbursed by the
Trustee from proceeds of the MBIA Policy shall not be considered
payment by the Issuer with respect to the Bonds, nor shall such
payments discharge the obligation of the Issuer with respect to
such Bonds, and MBIA shall become the owner of such unpaid amounts
due from the Issuer in respect of such Insured Payments as the
deemed assignee and subrogee of such Bondholders and shall be
entitled to receive the MBIA Reimbursement Amount in respect
thereof. The Trustee hereby agrees on behalf of each Bondholder for
the benefit of MBIA that it recognizes that to the extent MBIA
makes Insured Payments for the benefit of the Bondholders, MBIA
will be entitled to receive the related MBIA Reimbursement Amount
in accordance with the priority of distributions set forth in
Section 7 hereof.
(iii) The Trustee shall keep a complete and accurate record
of the amount of interest and principal paid in respect of any
Bonds from moneys received under the MBIA Policy. MBIA shall have
the right to inspect such records at reasonable times during normal
business hours upon one Business Day's prior written notice to the
Trustee. In the event that MBIA has paid the entire Outstanding
principal balance of an Outstanding Bond, the Trustee shall
re-register such Bond in the name of MBIA.
(iv) The Trustee shall promptly notify MBIA of any
proceeding or the institution of any action, of which an Officer of
the Trustee has actual knowledge, constituting a Preference Claim
in respect of any payment made on the Bonds. Each Bondholder that
pays any amount pursuant to a Preference Claim theretofore received
by such Bondholder on account of a Bond will be entitled to receive
reimbursement for such amounts from MBIA in accordance with the
terms of the MBIA Policy. Each Bondholder, by its purchase of
Bonds, and the Trustee hereby agree that, MBIA (so long as no MBIA
Payment Default exists) may at any time during the continuation of
any proceeding relating to a Preference Claim direct all matters
relating to such Preference Claim, including, without limitation,
(i) the direction of any appeal of any order relating to such
Preference Claim and (ii) the posting of any surety, supersedeas or
performance bond pending any such appeal. In addition and without
limitation of the foregoing, MBIA shall be subrogated to the rights
of the Trustee and each Bondholder in the conduct of any such
Preference Claim, including, without limitation, all rights of any
party to any adversary proceeding action with respect to any court
order issued in connection with any such Preference Claim.
(v) Each Bondholder, by its purchase of Bonds, and the
Trustee hereby agree that, unless an MBIA Payment Default exists,
MBIA shall have the right to direct all matters relating to the
Bonds in any proceeding in a bankruptcy of the Issuer, including
without limitation any proceeding relating to a Preference Claim,
any appeal
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of any order relating to a Preference Claim and the posting of any
surety or bond pending any such appeal.
(f) Trustee to Cooperate. Unless an MBIA Default exists, the Trustee
shall cooperate in all respects with any reasonable request by MBIA for action
to preserve or enforce MBIA's rights or interests hereunder without limiting the
rights or affecting the interests of the Holders as otherwise set forth herein.
(g) Servicing Requirements. MBIA or, if an MBIA Default exists, the
Holders of not less than a majority in principal balance of the Outstanding
Bonds may direct the Master Servicer to terminate: (i) the Meritech Servicing
Agreement at any time if (A) a material breach of the Meritech Servicing
Agreement occurs or (B) there exists a Servicing Loss Trigger Event or a
Servicing Delinquency Trigger Event with respect to the Meritech Servicing
Agreement, (ii) the TBC Servicing Agreement at any time if a material beach of
the TBC Servicing Agreement occurs, or (iii) the Long Beach Servicing Agreement
at any time (A) if a material breach of the Long Beach Servicing Agreement
occurs or (B) there exists a "Servicing Loss Trigger Event" or a "Servicing
Delinquency Trigger Event" (as such terms are defined in the Long Beach
Servicing Agreement). Upon receipt of written notice from MBIA or the Holders,
as the case may be, directing the termination of a Servicing Agreement, the
Master Servicer and the Issuer shall proceed in accordance with Section 12.16 of
the Original Indenture.
(h) Surrender and Cancellation. The Trustee shall surrender the MBIA
Policy to MBIA for cancellation upon the expiration of the term of the MBIA
Policy as provided in the MBIA Policy.
(i) Reports to MBIA. All notices, statements, reports, certificates or
opinions required by the Indenture to be sent to any other party hereto or to
any of the Bondholders shall also be sent to MBIA. The Issuer and the Trustee
shall make available to MBIA their books and records for the purpose of copying
and inspection of any information about the Bonds or the Bondholders.
(j) Third-Party Beneficiary. MBIA shall be a third-party beneficiary
of the Indenture, entitled to enforce the provisions thereof as if a party
thereto.
(k) Costs and Expenses. MBIA shall not be responsible for any costs or
expenses relating to the Trust Estate or the Mortgage Loans except for the
payment of amounts pursuant to the MBIA Policy.
(l) Survival of MBIA's Right to be Reimbursed. Notwithstanding Section
5.01 of the Original Indenture, the Indenture shall not be discharged or
satisfied until satisfaction of the conditions set forth therein and payment of
the MBIA Reimbursement Amount. MBIA's right to receive the MBIA Reimbursement
Amount shall survive the satisfaction and discharge of the Indenture.
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(m) Opinions of Counsel. While the MBIA Policy is in effect, each
Opinion of Counsel rendered pursuant to the Indenture also shall be addressed to
MBIA.
SECTION 15. ADDITIONAL OBLIGATIONS AND COVENANTS OF THE TRUSTEE.
(a) The Trustee shall be obligated to make Advances with respect to the
Mortgage Loans in accordance with the terms of the Master Servicing Agreement if
the Master Servicer fails to make a required Advance; provided, however, that
the Trustee shall not be obligated to make an Advance that it deems
unrecoverable. The Trustee is entitled to rely upon any determination by the
Master Servicer that an Advance is unrecoverable.
(b) The Trustee shall exercise all rights and remedies available to it
as third-party beneficiary of the Sales Agreement, including but not limited to,
enforcing the obligation of Resource to repurchase (or substitute) Mortgage
Loans in accordance with Section 7 thereof.
(c) The Trustee acknowledges that the Master Servicer, and not the
Issuer, is obligated to pay its compensation and reimbursement pursuant to
Section 7.07 of the Original Indenture.
(d) Any statement or requirement as to the value of Additional
Collateral, or any requirement that such value be marked to market, shall be
solely the responsibility of The Boston Company.
(e) So long as any debt instrument issued by the Issuer is outstanding
and for 91 days thereafter, the Trustee will not file any involuntary petition
or otherwise institute any bankruptcy, reorganization, arrangement, insolvency
or liquidation proceeding or other proceedings under any federal or state
bankruptcy or similar law against the Issuer.
SECTION 16. NOTICE TO THE RATING AGENCIES AND TO MBIA.
The Issuer shall use its best efforts promptly to provide notice to the
Rating Agencies and MBIA of any of the following events of which it has actual
knowledge:
(a) any material change to or amendment of this Series
Supplement or the Original Indenture;
(b) the occurrence of any Default or Event of Default that has
not been cured;
(c) the resignation or termination of the Trustee;
(d) the substitution of Mortgage Collateral;
(e) the proposed issuance of Additional Bonds;
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(f) the final payment to Bondholders; and
(g) any payment or claim made under the MBIA Policy.
In addition, the Issuer shall provide to the Rating Agencies and to
MBIA (i) each month a copy of the Monthly Remittance Report and (ii) within 90
days after the end of each calendar year a report on delinquencies and
foreclosures occurring with respect to the Mortgage Loans during such calendar
year.
SECTION 17. MONTHLY REMITTANCE REPORT.
The Monthly Remittance Report required pursuant to Section 12.09 of the
Original Indenture shall also contain the following information with respect to
each Payment Date:
(a) Available Funds;
(b) the Principal Payment Amount and the Interest Payment
Amount;
(c) the Overcollateralization Amount;
(d) the Interest Rate Coverage Amount; and
(e) the extent to which the Principal Payment Amount is
attributable to the decline in the aggregate Scheduled Principal
Balance of the Mortgage Loans as a result of Realized Losses.
SECTION 18. PURCHASE OF DELINQUENT MORTGAGE LOANS BY ISSUER.
The Issuer may, but is not obligated to, purchase on any Payment Date
any Mortgage Loan that is delinquent in payment by 90 days or more for a price
equal to the Unpaid Principal Balance of such Mortgage Loan plus accrued and
unpaid interest thereon at the related Net Rate through the Payment Date
following the date of purchase.
SECTION 19. ADDITIONAL COVENANTS OF THE ISSUER.
(a) The Issuer shall not suffer to exist any claim against it on a
recourse basis, which in the reasonable judgment of MBIA (after consultation
with the Issuer giving due regard to the likelihood of success on the merits of
such claim as well as any reserves or other arrangements which have been made to
assure the payment of any such claim), creates a risk of insolvency proceedings
against the Issuer.
(b) The Issuer shall maintain its status as a "qualified REIT
subsidiary" under Section 856(i)(2) of the Code unless it shall have received
the prior written consent of MBIA to change or terminate such status.
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SECTION 20. AMENDMENTS TO INDENTURE.
Only for the purposes of this Series Supplement and only with respect
to the Bonds, the following amendments to the Original Indenture are hereby
made:
(a) Section 1.01 of the Original Indenture is amended by
deleting the definition of "Corporate Trust Office" and substituting
therefor the following:
"Corporate Trust Office": The principal corporate trust office
of the Trustee presently located at 600 Travis, 8th Floor,
Houston, Texas 77002, Attention: Corporate Trust Office. For
purposes of Section 9.02, the office of Texas Commerce Trust
Company of New York, 55 Water Street, North Building, Room
234, Windows 20 and 21, New York, New York 10041, or at such
other address as the Trustee may designate from time to time
by notice to the Bondholders and the Issuer or the principal
corporate trust office of any successor trustee.
(b) Section 1.01 of the Original Indenture is amended by
inserting before the period at the end of the definition of "Mortgaged
Premises" the following:
or, in the case of a Mortgage Loan that is a Coop Loan, the
shares and the leasehold interest securing the Coop Loan and,
in either case, any Additional Collateral held pursuant to the
TBC Servicing Agreement.
(c) Section 1.01 of the Original Indenture is amended by
inserting before the period at the end of the definition of "Note Rate"
the following:
as reduced by the application of any Soldiers' and Sailors'
Shortfall; provided however, that the principal allocation
made with respect to a Mortgage Loan to the High Strip and the
Low Strip shall not be affected after the Delivery Date.
(d) Section 1.01 of the Original Indenture is amended by
inserting before the period at the end of the definition of
"Outstanding" the following:
; provided, however, that Bonds that have been paid with
proceeds of the MBIA Policy shall be deemed to remain
Outstanding for purposes of this Indenture until MBIA has been
paid as subrogee under this Indenture, such payment to be
evidenced by a written notice from MBIA to the Trustee, and
MBIA shall be deemed to be the Holder thereof to the extent of
any payments thereon made by MBIA; provided further that MBIA
shall not be entitled to receive more than the MBIA
Reimbursement Amount, whether as Bondholder or pursuant to
Section 7 of the Series 7 Supplement.
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(e) Section 1.01 of the Original Indenture is amended by
deleting in the fifth line of the definition of "Prepayment Period" the
phrase "in which case the Prepayment Period will be the period from and
including the Cut-off Date through December 20, 1994" and inserting in
lieu thereof the following:
in which case the Prepayment Period will be the period from
and including May 23, 1996 through June 20, 1996.
(f) Section 1.01 of the Original Indenture is amended by
deleting the definition of "Record Date" and substituting therefor the
following:
"Record Date": With respect to a Payment Date, the last
Business Day of the month preceding the month in which such
Payment Date is deemed to occur, or for the first Payment
Date, the Delivery Date.
(g) Section 1.01 of the Original Indenture is amended by
adding the following additional definitions:
"Coop Loan": A Mortgage Loan secured by a lien against (i)
shares issued by a cooperative housing corporation and (ii)
the related Borrower's leasehold interest in a cooperative
dwelling unit owned by such cooperative housing corporation.
"Original Mortgage Loan": A Mortgage Loan initially pledged
to the Trustee to secure the Bonds.
"Substitute Mortgage Loan": A Mortgage Loan pledged to the
Trustee to secure a Series of Bonds in substitution for a
defaulted Mortgage Loan initially pledged to the Trustee to
secure such Bonds or the related REO.
(h) Each of Sections 1.01 (with respect to the definition of
"Limited Purpose Entity"), 3.11(b)(2), 3.13, 9.08(c)(2), 9.10(4), 9.12,
9.13, 9.14(b) and 10.01 of the Original Indenture is modified to
reflect that the ratings confirmation required in such Section shall be
made without regard to the guarantee provided by the MBIA Policy.
(i) Section 3.11 of the Original Indenture is hereby amended
as follows:
(i) Subsection (c) is hereby deleted in its entirety
and the following is substituted therefor:
(c) Any item of Substitute Mortgage
Collateral substituted pursuant to
subsection (a) hereof must be a Qualified
Substitute Mortgage Loan if the item of
Original Mortgage Collateral so substituted
for was a Mortgage Loan.
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(ii) The following new subsection is added to the end
of Section 3.11:
(d) Unless otherwise provided in the related
Series Supplement, upon prior approval of the Bond
Insurer for such Series, on any Subsequent Delivery
Date for any Series, the Issuer will have the option
to pledge to the Trustee under a Series Supplement as
security for the Series, in substitution for a
defaulted Mortgage Loan or REO securing such Series,
a Substitute Mortgage Loan, to the extent that the
Master Servicer has determined, in its reasonable
business judgment, that the present value of any
potential Realized Loss on such defaulted Mortgage
Loan or REO will be reduced through the substitution
of a Substitute Mortgage Loan for such defaulted
Mortgage Loan or REO, and provided that such
Substitute Mortgage Loan (i) is secured by the
Mortgaged Premises that secure the defaulted Mortgage
Loan or by such REO, (ii) has a Note Rate that is not
less than the then current market rate for a mortgage
loan having similar characteristics (provided,
however, that a Substitute Mortgage Loan may have a
Note Rate less than the then current market rate so
long as the aggregate Scheduled Principal Balance of
all such Substitute Mortgage Loans on their
respective dates of substitution does not exceed
1.00% of the initial aggregate Scheduled Principal
Balance of all of the Mortgage Loans initially
pledged to secure such Series), and (iii) has a
maturity date that is not later than the Stated
Maturity of the Series of Bonds. Substitute Mortgage
Loans substituted under this Section 3.11(d) for a
defaulted Mortgage Loan or REO are not required to
satisfy the requirements applicable to Substitute
Mortgage Collateral contained in Section 3.11 (a) and
(c) hereof.
On the Subsequent Delivery Date, the Issuer
shall have the right to deliver and pledge to the
Trustee as security for the Series in exchange for
each such item of Original Mortgage Collateral a
Substitute Mortgage Loan plus cash in an amount equal
to the payment of principal and interest paid or to
be paid on such Substitute Mortgage Loan during the
month of the Subsequent Delivery Date.
Upon such substitution, all of the Issuer's
right, title and interest to the Substitute Mortgage
Loan shall be assigned to the Trustee pursuant to
Section 4.02(2) or (3) of this Indenture, and the
Issuer shall receive (1) the item of Original
Mortgage Collateral for which the item of Substitute
Mortgage Collateral was substituted and (2) all
Collateral Proceeds received on the Due Date in the
month of the Subsequent Delivery Date by the Trustee
on the item of Original Mortgage Collateral delivered
to the Issuer.
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The Trustee shall receive, not later than
the Subsequent Delivery Date, an Officer's
Certificate of the Issuer and of the Master Servicer
to the effect that:
(1) all instruments furnished to the
Trustee in connection with such substitution
conform to the requirements of this
Indenture and the related Series Supplement
and constitute sufficient authority
hereunder for the Trustee to permit the
substitution then applied for;
(2) all conditions precedent
provided for in this Indenture and the
related Series Supplement relating to the
substitution then applied for have been
complied with and the Issuer is duly
entitled to effect such substitution;
(3) each Substitute Mortgage Loan
has been duly and validly assigned to the
Trustee free and clear of any lien,
mortgage, pledge, charge, security interest
or other encumbrance that is prior to the
lien of the Indenture;
(4) the Master Servicer has
determined, in its reasonable business
judgment, that the present value of any
potential Realized Loss on the defaulted
Mortgage Loan or REO will be reduced through
the substitution of the Substitute Mortgage
Loan for such defaulted Mortgage Loan or
REO; and
(5) if the Note Rate on the
Substitute Mortgage Loan is less than the
then current market rate for mortgage loans
having similar characteristics, the
aggregate Scheduled Principal Balance of all
such Substitute Mortgage Loans on their
respective dates of substitution does not
exceed 1.00% of the initial aggregate
Scheduled Principal Balance of all of the
Mortgage Loans initially pledged to secure
such Series.
(j) The second paragraph of Section 4.02(3) of the Original
Indenture shall be amended by adding the following at the end thereof:
Notwithstanding the foregoing, in the event that,
within 60 days of the Delivery Date, each Rating Agency
confirms in writing to the Issuer, the Trustee and MBIA that
the ratings of the Bonds will not be downgraded (without
regard to the MBIA Policy), the Issuer shall not be required
to complete endorsements of the Notes to the Trustee or to
record Security Interest Assignments to the Trustee with
respect to Mortgage Loans serviced by the Servicer, but
rather, will be required to
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deliver to the Trustee (i) the Notes endorsed in blank or to
the Trustee or Custodian and (ii) either (x) Security
Instrument Assignments to the Servicer, with further Security
Instrument Assignments from the Servicer in blank or (y)
Security Instrument Assignments to the Trustee or Custodian.
In such event, the Trustee shall amend the Custody Agreement
to reflect the foregoing provisions.
(k) Section 4.02(10) of the Original Indenture shall be
amended by adding the words "except MBIA" after the first occurrence of
the word "Insurer" therein.
(l) Section 6.17 of the Original Indenture is amended by
deleting the first paragraph thereof and substituting therefor the
following:
Each Holder of a Bond shall be deemed, by its
acceptance of such Bond, to have agreed not to file, join in
the filing, or cause a filing against the Issuer of an
involuntary petition under any bankruptcy or receivership law.
(m) Section 11.05 of the Original Indenture is hereby amended
by adding an additional sentence at the end thereof as follows:
In addition, in the case of a redemption involving the
termination of the Bonds, the Issuer shall deposit with the
Trustee cash sufficient to pay the MBIA Reimbursement Amount.
(n) Section 15.04 of the Original Indenture is hereby amended
by (i) the deletion of the word "or" following clause (1), (ii) the
deletion of the period following clause (2) and the replacement thereof
by a semicolon followed by the word "and" and (iii) the addition of the
following in its entirety as a new clause (3) as follows:
(3) the Bond Insurer by the Trustee, the Issuer or
any Bondholder shall be sufficient for every purpose
thereunder if in writing and mailed, first-class postage
prepaid, to the Bond Insurer at: MBIA Insurance Corporation,
113 King Street, Armonk, New York 10504, Attention: Insured
Portfolio Management - Structured Finance (IPM-SF) (Merit
Securities Corporation, Collateralized Mortgage Bonds, Series
7). (In each case in which notice or other communication to
MBIA refers to an Event of Default, a claim on the MBIA Policy
or with respect to which failure on the part of MBIA to
respond shall be deemed to constitute consent or acceptance,
then a copy of such notice or other communication should also
be sent to the attention of each of the general counsel and
MBIA and shall be marked to indicate "URGENT MATERIAL
ENCLOSED.")
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(o) Notwithstanding the provisions of Section 13.01(d) of the
Original Indenture, the Issuer's obligation to deliver to the Trustee a
Yearly Accountants' Certificate may be modified, eliminated or limited
to the extent permitted by the Rating Agencies and MBIA.
SECTION 21. AMENDMENTS TO DEFINITIONS.
The definitions of Servicing Delinquency Trigger Event and Servicing
Loss Trigger Event may be amended with the receipt of (a) written confirmation
of the Rating Agencies to the effect that such amendment will not adversely
affect the rating of any Outstanding Bond without regard to the existence of the
MBIA Policy and (b) written approval of MBIA.
SECTION 22. DIRECTION TO TRUSTEE.
The Issuer hereby directs the Trustee to execute the Insurance
Agreement.
SECTION 23. RATIFICATION OF INDENTURE.
As supplemented by this Series Supplement, the Original Indenture is in
all respects ratified and confirmed, and the Original Indenture as so
supplemented by this Series Supplement shall be read, taken and construed as one
and the same instrument.
SECTION 24. FORM OF BONDS.
The Class A-1 Bonds shall be substantially in the form of Exhibit A-1
attached hereto. The Class A-2 Bonds shall be substantially in the form of
Exhibit A-2 attached hereto. The Class A-3 Bonds shall be substantially in the
form of Exhibit A-3 attached hereto. The Class A-4 Bonds shall be substantially
in the form of Exhibit A-4 attached hereto. The Class A-5 Bonds shall be
substantially in the form of Exhibit A-5 attached hereto. The Bonds shall have a
Statement of Insurance printed thereon or attached thereto which essentially
sets forth the terms of the MBIA Policy.
SECTION 25. SCHEDULES.
Schedule I-A, I-B and II are attached hereto as contemplated by the
Indenture.
SECTION 26. COUNTERPARTS.
This Series Supplement may be executed in any number of counterparts,
each of which when so executed shall be deemed to be an original, but all of
such counterparts shall together constitute but one and the same instrument.
SECTION 27. GOVERNING LAW.
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THIS SERIES SUPPLEMENT SHALL BE CONSTRUED IN ACCORDANCE WITH AND
GOVERNED BY THE LAWS OF THE STATE OF NEW YORK APPLICABLE TO AGREEMENTS MADE AND
TO BE PERFORMED THEREIN.
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IN WITNESS WHEREOF, the Issuer and the Trustee have caused this Series
Supplement to be duly executed by their respective officers thereunto duly
authorized and, in the case of the Issuer, its respective signature duly
attested all as of the 1st day of May 1996.
MERIT SECURITIES CORPORATION
By: /s/ Lisa R. Cooke
Its: Vice President
TEXAS COMMERCE BANK NATIONAL
ASSOCIATION, not in its
individual capacity but
solely as Trustee
By: /s/ Rafael Herrera
Its: Vice President and Trust Officer
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LIST OF SCHEDULES AND EXHIBITS
SCHEDULE I-A FIRST POOL MORTGAGE LOANS
SCHEDULE I-B SECOND POOL MORTGAGE LOANS
SCHEDULE II INTEREST FUND LOANS
EXHIBIT A-1 FORM OF CLASS A-1 BONDS
EXHIBIT A-2 FORM OF CLASS A-2 BONDS
EXHIBIT A-3 FORM OF CLASS A-3 BONDS
EXHIBIT A-4 FORM OF CLASS A-4 BONDS
EXHIBIT A-5 FORM OF CLASS A-5 BONDS
EXHIBIT B PARAMETERS FOR ADDITIONAL MORTGAGE
COLLATERAL
EXHIBIT C FORM OF MBIA POLICY
S-40
<PAGE>
EXHIBIT A-1
FORM OF CLASS A-1 BONDS
UNLESS THIS BOND IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY
TRUST COMPANY, A NEW YORK CORPORATION ("DTC"), TO MERIT SECURITIES CORPORATION
OR ITS AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE, OR PAYMENT, AND ANY BOND
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 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.
THE PRINCIPAL OF THIS BOND IS SUBJECT TO PREPAYMENT FROM TIME TO TIME WITHOUT
SURRENDER OF OR NOTATION ON THIS BOND. ACCORDINGLY, THE UNPAID PRINCIPAL BALANCE
OF THIS BOND MAY BE LESS THAN THE AMOUNT SET FORTH BELOW. ANYONE ACQUIRING THIS
BOND MAY ASCERTAIN ITS CURRENT PRINCIPAL BALANCE BY INQUIRY OF THE TRUSTEE.
THIS BOND MAY NOT BE TRANSFERRED EXCEPT UPON COMPLIANCE WITH THE TERMS OF THE
WITHIN-REFERENCED INDENTURE.
No. AGGREGATE INITIAL PRINCIPAL BALANCE
OF THE CLASS A-1 BONDS AS
OF THE CLOSING DATE: $435,000,000
DENOMINATION: $
MERIT SECURITIES CORPORATION
COLLATERALIZED MORTGAGE BONDS, SERIES 7, CLASS A-1
DUE MAY 28, 2030
CUSIP NO. 589962 AT6
MERIT Securities Corporation, a corporation duly organized and existing
under the laws of the Commonwealth of Virginia (herein referred to as the
"Issuer"), for value received, hereby promises to pay to
CEDE & CO.
or registered assigns, from proceeds of the Collateral pledged under the
Indenture referred to within, the principal sum of
_________________________________________________________________________ AND
00/100 DOLLARS as hereinafter described and interest on the unpaid principal
balance hereof in the manner hereinafter described until this Bond shall have
been paid in full.
This Bond is a "Book-Entry Bond" as described in Section 3.12 of the
within-mentioned Indenture, and this Bond is being registered in the name of
CEDE & Co., as nominee of The Depository Trust Company, a Clearing Agency.
Subject to the terms of the Indenture, the Bonds will be registered as one or
more certificates held by a Clearing Agency or its nominee, and beneficial
interests will be held by Beneficial Owners through the book-entry facilities of
such Clearing Agency or its nominee in minimum denominations of $100,000 and
increments of $1,000 in excess thereof, except that one Bond of this Class may
be issued in a different denomination.
<PAGE>
The interest on and principal of this Bond shall be payable in lawful
money of the United States in the following manner:
(a) The Class Interest Rate for this Bond for the period from the
Delivery Date through June 27, 1996 will be 5.9575% per annum. Interest
on this Bond will accrue (computed as if each year consisted of 360
days and each month consisted of 30 days) during the applicable Accrual
Period with respect to a Payment Date (each as hereinafter defined) on
the outstanding principal balance of this Bond immediately prior to
each Payment Date at a per annum rate equal to One-Month LIBOR, as
determined on the applicable Floating Rate Determination Date, plus
0.52%, subject to a cap of 10.00% per annum; provided however, if the
Issuer does not exercise its option to redeem the Class A-1 Bonds on
the first Payment Date on which it is permitted to do so, interest will
accrue at a per annum rate equal to One-Month LIBOR on the applicable
Floating Rate Determination Date, plus 1.04%, subject to a cap of
10.52% per annum. As used herein, "Accrual Period" means, with respect
to each Payment Date, the period commencing on the 28th day of the
preceding month through the 27th day of the month in which such Payment
Date is deemed to occur (except that the first Accrual Period will be
the period from the Delivery Date through June 27, 1996). The Holder of
this Bond will be entitled to receive on the twenty-eighth day of each
month, or, if such day is not a Business Day, then on the next
succeeding Business Day (each a "Payment Date"), commencing on June 28,
1996, an amount equal to this Bond's pro rata share of the Interest
Payment Amount for such Payment Date. For accounting purposes the
Payment Date will be deemed to occur on the 28th day of the month
without regard to whether such day is a Business Day.
(b) Payments of principal shall be due and payable on the Class
A-1 Bonds on each Payment Date to the extent and in the manner
described in the Indenture. Payments of principal, if any, due and
payable on this Bond on any Payment Date shall be in an amount equal to
this Bond's pro rata share of the aggregate installments of principal
due and payable on the Bonds of this Class as of such Payment Date,
with a final installment due and payable on the maturity of this Bond
equal to its unpaid principal balance, all as provided in the
Indenture.
This Bond is one of a duly authorized issue of Bonds of the Issuer,
designated as the Collateralized Mortgage Bonds, Series 7, issued in aggregate
principal amount of $528,550,000 as specifically set forth in an indenture dated
as of November 1, 1994 (the "Original Indenture"), as amended and supplemented
by the Series 7 Supplement dated as of May 1, 1996 (the "Series 7 Supplement"
and, together with the Original Indenture, the "Indenture"), between the Issuer
and Texas Commerce Bank National Association (the "Trustee," which term includes
any successor trustee under the Indenture), to which Indenture and indentures
supplemental thereto reference is hereby made for a statement of the respective
rights thereunder of the Issuer, the Trustee and the Holders of the Bonds, and
the terms upon which the Bonds are, and are to be, authenticated and delivered.
All terms used in this Bond that are defined in the Indenture shall have the
meanings assigned to them in the Indenture.
Each payment on this Bond, when made, shall be applied first to the
payment of interest accrued and unpaid on this Bond and then to the payment of
principal on this Bond.
The principal and interest so payable on any Payment Date will, as
provided in the Indenture, be paid to the Person in whose name this Bond is
registered on the regular Record Date for such Payment Date, which shall be the
close of business on the last Business Day of the month next preceding the month
in which such Payment Date is deemed to occur, or, for the first Payment Date,
the Delivery Date. Any such interest not so punctually paid or duly provided for
shall forthwith cease to be payable to the Holder as of the Record Date and may
be paid to the Holder of this Bond as of a Special Record Date, to be fixed by
the Trustee, for the payment of such defaulted interest, notice whereof shall be
given to Bondholders not less than 10 days prior to such Special Record Date, or
may be paid at any time in any other lawful manner not inconsistent with the
requirements of any securities exchange on which the Bonds
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<PAGE>
of this Series may be listed, and upon such notice as may be required by such
exchange, all as more fully provided in the Indenture.
So long as this Bond is registered in the name of a Clearing Agency or
its nominee, the Trustee will make payments of principal of and interest on this
Bond by wire transfers of immediately available funds to the Clearing Agency or
its nominee. Notwithstanding the above, the final distribution on this Bond will
be made after due notice by the Trustee of the pendency of such distribution and
only upon presentation and surrender of this Bond at its principal Corporate
Trust Office or such other offices or agencies appointed by the Trustee for that
purpose and such other locations provided in the Indenture.
The Class A-1 Bonds are subject to redemption, in whole, but not in
part, at the option of the Issuer on any Payment Date on or after the earlier of
(i) May 28, 2003 or (ii) the Payment Date on which, after giving effect to
payments of principal to be made on such date, the aggregate principal balance
of Bonds then Outstanding is less than 35% of the original aggregate principal
amount of the Bonds (including any Additional Bonds). In addition, the Issuer
may redeem the Bonds in whole, but not in part, at any time upon a determination
by the Issuer, based upon an Opinion of Counsel, that a substantial risk exists
that the Bonds will not be treated for federal income tax purposes as evidences
of indebtedness. Any such redemption of the Bonds will be at the Redemption
Price set forth in the Indenture.
Certain Events of Default will entitle the Trustee to declare the
principal of all or a portion of the Bonds to be due and payable or to take
possession of and retain the Trust Estate intact, in either case in the manner
and with the effect provided in the Indenture.
Anything in the Indenture or in any other instrument referenced therein
to the contrary notwithstanding, the Holder hereof, by accepting delivery of
this Bond, recognizes that this Bond is a non-recourse obligation of the Issuer
and agrees to look solely to the Trust Estate and a financial guaranty insurance
policy issued by MBIA (as defined herein) for the Bonds for the payment of all
sums due hereunder and under the terms of the Indenture, and the Issuer shall
not be liable for any deficiency or other personal money judgment with respect
to the payment of such sums. The Holder of this Bond shall be deemed to have
agreed, by its acceptance of this Bond, not to file or join in filing any
petition of bankruptcy or commence any similar proceeding in respect of the
Issuer and to treat this Bond as a debt instrument for purposes of federal and
state income tax, franchise tax and any other tax measured in whole or in part
by income.
As provided in the Indenture and subject to any limitations on transfer
of this Bond by a Clearing Agency or its nominee and certain limitations set
forth in the Indenture, the transfer of this Bond is registrable in the Bond
Register upon surrender of this Bond for registration of transfer at the
principal Corporate Trust Office of the Trustee or such other offices or
agencies appointed by the Trustee for that purpose and such other locations
provided in the Indenture, duly endorsed by, or accompanied by an assignment in
the form below or other written instrument of transfer in form satisfactory to
the Trustee and the Bond Registrar duly executed by, the Holder hereof or such
Holder's attorney duly authorized in writing, and thereupon one or more new
Bonds of the same Class in the same aggregate principal balance will be issued
to the designated transferee or transferees.
Fiduciaries of employee benefit plans and certain other retirement
plans and arrangements that are subject to ERISA or corresponding provisions of
the Code, including individual retirement accounts and annuities, Keogh Plans,
and collective investment funds in which such plans, accounts, or arrangements
are invested (any of the foregoing, a "Plan"), persons acting on behalf of a
Plan, or persons using the assets of a Plan ("Plan Investors"), should review
carefully with their legal advisors whether the purchase or holding of this Bond
could give rise to a transaction that is prohibited under ERISA or the Code or
cause the Collateral securing the Bonds to be regarded as "plan assets" for
purposes of the Plan Asset Regulations. The Issuer believes that the Class A-1
Bonds will be treated as debt obligations without significant equity features
for purposes of the Plan Asset Regulations. Accordingly, a Plan that acquires a
Class
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<PAGE>
A-1 Bond should not be treated as having acquired a direct interest in the
assets of the Issuer. However, there can be no complete assurance that the Class
A-1 Bonds will be treated as debt obligations without significant equity
features for purposes of the Plan Asset Regulations.
Prior to due presentment for registration of transfer of this Bond, the
Issuer, the Trustee and any agent of the Issuer or the Trustee may treat the
Person in whose name this Bond is registered as the owner hereof for the purpose
of receiving payment as herein provided and for all other purposes, whether or
not this Bond be overdue, and neither the Issuer, the Trustee nor any such agent
shall be affected by notice to the contrary.
The Indenture permits, with certain exceptions as therein provided, the
amendment thereof and the modification of the rights and obligations of the
Issuer and the rights of the Holders of the Bonds under the Indenture at any
time by the Issuer with the consent of the Holders of a majority in aggregate
principal balance of Bonds at the time Outstanding. The Indenture also contains
provisions permitting the Holders of specified percentages in aggregate
principal balance of specified Classes of Bonds at the time Outstanding, on
behalf of the Holders of all the Bonds, to waive compliance by the Issuer with
certain provisions of the Indenture and certain past defaults under the
Indenture and their consequences. Any such consent or waiver by the Holder of
this Bond shall be conclusive and binding upon such Holder and upon all future
Holders of this Bond and of any Bond issued upon the registration of transfer
hereof or in exchange herefor or in lieu hereof whether or not notation of such
consent or waiver is made upon this Bond. As provided in the Indenture and
subject to certain limitations therein set forth, MBIA Insurance Corporation
("MBIA") will be entitled to exercise certain Voting Rights of the Holders, and
the Holders may exercise such rights only with the prior written consent of
MBIA.
The term "Issuer" as used in this Bond includes any successor thereof
under the Indenture.
This Bond and the Indenture shall be construed in accordance with, and
governed by, the laws of the State of New York, without regard to conflict of
laws rules.
Unless the certificate of authentication hereon has been executed by
the Trustee by manual signature, this Bond shall not be entitled to any benefit
under the Indenture, or be valid or obligatory for any purpose.
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<PAGE>
IN WITNESS WHEREOF, MERIT Securities Corporation has caused this Bond
to be signed by the true or facsimile signature of its Vice President and
attested by the true or facsimile signature of its Assistant Secretary.
MERIT SECURITIES CORPORATION
By: _________________________
Vice President
Attest:
- -------------------------------------
Assistant Secretary
TRUSTEE'S CERTIFICATE OF AUTHENTICATION
This is a Class A-1 Bond referred to in the within-mentioned Indenture.
Date of Authentication: TEXAS COMMERCE BANK NATIONAL
ASSOCIATION, Trustee
By: ____________________________
Authorized Officer
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<PAGE>
ABBREVIATIONS
The following abbreviations, when used in the inscription on the face
of this Bond, shall be construed as though they were written out in full
according to applicable laws or regulations:
<TABLE>
<S> <C>
TEN COM--as tenants in common UNIF GIFT MIN ACT--.....Custodian......
TEN ENT--as tenants by the entireties (Cus) (Minor)
Under Uniform Gifts to Minors
JT TEN-- as joint tenants with rights of Act..........................
survivorship and not as (State)
Tenants in Common
</TABLE>
Additional abbreviations may also be used though not in the above list.
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<PAGE>
FORM OF TRANSFER
FOR VALUE RECEIVED, the undersigned hereby sells, assigns
and transfers unto __________________________________________________________
- -----------------------------------------------------------------------------
Please print or typewrite name and address of assignee
- -----------------------------------------------------------------------------
Please insert Social Security or other identifying Number of Assignee
the within Bond of MERIT Securities Corporation and does hereby irrevocably
constitute and appoint
_________________________________________________________________, Attorney, to
transfer the said Bond on the books of the within named Corporation, with full
power of substitution in the premises.
Dated: __________________________
-------------------------------------------
NOTICE: The signature to this
assignment must correspond with the
name as written upon the face of
this Bond in every particular
without alteration or enlargement or
any change whatever.
- ---------------------------------
SIGNATURE GUARANTEED: The signature must be guaranteed by a commercial bank or
trust company or by a member firm of the New York Stock Exchange or another
national securities exchange. Notarized or witnessed signatures are not
acceptable.
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<PAGE>
PAYMENT INSTRUCTIONS
The assignee should include the following for purposes of payment:
Payment shall be made, by wire transfer or otherwise, in immediately
available funds, to _______________________, for the account of
___________________, account number _____________, or, if mailed by check, to
_________________________. Applicable reports and statements should be mailed to
_____________________. This information is provided by ___________________, the
assignee named above, or ______________________________, as its agent.
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<PAGE>
EXHIBIT A-2
FORM OF CLASS A-2 BONDS
UNLESS THIS BOND IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY
TRUST COMPANY, A NEW YORK CORPORATION ("DTC"), TO MERIT SECURITIES CORPORATION
OR ITS AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE, OR PAYMENT, AND ANY BOND
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 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.
THE PRINCIPAL OF THIS BOND IS SUBJECT TO PREPAYMENT FROM TIME TO TIME WITHOUT
SURRENDER OF OR NOTATION ON THIS BOND. ACCORDINGLY, THE UNPAID PRINCIPAL BALANCE
OF THIS BOND MAY BE LESS THAN THE AMOUNT SET FORTH BELOW. ANYONE ACQUIRING THIS
BOND MAY ASCERTAIN ITS CURRENT PRINCIPAL BALANCE BY INQUIRY OF THE TRUSTEE.
THIS BOND MAY NOT BE TRANSFERRED EXCEPT UPON COMPLIANCE WITH THE TERMS OF THE
WITHIN-REFERENCED INDENTURE.
No. AGGREGATE INITIAL PRINCIPAL BALANCE
OF THE CLASS A-2 BONDS AS OF THE
DENOMINATION: $ CLOSING DATE: $45,500,000
MERIT SECURITIES CORPORATION
COLLATERALIZED MORTGAGE BONDS, SERIES 7, CLASS A-2
DUE MAY 28, 2030
CUSIP NO. 589962 AU3
MERIT Securities Corporation, a corporation duly organized and existing
under the laws of the Commonwealth of Virginia (herein referred to as the
"Issuer"), for value received, hereby promises to pay to
CEDE & CO.
or registered assigns, from proceeds of the Collateral pledged under the
Indenture referred to within, the principal sum of
___________________________________________________________ AND 00/100 DOLLARS
as hereinafter described and interest on the unpaid principal balance hereof in
the manner hereinafter described until this Bond shall have been paid in full.
This Bond is a "Book-Entry Bond" as described in Section 3.12 of the
within-mentioned Indenture, and this Bond is being registered in the name of
CEDE & Co., as nominee of The Depository Trust Company, a Clearing Agency.
Subject to the terms of the Indenture, the Bonds will be registered as one or
more certificates held by a Clearing Agency or its nominee, and beneficial
interests will be held by Beneficial Owners through the book-entry facilities of
such Clearing Agency or its nominee in minimum denominations of $100,000 and
increments of $1,000 in excess thereof, except that one Bond of this Class may
be issued in a different denomination.
<PAGE>
The interest on and principal of this Bond shall be payable in lawful
money of the United States in the following manner:
(a) For the initial Payment Date, the Class Interest Rate for
this Bond will be 15.00% per annum. Interest on this Bond will accrue
(computed as if each year consisted of 360 days and each month
consisted of 30 days) during the applicable Accrual Period with respect
to a Payment Date (each as hereinafter defined), on the outstanding
principal balance of this Bond immediately prior to each Payment Date
at a per annum rate equal to, subject to a cap of 15.00% per annum, (a)
twelve times the sum of (i) the amount of interest at the per annum
rate equal to the weighted average (by principal balance) of the Net
Rates on the First Pool Mortgage Loans, accrued during the applicable
Accrual Period for the Class A-2 Bonds on the outstanding principal
balance of the Class A-2 Bonds immediately prior to such Payment Date;
(ii) the amount of interest at the per annum rate equal to the excess
of (x) the weighted average (by principal balance) of the Net Rates on
the adjustable rate First Pool Mortgage loans (the "ARM First Pool
Mortgage Loans") and the High Strip Interest Rate on the High Strip (as
defined in the Indenture) over (y) the Class Interest Rate on the Class
A-1 Bonds, accrued during the applicable Accrual Period for the Class
A-2 Bonds on a notional principal balance equal to the outstanding
principal balance of the Class A-1 Bonds immediately prior to such
Payment Date; and (iii) the amount of interest at the per annum rate
equal to the excess of the Low Strip Interest Rate (as defined in the
Indenture) over the Class Interest Rate on the Class A-3 Bonds, accrued
during the applicable Accrual Period for the Class A-3 Bonds on a
notional principal balance equal to the outstanding principal balance
of the Class A-3 Bonds immediately prior to such Payment Date, divided
by (b) the outstanding principal balance of the Class A-2 Bonds
immediately prior to such Payment Date. As used herein, "Accrual
Period" means, with respect to each Payment Date, the calendar month
preceding the month in which such Payment Date is deemed to occur. The
Holder of this Bond will be entitled to receive on the twenty-eighth
day of each month, or, if such day is not a Business Day, then on the
next succeeding Business Day (each a "Payment Date"), commencing on
June 28, 1996, an amount equal to this Bond's pro rata share of the
Interest Payment Amount for such Payment Date. For accounting purposes
the Payment Date will be deemed to occur on the 28th day of the month
without regard to whether such day is a Business Day.
(b) Payments of principal shall be due and payable on the Class
A-2 Bonds on each Payment Date to the extent and in the manner
described in the Indenture. Payments of principal, if any, due and
payable on this Bond on any Payment Date shall be in an amount equal to
this Bond's pro rata share of the aggregate installments of principal
due and payable on the Bonds of this Class as of such Payment Date,
with a final installment due and payable on the maturity of this Bond
equal to its unpaid principal balance, all as provided in the
Indenture.
This Bond is one of a duly authorized issue of Bonds of the Issuer,
designated as the Collateralized Mortgage Bonds, Series 7, issued in aggregate
principal amount of $528,550,000, as specifically set forth in an indenture
dated as of November 1, 1994 (the "Original Indenture"), as amended and
supplemented by the Series 7 Supplement dated as of May 1, 1996 (the "Series 7
Supplement" and, together with the Original Indenture, the "Indenture"), between
the Issuer and Texas Commerce Bank National Association (the "Trustee," which
term includes any successor trustee under the Indenture), to which Indenture and
indentures supplemental thereto reference is hereby made for a statement of the
respective rights thereunder of the Issuer, the Trustee and the Holders of the
Bonds, and the terms upon which the Bonds are, and are to be, authenticated and
delivered. All terms used in this Bond that are defined in the Indenture shall
have the meanings assigned to them in the Indenture.
Each payment on this Bond, when made, shall be applied first to the
payment of interest accrued and unpaid on this Bond and then to the payment of
principal on this Bond.
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<PAGE>
The principal and interest so payable on any Payment Date will, as
provided in the Indenture, be paid to the Person in whose name this Bond is
registered on the regular Record Date for such Payment Date, which shall be the
close of business on the last Business Day of the month next preceding the month
in which such Payment Date is deemed to occur, or, for the first Payment Date,
the Delivery Date. Any such interest not so punctually paid or duly provided for
shall forthwith cease to be payable to the Holder as of the Record Date and may
be paid to the Holder of this Bond as of a Special Record Date, to be fixed by
the Trustee, for the payment of such defaulted interest, notice whereof shall be
given to Bondholders not less than 10 days prior to such Special Record Date, or
may be paid at any time in any other lawful manner not inconsistent with the
requirements of any securities exchange on which the Bonds of this Series may be
listed, and upon such notice as may be required by such exchange, all as more
fully provided in the Indenture.
So long as this Bond is registered in the name of a Clearing Agency or
its nominee, the Trustee will make payments of principal of and interest on this
Bond by wire transfers of immediately available funds to the Clearing Agency or
its nominee. Notwithstanding the above, the final distribution on this Bond will
be made after due notice by the Trustee of the pendency of such distribution and
only upon presentation and surrender of this Bond at its principal Corporate
Trust Office or such other offices or agencies appointed by the Trustee for that
purpose and such other locations provided in the Indenture.
The Class A-2 Bonds were issued on June 6, 1996 at a price equal to (i)
115.000000% of their original principal amount plus (ii) accrued interest at
closing equal to 1.458333% of such principal amount. Under Treasury regulations
(the "OID Regulations"), all interest payments to be received on the Class A-2
Bonds (based upon the assumption that such Bonds pay in accordance with the
prepayment assumptions used in pricing such Bonds) are treated as part of such
Bonds' stated redemption price at maturity (i.e., principal). Accordingly, the
Class A-2 Bonds were issued with original issue discount ("OID") for federal
income tax purposes in an amount equal to approximately 123.906223% of their
original principal amount. The monthly yield to maturity of the Class A-2 Bonds
expressed on an annual basis is approximately 11.23%, and the amount of OID
allocable to the short first accrual period (June 6, 1996 through June 27, 1996)
as a percentage of the original principal amount of the Class A-2 Bonds is
approximately 0.799674%. The initial stated interest rate on such Bonds is
15.00% per annum. In computing both the monthly yield to maturity and the OID
amounts specified above, the Issuer has used (i) a method embodying an economic
accrual of income, (ii) a prepayment assumption equal to 21% CPR (as defined in
the Prospectus), and (iii) a 30 days per month/360 days per year accounting
convention. The actual yield to maturity and OID may differ from the projected
amounts. The Holder of this Bond should be aware that the methodology for
accruing OID on the Class A-2 Bonds is not entirely clear under current law.
The Class A-2 Bonds are subject to redemption, in whole, but not in
part, at the option of the Issuer on any Payment Date on or after the earlier of
(i) May 28, 2003 or (ii) the Payment Date on which, after giving effect to
payments of principal to be made on such date, the aggregate principal balance
of Bonds then Outstanding is less than 35% of the original aggregate principal
amount of the Bonds (including any Additional Bonds). In addition, the Issuer
may redeem the Bonds in whole, but not in part, at any time upon a determination
by the Issuer, based upon an Opinion of Counsel, that a substantial risk exists
that the Bonds will not be treated for federal income tax purposes as evidences
of indebtedness. Any such redemption of the Bonds will be at the Redemption
Price set forth in the Indenture.
Certain Events of Default will entitle the Trustee to declare the
principal of all or a portion of the Bonds to be due and payable or to take
possession of and retain the Trust Estate intact, in either case in the manner
and with the effect provided in the Indenture.
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<PAGE>
Anything in the Indenture or in any other instrument referenced therein
to the contrary notwithstanding, the Holder hereof, by accepting delivery of
this Bond, recognizes that this Bond is a non-recourse obligation of the Issuer
and agrees to look solely to the Trust Estate and a financial guaranty insurance
policy issued by MBIA (as defined herein) for the Bonds for the payment of all
sums due hereunder and under the terms of the Indenture, and the Issuer shall
not be liable for any deficiency or other personal money judgment with respect
to the payment of such sums. The Holder of this Bond shall be deemed to have
agreed, by its acceptance of this Bond, not to file or join in filing any
petition of bankruptcy or commence any similar proceeding in respect of the
Issuer and to treat this Bond as a debt instrument for purposes of federal and
state income tax, franchise tax and any other tax measured in whole or in part
by income.
As provided in the Indenture and subject to any limitations on transfer
of this Bond by a Clearing Agency or its nominee and certain limitations set
forth in the Indenture, the transfer of this Bond is registrable in the Bond
Register upon surrender of this Bond for registration of transfer at the
principal Corporate Trust Office of the Trustee or such other offices or
agencies appointed by the Trustee for that purpose and such other locations
provided in the Indenture, duly endorsed by, or accompanied by an assignment in
the form below or other written instrument of transfer in form satisfactory to
the Trustee and the Bond Registrar duly executed by, the Holder hereof or such
Holder's attorney duly authorized in writing, and thereupon one or more new
Bonds of the same Class in the same aggregate principal balance will be issued
to the designated transferee or transferees.
Fiduciaries of employee benefit plans and certain other retirement
plans and arrangements that are subject to ERISA or corresponding provisions of
the Code, including individual retirement accounts and annuities, Keogh Plans,
and collective investment funds in which such plans, accounts, or arrangements
are invested (any of the foregoing, a "Plan"), persons acting on behalf of a
Plan, or persons using the assets of a Plan ("Plan Investors"), should review
carefully with their legal advisors whether the purchase or holding of this Bond
could give rise to a transaction that is prohibited under ERISA or the Code or
cause the Collateral securing the Bonds to be regarded as "plan assets" for
purposes of the Plan Asset Regulations. The Issuer believes that the Class A-2
Bonds will be treated as debt obligations without significant equity features
for purposes of the Plan Asset Regulations. Accordingly, a Plan that acquires a
Class A-2 Bond should not be treated as having acquired a direct interest in the
assets of the Issuer. However, there can be no complete assurance that the Class
A-2 Bonds will be treated as debt obligations without significant equity
features for purposes of the Plan Asset Regulations.
Prior to due presentment for registration of transfer of this Bond, the
Issuer, the Trustee and any agent of the Issuer or the Trustee may treat the
Person in whose name this Bond is registered as the owner hereof for the purpose
of receiving payment as herein provided and for all other purposes, whether or
not this Bond be overdue, and neither the Issuer, the Trustee nor any such agent
shall be affected by notice to the contrary.
The Indenture permits, with certain exceptions as therein provided, the
amendment thereof and the modification of the rights and obligations of the
Issuer and the rights of the Holders of the Bonds under the Indenture at any
time by the Issuer with the consent of the Holders of a majority in aggregate
principal balance of Bonds at the time Outstanding. The Indenture also contains
provisions permitting the Holders of specified percentages in aggregate
principal balance of specified Classes of Bonds at the time Outstanding, on
behalf of the Holders of all the Bonds, to waive compliance by the Issuer with
certain provisions of the Indenture and certain past defaults under the
Indenture and their consequences. Any such consent or waiver by the Holder of
this Bond shall be conclusive and binding upon such Holder and upon all future
Holders of this Bond and of any Bond issued upon the registration of transfer
hereof or in exchange herefor or in lieu hereof whether or not notation of such
consent or waiver is made upon this Bond. As provided in the Indenture and
subject to certain limitations therein set forth, MBIA Insurance Corporation
("MBIA") will be entitled to exercise certain Voting Rights of the Holders, and
the Holders may exercise such rights only with the prior written consent of
MBIA.
-4-
<PAGE>
The term "Issuer" as used in this Bond includes any successor thereof
under the Indenture.
This Bond and the Indenture shall be construed in accordance with, and
governed by, the laws of the State of New York, without regard to conflict of
laws rules.
Unless the certificate of authentication hereon has been executed by
the Trustee by manual signature, this Bond shall not be entitled to any benefit
under the Indenture, or be valid or obligatory for any purpose.
-5-
<PAGE>
IN WITNESS WHEREOF, MERIT Securities Corporation has caused this Bond
to be signed by the true or facsimile signature of its Vice President and
attested by the true or facsimile signature of its Assistant Secretary.
MERIT SECURITIES CORPORATION
By: _______________________________
Vice President
Attest:
_______________________________
Assistant Secretary
TRUSTEE'S CERTIFICATE OF AUTHENTICATION
This is a Class A-2 Bond referred to in the within-mentioned Indenture.
Date of Authentication: TEXAS COMMERCE BANK NATIONAL
ASSOCIATION, Trustee
By: _______________________________
Authorized Officer
-6-
<PAGE>
ABBREVIATIONS
The following abbreviations, when used in the inscription on the face
of this Bond, shall be construed as though they were written out in full
according to applicable laws or regulations:
<TABLE>
<S> <C>
TEN COM--as tenants in common UNIF GIFT MIN ACT--.....Custodian......
TEN ENT--as tenants by the entireties (Cus) (Minor)
Under Uniform Gifts to Minors
JT TEN-- as joint tenants with rights of Act..........................
survivorship and not as (State)
Tenants in Common
</TABLE>
Additional abbreviations may also be used though not in the above list.
-7-
<PAGE>
FORM OF TRANSFER
FOR VALUE RECEIVED, the undersigned hereby sells, assigns
and transfers unto _____________________________________________________________
- --------------------------------------------------------------------------------
Please print or typewrite name and address of assignee
- --------------------------------------------------------------------------------
Please insert Social Security or other identifying Number of Assignee
the within Bond of MERIT Securities Corporation and does hereby irrevocably
constitute and appoint
_________________________________________________________________, Attorney, to
transfer the said Bond on the books of the within named Corporation, with full
power of substitution in the premises.
Dated: __________________________
------------------------------------
NOTICE: The signature to this
assignment must correspond with the
name as written upon the face of
this Bond in every particular
without alteration or enlargement or
any change whatever.
- ---------------------------------
SIGNATURE GUARANTEED:
The signature must be guaranteed by a
commercial bank or trust company or
by a member firm of the New York Stock
Exchange or another national securities
exchange. Notarized or witnessed signatures
are not acceptable.
-8-
<PAGE>
PAYMENT INSTRUCTIONS
The assignee should include the following for purposes of payment:
Payment shall be made, by wire transfer or otherwise, in immediately
available funds, to _______________________, for the account of
___________________, account number _____________, or, if mailed by check, to
_________________________. Applicable reports and statements should be mailed to
_____________________. This information is provided by ___________________, the
assignee named above, or ______________________________, as its agent.
-9-
<PAGE>
EXHIBIT A-3
FORM OF CLASS A-3 BONDS
UNLESS THIS BOND IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY
TRUST COMPANY, A NEW YORK CORPORATION ("DTC"), TO MERIT SECURITIES CORPORATION
OR ITS AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE, OR PAYMENT, AND ANY BOND
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 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.
THE PRINCIPAL OF THIS BOND IS SUBJECT TO PREPAYMENT FROM TIME TO TIME WITHOUT
SURRENDER OF OR NOTATION ON THIS BOND. ACCORDINGLY, THE UNPAID PRINCIPAL BALANCE
OF THIS BOND MAY BE LESS THAN THE AMOUNT SET FORTH BELOW. ANYONE ACQUIRING THIS
BOND MAY ASCERTAIN ITS CURRENT PRINCIPAL BALANCE BY INQUIRY OF THE TRUSTEE.
THIS BOND MAY NOT BE TRANSFERRED EXCEPT UPON COMPLIANCE WITH THE TERMS OF THE
WITHIN-REFERENCED INDENTURE.
No. AGGREGATE INITIAL PRINCIPAL BALANCE
OF THE CLASS A-3 BONDS AS OF THE
DENOMINATION: $ CLOSING DATE: $26,300,000
MERIT SECURITIES CORPORATION
COLLATERALIZED MORTGAGE BONDS, SERIES 7, CLASS A-3
DUE MAY 28, 2030
CUSIP NO. 589962 AV1
MERIT Securities Corporation, a corporation duly organized and existing
under the laws of the Commonwealth of Virginia (herein referred to as the
"Issuer"), for value received, hereby promises to pay to
CEDE & CO.
or registered assigns, from proceeds of the Collateral pledged under the
Indenture referred to within, the principal sum of
__________________________________________________________________________ AND
00/100 DOLLARS as hereinafter described and interest on the unpaid principal
balance hereof in the manner hereinafter described until this Bond shall have
been paid in full.
This Bond is a "Book-Entry Bond" as described in Section 3.12 of the
within-mentioned Indenture, and this Bond is being registered in the name of
CEDE & Co., as nominee of The Depository Trust Company, a Clearing Agency.
Subject to the terms of the Indenture, the Bonds will be registered as one or
more certificates held by a Clearing Agency or its nominee, and beneficial
interests will be held by Beneficial Owners through the book-entry facilities of
such Clearing Agency or its nominee in minimum denominations of $100,000 and
increments of $1,000 in excess thereof, except that one Bond of this Class may
be issued in a different denomination.
<PAGE>
The interest on and principal of this Bond shall be payable in lawful
money of the United States in the following manner:
(a) The Class Interest Rate for this Bond is 7.00% per annum.
Interest on this Bond will accrue (computed as if each year consisted
of 360 days and each month consisted of 30 days), during the applicable
Accrual Period with respect to a Payment Date (each as hereinafter
defined) on the outstanding principal balance of this Bond immediately
prior to such Payment Date. As used herein, "Accrual Period" means,
with respect to each Payment Date, the calendar month preceding the
month in which such Payment Date is deemed to occur. The Holder of this
Bond will be entitled to receive on the twenty-eighth day of each
month, or, if such day is not a Business Day, then on the next
succeeding Business Day (each a "Payment Date"), commencing on June 28,
1996, an amount equal to this Bond's pro rata share of the Interest
Payment Amount for such Payment Date. For accounting purposes the
Payment Date will be deemed to occur on the 28th day of the month
without regard to whether such day is a Business Day.
(b) Payments of principal shall be due and payable on the Class
A-3 Bonds on each Payment Date to the extent and in the manner
described in the Indenture. Payments of principal, if any, due and
payable on this Bond on any Payment Date shall be in an amount equal to
this Bond's pro rata share of the aggregate installments of principal
due and payable on the Bonds of this Class as of such Payment Date,
with a final installment due and payable on the maturity of this Bond
equal to its unpaid principal balance, all as provided in the
Indenture.
This Bond is one of a duly authorized issue of Bonds of the Issuer,
designated as the Collateralized Mortgage Bonds, Series 7, issued in aggregate
principal amount of $528,550,000, as specifically set forth in an indenture
dated as of November 1, 1994 (the "Original Indenture"), as amended and
supplemented by the Series 7 Supplement dated as of May 1, 1996 (the "Series 7
Supplement" and, together with the Original Indenture, the "Indenture"), between
the Issuer and Texas Commerce Bank National Association (the "Trustee," which
term includes any successor trustee under the Indenture), to which Indenture and
indentures supplemental thereto reference is hereby made for a statement of the
respective rights thereunder of the Issuer, the Trustee and the Holders of the
Bonds, and the terms upon which the Bonds are, and are to be, authenticated and
delivered. All terms used in this Bond that are defined in the Indenture shall
have the meanings assigned to them in the Indenture.
Each payment on this Bond, when made, shall be applied first to the
payment of interest accrued and unpaid on this Bond and then to the payment of
principal on this Bond.
The principal and interest so payable on any Payment Date will, as
provided in the Indenture, be paid to the Person in whose name this Bond is
registered on the regular Record Date for such Payment Date, which shall be the
close of business on the last Business Day of the month next preceding the month
in which such Payment Date is deemed to occur, or, for the first Payment Date,
the Delivery Date. Any such interest not so punctually paid or duly provided for
shall forthwith cease to be payable to the Holder as of the Record Date and may
be paid to the Holder of this Bond as of a Special Record Date, to be fixed by
the Trustee, for the payment of such defaulted interest, notice whereof shall be
given to Bondholders not less than 10 days prior to such Special Record Date, or
may be paid at any time in any other lawful manner not inconsistent with the
requirements of any securities exchange on which the Bonds of this Series may be
listed, and upon such notice as may be required by such exchange, all as more
fully provided in the Indenture.
-2-
<PAGE>
So long as this Bond is registered in the name of a Clearing Agency or
its nominee, the Trustee will make payments of principal of and interest on this
Bond by wire transfers of immediately available funds to the Clearing Agency or
its nominee. Notwithstanding the above, the final distribution on this Bond will
be made after due notice by the Trustee of the pendency of such distribution and
only upon presentation and surrender of this Bond at its principal Corporate
Trust Office or such other offices or agencies appointed by the Trustee for that
purpose and such other locations provided in the Indenture.
The Class A-3 Bonds were issued on June 6, 1996 at a price equal to
97.525000% of their original principal amount. Based on that issue price, the
Class A-3 Bonds were issued with original issue discount ("OID") for federal
income tax purposes in an amount equal to 2.475000% of their original principal
amount. The monthly yield to maturity of the Class A-3 Bonds expressed on an
annual basis is approximately 8.82% and the amount of OID allocable to the short
first accrual period (June 6, 1996 through June 27, 1996) as a percentage of the
original principal amount of the Class A-3 Bonds is approximately 0.097926%. The
stated interest rate on the Class A-3 Bonds is 7.00% per annum. In computing the
monthly yield to maturity and the OID amounts specified above, the Issuer has
used (i) a method embodying an economic accrual of income, (ii) a prepayment
assumption equal to 21% CPR (as defined in the Prospectus), and (iii) a 30 days
per month/360 days per year accounting convention. The actual yield to maturity
and OID may differ from the projected amounts.
The Class A-3 Bonds are subject to redemption, in whole, but not in
part, at the option of the Issuer on any Payment Date on or after the earlier of
(i) May 28, 2003 or (ii) the Payment Date on which, after giving effect to
payments of principal to be made on such date, the aggregate principal balance
of Bonds then Outstanding is less than 35% of the original aggregate principal
amount of the Bonds (including any Additional Bonds). In addition, the Issuer
may redeem the Bonds in whole, but not in part, at any time upon a determination
by the Issuer, based upon an Opinion of Counsel, that a substantial risk exists
that the Bonds will not be treated for federal income tax purposes as evidences
of indebtedness. Any such redemption of the Bonds will be at the Redemption
Price set forth in the Indenture.
Certain Events of Default will entitle the Trustee to declare the
principal of all or a portion of the Bonds to be due and payable or to take
possession of and retain the Trust Estate intact, in either case in the manner
and with the effect provided in the Indenture.
Anything in the Indenture or in any other instrument referenced therein
to the contrary notwithstanding, the Holder hereof, by accepting delivery of
this Bond, recognizes that this Bond is a non-recourse obligation of the Issuer
and agrees to look solely to the Trust Estate and a financial guaranty insurance
policy issued by MBIA (as defined herein) for the Bonds for the payment of all
sums due hereunder and under the terms of the Indenture, and the Issuer shall
not be liable for any deficiency or other personal money judgment with respect
to the payment of such sums. The Holder of this Bond shall be deemed to have
agreed, by its acceptance of this Bond, not to file or join in filing any
petition of bankruptcy or commence any similar proceeding in respect of the
Issuer and to treat this Bond as a debt instrument for purposes of federal and
state income tax, franchise tax and any other tax measured in whole or in part
by income.
As provided in the Indenture and subject to any limitations on transfer
of this Bond by a Clearing Agency or its nominee and certain limitations set
forth in the Indenture, the transfer of this Bond is registrable in the Bond
Register upon surrender of this Bond for registration of transfer at the
principal Corporate Trust Office of the Trustee or such other offices or
agencies appointed by the Trustee for that purpose and such other locations
provided in the Indenture, duly endorsed by, or accompanied by an assignment in
the form below or other written instrument of transfer in form satisfactory to
the Trustee and the Bond Registrar duly executed by, the Holder hereof or such
Holder's attorney duly authorized in writing, and thereupon one or more new
Bonds of the same Class in the same aggregate principal balance will be issued
to the designated transferee or transferees.
-3-
<PAGE>
Fiduciaries of employee benefit plans and certain other retirement
plans and arrangements that are subject to ERISA or corresponding provisions of
the Code, including individual retirement accounts and annuities, Keogh Plans,
and collective investment funds in which such plans, accounts, or arrangements
are invested (any of the foregoing, a "Plan"), persons acting on behalf of a
Plan, or persons using the assets of a Plan ("Plan Investors"), should review
carefully with their legal advisors whether the purchase or holding of this Bond
could give rise to a transaction that is prohibited under ERISA or the Code or
cause the Collateral securing the Bonds to be regarded as "plan assets" for
purposes of the Plan Asset Regulations. The Issuer believes that the Class A-3
Bonds will be treated as debt obligations without significant equity features
for purposes of the Plan Asset Regulations. Accordingly, a Plan that acquires a
Class A-3 Bond should not be treated as having acquired a direct interest in the
assets of the Issuer. However, there can be no complete assurance that the Class
A-3 Bonds will be treated as debt obligations without significant equity
features for purposes of the Plan Asset Regulations.
Prior to due presentment for registration of transfer of this Bond, the
Issuer, the Trustee and any agent of the Issuer or the Trustee may treat the
Person in whose name this Bond is registered as the owner hereof for the purpose
of receiving payment as herein provided and for all other purposes, whether or
not this Bond be overdue, and neither the Issuer, the Trustee nor any such agent
shall be affected by notice to the contrary.
The Indenture permits, with certain exceptions as therein provided, the
amendment thereof and the modification of the rights and obligations of the
Issuer and the rights of the Holders of the Bonds under the Indenture at any
time by the Issuer with the consent of the Holders of a majority in aggregate
principal balance of Bonds at the time Outstanding. The Indenture also contains
provisions permitting the Holders of specified percentages in aggregate
principal balance of specified Classes of Bonds at the time Outstanding, on
behalf of the Holders of all the Bonds, to waive compliance by the Issuer with
certain provisions of the Indenture and certain past defaults under the
Indenture and their consequences. Any such consent or waiver by the Holder of
this Bond shall be conclusive and binding upon such Holder and upon all future
Holders of this Bond and of any Bond issued upon the registration of transfer
hereof or in exchange herefor or in lieu hereof whether or not notation of such
consent or waiver is made upon this Bond. As provided in the Indenture and
subject to certain limitations therein set forth, MBIA Insurance Corporation
("MBIA") will be entitled to exercise certain Voting Rights of the Holders, and
the Holders may exercise such rights only with the prior written consent of
MBIA.
The term "Issuer" as used in this Bond includes any successor thereof
under the Indenture.
This Bond and the Indenture shall be construed in accordance with, and
governed by, the laws of the State of New York, without regard to conflict of
laws rules.
Unless the certificate of authentication hereon has been executed by
the Trustee by manual signature, this Bond shall not be entitled to any benefit
under the Indenture, or be valid or obligatory for any purpose.
-4-
<PAGE>
IN WITNESS WHEREOF, MERIT Securities Corporation has caused this Bond
to be signed by the true or facsimile signature of its Vice President and
attested by the true or facsimile signature of its Assistant Secretary.
MERIT SECURITIES CORPORATION
By: ________________________
Vice President
Attest:
- -------------------------------------
Assistant Secretary
TRUSTEE'S CERTIFICATE OF AUTHENTICATION
This is a Class A-3 Bond referred to in the within-mentioned Indenture.
Date of Authentication: TEXAS COMMERCE BANK NATIONAL
ASSOCIATION, Trustee
By: ________________________
Authorized Officer
-5-
<PAGE>
ABBREVIATIONS
The following abbreviations, when used in the inscription on the face
of this Bond, shall be construed as though they were written out in full
according to applicable laws or regulations:
TEN COM--as tenants in common UNIF GIFT MIN ACT--...Custodian...
TEN ENT--as tenants by the entireties (Cus) (Minor)
Under Uniform Gifts to Minors
JT TEN-- as joint tenants with rights of Act..........................
survivorship and not as (State)
Tenants in Common
Additional abbreviations may also be used though not in the above list.
-6-
<PAGE>
FORM OF TRANSFER
FOR VALUE RECEIVED, the undersigned hereby sells, assigns
and transfers unto _____________________________________________________________
- --------------------------------------------------------------------------------
Please print or typewrite name and address of assignee
- --------------------------------------------------------------------------------
Please insert Social Security or other identifying Number of Assignee
the within Bond of MERIT Securities Corporation and does hereby irrevocably
constitute and appoint
_________________________________________________________________, Attorney, to
transfer the said Bond on the books of the within named Corporation, with full
power of substitution in the premises.
Dated: __________________________
------------------------------------
NOTICE: The signature to this
assignment must correspond with the
name as written upon the face of
this Bond in every particular
without alteration or enlargement or
any change whatever.
- ---------------------------------
SIGNATURE GUARANTEED:
The signature must be guaranteed
by a commercial bank or trust
company or by a member firm of
the New York Stock Exchange or
another national securities
exchange. Notarized or witnessed
signatures are not acceptable.
-7-
<PAGE>
PAYMENT INSTRUCTIONS
The assignee should include the following for purposes of payment:
Payment shall be made, by wire transfer or otherwise, in immediately
available funds, to _______________________, for the account of
___________________, account number _____________, or, if mailed by check, to
_________________________. Applicable reports and statements should be mailed to
_____________________. This information is provided by ___________________, the
assignee named above, or ______________________________, as its agent.
-8-
<PAGE>
EXHIBIT A-4
FORM OF CLASS A-4 BONDS
UNLESS THIS BOND IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY
TRUST COMPANY, A NEW YORK CORPORATION ("DTC"), TO MERIT SECURITIES CORPORATION
OR ITS AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE, OR PAYMENT, AND ANY BOND
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 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.
THE PRINCIPAL OF THIS BOND IS SUBJECT TO PREPAYMENT FROM TIME TO TIME WITHOUT
SURRENDER OF OR NOTATION ON THIS BOND. ACCORDINGLY, THE UNPAID PRINCIPAL BALANCE
OF THIS BOND MAY BE LESS THAN THE AMOUNT SET FORTH BELOW. ANYONE ACQUIRING THIS
BOND MAY ASCERTAIN ITS CURRENT PRINCIPAL BALANCE BY INQUIRY OF THE TRUSTEE.
THIS BOND MAY NOT BE TRANSFERRED EXCEPT UPON COMPLIANCE WITH THE TERMS OF THE
WITHIN-REFERENCED INDENTURE.
No. AGGREGATE INITIAL PRINCIPAL BALANCE
OF THE CLASS A-4 BONDS AS OF THE
DENOMINATION: $ CLOSING DATE: $7,000,000
MERIT SECURITIES CORPORATION
COLLATERALIZED MORTGAGE BONDS, SERIES 7, CLASS A-4
DUE MAY 28, 2030
CUSIP NO. 589962 AW9
MERIT Securities Corporation, a corporation duly organized and existing
under the laws of the Commonwealth of Virginia (herein referred to as the
"Issuer"), for value received, hereby promises to pay to
CEDE & CO.
or registered assigns, from proceeds of the Collateral pledged under the
Indenture referred to within, the principal sum of
_________________________________________________________________________ AND
00/100 DOLLARS as hereinafter described and interest on the unpaid principal
balance hereof in the manner hereinafter described until this Bond shall have
been paid in full.
This Bond is a "Book-Entry Bond" as described in Section 3.12 of the
within-mentioned Indenture, and this Bond is being registered in the name of
CEDE & Co., as nominee of The Depository Trust Company, a Clearing Agency.
Subject to the terms of the Indenture, the Bonds will be registered as one or
more certificates held by a Clearing Agency or its nominee, and beneficial
interests will be held by Beneficial Owners through the book-entry facilities of
such Clearing Agency or its nominee in minimum denominations of $100,000 and
increments of $1,000 in excess thereof, except that one Bond of this Class may
be issued in a different denomination.
<PAGE>
The interest on and principal of this Bond shall be payable in lawful
money of the United States in the following manner:
(a) The Class Interest Rate for this Bond is 7.50% per annum.
Interest on this Bond will accrue (computed as if each year consisted
of 360 days and each month consisted of 30 days) during the applicable
Accrual Period with respect to a Payment Date (each as hereinafter
defined) on the outstanding principal balance of this Bond immediately
prior to such Payment Date. As used herein, "Accrual Period" means,
with respect to each Payment Date, the calendar month preceding the
month in which such Payment Date is deemed to occur. The Holder of this
Bond will be entitled to receive on the twenty-eighth day of each
month, or, if such day is not a Business Day, then on the next
succeeding Business Day (each a "Payment Date"), commencing on June 28,
1996, an amount equal to this Bond's pro rata share of the Interest
Payment Amount for such Payment Date. For accounting purposes the
Payment Date will be deemed to occur on the 28th day of the month
without regard to whether such day is a Business Day.
(b) Payments of principal shall be due and payable on the Class
A-4 Bonds on each Payment Date to the extent and in the manner
described in the Indenture. Payments of principal, if any, due and
payable on this Bond on any Payment Date shall be in an amount equal to
this Bond's pro rata share of the aggregate installments of principal
due and payable on the Bonds of this Class as of such Payment Date,
with a final installment due and payable on the maturity of this Bond
equal to its unpaid principal balance, all as provided in the
Indenture.
This Bond is one of a duly authorized issue of Bonds of the Issuer,
designated as the Collateralized Mortgage Bonds, Series 7, issued in aggregate
principal amount of $528,550,000, as specifically set forth in an indenture
dated as of November 1, 1994 (the "Original Indenture"), as amended and
supplemented by the Series 7 Supplement dated as of May 1, 1996 (the "Series 7
Supplement" and, together with the Original Indenture, the "Indenture"), between
the Issuer and Texas Commerce Bank National Association (the "Trustee," which
term includes any successor trustee under the Indenture), to which Indenture and
indentures supplemental thereto reference is hereby made for a statement of the
respective rights thereunder of the Issuer, the Trustee and the Holders of the
Bonds, and the terms upon which the Bonds are, and are to be, authenticated and
delivered. All terms used in this Bond that are defined in the Indenture shall
have the meanings assigned to them in the Indenture.
Each payment on this Bond, when made, shall be applied first to the
payment of interest accrued and unpaid on this Bond and then to the payment of
principal on this Bond.
The principal and interest so payable on any Payment Date will, as
provided in the Indenture, be paid to the Person in whose name this Bond is
registered on the regular Record Date for such Payment Date, which shall be the
close of business on the last Business Day of the month next preceding the month
in which such Payment Date is deemed to occur, or, for the first Payment Date,
the Delivery Date. Any such interest not so punctually paid or duly provided for
shall forthwith cease to be payable to the Holder as of the Record Date and may
be paid to the Holder of this Bond as of a Special Record Date, to be fixed by
the Trustee, for the payment of such defaulted interest, notice whereof shall be
given to Bondholders not less than 10 days prior to such Special Record Date, or
may be paid at any time in any other lawful manner not inconsistent with the
requirements of any securities exchange on which the Bonds of this Series may be
listed, and upon such notice as may be required by such exchange, all as more
fully provided in the Indenture.
-2-
<PAGE>
So long as this Bond is registered in the name of a Clearing Agency or
its nominee, the Trustee will make payments of principal of and interest on this
Bond by wire transfers of immediately available funds to the Clearing Agency or
its nominee. Notwithstanding the above, the final distribution on this Bond will
be made after due notice by the Trustee of the pendency of such distribution and
only upon presentation and surrender of this Bond at its principal Corporate
Trust Office or such other offices or agencies appointed by the Trustee for that
purpose and such other locations provided in the Indenture.
The Class A-4 Bonds were issued on June 6, 1996 at a price equal to
93.562500% of their original principal amount. Based on that issue price, the
Class A-4 Bonds were issued with original issue discount ("OID") for federal
income tax purposes in an amount equal to 6.437500% of their original principal
amount. The monthly yield to maturity of the Class A-4 Bonds expressed on an
annual basis is approximately 9.03% and the amount of OID allocable to the short
first accrual period (June 6, 1996 through June 27, 1996) as a percentage of the
original principal amount of the Class A-4 Bonds is approximately 0.058087%. The
stated interest rate on the Class A-4 Bonds is 7.50% per annum. In computing the
monthly yield to maturity and the OID amounts specified above, the Issuer has
used (i) a method embodying an economic accrual of income, (ii) a prepayment
assumption equal to 21% CPR (as defined in the Prospectus), and (iii) a 30 days
per month/360 days per year accounting convention. The actual yield to maturity
and OID may differ from the projected amounts.
The Class A-4 Bonds are subject to redemption, in whole, but not in
part, at the option of the Issuer on any Payment Date on or after the earlier of
(i) May 28, 2003 or (ii) the Payment Date on which, after giving effect to
payments of principal to be made on such date, the aggregate principal balance
of Bonds then Outstanding is less than 35% of the original aggregate principal
amount of the Bonds (including any Additional Bonds). In addition, the Issuer
may redeem the Bonds in whole, but not in part, at any time upon a determination
by the Issuer, based upon an Opinion of Counsel, that a substantial risk exists
that the Bonds will not be treated for federal income tax purposes as evidences
of indebtedness. Any such redemption of the Bonds will be at the Redemption
Price set forth in the Indenture.
Certain Events of Default will entitle the Trustee to declare the
principal of all or a portion of the Bonds to be due and payable or to take
possession of and retain the Trust Estate intact, in either case in the manner
and with the effect provided in the Indenture.
Anything in the Indenture or in any other instrument referenced therein
to the contrary notwithstanding, the Holder hereof, by accepting delivery of
this Bond, recognizes that this Bond is a non-recourse obligation of the Issuer
and agrees to look solely to the Trust Estate and a financial guaranty insurance
policy issued by MBIA (as defined herein) for the Bonds for the payment of all
sums due hereunder and under the terms of the Indenture, and the Issuer shall
not be liable for any deficiency or other personal money judgment with respect
to the payment of such sums. The Holder of this Bond shall be deemed to have
agreed, by its acceptance of this Bond, not to file or join in filing any
petition of bankruptcy or commence any similar proceeding in respect of the
Issuer and to treat this Bond as a debt instrument for purposes of federal and
state income tax, franchise tax and any other tax measured in whole or in part
by income.
As provided in the Indenture and subject to any limitations on transfer
of this Bond by a Clearing Agency or its nominee and certain limitations set
forth in the Indenture, the transfer of this Bond is registrable in the Bond
Register upon surrender of this Bond for registration of transfer at the
principal Corporate Trust Office of the Trustee or such other offices or
agencies appointed by the Trustee for that purpose and such other locations
provided in the Indenture, duly endorsed by, or accompanied by an assignment in
the form below or other written instrument of transfer in form satisfactory to
the Trustee and the Bond Registrar duly executed by, the Holder hereof or such
Holder's attorney duly authorized in writing, and thereupon one or more new
Bonds of the same Class in the same aggregate principal balance will be issued
to the designated transferee or transferees.
-3-
<PAGE>
Fiduciaries of employee benefit plans and certain other retirement
plans and arrangements that are subject to ERISA or corresponding provisions of
the Code, including individual retirement accounts and annuities, Keogh Plans,
and collective investment funds in which such plans, accounts, or arrangements
are invested (any of the foregoing, a "Plan"), persons acting on behalf of a
Plan, or persons using the assets of a Plan ("Plan Investors"), should review
carefully with their legal advisors whether the purchase or holding of this Bond
could give rise to a transaction that is prohibited under ERISA or the Code or
cause the Collateral securing the Bonds to be regarded as "plan assets" for
purposes of the Plan Asset Regulations. The Issuer believes that the Class A-4
Bonds will be treated as debt obligations without significant equity features
for purposes of the Plan Asset Regulations. Accordingly, a Plan that acquires a
Class A-4 Bond should not be treated as having acquired a direct interest in the
assets of the Issuer. However, there can be no complete assurance that the Class
A-4 Bonds will be treated as debt obligations without significant equity
features for purposes of the Plan Asset Regulations.
Prior to due presentment for registration of transfer of this Bond, the
Issuer, the Trustee and any agent of the Issuer or the Trustee may treat the
Person in whose name this Bond is registered as the owner hereof for the purpose
of receiving payment as herein provided and for all other purposes, whether or
not this Bond be overdue, and neither the Issuer, the Trustee nor any such agent
shall be affected by notice to the contrary.
The Indenture permits, with certain exceptions as therein provided, the
amendment thereof and the modification of the rights and obligations of the
Issuer and the rights of the Holders of the Bonds under the Indenture at any
time by the Issuer with the consent of the Holders of a majority in aggregate
principal balance of Bonds at the time Outstanding. The Indenture also contains
provisions permitting the Holders of specified percentages in aggregate
principal balance of specified Classes of Bonds at the time Outstanding, on
behalf of the Holders of all the Bonds, to waive compliance by the Issuer with
certain provisions of the Indenture and certain past defaults under the
Indenture and their consequences. Any such consent or waiver by the Holder of
this Bond shall be conclusive and binding upon such Holder and upon all future
Holders of this Bond and of any Bond issued upon the registration of transfer
hereof or in exchange herefor or in lieu hereof whether or not notation of such
consent or waiver is made upon this Bond. As provided in the Indenture and
subject to certain limitations therein set forth, MBIA Insurance Corporation
("MBIA") will be entitled to exercise certain Voting Rights of the Holders, and
the Holders may exercise such rights only with the prior written consent of
MBIA.
The term "Issuer" as used in this Bond includes any successor thereof
under the Indenture.
This Bond and the Indenture shall be construed in accordance with, and
governed by, the laws of the State of New York, without regard to conflict of
laws rules.
Unless the certificate of authentication hereon has been executed by
the Trustee by manual signature, this Bond shall not be entitled to any benefit
under the Indenture, or be valid or obligatory for any purpose.
-4-
<PAGE>
IN WITNESS WHEREOF, MERIT Securities Corporation has caused this Bond
to be signed by the true or facsimile signature of its Vice President and
attested by the true or facsimile signature of its Assistant Secretary.
MERIT SECURITIES CORPORATION
By: ________________________________________
Vice President
Attest:
- -------------------------------------
Assistant Secretary
TRUSTEE'S CERTIFICATE OF AUTHENTICATION
This is a Class A-4 Bond referred to in the within-mentioned Indenture.
Date of Authentication: TEXAS COMMERCE BANK NATIONAL
ASSOCIATION, Trustee
By: ________________________________
Authorized Officer
-5-
<PAGE>
ABBREVIATIONS
The following abbreviations, when used in the inscription on the face
of this Bond, shall be construed as though they were written out in full
according to applicable laws or regulations:
<TABLE>
<S> <C>
TEN COM--as tenants in common UNIF GIFT MIN ACT--.....Custodian......
TEN ENT--as tenants by the entireties (Cus) (Minor)
Under Uniform Gifts to Minors
JT TEN-- as joint tenants with rights of Act..........................
survivorship and not as (State)
Tenants in Common
</TABLE>
Additional abbreviations may also be used though not in the above list.
-6-
<PAGE>
FORM OF TRANSFER
FOR VALUE RECEIVED, the undersigned hereby sells, assigns
and transfers unto __________________________________________________________
- -----------------------------------------------------------------------------
Please print or typewrite name and address of assignee
- -----------------------------------------------------------------------------
Please insert Social Security or other identifying Number of Assignee
the within Bond of MERIT Securities Corporation and does hereby irrevocably
constitute and appoint
_________________________________________________________________, Attorney, to
transfer the said Bond on the books of the within named Corporation, with full
power of substitution in the premises.
Dated: __________________________
-------------------------------------------
NOTICE: The signature to this
assignment must correspond with the
name as written upon the face of
this Bond in every particular
without alteration or enlargement or
any change whatever.
- ---------------------------------
SIGNATURE GUARANTEED: The signature must be guaranteed by a commercial bank or
trust company or by a member firm of the New York Stock Exchange or another
national securities exchange. Notarized or witnessed signatures are not
acceptable.
-7-
<PAGE>
PAYMENT INSTRUCTIONS
The assignee should include the following for purposes of payment:
Payment shall be made, by wire transfer or otherwise, in immediately
available funds, to _______________________, for the account of
___________________, account number _____________, or, if mailed by check, to
_________________________. Applicable reports and statements should be mailed to
_____________________. This information is provided by ___________________, the
assignee named above, or ______________________________, as its agent.
-8-
<PAGE>
EXHIBIT A-5
FORM OF CLASS A-5 BONDS
UNLESS THIS BOND IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY
TRUST COMPANY, A NEW YORK CORPORATION ("DTC"), TO MERIT SECURITIES CORPORATION
OR ITS AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE, OR PAYMENT, AND ANY BOND
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 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.
THE PRINCIPAL OF THIS BOND IS SUBJECT TO PREPAYMENT FROM TIME TO TIME WITHOUT
SURRENDER OF OR NOTATION ON THIS BOND. ACCORDINGLY, THE UNPAID PRINCIPAL BALANCE
OF THIS BOND MAY BE LESS THAN THE AMOUNT SET FORTH BELOW. ANYONE ACQUIRING THIS
BOND MAY ASCERTAIN ITS CURRENT PRINCIPAL BALANCE BY INQUIRY OF THE TRUSTEE.
THIS BOND MAY NOT BE TRANSFERRED EXCEPT UPON COMPLIANCE WITH THE TERMS OF THE
WITHIN-REFERENCED INDENTURE.
No. AGGREGATE INITIAL PRINCIPAL BALANCE
OF THE CLASS A-5 BONDS AS OF THE
DENOMINATION: $ CLOSING DATE: $14,750,000
MERIT SECURITIES CORPORATION
COLLATERALIZED MORTGAGE BONDS, SERIES 7, CLASS A-5
DUE MAY 28, 2030
CUSIP NO. 589962 AX7
MERIT Securities Corporation, a corporation duly organized and existing
under the laws of the Commonwealth of Virginia (herein referred to as the
"Issuer"), for value received, hereby promises to pay to
CEDE & CO.
or registered assigns, from proceeds of the Collateral pledged under the
Indenture referred to within, the principal sum of
__________________________________________________________________________ AND
00/100 DOLLARS as hereinafter described and interest on the unpaid principal
balance hereof in the manner hereinafter described until this Bond shall have
been paid in full.
This Bond is a "Book-Entry Bond" as described in Section 3.12 of the
within-mentioned Indenture, and this Bond is being registered in the name of
CEDE & Co., as nominee of The Depository Trust Company, a Clearing Agency.
Subject to the terms of the Indenture, the Bonds will be registered as one or
more certificates held by a Clearing Agency or its nominee, and beneficial
interests will be held by Beneficial Owners through the book-entry facilities of
such Clearing Agency or its nominee in minimum denominations of $100,000 and
increments of $1,000 in excess thereof, except that one Bond of this Class may
be issued in a different denomination.
<PAGE>
The interest on and principal of this Bond shall be payable in lawful
money of the United States in the following manner:
(a) The Class Interest Rate for this Bond for the period from the
Delivery Date through June 27, 1996 will be 5.9575% per annum. Interest
on this Bond will accrue (computed as if each year consisted of 360
days and each month consisted of 30 days) during the applicable Accrual
Period with respect to a Payment Date (each as hereinafter defined) on
the outstanding principal balance of this Bond immediately prior to
each Payment Date at a per annum rate equal to One-Month LIBOR, as
determined on the applicable Floating Rate Determination Date, plus
0.52%, subject to a cap of 10.00% per annum; provided however, if the
Issuer does not exercise its option to redeem the Class A-5 Bonds on
the first Payment Date on which it is permitted to do so, interest will
accrue at a per annum rate equal to One-Month LIBOR on the applicable
Floating Rate Determination Date, plus 1.04%, subject to a cap of
10.52% per annum. As used herein, "Accrual Period" means, with respect
to each Payment Date, the period commencing on the 28th day of the
preceding month through the 27th day of the month in which such Payment
Date is deemed to occur (except that the first Accrual Period will be
the period from the Delivery Date through June 27, 1996). The Holder of
this Bond will be entitled to receive on the twenty-eighth day of each
month, or, if such day is not a Business Day, then on the next
succeeding Business Day (each a "Payment Date"), commencing on June 28,
1996, an amount equal to this Bond's pro rata share of the Interest
Payment Amount for such Payment Date. For accounting purposes the
Payment Date will be deemed to occur on the 28th day of the month
without regard to whether such day is a Business Day.
(b) Payments of principal shall be due and payable on the Class
A-5 Bonds on each Payment Date to the extent and in the manner
described in the Indenture. Payments of principal, if any, due and
payable on this Bond on any Payment Date shall be in an amount equal to
this Bond's pro rata share of the aggregate installments of principal
due and payable on the Bonds of this Class as of such Payment Date,
with a final installment due and payable on the maturity of this Bond
equal to its unpaid principal balance, all as provided in the
Indenture.
This Bond is one of a duly authorized issue of Bonds of the Issuer,
designated as the Collateralized Mortgage Bonds, Series 7, issued in aggregate
principal amount of $528,550,000, as specifically set forth in an indenture
dated as of November 1, 1994 (the "Original Indenture"), as amended and
supplemented by the Series 7 Supplement dated as of May 1, 1996 (the "Series 7
Supplement" and, together with the Original Indenture, the "Indenture"), between
the Issuer and Texas Commerce Bank National Association (the "Trustee," which
term includes any successor trustee under the Indenture), to which Indenture and
indentures supplemental thereto reference is hereby made for a statement of the
respective rights thereunder of the Issuer, the Trustee and the Holders of the
Bonds, and the terms upon which the Bonds are, and are to be, authenticated and
delivered. All terms used in this Bond that are defined in the Indenture shall
have the meanings assigned to them in the Indenture.
Each payment on this Bond, when made, shall be applied first to the
payment of interest accrued and unpaid on this Bond and then to the payment of
principal on this Bond.
The principal and interest so payable on any Payment Date will, as
provided in the Indenture, be paid to the Person in whose name this Bond is
registered on the regular Record Date for such Payment Date, which shall be the
close of business on the last Business Day of the month next preceding the month
in which such Payment Date is deemed to occur, or, for the first Payment Date,
the Delivery Date. Any such interest not so punctually paid or duly provided for
shall forthwith cease to be payable to the Holder as of the Record Date and may
be paid to the Holder of this Bond as of a Special Record Date, to be fixed by
the Trustee, for the payment of such defaulted interest, notice whereof shall be
given to Bondholders not less than 10 days prior to such Special Record Date, or
may be paid at any time in any other lawful manner not inconsistent with the
requirements of any securities exchange on which the Bonds
-2-
<PAGE>
of this Series may be listed, and upon such notice as may be required by such
exchange, all as more fully provided in the Indenture.
So long as this Bond is registered in the name of a Clearing Agency or
its nominee, the Trustee will make payments of principal of and interest on this
Bond by wire transfers of immediately available funds to the Clearing Agency or
its nominee. Notwithstanding the above, the final distribution on this Bond will
be made after due notice by the Trustee of the pendency of such distribution and
only upon presentation and surrender of this Bond at its principal Corporate
Trust Office or such other offices or agencies appointed by the Trustee for that
purpose and such other locations provided in the Indenture.
The Class A-5 Bonds are subject to redemption, in whole, but not in
part, at the option of the Issuer on any Payment Date on or after the earlier of
(i) May 28, 2003 or (ii) the Payment Date on which, after giving effect to
payments of principal to be made on such date, the aggregate principal balance
of Bonds then Outstanding is less than 35% of the original aggregate principal
amount of the Bonds (including any Additional Bonds). In addition, the Issuer
may redeem the Bonds in whole, but not in part, at any time upon a determination
by the Issuer, based upon an Opinion of Counsel, that a substantial risk exists
that the Bonds will not be treated for federal income tax purposes as evidences
of indebtedness. Any such redemption of the Bonds will be at the Redemption
Price set forth in the Indenture.
Certain Events of Default will entitle the Trustee to declare the
principal of all or a portion of the Bonds to be due and payable or to take
possession of and retain the Trust Estate intact, in either case in the manner
and with the effect provided in the Indenture.
Anything in the Indenture or in any other instrument referenced therein
to the contrary notwithstanding, the Holder hereof, by accepting delivery of
this Bond, recognizes that this Bond is a non-recourse obligation of the Issuer
and agrees to look solely to the Trust Estate and a financial guaranty insurance
policy issued by MBIA (as defined herein) for the Bonds for the payment of all
sums due hereunder and under the terms of the Indenture, and the Issuer shall
not be liable for any deficiency or other personal money judgment with respect
to the payment of such sums. The Holder of this Bond shall be deemed to have
agreed, by its acceptance of this Bond, not to file or join in filing any
petition of bankruptcy or commence any similar proceeding in respect of the
Issuer and to treat this Bond as a debt instrument for purposes of federal and
state income tax, franchise tax and any other tax measured in whole or in part
by income.
As provided in the Indenture and subject to any limitations on transfer
of this Bond by a Clearing Agency or its nominee and certain limitations set
forth in the Indenture, the transfer of this Bond is registrable in the Bond
Register upon surrender of this Bond for registration of transfer at the
principal Corporate Trust Office of the Trustee or such other offices or
agencies appointed by the Trustee for that purpose and such other locations
provided in the Indenture, duly endorsed by, or accompanied by an assignment in
the form below or other written instrument of transfer in form satisfactory to
the Trustee and the Bond Registrar duly executed by, the Holder hereof or such
Holder's attorney duly authorized in writing, and thereupon one or more new
Bonds of the same Class in the same aggregate principal balance will be issued
to the designated transferee or transferees.
Fiduciaries of employee benefit plans and certain other retirement
plans and arrangements that are subject to ERISA or corresponding provisions of
the Code, including individual retirement accounts and annuities, Keogh Plans,
and collective investment funds in which such plans, accounts, or arrangements
are invested (any of the foregoing, a "Plan"), persons acting on behalf of a
Plan, or persons using the assets of a Plan ("Plan Investors"), should review
carefully with their legal advisors whether the purchase or holding of this Bond
could give rise to a transaction that is prohibited under ERISA or the Code or
cause the Collateral securing the Bonds to be regarded as "plan assets" for
purposes of the Plan Asset Regulations. The Issuer believes that the Class A-5
Bonds will be treated as debt obligations without significant equity features
for purposes of the Plan Asset Regulations. Accordingly, a Plan that acquires a
Class
-3-
<PAGE>
A-5 Bond should not be treated as having acquired a direct interest in the
assets of the Issuer. However, there can be no complete assurance that the Class
A-5 Bonds will be treated as debt obligations without significant equity
features for purposes of the Plan Asset Regulations.
Prior to due presentment for registration of transfer of this Bond, the
Issuer, the Trustee and any agent of the Issuer or the Trustee may treat the
Person in whose name this Bond is registered as the owner hereof for the purpose
of receiving payment as herein provided and for all other purposes, whether or
not this Bond be overdue, and neither the Issuer, the Trustee nor any such agent
shall be affected by notice to the contrary.
The Indenture permits, with certain exceptions as therein provided, the
amendment thereof and the modification of the rights and obligations of the
Issuer and the rights of the Holders of the Bonds under the Indenture at any
time by the Issuer with the consent of the Holders of a majority in aggregate
principal balance of Bonds at the time Outstanding. The Indenture also contains
provisions permitting the Holders of specified percentages in aggregate
principal balance of specified Classes of Bonds at the time Outstanding, on
behalf of the Holders of all the Bonds, to waive compliance by the Issuer with
certain provisions of the Indenture and certain past defaults under the
Indenture and their consequences. Any such consent or waiver by the Holder of
this Bond shall be conclusive and binding upon such Holder and upon all future
Holders of this Bond and of any Bond issued upon the registration of transfer
hereof or in exchange herefor or in lieu hereof whether or not notation of such
consent or waiver is made upon this Bond. As provided in the Indenture and
subject to certain limitations therein set forth, MBIA Insurance Corporation
("MBIA") will be entitled to exercise certain Voting Rights of the Holders, and
the Holders may exercise such rights only with the prior written consent of
MBIA.
The term "Issuer" as used in this Bond includes any successor thereof
under the Indenture.
This Bond and the Indenture shall be construed in accordance with, and
governed by, the laws of the State of New York, without regard to conflict of
laws rules.
Unless the certificate of authentication hereon has been executed by
the Trustee by manual signature, this Bond shall not be entitled to any benefit
under the Indenture, or be valid or obligatory for any purpose.
-4-
<PAGE>
IN WITNESS WHEREOF, MERIT Securities Corporation has caused this Bond
to be signed by the true or facsimile signature of its Vice President and
attested by the true or facsimile signature of its Assistant Secretary.
MERIT SECURITIES CORPORATION
By: _______________________________________
Vice President
Attest:
- -------------------------------------
Assistant Secretary
TRUSTEE'S CERTIFICATE OF AUTHENTICATION
This is a Class A-5 Bond referred to in the within-mentioned Indenture.
Date of Authentication: TEXAS COMMERCE BANK NATIONAL
ASSOCIATION, Trustee
By: ___________________________
Authorized Officer
-5-
<PAGE>
ABBREVIATIONS
The following abbreviations, when used in the inscription on the face
of this Bond, shall be construed as though they were written out in full
according to applicable laws or regulations:
<TABLE>
<S> <C>
TEN COM--as tenants in common UNIF GIFT MIN ACT--.....Custodian......
TEN ENT--as tenants by the entireties (Cus) (Minor)
Under Uniform Gifts to Minors
JT TEN-- as joint tenants with rights of Act..........................
survivorship and not as (State)
Tenants in Common
</TABLE>
Additional abbreviations may also be used though not in the above list.
-6-
<PAGE>
FORM OF TRANSFER
FOR VALUE RECEIVED, the undersigned hereby sells, assigns
and transfers unto ____________________________________________________________
- -------------------------------------------------------------------------------
Please print or typewrite name and address of assignee
- -------------------------------------------------------------------------------
Please insert Social Security or other identifying Number of Assignee
the within Bond of MERIT Securities Corporation and does hereby irrevocably
constitute and appoint
_________________________________________________________________, Attorney, to
transfer the said Bond on the books of the within named Corporation, with full
power of substitution in the premises.
Dated: __________________________
-----------------------------------------
NOTICE: The signature to this
assignment must correspond with the
name as written upon the face of
this Bond in every particular
without alteration or enlargement or
any change whatever.
- ---------------------------------
SIGNATURE GUARANTEED: The signature must be guaranteed by a commercial bank or
trust company or by a member firm of the New York Stock Exchange or another
national securities exchange. Notarized or witnessed signatures are not
acceptable.
-7-
<PAGE>
PAYMENT INSTRUCTIONS
The assignee should include the following for purposes of payment:
Payment shall be made, by wire transfer or otherwise, in immediately
available funds, to _______________________, for the account of
___________________, account number _____________, or, if mailed by check, to
_________________________. Applicable reports and statements should be mailed to
_____________________. This information is provided by ___________________, the
assignee named above, or ______________________________, as its agent.
-8-
<PAGE>
EXHIBIT B
PARAMETERS FOR ADDITIONAL MORTGAGE COLLATERAL
Following the pledge of Additional Mortgage Collateral, the aggregate
Mortgage Loans then pledged to secure the Bonds will satisfy the following
parameters:
(i) the percentage of Mortgage Loans in the related Mortgage Pool with a
fixed rate of interest will not be more than 18% of the then aggregate
Scheduled Principal Balance of the First Pool Mortgage Loans or more
than 81% of the then aggregate Scheduled Principal Balance of the Second
Pool Mortgage Loans;
(ii) the percentage of ARM Loans in the related Mortgage Pool will not
be more than 87% of the then aggregate Scheduled Principal Balance of
the First Pool Mortgage Loans or more than 22% of the then aggregate
Scheduled Principal Balance of the Second Pool Mortgage Loans;
(iii) the percentage of ARM Loans in the related Mortgage Pool that
contain "due-on-sale" clauses will not exceed 2% of the then aggregate
Scheduled Principal Balance of the First Pool Mortgage Loans or more
than 2% of the then aggregate Scheduled Principal Balance of the Second
Pool Mortgage Loans;
(iv) the weighted average original loan-to-value ratio of the First Pool
Mortgage Loans will not exceed 74% and the weighted average original
loan-to-value ratio of the Second Pool Mortgage Loans will not exceed
71%;
(v) the percentage of First Pool Mortgage Loans secured by investor
properties will not exceed 2% and the percentage of Second Pool Mortgage
Loans secured by investor properties will not exceed 2%;
(vi) the percentage of First Pool Mortgage Loans originated pursuant to
a "limited documentation" program will not exceed 35% and the percentage
of Second Pool Mortgage Loans originated pursuant to a "limited
documentation" program will not exceed 19%;
(vii) the percentage of First Pool Mortgage Loans originated pursuant to
underwriting standards that are less stringent than the underwriting
guidelines of FNMA or FHLMC with respect to a Borrower's
creditworthiness will not exceed 42% and the percentage of Second Pool
Mortgage Loans originated pursuant to underwriting standards that are
less stringent than the underwriting guidelines of FNMA or FHLMC with
respect to a Borrower's creditworthiness will not exceed 64%;
<PAGE>
(viii) the percentage of First Pool Mortgage Loans having an original
loan-to-value ratio in excess of 80%, after giving effect to Additional
Collateral, that will be covered by a Primary Mortgage Insurance Policy
will equal at least 50%;
(ix) the percentage of cash-out refinance First Pool Mortgage Loans will
not exceed 33% and the percentage of cash-out refinance Second Pool
Mortgage Loans will not exceed 79%;
(x) the percentage of First Pool Mortgage Loans that are delinquent by
one or more Scheduled Payments will not exceed 3% and the percentage of
Second Pool Mortgage Loans that are delinquent by one or more Scheduled
Payments will not exceed 2%;
(xi) the maximum Unpaid Principal Balance of any "additional" Mortgage
Loan will not exceed the then current maximum in the related Mortgage
Pool;
(xii) the geographic concentration of Mortgaged Premises in any state
with a Mortgage Loan concentration of 5% or greater in a Mortgage Pool
will not increase by more than 5% of such concentration, and the
geographic concentration of Mortgaged Premises in any state with a
Mortgage Loan concentration of less than 5% in a Mortgage Pool will not
exceed 5%;
(xiii) the property types of Mortgaged Premises will not vary
materially;
(xiv) no Additional Mortgage Collateral will have an original
loan-to-value ratio in excess of 95%; and
(xv) the weighted average Gross Margin for the ARM Loans in either
Mortgage Pool will not vary by more than five basis points from the
weighted average Gross Margin for such Mortgage Loans as of the Cut-off
Date.
Exhibit 99.1
MBIA
FINANCIAL GUARANTY INSURANCE POLICY
OBLIGATIONS: $528,550,000 Policy Number: 21296
MERIT Securities Corporation
Collateralized Mortgage Bonds, Series 7
Class A-1, Class A-2, Class A-3, Class A-4 and Class A-5
MBIA Insurance Corporation (the "Insurer"), in consideration of the
payment of the premium and subject to the terms of this Financial Guaranty
Insurance Policy (this "Policy"), hereby unconditionally and irrevocably
guarantees to any Owner that an amount equal to each full and complete Insured
Payment will be received by Texas Commerce Bank National Association, or its
successor, as trustee for the Owners (the "Trustee"), on behalf of the Owners
from the Insurer, for distribution by the Trustee to each Owner of each Owner's
proportionate share of the Insured Payment. The Insurer's obligations hereunder
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 this Policy, and no accelerated
Insured Payments shall be made regardless of any acceleration of the
Obligations, unless such acceleration is at the sole option of the Insurer.
Notwithstanding the foregoing paragraph, this Policy does not cover
shortfalls, if any, attributable to the liability of the Issuer or the Trustee
for withholding taxes, if any (including interest and penalties in respect of
any such liability).
The 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 Insurer that
such order is final and not subject to appeal, (iii) an assignment in such form
as is reasonably required by the Insurer, irrevocably assigning to the Insurer
all rights and claims of the Owner relating to or arising under the Obligations
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 Insurer as agent for such Owner in any legal proceeding
related to such preference payment, such instruments being in a form
satisfactory to the 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 Obligations to
such receiver or trustee in bankruptcy, in which case such payment shall be
disbursed to such Owner.
The Insurer will pay any other amount payable hereunder no later than
12:00 noon, New York City time, on the later of the Payment Date on which the
related Payment Amount is due or the second Business Day following receipt in
New York, New York on a Business Day by State Street Bank and Trust Company,
N.A., as Fiscal Agent for the Insurer or any successor fiscal agent appointed by
the 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 hereunder, it shall be
deemed not to have been received by the Fiscal Agent for purposes of this
paragraph, and the 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 hereunder, unless otherwise stated herein, 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 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 Insurer to deposit, or cause to be deposited, sufficient funds to
make payments due under this Policy.
Subject to the terms of the Agreement, the Insurer shall be subrogated
to the rights of each Owner to receive payments under the Obligations to the
extent of any payment by the Insurer hereunder.
As used herein, the following terms shall have the following meanings:
"Agreement" means the Original Indenture as supplemented by the Series 7
Supplement.
"Business Day" means any day other than a Saturday, a Sunday or a day on
which banking institutions in New York City or in the city in which the
corporate trust office of the Trustee under the Agreement is located are
authorized or obligated by law or executive order to close.
"Deficiency Amount" means, with respect to the Obligations as of any
Payment Date, the excess, if any, of (i) the Payment Amount over (ii) Available
Funds.
"Insured Payment" means (i) as of any Payment Date, any 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 hereto,
the original of which is subsequently delivered by registered or certified mail,
from the Trustee specifying the Insured Payment which shall be due and owing on
the applicable Payment Date.
"Original Indenture" means the Indenture dated as of November 1, 1994
between MERIT Securities Corporation, as issuer, and the Trustee, as trustee,
without regard to any amendment or supplement thereto.
"Owner" means each Holder (as defined in the Original Indenture) of an
Obligation who, on the applicable Payment Date, is entitled under the terms of
the applicable Obligation to payment thereunder.
"Preference Amount" means any amount previously distributed to an Owner
on the Obligations 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.
"Series 7 Supplement" means the Series 7 Supplement, dated as of May 1,
1996, to the Original Indenture between MERIT Securities Corporation, as issuer,
and the Trustee, as trustee, without regard to any amendment or supplement
thereto.
Capitalized terms used herein and not otherwise defined herein shall
have the respective meanings set forth in the Agreement as of the date of
execution of this Policy, without giving effect to any subsequent amendment to
or modification of the Agreement unless such amendment or modification has been
approved in writing by the Insurer.
Any notice hereunder or service of process on the Fiscal Agent may be
made at the address listed below for the Fiscal Agent or such other address as
the 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.
This 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 this Policy is not covered by the
Property/Casualty Insurance Security Fund specified in Article 76 of the New
York Insurance Law.
This Policy is not cancelable for any reason. The premium on this Policy
is not refundable for any reason including payment or provision being made for
payment, prior to maturity of the Obligations.
IN WITNESS WHEREOF, the Insurer has caused this Policy to be executed
and attested this 6th day of June, 1996.
MBIA INSURANCE CORPORATION
/s/ RICHARD WEILL
------------------------------
President
Attest: /s/ ANN D. MCKENNA
------------------------------
Assistant Secretary
EXHIBIT A
TO FINANCIAL GUARANTY INSURANCE POLICY
NUMBER: 21296
NOTICE UNDER FINANCIAL GUARANTY
INSURANCE POLICY NUMBER: 21296
State Street Bank and Trust Company, N.A., as Fiscal Agent
for MBIA Insurance Corporation
61 Broadway, 15th Floor
New York, NY 10006
Attention: Municipal Registrar and
Paying Agency
MBIA Insurance Corporation
113 King Street
Armonk, NY 10504
The undersigned, a duly authorized officer of , as trustee
(the "Trustee"), hereby certifies to State Bank and Trust Company, N.A. (the
"Fiscal Agent") and MBIA Insurance Corporation (the "Insurer"), with reference
to Financial Guaranty Insurance Policy Number: 21296 (the "Policy") issued by
the Insurer in respect of the $528,550,000 MERIT Securities Corporation
Collateralized Mortgage Bonds, Series 7, Class A-1, Class A-2, Class A-3, Class
A-4 and Class A-5 (the "Obligations"), that:
(i) the Trustee is the trustee under the Indenture dated as of
November 1, 1994, between MERIT Securities Corporation (the "Issuer")
and the Trustee, as trustee for the Owners, as supplemented by the
Series 7 Supplement dated as of May 1, 1996 between the Issuer and the
Trustee, as trustee for the Owners;
(ii) the Payment Amount for the Payment Date occurring on
(the "Applicable Payment Date") is $ ;
(iii) the amount of Available Funds for the Applicable Payment
Date is $ ;
(iv) the amount by which the Payment Amount exceeds Available
Funds is $ (the "Deficiency Amount");
(v) the amount of previously distributed Payment Amount that is
recoverable and sought to be recovered as a voidable preference by a
trustee in bankruptcy pursuant to the Bankruptcy Code in accordance with
a final nonappealable order of a court having competent jurisdiction is
$ (the "Preference Amount");
(vi) the total Insured Payment due is $ , which amount
equals the sum of the Deficiency Amount and the Preference Amount;
(vii) the Trustee is making a claim under and pursuant to the
terms of the Policy for the dollar amount of the Deficiency Amount set
forth in (iv) above to be applied to the payment of the Payment Amount
for the Applicable Payment Date in accordance with the Agreement and for
the dollar amount of the Insured Payment set forth in (v) above to be
applied to the payment of any Preference Amount; and
(viii) the Trustee directs that payment of the Insured Payment 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:
[TRUSTEE'S ACCOUNT].
Any capitalized term used in this Notice and not otherwise defined
herein shall have the meaning assigned thereto in the Policy.
ANY PERSON WHO KNOWINGLY AND WITH INTENT TO DEFRAUD ANY INSURANCE
COMPANY OR OTHER PERSON FILES AN APPLICATION FOR INSURANCE OR STATEMENT OF CLAIM
CONTAINING ANY MATERIALLY FALSE INFORMATION, OR CONCEALS FOR THE PURPOSE OF
MISLEADING, INFORMATION CONCERNING ANY FACT MATERIAL THERETO, COMMITS A
FRAUDULENT INSURANCE ACT, WHICH IS A CRIME, AND SHALL ALSO BE SUBJECT TO A CIVIL
PENALTY NOT TO EXCEED FIVE THOUSAND DOLLARS AND THE STATED VALUE OF THE CLAIM
FOR EACH SUCH VIOLATION.
IN WITNESS WHEREOF, the Trustee has executed and delivered this Notice
under the Policy as of the day of , .
, as Trustee
By _________________________________
Title ______________________________
