As filed with the Securities and Exchange Commission
on ^ May 9 , 1995 Registration No. 33-56893
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
AMENDMENT NO. ^ 2
to
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
RESIDENTIAL ASSET SECURITIES CORPORATION
(Exact name of registrant as specified in
its charter)
DELAWARE
(State or other jurisdiction of
incorporation or organization)
51-0362653
(I.R.S. employer identification number)
8400 Normandale Lake Boulevard
Minneapolis, Minnesota 55437
(612) 832-7000
(Address, including zip code, and telephone
number, including area code, of registrant's
principle executive offices)
Keenen W. Dammen, President
Residential Asset Securities Corporation
8400 Normandale Lake Boulevard
Minneapolis, Minnesota 55437
(612) 832-7000
(Name, address, including zip code, and
telephone number, including area code, of agent
for service)
Copies to:
Robert L. Schwartz, Esq.
General Counsel
GMAC Mortgage Corporation
3031 West Grand Boulevard
Detroit, Michigan 48232
Katharine I. Crost, Esq. Stephen S. Kudenholdt, Esq.
Orrick, Herrington & Sutcliffe Paul D. Tvetenstrand,
1285 Avenue of the Americas Esq.
New York, New York 10019 Thacher Proffitt & Wood
Two World Trade Center
New York, New York 10048
Approximate date of commencement of proposed sale to
the public: From time to time on or after the effective
date of this Registration Statement.
If the only securities being registered on this Form
are being offered pursuant to dividend or interest
reinvestment plans, please check the following box. [ ]
If any of the securities being registered on this
Form are to be offered on a delayed or continuous basis
pursuant to Rule 415 under the Securities Act of 1933,
other than securities offered only in connection with
dividend or interest plans, please check the following
box. [X]
CALCULATION OF REGISTRATION FEE
Proposed
Maximum
Offering
Title of Securities Amount to be Price
Being Registered Registered Per Unit
Mortgage and $2,000,000,000 100%
Manufactured
Housing Contract
Pass-Through
Certificates
Proposed
Maximum
Aggregate Amount of
Offering Registration
Price Fee
$2,000,000,000 $689,660*
* Previously paid.
The Registrant hereby amends this Registration
Statement on such date or dates as may be necessary to
delay its effective date until the Registrant shall
file a further amendment which specifically states that
this Registration Statement shall thereafter become
effective in accordance with Section 8(a) of the
Securities Act of 1933 or until the Registration
Statement shall become effective on such date as the
Commission, acting pursuant to said Section 8(a), may
determine.
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Other Expenses of Issuance and Distribution (Item 14 of
Form S-3).
The expenses expected to be incurred in connection
with the issuance and distribution of the Certificates
being registered, other than underwriting compensation,
are as set forth below. All such expenses, except for
the filing fee, are estimated.
Filing Fee for Registration Statement$ 689,660
Legal Fees and Expenses . . . . . 1,780,000
Accounting Fees and Expenses. . . . 625,000
Trustee's Fees and Expenses
(including counsel fees) . . . 300,000
Blue Sky Fees and Expenses. . . . . 45,000
Printing and Engraving Fees . . . . 625,000
Rating Agency Fees. . . . . . . . . 750,000
Miscellaneous . . . . . . . . . . 50,000
Total . . . . . . . . . . . . . .$4,864,660
Indemnification of Directors and Officers (Item 15 of
Form S-3).
The Pooling and Servicing Agreements or the Trust
Agreements, as applicable will provide that no
director, officer, employee or agent of the Registrant
is liable to the Trust Fund or the Certificateholders,
except for such person's own willful misfeasance, bad
faith, gross negligence in the performance of duties or
reckless disregard of obligations and duties. The
Pooling and Servicing Agreements or the Trust
Agreements, as applicable, will further provide that,
with the exceptions stated above, a director, officer,
employee or agent of the Registrant is entitled to be
indemnified against any loss, liability or expense
incurred in connection with legal action relating to
such Pooling and Servicing Agreements or the Trust
Agreements. as applicable, and related Certificates
other than such expenses related to particular Mortgage
Loans or Contracts.
Any underwriters who execute an Underwriting
Agreement in the form filed as Exhibit 1.1 to this
Registration Statement will agree to indemnify the
Registrant's directors and its officers who signed this
Registration Statement against certain liabilities
which might arise under the Securities Act of 1933 from
certain information furnished to the Registrant by or
on behalf of such indemnifying party.
Subsection (a) of Section 145 of the General
Corporation Law of Delaware empowers a corporation to
indemnify any person who was or is a party or is
threatened to be made a party to any threatened,
pending or completed action, suit or proceeding,
whether civil, criminal, administrative or
investigative (other than an action by or in the right
of the corporation) by reason of the fact that he is or
was a director, employee or agent of the corporation or
is or was serving at the request of the corporation as
a director, officer, employee or agent of another
corporation, partnership, joint venture, trust or other
enterprise, against expenses (including attorneys'
fees), judgments, fines and amounts paid in settlement
actually and reasonably incurred by him in connection
with such action, suit or proceeding if he acted in
good faith and in a manner he reasonably believed to be
in or not opposed to the best interests of the
corporation, and, with respect to any criminal action
or proceeding, had no cause to believe his conduct was
unlawful.
Subsection (b) of Section 145 empowers a
corporation to indemnify any person who was or is a
party or is threatened to be made a party to any
threatened, pending or completed action or suit by or
in the right of the corporation to procure a judgment
in its favor by reason of the fact that such person
acted in any of the capacities set forth above, against
expenses (including attorneys' fees) actually and
reasonably incurred by him in connection with the
defense or settlement of such action or suit if he
acted in good faith and in a manner he reasonably
believed to be in or not opposed to the best interests
of the corporation and except that no indemnification
may be made in respect to any claim, issue or matter as
to which such person shall have been adjudged to be
liable to the corporation unless and only to the extent
that the Court of Chancery or the court in which such
action or suit was brought shall determine that despite
the adjudication of liability such person is fairly and
reasonably entitled to indemnity for such expenses
which the court shall deem proper.
Section 145 further provides that to the extent a
director, officer, employee or agent of a corporation
has been successful in the defense of any action, suit
or proceeding referred to in subsections (a) and (b) or
in the defense of any claim, issue or matter therein,
he shall be indemnified against expenses (including
attorneys' fees) actually and reasonably incurred by
him in connection therewith; that indemnification or
advancement of expenses provided for by Section 145
shall not be deemed exclusive of any other rights to
which the indemnified party may be entitled; and
empowers the corporation to purchase and maintain
insurance on behalf of a director, officer, employee or
agent of the corporation against any liability asserted
against him or incurred by him in any such capacity or
arising out of his status as such whether or not the
corporation would have the power to indemnify him
against such liabilities under Section 145.
The By-Laws of the Registrant provide, in effect,
that to the extent and under the circumstances
permitted by subsections (a) and (b) of Section 145 of
the General Corporation Law of the State of Delaware,
the Registrant (i) shall indemnify and hold harmless
each person who was or is a party or is threatened to
be made a party to any action, suit or proceeding
described in subsections (a) and (b) by reason of the
fact that he is or was a director or officer, or his
testator or intestate is or was a director or officer
of the Registrant, against expenses, judgments, fines
and amounts paid in settlement, and (ii) shall
indemnify and hold harmless each person who was or is a
party or is threatened to be made a party to any such
action, suit or proceeding if such person is or was
serving at the request of the Registrant as a director,
officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise.
^ Certain controlling persons of the Registrant may
also be entitled to indemnification from General Motors
Acceptance Corporation, an indirect parent of the
Registrant. Under sections 7015 and 7018-7023 of the
New York Banking Law, General Motors Acceptance
Corporation may or shall, subject to various exceptions
and limitations, indemnify its directors or officers
and may purchase and maintain insurance as follows:
(a) If the director is made or threatened to
be made a party to an action by or in the right of
General Motors Acceptance Corporation to procure a
judgment in its favor, by reason of the fact that
such person is or was a director or officer of
General Motors Acceptance Corporation or is or was
serving at the request of General Motors
Acceptance Corporation as a director or officer of
some other enterprise, General Motors Acceptance
Corporation may indemnify such person against
amounts paid in settlement of such action or an
appeal therein, if such director or officer acted,
in good faith, for a purpose which such person
reasonably believed to be in (or, in the case of
service for any other enterprise, not opposed to)
the best interests of General Motors Acceptance
Corporation, except that no indemnification is
available under such statutory provisions in
respect of a threatened action or a pending action
which is settled or otherwise disposed of, or any
claim or issue or matter as to which such person
is found liable to General Motors Acceptance
Corporation, unless in each such case a court
determined that such person is fairly and
reasonably entitled to indemnity for such amount
as the court deems proper.
(b) With respect to any action or proceeding
other than one by or in the right of General
Motors Acceptance Corporation to procure a
judgment in its favor, if a director or officer is
made or threatened to be made a party by reason of
the fact that such person was a director or
officer of General Motors Acceptance Corporation,
or served some other enterprise at the request of
General Motors Acceptance Corporation, General
Motors Acceptance Corporation may indemnify such
person against judgments, fines, amounts paid in
settlement and reasonable expenses, including
attorneys' fees, incurred as a result of such
action or proceeding or an appeal therein, if such
person acted in good faith for a purpose which
such person reasonably believed to be in (or, in
the case of service for any other enterprise, not
opposed to) the best interests of General Motors
Acceptance Corporation and, in criminal actions or
proceedings, in addition, had no reasonable cause
to believe that such person's conduct was
unlawful.
(c) A director or officer who has been
wholly successful, on the merits or otherwise, in
the defense of a civil or criminal action or
proceeding of the character described in
paragraphs (a) or (b) above, shall be entitled to
indemnification as authorized in such paragraphs.
(d) General Motors Acceptance Corporation
may purchase and maintain insurance to indemnify
directors and officers in instances in which they
may not otherwise be indemnified by General Motors
Acceptance Corporation under the provisions of the
New York Banking Law, provided that the contract
of insurance provides for a retention amount and
for co-insurance, except that no such insurance
may provide for any payment, other than cost of
defense, to or on behalf of any director or
officer if a judgment or other final adjudication
adverse to such director or officer establishes
that such person's acts of active and deliberate
dishonesty were material to the cause of action so
adjudicated or that such person personally gained
in fact a financial profit or other advantage to
which such person was not legally entitled.
The foregoing statement is subject to the detailed
provisions of sections 7015 and 7018-7023 of the New
York Banking Law.
As a subsidiary of General Motors Corporation,
General Motors Acceptance Corporation is insured
against liabilities which it may incur by reason of the
foregoing provisions of the New York Banking Law and
directors and officers of General Motors Acceptance
Corporation are insured against some liabilities which
might arise out of their employment and not be subject
to indemnification under said Banking Law.
Pursuant to resolutions adopted by the Board of
Directors of General Motors Corporation, that company
to the fullest extent permissible under law will
indemnify, and has purchased insurance on behalf of,
directors or officers of the company, or any of them,
who incur or are threatened with personal liability,
including expenses, under Employee Retirement Income
Security Act of 1974 or any amendatory or comparable
legislation or regulation thereunder .
Exhibits (Item 16 of Form S-3).
Exhibits--
* 1.1 -- Form of Underwriting Agreement.
* 3.1 -- Certificate of Incorporation.
* 3.2 -- By-Laws.
* 4.1 -- Form of Pooling and Servicing
Agreement.
* 4.2 -- Form of Trust Agreement.
* 5.1 -- Opinion of Orrick, Herrington &
Sutcliffe with respect to
legality.
* 5.2 -- Opinion of Thacher Proffitt &
Wood with respect to legality.
* 8.1 -- Opinion of Orrick, Herrington &
Sutcliffe with respect to
certain tax matters.
* 8.2 -- Opinion of Thacher Proffitt &
Wood with respect to certain tax
matters (included with Exhibit
5.2).
*23.1 -- Consent of Orrick, Herrington &
Sutcliffe (included as part of
Exhibit 5.1 and Exhibit 8.1).
*23.2 -- Consent of Thacher Proffitt &
Wood (included as part of
Exhibit 5.2 and Exhibit 8.2).
*24.1 -- Power of Attorney.
Undertakings (Item 17 of Form S-3).
The Registrant hereby undertakes:
(a)(1) To file, during any period in
which offers or sales are being made, a post-effective
amendment to this Registration Statement (i) to include
any prospectus required by Section 10(a)(3) of the
Securities Act of 1933, (ii) to reflect in the
prospectus any facts or events arising after the
effective date of the registration statement (or the
most recent post-effective amendment thereof) which,
individually or in the aggregate, represent a ^
fundamental change in the information set forth in the
registration statement, and (iii) to include any
material information with respect to the plan of
distribution not previously disclosed in this
Registration Statement or any material change to such
information in this Registration Statement; provided,
however, that paragraphs (a)(1)(i) and (a)(1)(ii) do
not apply if the information required to be included in
a post-effective amendment by those paragraphs is
contained in periodic reports filed with or furnished
to the Commission by the Registrant pursuant to Section
13 or Section 15(d) of the Securities Exchange Act of
1934 that are incorporated by reference in this
Registration Statement.
(2) That, for the purpose of determining
any liability under the Securities Act of 1933, each
such post-effective amendment shall be deemed to be a
new registration statement relating to the securities
offered therein, and the offering of such securities at
that time shall be deemed to be the initial bona fide
offering thereof.
(3) To remove from registration by means of
a post-effective amendment any of the securities being
registered which remain unsold at the termination of
the offering.
(b) The undersigned Registrant hereby undertakes
that, for purposes of determining any liability under
the Securities Act of 1933, each filing of the
Registrant's annual report pursuant to Section 13(a) or
15(d) of the Securities Exchange Act of 1934 (and,
where applicable, each filing of an employee benefit
plan's annual report pursuant to Section 15(d) of the
Securities Exchange Act of 1934) that is incorporated
by reference in the
* Previously filed.
Registration Statement shall be deemed to be a new
Registration Statement relating to the securities
offered therein, and the offering of such securities at
that time shall be deemed to be the initial bona fide
offering thereof.
(c) Insofar as indemnification for liabilities
arising under the Securities Act of 1933 may be
permitted to directors, officers and controlling
persons of the Registrant pursuant to the foregoing
provisions, or otherwise, the Registrant has been
advised that in the opinion of the Securities and
Exchange Commission such indemnification is against
public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim
for indemnification against such liabilities (other
than the payment by the Registrant of expenses incurred
or paid by a director, officer or controlling person of
the Registrant in the successful defense of any action,
suit or proceeding) is asserted by such director,
officer or controlling person in connection with the
securities being registered, the Registrant will,
unless in the opinion of its counsel the matter has
been settled by controlling precedent, submit to a
court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as
expressed in the Act and will be governed by the final
adjudication of such issue.
SIGNATURES
Pursuant to the requirements of the Securities
Act of 1933, Residential Asset Securities Corporation
certifies that it has reasonable grounds to believe
that it meets all of the requirements for filing on
Form S-3 and has duly caused this Amendment No. ^
2 to Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized,
in the City of Minneapolis, State of Minnesota, on the
^ 9th day of ^ May , 1995.
RESIDENTIAL ASSET SECURITIES
CORPORATION
By: /s/ Keenen W. Dammen
Keenen W. Dammen
President
Pursuant to the requirements of the Securities Act of
1933, this Amendment No. ^ 2 to Registration
Statement has been signed below by the following
persons in the capacities and on the dates indicated:
SIGNATURE TITLEDATE
* Director ^ May 9 , 1995
Mark L. Korell
* Director ^ May 9 , 1995
John D. Finnegan
* Director ^ May 9 , 1995
Bruce J. Paradis
/s/ Keenen W. Dammen President and ^ May 9 , 1995
Keenen W. Dammen Chief Executive
Officer (Principal
Executive Officer)
* Treasurer and ^ May 9 , 1995
Davee L. Olson Chief Financial Officer
(Principal Financial
Officer)
* Controller ^ May 9 , 1995
Scott T. Young (Principal Accounting Officer)
* This Amendment No. ^ 2 to Registration
Statement has been signed by each of the persons so
indicated by the undersigned as Attorney-in-Fact.
By: /s/ Keenen W. Dammen
Keenen W. Dammen
Attorney-in-Fact
Mortgage and Manufactured Housing Contract Pass-Through
Certificates
Residential Asset Securities Corporation
Depositor
The Mortgage and Manufactured Housing Contract
Pass-Through Certificates (the "Certificates") offered
hereby may be sold from time to time in series, as
described in the related Prospectus Supplement. Each
series of Certificates will represent in the aggregate
the entire beneficial ownership interest, excluding any
interest retained by Residential Asset Securities
Corporation (the "Company") or any other entity
specified in the related Prospectus Supplement, in a
trust fund consisting primarily of a segregated pool of
one- to four-family, residential first mortgage loans
(the "Mortgage Loans"), manufactured housing
conditional sales contracts and installment loan
agreements (the "Contracts") or interests therein
(which may include Agency Securities, as defined
herein) (collectively with the Mortgage Loans and
Contracts, the "Mortgage Collateral"), acquired by the
Company from one or more affiliated or unaffiliated
institutions. See "The Trust Funds." See "Index of
Principal Definitions" for the meanings of capitalized
terms and acronyms.
The Mortgage Collateral and certain other assets
described herein under "The Trust Funds" and in the
related Prospectus Supplement will be held in trust
(collectively, a "Trust Fund") for the benefit of the
holders of the related series of Certificates pursuant
to a pooling and servicing agreement (each, a "Pooling
and Servicing Agreement") or a trust agreement (each, a
"Trust Agreement") as described herein under "The Trust
Funds" and in the related Prospectus Supplement. Each
Trust Fund will consist of one or more types of the
various types of Mortgage Collateral described under
"The Trust Funds." Information regarding each class of
Certificates of a series, and the general
characteristics of the Mortgage Collateral to be
evidenced by such Certificates, will be set forth in
the related Prospectus Supplement.
Each series of Certificates will include one or more
classes. Each class of Certificates of any series will
represent the right, which right may be senior or
subordinate to the rights of one or more of the other
classes of the Certificates, to receive a specified
portion of payments of principal or interest (or both)
on the Mortgage Collateral in the related Trust Fund in
the manner described herein and in the related
Prospectus Supplement. See "Description of the
Certificates-Distributions." A series may include one
or more classes of Certificates entitled to principal
distributions, with disproportionate, nominal or no
interest distributions, or to interest distributions,
with disproportionate, nominal or no principal
distributions. A series may include two or more classes
of Certificates which differ as to the timing,
sequential order, priority of payment, pass-through
rate or amount of distributions of principal or
interest or both.
The Company's only obligations with respect to a series
of Certificates will be pursuant to certain limited
representations and warranties made by the Company or
as otherwise provided in the related Prospectus
Supplement. The related Prospectus Supplement may
identify one or more entities as servicers (each, a
"Servicer") for a series of Certificates secured by
Mortgage Loans or Contracts or, if specified in the
related Prospectus Supplement, an entity may act as
master servicer with respect to the Certificates (the
"Master Servicer"). If specified in the related
Prospectus Supplement, a series of Certificates may
have a certificate administrator (the "Certificate
Administrator") in addition to, or in lieu of, a
Servicer or a Master Servicer. The principal
obligations of a Servicer or the Master Servicer, if
any, will be its contractual servicing obligations
(which may include its limited obligation to make
certain advances in the event of delinquencies in
payments on the Mortgage Loans or Contracts). The
principal obligations of the Certificate Administrator,
if any, will be to perform certain obligations with
respect to the Certificates under the terms of the
Pooling and Servicing Agreement or Trust Agreement, as
applicable. See "Description of the Certificates."
If so specified in the related Prospectus Supplement,
the Trust Fund for a series of Certificates may include
any one or any combination of a mortgage pool insurance
policy, letter of credit, bankruptcy bond, special
hazard insurance policy, reserve fund, certificate
insurance policy, surety bond or other form of credit
support. In addition to or in lieu of the foregoing,
credit enhancement may be provided by means of
subordination. See "Description of Credit
Enhancement."
The rate of payment of principal of each class of
Certificates entitled to a portion of principal
payments on the Mortgage Collateral will depend on the
priority of payment of such class and the rate and
timing of principal payments (including prepayments,
defaults, liquidations and repurchases) on the Mortgage
Collateral. A rate of principal payment lower or
higher than that anticipated may affect the yield on
each class of Certificates in the manner described
herein and in the related Prospectus Supplement. See
"Yield Considerations."
For a discussion of significant matters affecting
investments in the Certificates, see "Special
Considerations."
One or more separate elections may be made to treat a
Trust Fund as a "real estate mortgage investment
conduit" (a "REMIC") for federal income tax purposes.
The Prospectus Supplement for a series of Certificates
will specify which class or classes of the related
series of Certificates will be considered to be regular
interests in the related REMIC and which class of
Certificates or other interests will be designated as
the residual interest in the related REMIC, if
applicable. See "Certain Federal Income Tax
Consequences."
PROCEEDS OF THE ASSETS IN THE TRUST FUND ARE THE SOLE
SOURCE OF PAYMENTS ON THE CERTIFICATES. THE
CERTIFICATES DO NOT REPRESENT AN INTEREST IN OR
OBLIGATION OF THE COMPANY, THE MASTER SERVICER, THE
CERTIFICATE ADMINISTRATOR, GMAC MORTGAGE CORPORATION
("GMAC MORTGAGE") OR ANY OF THEIR AFFILIATES. NEITHER
THE CERTIFICATES NOR THE MORTGAGE COLLATERAL WILL BE
GUARANTEED OR INSURED BY ANY GOVERNMENTAL AGENCY OR
INSTRUMENTALITY (EXCEPT IN THE CASE OF FHA LOANS, FHA
CONTRACTS, VA LOANS, VA CONTRACTS AND GINNIE MAE
SECURITIES) OR BY THE COMPANY, THE MASTER SERVICER, THE
CERTIFICATE ADMINISTRATOR, GMAC MORTGAGE OR ANY OF
THEIR AFFILIATES.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED
BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE
SECURITIES COMMISSION NOR HAS THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
Offers of the Certificates may be made through one or
more different methods, including offerings through
underwriters, as more fully described under "Methods of
Distribution" and in the related Prospectus Supplement.
There will be no secondary market for any series of
Certificates prior to the offering thereof. There can
be no assurance that a secondary market for any of the
Certificates will develop or, if it does develop, that
it will continue. The Certificates will not be listed
on any securities exchange.
Retain this Prospectus for future reference. This
Prospectus may not be used to consummate sales of
securities offered hereby unless accompanied by a
Prospectus Supplement.
The date of this Prospectus is May __, 1995.
ADDITIONAL INFORMATION
The Company has filed with the Commission a
Registration Statement under the Securities Act of
1933, as amended, with respect to the Certificates (the
"Registration Statement"). The Company is also subject
to certain of the information requirements of the
Securities Exchange Act of 1934, as amended (the
"Exchange Act"), and, accordingly, will file reports
thereunder with the Commission. The Registration
Statement and the exhibits thereto, and reports and
other information filed by the Company pursuant to the
Exchange Act can be inspected and copied at the public
reference facilities maintained by the Commission at
450 Fifth Street, N.W., Washington, D.C. 20549, and at
certain of its Regional Offices located as follows:
Chicago Regional Office, Citicorp Center, 500 West
Madison Street, Suite 1400, Chicago, Illinois 60661-
2511; and New York Regional Office, 7 World Trade
Center, Suite 1300, New York, New York 10048. Copies
of such material can also be obtained from the Public
Reference Section of the Commission, 450 Fifth Street,
N.W., Washington, D.C. 20549, at prescribed rates.
Copies of Ginnie Mae's information statement and
annual report can be obtained by writing or calling the
United States Department of Housing and Urban
Development, 451 - 7th Street S.W., Room 6210,
Washington, D.C. 20410-9000 (202-708-3649). Copies of
Freddie Mac's most recent offering circular for Freddie
Mac Certificates, Freddie Mac's information statement
and most recent supplement to such information
statement and any quarterly report made available by
Freddie Mac can be obtained by writing or calling the
Investor Relations Department of Freddie Mac at Post
Office Box 4112, Reston, Virginia 22090 (outside the
Washington, D.C. metropolitan area, telephone 800-424-
5401, ext. 8160; within the Washington, D.C.
metropolitan area, telephone 703-759-8160). Copies of
Fannie Mae's most recent prospectus for Fannie Mae
Certificates and Fannie Mae's annual report and
quarterly financial statements, as well as other
financial information, are available from the Director
of Investor Relations of Fannie Mae, 3900 Wisconsin
Avenue, N.W., Washington, D.C. 20016 (202-537-7115).
The Company does not, and will not, participate in the
preparation of Ginnie Mae's information statements or
annual reports, Freddie Mac's offering circulars,
information statements or any supplements thereto or
any of its quarterly reports or Fannie Mae's
prospectuses or any of its reports, financial
statements or other information and, accordingly, makes
no representations as to the accuracy or completeness
of the information set forth therein.
REPORTS TO CERTIFICATEHOLDERS
Monthly reports which contain information
concerning the Trust Fund for a series of Certificates
will be sent by the Master Servicer or Certificate
Administrator, as applicable, to each holder of record
of the Certificates of the related Series. See
"Description of the Certificates-Reports to
Certificateholders." The Company will file with the
Commission such periodic reports with respect to the
Trust Fund for a series of Certificates as are required
under the Exchange Act, and the rules and regulations
of the Commission thereunder. No dealer, salesman, or
any other person has been authorized to give any
information, or to make any representations, other than
those contained in this Prospectus or the related
Prospectus Supplement and, if given or made, such
information or representations must not be relied upon
as having been authorized by the Company or any dealer,
salesman, or any other person. Neither the delivery of
this Prospectus or the related Prospectus Supplement
nor any sale made hereunder or thereunder shall under
any circumstances create an implication that there has
been no change in the information herein or therein
since the date hereof. This Prospectus and the related
Prospectus Supplement are not an offer to sell or a
solicitation of an offer to buy any security in any
jurisdiction in which it is unlawful to make such offer
or solicitation.
TABLE OF CONTENTS
Caption Page
ADDITIONAL INFORMATION........................ 2
REPORTS TO CERTIFICATEHOLDERS................. 2
SUMMARY OF PROSPECTUS......................... 4
SPECIAL CONSIDERATIONS......................... 11
Risks Associated with the Mortgage
Collateral......................... 11
Yield and Prepayment Considerations...... 12
Limited Representations and Warranties... 12
Limited Liquidity........................ 12
Limited Obligations...................... 12
Limitations, Reduction and Substitution of
Credit Enhancement................. 13
THE TRUST FUNDS................................ 13
General.................................. 13
The Mortgage Loans....................... 14
The Agency Securities.................... 21
Mortgage Collateral Sellers.............. 22
Representations with Respect to Mortgage
Collateral......................... 23
Repurchases of Mortgage Collateral....... 24
Limited Right of Substitution.................. 25
DESCRIPTION OF THE CERTIFICATES................ 25
General.................................. 25
Form of Certificates..................... 26
Assignment of Mortgage Loans............. 27
Assignment of Contracts.................. 28
Review of Mortgage Loan or
Contract Documents............... 28
Assignment of Agency Securities.......... 28
Spread................................... 29
Payments on Mortgage Collateral.......... 29
Withdrawals from the Custodial Account... 31
Distributions............................ 32
Advances................................. 35
Prepayment Interest Shortfalls........... 35
Reports to Certificateholders............ 36
Servicing and Administration of Mortgage
Collateral......................... 37
Realization Upon Defaulted Property...... 41
SUBORDINATION.................................. 42
DESCRIPTION OF CREDIT ENHANCEMENT.............. 44
General.................................. 44
Letters of Credit........................ 45
Mortgage Pool Insurance Policies......... 45
Special Hazard Insurance Policies........ 46
Bankruptcy Bonds......................... 47
Reserve Funds............................ 47
Certificate Insurance Policies........... 48
Surety Bonds............................. 48
Maintenance of Credit Enhancement........ 48
Reduction or Substitution of Credit
Enhancement........................ 49
INSURANCE POLICIES ON MORTGAGE
LOANS OR CONTRACTS.................... 50
Primary Mortgage Insurance Policies...... 50
Standard Hazard Insurance on Mortgaged
Properties......................... 51
Standard Hazard Insurance on Manufactured
Homes.............................. 51
FHA Mortgage Insurance................... 52
VA Mortgage Guaranty..................... 52
THE COMPANY.................................... 53
RESIDENTIAL FUNDING CORPORATION................ 53
THE POOLING AND SERVICING AGREEMENT............ 53
Servicing and Administration............. 54
Events of Default........................ 54
Rights Upon Event of Default............. 54
Amendment................................ 55
Termination; Retirement of Certificates.. 56
The Trustee.............................. 56
YIELD CONSIDERATIONS........................... 57
MATURITY AND PREPAYMENT CONSIDERATIONS......... 60
CERTAIN LEGAL ASPECTS OF MORTGAGE LOANS AND
CONTRACTS................................ 62
The Mortgage Loans....................... 62
The Contracts............................ 68
Environmental Legislation................ 71
Soldiers' and Sailors' Civil Relief Act of
1940............................... 71
CERTAIN FEDERAL INCOME TAX CONSEQUENCES........ 72
General.................................. 72
REMICs................................... 72
STATE AND OTHER TAX CONSEQUENCES............... 87
ERISA CONSIDERATIONS........................... 87
Plan Asset Regulations................... 88
Prohibited Transaction Exemption......... 88
Tax-Exempt Investors..................... 90
Consultation with Counsel................ 90
LEGAL INVESTMENT MATTERS....................... 90
USE OF PROCEEDS................................ 92
METHODS OF DISTRIBUTION........................ 92
LEGAL MATTERS.................................. 93
FINANCIAL INFORMATION.......................... 93
INDEX OF PRINCIPAL DEFINITIONS................. 94
SUMMARY OF PROSPECTUS
The following summary is qualified in its entirety
by reference to the detailed information appearing
elsewhere in this Prospectus and by reference to the
information with respect to each series of Certificates
contained in the Prospectus Supplement to be prepared and
delivered in connection with the offering of such series.
Capitalized terms used in this summary that are not
otherwise defined shall have the meanings ascribed
thereto in this Prospectus. An index indicating where
certain terms used herein are defined appears at the end
of this Prospectus.
Securities Offered. . . . . . . . . Mortgage and
Manufactured Housing
Contract Pass-Through
Certificates.
Company . . . . . . . . . . . . . . Residential Asset
Securities Corporation.
See "The Company."
Servicer or Master Servicer . . . . The related Prospectus
Supplement may identify
one or more entities as
Servicers for a series
of Certificates
evidencing interests in
Mortgage Loans or
Contracts or an entity
may act as Master
Servicer. The Master
Servicer may be
Residential Funding
Corporation, an
affiliate of the Company
("Residential Funding").
See "Residential Funding
Corporation" and
"Description of the
Certificates-Servicing
and Administration of
Mortgage Collateral."
Certificate Administrator . . . . . An entity may be named
as the Certificate
Administrator in the
related Prospectus
Supplement, if required
in addition to or in
lieu of the Master
Servicer or Servicer for
a series of
Certificates. The
Certificate
Administrator may be
Residential Funding.
See "Residential Funding
Corporation" and
"Description of the
Certificates-Servicing
and Administration of
Mortgage Collateral."
Trustee . . . . . . . . . . . . . . The Trustee for each
series of Certificates
will be specified in the
related Prospectus
Supplement.
Certificates. . . . . . . . . . . . Each series of
Certificates will
represent in the
aggregate the entire
beneficial ownership
interest, excluding any
interest retained by the
Company or any other
entity specified in the
related Prospectus
Supplement, in a trust
fund (the "Trust Fund")
consisting primarily of
a segregated pool of
one- to four-family
residential first
mortgage loans (the
"Mortgage Loans"),
manufactured housing
conditional sales
contracts and
installment loan
agreements (the
"Contracts") or
interests therein (which
may include Agency
Securities, as defined
herein) (collectively
with the Mortgage Loans
and Contracts, the
"Mortgage Collateral")
acquired by the Company
from one or more
affiliated or
unaffiliated
institutions. Each
series of Certificates
will be issued pursuant
to a pooling and
servicing agreement
(each, a "Pooling and
Servicing Agreement") or
a trust agreement (each,
a "Trust Agreement")
among the Company, the
Trustee and one or more
of any Servicer, the
Master Servicer and the
Certificate
Administrator.
As specified in the
related Prospectus
Supplement, each series
of Certificates, or
class of Certificates in
the case of a series
consisting of two or
more classes, may have a
stated principal
balance, no stated
principal balance or a
notional amount and may
be entitled to
distributions of
interest based on a
specified interest rate
or rates (each, a
"Pass-Through Rate").
Each series or class of
Certificates may have a
different Pass-Through
Rate, which may be a
fixed, variable or
adjustable Pass-Through
Rate, or any combination
of two or more of such
Pass-Through Rates. The
related Prospectus
Supplement will specify
the Pass-Through Rate or
Rates for each series or
class of Certificates,
or the initial
Pass-Through Rate or
Rates and the method for
determining subsequent
changes to the
Pass-Through Rate or
Rates.
A series may include one
or more classes of
Certificates (each, a
"Strip Certificate")
entitled to (i)
principal distributions,
with disproportionate,
nominal or no interest
distributions, or (ii)
interest distributions,
with disproportionate,
nominal or no principal
distributions. In
addition, a series may
include classes of
Certificates which
differ as to timing,
sequential order,
priority of payment,
Pass-Through Rate or
amount of distributions
of principal or interest
or both, or as to which
distributions of
principal or interest or
both on any class may be
made upon the occurrence
of specified events, in
accordance with a
schedule or formula, or
on the basis of
collections from
designated portions of
the Trust Fund. In
addition, a series may
include one or more
classes of Certificates
("Accrual
Certificates"), as to
which certain accrued
interest will not be
distributed but rather
will be added to the
principal balance
thereof in the manner
described in the related
Prospectus Supplement.
One or more classes of
Certificates in a series
may be entitled to
receive principal
payments pursuant to an
amortization schedule
under the circumstances
described in the related
Prospectus Supplement.
If so provided in the
related Prospectus
Supplement, a series of
Certificates may include
one or more classes of
Certificates
(collectively, the
"Senior Certificates")
which are senior to one
or more classes of
Certificates
(collectively, the
"Subordinate
Certificates") in
respect of certain
distributions of
principal and interest
and allocations of
losses on the Mortgage
Collateral. See
"Subordination." If so
provided in the related
Prospectus Supplement, a
series of Certificates
may include one or more
classes of Certificates
(collectively, the
"Mezzanine
Certificates") which are
Subordinate Certificates
but which are senior to
other classes of
Subordinate Certificates
in respect of such
distributions or losses.
In addition, certain
classes of Senior
Certificates may be
senior to other classes
of Senior Certificates
in respect of such
distributions or losses.
The Certificates will be
issued in fully-
registered certificated
or book-entry form in
the authorized
denominations specified
in the related
Prospectus Supplement.
See "Description of the
Certificates."
Neither the Certificates
nor the underlying
Mortgage Collateral will
be guaranteed or insured
by any governmental
agency or
instrumentality (except
in the case of FHA
Loans, FHA Contracts, VA
Loans, VA Contracts and
Ginnie Mae Securities
(each as defined
herein)) or by the
Company, the Master
Servicer, any Servicer,
the Mortgage Collateral
Seller, the Certificate
Administrator, GMAC
Mortgage or any of their
affiliates. See
"Special Considerations-
Limited Obligations."
Interest Distributions. . . . . . . Except as otherwise
specified herein or in
the related Prospectus
Supplement, interest on
each class of
Certificates of each
series, other than Strip
Certificates or Accrual
Certificates (prior to
the time when accrued
interest becomes payable
thereon), will be
remitted at the
applicable Pass-Through
Rate on the outstanding
principal balance of
such class, on the 25th
day (or, if such day is
not a business day, the
next business day) of
each month, commencing
with the month following
the month in which the
Cut-off Date (as defined
in the applicable
Prospectus Supplement)
occurs (each, a
"Distribution Date").
If the Prospectus
Supplement so provides,
interest distributions
on any class of
Certificates may be
reduced on account of
negative amortization on
the Mortgage Collateral,
with the Deferred
Interest (as defined
herein) allocable to
such class added to the
principal balance
thereof, which Deferred
Interest will thereafter
bear interest at the
applicable Pass-Through
Rate. Distributions, if
any, with respect to
interest on Strip
Certificates will be
made on each
Distribution Date as
described herein and in
the related Prospectus
Supplement. See
"Description of the
Certificates-Distributi
ons." Strip
Certificates that are
entitled to
distributions of
principal only will not
receive distributions in
respect of interest.
Interest that has
accrued but is not yet
payable on any Accrual
Certificates will be
added to the principal
balance of such class on
the related Distribution
Date, and will
thereafter bear interest
at the applicable Pass-
Through Rate. Unless
otherwise specified in
the related Prospectus
Supplement,
distributions of
interest with respect to
any series of
Certificates (or
accruals thereof in the
case of Accrual
Certificates), or with
respect to one or more
classes included
therein, may be reduced
to the extent of
interest shortfalls not
covered by advances or
the applicable form of
credit support,
including any Prepayment
Interest Shortfalls.
See "Description of the
Certificates" and
"Maturity and Prepayment
Considerations."
Principal Distributions . . . . . . Except as otherwise
specified in the related
Prospectus Supplement,
principal distributions
on the Certificates of
each series will be
payable on each
Distribution Date,
commencing with the
Distribution Date in the
month following the
month in which the Cut-
off Date occurs, to the
holders of the
Certificates of such
series, or of the class
or classes of
Certificates then
entitled thereto, on a
pro rata basis among all
such Certificates or
among the Certificates
of any such class, in
proportion to their
respective outstanding
principal balances or
the percentage interests
represented by such
class, in the priority
and manner specified in
the related Prospectus
Supplement. Strip
Certificates with no
principal balance will
not receive
distributions in respect
of principal.
Distributions of
principal with respect
to any class of
Certificates may be
reduced to the extent of
certain delinquencies
not covered by advances
or losses not covered by
the applicable form of
credit enhancement. See
"The Trust Funds,"
"Maturity and Prepayment
Considerations" and
"Description of the
Certificates."
Trust Fund. . . . . . . . . . . . . The Trust Fund for a
series of Certificates
will consist primarily
of Mortgage Loans,
Contracts, whole or
partial participations
in Mortgage Loans or
Contracts and/or Agency
Securities, together
with certain accounts,
reserve funds, insurance
policies and related
agreements specified in
the related Prospectus
Supplement. The Trust
Fund for a series of
Certificates will also
include the Certificate
Account and a Collection
Account, if applicable,
and may include various
forms of credit
enhancement, all as
specified in the related
Prospectus Supplement.
See "The Trust Funds"
and "Description of
Credit Enhancement."
The Mortgage Collateral
will be purchased by the
Company directly or
indirectly (through
Residential Funding or
other affiliates) from
affiliates, including
GMAC Mortgage, an
indirect parent of the
Company, or directly or
indirectly from sellers
unaffiliated with the
Company (each, a
"Mortgage Collateral
Seller"). See "The
Trust Funds-Mortgage
Collateral Sellers."
Mortgage Loans . . . . . . . . The Trust Fund for a
series of Certificates
may include a pool of
Mortgage Loans, or whole
or partial
participations in
Mortgage Loans (a
"Mortgage Pool"),
secured by first liens
on one- to four-family
residential properties
(the "Mortgaged
Properties"). Such
Mortgage Loans may, as
specified in the related
Prospectus Supplement,
include conventional
loans, FHA Loans, VA
Loans, Balloon Loans,
GPM Loans, Buy-Down
Loans, Bi-Weekly Loans
or Mortgage Loans having
other special payment
features, as described
herein and in the
related Prospectus
Supplement. See "The
Trust Funds-The Mortgage
Loans." The Mortgage
Loans may have fixed or
adjustable interest
rates. A Mortgage Pool
may include Mortgage
Loans that have been
modified prior to their
inclusion in a Trust
Fund. The Mortgage
Loans may include either
(i) Mortgage Loans
secured by mortgages,
deeds of trust or other
security instruments
creating a first lien on
the Mortgaged Properties
or (ii) loans secured by
an assignment by the
borrower of a security
interest in shares
issued by a private
cooperative housing
association and the
related proprietary
lease or occupancy
agreement on a
cooperative dwelling
("Cooperative Loans").
The Mortgaged Properties
may be owner occupied or
non-owner occupied and
may include vacation and
second homes. See "The
Trust Funds-The Mortgage
Loans."
Contracts. . . . . . . . . . . The Trust Fund for a
series of Certificates
may include a pool of
Contracts, or whole or
partial participations
in Contracts (a
"Contract Pool")
originated by one or
more manufactured
housing dealers, or such
other entity or entities
described in the related
Prospectus Supplement.
The Contracts may be
conventional
manufactured housing
contracts or contracts
insured by the FHA or
partially guaranteed by
the VA. Each Contract
will be secured by a
manufactured home (each,
a "Manufactured Home,"
which shall also be
included in the term
"Mortgaged Property").
Generally, the Contracts
will be fully-amortizing
and will bear interest
at a fixed rate unless
otherwise specified in
the related Prospectus
Supplement. See "The
Trust Funds-The
Contracts."
Agency Securities. . . . . . . The Trust Fund for a
series of Certificates
may include a pool of
Freddie Mac Securities,
Fannie Mae Securities or
Ginnie Mae Securities
(collectively, the
"Agency Securities"), or
a combination of Agency
Securities. Such Agency
Securities may represent
whole or partial
interests in pools of
(1) Mortgage Loans or
Contracts or (2) Agency
Securities. Unless
otherwise set forth in
the related Prospectus
Supplement, all Ginnie
Mae Securities will be
backed by the full faith
and credit of the United
States. None of the
Freddie Mac Securities
or Fannie Mae Securities
will be backed, directly
or indirectly, by the
full faith and credit of
the United States.
Agency Securities may be
backed by fixed or
adjustable rate Mortgage
Loans or other types of
Mortgage Loans or
Contracts specified in
the related Prospectus
Supplement. See "The
Trust Funds-The Agency
Securities."
Yield and Prepayment Considerations
The Mortgage Collateral
supporting a series of
Certificates will have
unique characteristics
that will affect the yield
to maturity and the rate
of payment of principal on
such Certificates. See
"Yield Considerations" and
"Maturity and Prepayment
Considerations" herein and
in the related Prospectus
Supplement.
Credit Enhancement. . . . . . . . . If so specified in the
related Prospectus
Supplement, the Trust
Fund with respect to any
series of Certificates
may include any one or
any combination of a
letter of credit,
mortgage pool insurance
policy, special hazard
insurance policy,
bankruptcy bond, reserve
fund, certificate
insurance policy, surety
bond or other type of
credit support to
provide partial coverage
for certain defaults and
losses relating to the
Mortgage Loans. Credit
support also may be
provided in the form of
subordination of one or
more classes of
Certificates in a series
under which losses are
first allocated to any
Subordinate Certificates
up to a specified limit.
Any form of credit
enhancement typically
will have certain
limitations and
exclusions from coverage
thereunder, which will
be described in the
related Prospectus
Supplement. Losses not
covered by any form of
credit enhancement will
be borne by the holders
of the related
Certificates (or certain
classes thereof). To the
extent not set forth
herein, the amount and
types of coverage, the
identification of any
entity providing the
coverage, the terms of
any subordination and
related information will
be set forth in the
Prospectus Supplement
relating to a series of
Certificates. See
"Description of Credit
Enhancement" and
"Subordination."
Advances. . . . . . . . . . . . . . Unless otherwise
specified in the related
Prospectus Supplement,
the Master Servicer (or,
if there is no Master
Servicer for such
series, the related
Servicer) will be
obligated to make
certain advances with
respect to delinquent
scheduled payments on
the Mortgage Loans or
Contracts, but only to
the extent that the
Master Servicer or a
Servicer believes that
such amounts will be
recoverable by it. Any
advance made by the
Master Servicer or a
Servicer with respect to
a Mortgage Loan or a
Contract is recoverable
by it as provided herein
under "Description of
the Certificates-
Advances" either from
recoveries on the
specific Mortgage Loan
or Contract or, with
respect to any advance
subsequently determined
to be nonrecoverable,
out of funds otherwise
distributable to the
holders of the related
series of Certificates.
Optional Termination. . . . . . . . The Master Servicer, the
Certificate
Administrator, the
Company, a Servicer or,
if specified in the
related Prospectus
Supplement, the holder
of the residual interest
in a REMIC may at its
option either (i) effect
early retirement of a
series of Certificates
through the purchase of
the assets in the
related Trust Fund or
(ii) purchase, in whole
but not in part, the
Certificates specified
in the related
Prospectus Supplement;
in each case under the
circumstances and in the
manner set forth herein
under "The Pooling and
Servicing Agreement-
Termination; Retirement
of Certificates" and in
the related Prospectus
Supplement.
Rating. . . . . . . . . . . . . . . At the date of issuance,
as to each series, each
class of Certificates
offered hereby will be
rated, at the request of
the Company, in one of
the four highest rating
categories by one or
more nationally
recognized statistical
rating agencies (each, a
"Rating Agency"). See
"Ratings" in the related
Prospectus Supplement.
Legal Investment. . . . . . . . . . Unless otherwise
specified in the related
Prospectus Supplement,
each class of
Certificates offered
hereby that is rated in
one of the two highest
rating categories by at
least one Rating Agency
will constitute
"mortgage related
securities" for purposes
of the Secondary
Mortgage Market
Enhancement Act of 1984,
as amended ("SMMEA"),
for so long as it
sustains such a rating.
See "Legal Investment
Matters."
ERISA Considerations. . . . . . . . A fiduciary of an
employee benefit plan
and certain other
retirement plans and
arrangements, including
individual retirement
accounts and annuities,
Keogh plans, and
collective investment
funds and separate
accounts in which such
plans, accounts,
annuities or
arrangements are
invested, which is
subject to the Employee
Retirement Income
Security Act of 1974, as
amended ("ERISA"), or
Section 4975 of the
Internal Revenue Code of
1986 (the "Code"), and
any other person
contemplating purchasing
a Certificate with Plan
Assets (as defined
herein), should
carefully review with
its legal counsel
whether the purchase or
holding of Certificates
could give rise to a
transaction that is
prohibited or is not
otherwise permissible
either under ERISA or
Section 4975 of the
Code. See "ERISA
Considerations" herein
and in the related
Prospectus Supplement.
Certain Federal Income Tax Consequences . . .
Certificates of each
series offered hereby will
constitute "regular
interests" or "residual
interests" in a Trust
Fund, or a portion
thereof, treated as a
REMIC under Sections 860A
through 860G of the Code,
unless otherwise specified
in the related Prospectus
Supplement. See "Certain
Federal Income Tax
Consequences" herein and
in the related Prospectus
Supplement.
SPECIAL CONSIDERATIONS
Investors should consider, among other things, the
following factors in connection with the purchase of the
Certificates:
Risks Associated with the Mortgage Collateral
The primary assets underlying a series of
Certificates will be the Mortgage Loans or Contracts (or
interests therein) in the related Trust Fund or the
Mortgage Loans or Contracts that underlie the Agency
Securities in a Trust Fund. Defaults on mortgage loans
and contracts may occur because of changes in the
economic status of the related borrower or because of
increases in the monthly payment for such mortgage loan
or contract or decreases in the related borrower's equity
in the related Mortgaged Property. Losses upon the
foreclosure of a mortgage loan or contract may occur
because the value of the related Mortgaged Property is
insufficient to recover the outstanding principal balance
of the mortgage loan or contract. Factors which may
affect the value of the related Mortgaged Property
include declines in real estate values and adverse
economic conditions either generally or in the particular
geographic area in which the related Mortgaged Property
is located. See "Yield Considerations." Losses may also
result from fraud in the origination of a mortgage loan
or contract.
Mortgage Loans or Contracts may have been originated
using underwriting standards that are less stringent than
the underwriting standards applied by other first
mortgage loan purchase programs such as those run by
Fannie Mae or Freddie Mac or by the Company's affiliate,
Residential Funding, for the purpose of collateralizing
securities issued by Residential Funding Mortgage
Securities I, Inc. For example, the Mortgage Loans or
Contracts may have been made to borrowers (the
"Mortgagors") having imperfect credit histories, ranging
from minor delinquencies to bankruptcies, or Mortgagors
with generally higher ratios of monthly mortgage payments
to income or higher ratios of total monthly credit
payments to income. Mortgage Loans or Contracts in a
Trust Fund may also present a greater risk of loss due to
higher Loan-to-Value Ratios or lesser amounts of primary
mortgage insurance than such other lending programs.
Mortgage Loans or Contracts may have been originated
one or more years prior to the Closing Date for the
related Certificates. Such seasoned Mortgage Collateral
may have higher current loan-to-value ratios than at
origination if the value of the related Mortgaged
Property has declined. No assurance can be given that
values of the Mortgaged Properties have remained or will
remain at the levels existing on the dates of origination
of the related Mortgage Loans or Contracts. If a
residential real estate market should experience an
overall decline in property values, or if the Mortgagors
on such seasoned Mortgage Collateral have lower incomes
or poorer credit histories than at the time of
origination of the related Mortgage Loan or Contract, the
actual rates of delinquencies, foreclosures and losses
could be higher than the rates otherwise expected by an
investor in the Certificates.
In addition, in the case of Mortgage Loans or
Contracts that are subject to negative amortization due
to the addition to the related principal balance of
Deferred Interest, the principal balances of such
Mortgage Loans or Contracts could be increased to an
amount equal to or in excess of the value of the
underlying Mortgaged Properties, thereby increasing the
likelihood of default by the Mortgagors which may result
in losses on such Mortgage Loans or Contracts. Certain
other Mortgage Loans or Contracts may provide for
escalating or variable payments by the Mortgagor, as to
which the Mortgagor is generally qualified on the basis
of the initial payment amount. Some of the Mortgage
Loans or Contracts may be Balloon Loans and the ability
of a Mortgagor to pay the related Balloon Amount may
depend on the Mortgagor's ability to refinance the
Mortgage Loan or Contract. In some instances, Mortgagors
may not be able to make their loan payments as such
payments increase and thus the likelihood of default will
increase.
Some Mortgage Loans or Contracts may be one or more
months delinquent with regard to payment of principal or
interest at the time of their deposit into a Trust Fund.
Certain Mortgage Loans or Contracts may have incomplete
legal files that, as of the time of deposit into a Trust
Fund, may be missing such documents as a note, a copy of
the Mortgage or a title insurance policy, or may contain
documents that are defective because they are incomplete,
contain incorrect information, are unsigned by the
appropriate parties or have other defects.
In addition to the foregoing, from time to time
certain geographic regions will experience weaker
regional economic conditions and housing markets and,
consequently, may experience higher rates of loss and
delinquency than will be experienced on mortgage loans or
contracts generally. For example, a region's economic
condition and housing market may be directly, or
indirectly, adversely affected by natural disasters or
civil disturbances such as earthquakes, hurricanes,
floods, eruptions or riots. The economic impact of any
of these types of events may also be felt in areas beyond
the region immediately affected by the disaster or
disturbance. The Mortgage Loans or Contracts in the
Trust Fund for a series of Certificates may be
concentrated in these regions, and such concentration may
present risks in addition to those generally present for
similar mortgage-backed securities without such
concentration.
To the extent that losses on any item of Mortgage
Collateral are not covered by any credit enhancement, the
related Certificateholders (or specific classes thereof)
will bear all risk of loss resulting from default by the
Mortgagors, and will have to look primarily to the value
of the Mortgaged Properties for recovery of the
outstanding principal and unpaid interest on the
defaulted Mortgage Loans or Contracts. Specific risks,
if any, associated with the Mortgage Collateral
underlying a particular series of Certificates will be
discussed in the related Prospectus Supplement. See
"Special Considerations," if any, in the related
Prospectus Supplement.
Yield and Prepayment Considerations
The yield to maturity of the Certificates of each
series will depend on the rate and timing of principal
payments (including prepayments, liquidations due to
defaults, and repurchases due to conversion of ARM Loans
to fixed interest rate loans or breaches of
representations and warranties) on the Mortgage Loans or
Contracts and the price paid by Certificateholders. Such
yield may be adversely affected by a higher or lower than
anticipated rate of prepayments on the related Mortgage
Collateral. The yield to maturity on Strip Certificates
will be extremely sensitive to the rate of prepayments on
the related Mortgage Collateral. In addition, the yield
to maturity on certain other types of classes of
Certificates, including Accrual Certificates,
Certificates with a Pass-Through Rate that fluctuates
inversely with an index or certain other classes, may be
relatively more sensitive to the rate of prepayment on
the related Mortgage Collateral than other classes of
Certificates. Prepayments are influenced by a number of
factors, including prevailing mortgage market interest
rates, local and regional economic conditions and
homeowner mobility. See "Yield Considerations" and
"Maturity and Prepayment Considerations."
Limited Representations and Warranties
Certain Mortgage Collateral Sellers may make more
limited representations and warranties with respect to
the Mortgage Loans or Contracts that have been acquired
by the Company than would be required by Fannie Mae or
Freddie Mac in connection with their first mortgage loan
purchase programs. In addition, any item of Mortgage
Collateral for which a breach of a representation or
warranty exists will remain in the related Trust Fund in
the event that a Mortgage Collateral Seller is unable, or
disputes its obligation, to repurchase such Mortgage
Collateral and such a breach does not also constitute a
breach of a representation made by Residential Funding,
the Company or the Master Servicer. In either event, any
resulting losses will be borne by the related form of
credit enhancement, to the extent available, and
otherwise by the holders of one or more classes of
Certificates. See "The Trust Funds-Representations with
Respect to Mortgage Collateral."
Limited Liquidity
There can be no assurance that a secondary market
for the Certificates of any series will develop or, if it
does develop, that it will provide Certificateholders
with liquidity of investment or that it will continue for
the life of the Certificates of any series. The
Prospectus Supplement for any series of Certificates may
indicate that an underwriter specified therein intends to
establish a secondary market in such Certificates,
however no underwriter will be obligated to do so. The
Certificates will not be listed on any securities
exchange.
Limited Obligations
The Certificates will not represent an interest in
or obligation of the Company, the Master Servicer, any
Servicer, the Mortgage Collateral Seller, the Certificate
Administrator, GMAC Mortgage or any of their affiliates.
The only obligations of the foregoing entities with
respect to the Certificates or any Mortgage Collateral
will be the obligations (if any) of the Company, the
related Servicer, if applicable, the Mortgage Collateral
Seller, and the Master Servicer pursuant to certain
limited representations and warranties made with respect
to the Mortgage Collateral, the Master Servicer's or the
applicable Servicer's servicing obligations under the
related Pooling and Servicing Agreement (including such
entity's limited obligation to make certain Advances) and
pursuant to the terms of any Agency Securities, the
Certificate Administrator's (if any) administrative
obligations under the Pooling and Servicing Agreement or
the Trust Agreement, and, if and to the extent expressly
described in the related Prospectus Supplement, certain
limited obligations of the Master Servicer or the related
Servicer in connection with an agreement to purchase a
Convertible Mortgage Loan upon conversion to a fixed
rate. Neither the Certificates nor the underlying
Mortgage Collateral will be guaranteed or insured by any
governmental agency or instrumentality (except in the
case of FHA Loans, FHA Contracts, VA Loans, VA Contracts
or Ginnie Mae Securities), or by the Company, the Master
Servicer, any Servicer, the Mortgage Collateral Seller,
the Certificate Administrator, GMAC Mortgage or any of
their affiliates. Proceeds of the assets included in the
related Trust Fund (including the Mortgage Collateral and
any form of credit enhancement) will be the sole source
of payments on the Certificates, and there will be no
recourse to the Company, the Master Servicer, any
Servicer, the Mortgage Collateral Seller, the Certificate
Administrator, GMAC Mortgage or any other entity in the
event that such proceeds are insufficient or otherwise
unavailable to make all payments provided for under the
Certificates.
Limitations, Reduction and Substitution of Credit
Enhancement
With respect to each series of Certificates, credit
enhancement may be provided in limited amounts to cover
certain types of losses on the underlying Mortgage
Collateral. Credit enhancement will be provided in one
or more of the forms referred to herein, including, but
not limited to: subordination of other classes of
Certificates of the same series; a Letter of Credit; a
Mortgage Pool Insurance Policy; a Special Hazard
Insurance Policy; a Bankruptcy Bond; a Reserve Fund; a
Certificate Insurance Policy; a Surety Bond; or any
combination thereof. See "Subordination" and
"Description of Credit Enhancement" herein. Regardless
of the form of credit enhancement provided, the amount of
coverage will be limited in amount and in most cases will
be subject to periodic reduction in accordance with a
schedule or formula. Furthermore, such credit
enhancement may provide only very limited coverage as to
certain types of losses or risks, and may provide no
coverage as to certain other types of losses or risks.
In the event losses exceed the amount of coverage
provided by any credit enhancement or losses of a type
not covered by any credit enhancement occur, such losses
will be borne by the holders of the related Certificates
(or certain classes thereof). The Master Servicer or the
Certificate Administrator, as applicable, will generally
be permitted to reduce, terminate or substitute all or a
portion of the credit enhancement for any series of
Certificates, if each Rating Agency indicates that the
then-current rating thereof will not be adversely
affected. The rating of any series of Certificates by
any Rating Agency may be lowered following the initial
issuance thereof as a result of the downgrading of the
obligations of any applicable credit support provider, or
as a result of losses on the related Mortgage Collateral
in excess of the levels contemplated by such Rating
Agency at the time of its initial rating analysis. None
of the Company, the Master Servicer, any Servicer, the
Mortgage Collateral Seller, the Certificate
Administrator, GMAC Mortgage nor any of their affiliates
will have any obligation to replace or supplement any
credit enhancement, or to take any other action to
maintain any rating of any series of Certificates. See
"Description of Credit Enhancement-Reduction or
Substitution of Credit Enhancement."
THE TRUST FUNDS
General
A Trust Fund for a series of Certificates may
include Mortgage Collateral that consists of one or more
of the following: (1) Mortgage Loans, or whole or
partial participations in Mortgage Loans, which are one-
to four-family residential mortgage loans, including
loans secured by leases on cooperative apartment units
and loans to cooperative associations; (2) Contracts, or
whole or partial participations in Contracts; (3) Agency
Securities which are mortgage pass-through certificates
(including those representing whole or partial interests
in pools of Mortgage Loans, Contracts or Agency
Securities (a) guaranteed and/or issued by the Government
National Mortgage Association ("Ginnie Mae" and such
securities, "Ginnie Mae Securities"), (b) issued by the
Federal Home Loan Mortgage Corporation ("Freddie Mac" and
such securities, "Freddie Mac Securities") or (c) issued
by the Federal National Mortgage Association ("Fannie
Mae" and such securities, "Fannie Mae Securities"); and
(4) certain other related property conveyed by the
Company. Each Trust Fund may also include (i) the
amounts required to be held from time to time in a trust
account (the "Certificate Account"), into which payments
in respect of the Mortgage Collateral may be deposited,
maintained by the Master Servicer, a Servicer, the
Trustee or the Certificate Administrator, as the case may
be, pursuant to the Pooling and Servicing Agreement or
Trust Agreement, (ii) if so specified in the related
Prospectus Supplement, a trust account (the "Custodial
Account") into which amounts to be deposited in the
Certificate Account may be deposited on a periodic basis
prior to deposit in the Certificate Account, (iii) any
Mortgaged Property which initially secured a Mortgage
Loan or Contract and that is acquired by foreclosure or
deed in lieu of foreclosure and (iv) if so specified in
the related Prospectus Supplement, one or more other cash
accounts, insurance policies or other forms of credit
enhancement with respect to the Certificates, the
Mortgage Collateral or all or any part of the Trust Fund,
required to be maintained pursuant to the related Pooling
and Servicing Agreement or Trust Agreement. See
"Description of Credit Enhancement."
Each Certificate will evidence the interest
specified in the related Prospectus Supplement in a Trust
Fund, containing a Mortgage Pool, a Contract Pool or a
pool of Agency Securities (an "Agency Securities Pool")
having the aggregate principal balance as of the date
(the "Cut-off Date") specified in the related Prospectus
Supplement. Holders of Certificates
("Certificateholders") of a series will have interests
only in such Mortgage Pool, Contract Pool or Agency
Securities Pool and will have no interest in the Mortgage
Pool, Contract Pool or Agency Securities Pool created
with respect to any other series of Certificates.
The related Prospectus Supplement may identify one
or more entities as Servicers for a series of
Certificates evidencing interests in Mortgage Loans or
Contracts or, if so provided in the related Prospectus
Supplement, an entity may act as Master Servicer with
respect to a series of Certificates. The Master Servicer
or any Servicer, as applicable, may service the Mortgage
Loans or Contracts through one or more Sub-Servicers.
See "Description of the Certificates-Servicing and
Administration of Mortgage Collateral." In addition to
or in lieu of the Master Servicer or Servicer for a
series of Certificates, the related Prospectus Supplement
may identify a Certificate Administrator for the Trust
Fund. The related Prospectus Supplement will identify an
entity that will serve as trustee (the "Trustee") for a
series of Certificates. The Trustee will be authorized
to appoint a custodian (a "Custodian") pursuant to a
custodial agreement to maintain possession of and review
documents relating to the Mortgage Collateral as the
agent of the Trustee. The identity of such Custodian, if
any, will be set forth in the related Prospectus
Supplement.
The following is a brief description of the Mortgage
Collateral expected to be included in the Trust Funds.
If specific information respecting the Mortgage
Collateral is not known to the Company at the time
Certificates are initially offered, more general
information of the nature described below will be
provided in the Prospectus Supplement, and specific
information will be set forth in a Current Report on Form
8-K (a "Form 8-K") to be filed with the Securities and
Exchange Commission (the "Commission") within fifteen
days after the initial issuance of such Certificates. A
copy of the Pooling and Servicing Agreement or Trust
Agreement, as applicable, with respect to each series
will be an exhibit to the Form 8-K. A schedule of
Mortgage Collateral will be an exhibit to the related
Pooling and Servicing Agreement or Trust Agreement.
The Mortgage Loans
Unless otherwise stated in the related Prospectus
Supplement, the Mortgage Loans included in a Trust Fund
for a series will have been originated by or on behalf of
either (i) savings and loan associations, savings banks,
commercial banks, credit unions, insurance companies or
similar institutions which are supervised and/or examined
by a federal or state authority, or (ii) HUD-approved
mortgagees. Each Mortgage Loan will be selected by the
Company for inclusion in a Mortgage Pool from those
purchased by the Company from Affiliated Sellers or,
either directly or through its affiliates, including GMAC
Mortgage and Residential Funding, from Unaffiliated
Sellers, all as described in the related Prospectus
Supplement. If a Mortgage Pool is composed of Mortgage
Loans acquired by the Company directly from Unaffiliated
Sellers, the related Prospectus Supplement will specify
the extent of Mortgage Loans so acquired. The
characteristics of the Mortgage Loans will be as
described in the related Prospectus Supplement. The
Mortgage Loans purchased by the Company from a Mortgage
Collateral Seller will be selected by the Company. Other
mortgage loans available for purchase by the Company may
have had characteristics which would have made them
eligible for inclusion in a Mortgage Pool, but were not
selected by the Company for inclusion in such Mortgage
Pool.
If so stated in the related Prospectus Supplement,
all or a portion of the Mortgage Loans that underlie a
series of Certificates may have been purchased by the
Company, either directly, or indirectly through
Residential Funding or other affiliates, from Mortgage
Collateral Sellers under the AlterNet mortgage loan
origination program (the "AlterNet Mortgage Program") as
described below (such Mortgage Loans, the "AlterNet
Loans") .
The Mortgage Loans may include mortgage loans
insured by the Federal Housing Administration (the "FHA"
and such loans, "FHA Loans"), a division of the United
States Department of Housing and Urban Development
("HUD"), mortgage loans partially guaranteed by the
Veterans Administration (the "VA" and such loans, "VA
Loans") and mortgage loans not insured or guaranteed by
the FHA or VA ("Conventional Loans"). The Mortgage Loans
may have fixed interest rates or adjustable interest
rates ("Mortgage Rates") and may provide for fixed level
payments or may be Mortgage Loans pursuant to which the
monthly payments by the Mortgagor during the early years
of the related Mortgage are less than the amount of
interest that would otherwise be payable thereon, with
the interest not so paid added to the outstanding
principal balance of such Mortgage Loan ("GPM Loans"),
Mortgage Loans subject to temporary buy-down plans ("Buy-
Down Loans"), pursuant to which the monthly payments made
by the Mortgagor during the early years of the Mortgage
Loan will be less than the scheduled monthly payments on
the Mortgage Loan, Mortgage Loans that provide for
payment every other week during the term thereof ("Bi-
Weekly Loans"), Mortgage Loans that experience negative
amortization, Mortgage Loans that require a larger
payment of principal upon maturity (a "Balloon Amount")
that may be all or a portion of the principal thereof
("Balloon Loans"), or Mortgage Loans with other payment
characteristics as described below or in the related
Prospectus Supplement. The Mortgage Loans may be secured
by mortgages or deeds of trust or other similar security
instruments (collectively, "Mortgages") creating a first
lien on the related Mortgaged Properties. The Mortgage
Loans may also include Cooperative Loans evidenced by
promissory notes secured by a lien on the shares issued
by private, non-profit, cooperative housing corporations
("Cooperatives") and on the related proprietary leases or
occupancy agreements granting exclusive rights to occupy
specific units within a Cooperative ("Cooperative
Dwellings").
If so specified in the related Prospectus
Supplement, a Mortgage Pool may include Mortgage Loans
that have been modified (each, a "Modified Mortgage
Loan"). Such modifications may include conversions from
an adjustable to a fixed Mortgage Rate (discussed below)
or other changes in the related mortgage note. If a
Mortgage Loan is a Modified Mortgage Loan, references to
origination generally shall be deemed to be references to
the date of modification.
The Mortgaged Properties may consist of detached
individual dwellings, individual condominiums,
townhouses, duplexes, row houses, individual units in
planned unit developments, two- to four-family dwellings
and other attached dwelling units. Each Mortgaged
Property will be located on land owned in fee simple by
the Mortgagor or, if specified in the related Prospectus
Supplement, land leased by the Mortgagor. Attached
dwellings may include structures where each Mortgagor
owns the land upon which the unit is built, with the
remaining adjacent land owned in common or dwelling units
subject to a proprietary lease or occupancy agreement in
a Cooperative. The proprietary lease or occupancy
agreement securing a Cooperative Loan is generally
subordinate to any blanket mortgage on the related
cooperative apartment building or on the underlying land.
Additionally, in the case of a Cooperative Loan, the
proprietary lease or occupancy agreement is subject to
termination and the cooperative shares are subject to
cancellation by the Cooperative if the tenant-stockholder
fails to pay maintenance or other obligations or charges
owed by such tenant-stockholder. See "Certain Legal
Aspects of Mortgage Loans and Contracts."
The percentage of Mortgage Loans that are owner-
occupied will be disclosed in the related Prospectus
Supplement. The basis for any statement that a given
percentage of the Mortgage Loans are secured by Mortgaged
Properties that are owner-occupied will be one or more of
the following: (i) the making of a representation by the
Mortgagor at origination of a Mortgage Loan that the
Mortgagor intends to use the Mortgaged Property as a
primary residence for at least the first six months of
occupancy, (ii) a representation by the originator of the
Mortgage Loan (which representation may be based solely
on (i) above) or (iii) the fact that the mailing address
for the Mortgagor is the same as the address of the
Mortgaged Property, and any representation and warranty
in the related Pooling and Servicing Agreement to such
effect may be qualified similarly. To the extent
specified in the related Prospectus Supplement, the
Mortgaged Properties may include vacation homes, second
homes and non-owner-occupied investment properties.
Mortgage Loans secured by investment properties
(including two- to four-unit dwellings) may also be
secured by an assignment of leases and rents and
operating or other cash flow guarantees relating to the
Mortgage Loans.
Certain information, including information regarding
loan-to-value ratios (each, a "Loan-to-Value Ratio") at
origination (unless otherwise specified in the related
Prospectus Supplement) of the Mortgage Loans underlying
each series of Certificates, will be supplied in the
related Prospectus Supplement. In the case of most
Mortgage Loans, the Loan-to-Value Ratio is defined
generally as the ratio, expressed as a percentage, of the
principal amount of the Mortgage Loan at origination to
the lesser of (1) the appraised value determined in an
appraisal obtained at origination of such Mortgage Loan
and (2) the sales price for the related Mortgaged
Property. In the case of certain refinanced, modified or
converted Mortgage Loans, the Loan-to-Value Ratio at
origination is defined as the ratio, expressed as a
percentage, of the principal amount of such Mortgage Loan
to either the appraised value determined in an appraisal
obtained at the time of refinancing, modification or
conversion or, if no such appraisal has been obtained, to
the lesser of (1) the appraised value of the related
Mortgaged Property determined at origination of the loan
to be refinanced, modified or converted and (2) the sales
price of the related Mortgaged Property. The denominator
of the ratio described in the preceding sentence or the
second preceding sentence, as the case may be, is
hereinafter referred to as the "Appraised Value." Certain
Mortgage Loans which are subject to negative amortization
will have Loan-to-Value Ratios which will increase after
origination as a result of such negative amortization.
In the case of seasoned Mortgage Loans, the appraisals
upon which Loan-to-Value Ratios have been calculated may
no longer be accurate valuations of the Mortgaged
Properties. Certain Mortgaged Properties may be located
in regions where property values have declined
significantly since the time of origination.
The Mortgage Loans may be "equity refinance"
Mortgage Loans, as to which a portion of the proceeds are
used to refinance an existing mortgage loan, and the
remaining proceeds may be retained by the Mortgagor or
used for purposes unrelated to the Mortgaged Property.
Alternatively, the Mortgage Loans may be "rate and term
refinance" Mortgage Loans, as to which substantially all
of the proceeds (net of related costs incurred by the
Mortgagor) are used to refinance an existing mortgage
loan or loans (which may include a junior lien) primarily
in order to change the interest rate or other terms
thereof. The Mortgage Loans may be mortgage loans that
have been consolidated and/or have had various terms
changed, mortgage loans that have been converted from
adjustable rate mortgage loans to fixed rate mortgage
loans, or construction loans which have been converted to
permanent mortgage loans. In addition, a Mortgaged
Property may be subject to secondary financing at the
time of origination of the Mortgage Loan or thereafter.
Mortgage Loans that have adjustable Mortgage Rates
("ARM Loans") generally will provide for a fixed initial
Mortgage Rate until the first date on which such Mortgage
Rate is to be adjusted. Thereafter, the Mortgage Rate is
subject to periodic adjustment as described in the
related Prospectus Supplement, subject to the applicable
limitations, based on changes in the relevant index (the
"Index") described in the applicable Prospectus
Supplement, to a rate equal to the Index plus a fixed
percentage spread over the Index established
contractually for each ARM Loan at the time of its
origination (the "Gross Margin"). The initial Mortgage
Rate on an ARM Loan may be lower than the sum of the
then-applicable Index and the Gross Margin for such ARM
Loan.
ARM Loans have features that provide different
investment considerations than fixed-rate mortgage loans.
In particular, adjustable mortgage rates can cause
payment increases that may exceed some Mortgagors'
capacity to cover such payments. However, to the extent
specified in the related Prospectus Supplement, an ARM
Loan may provide that its Mortgage Rate may not be
adjusted to a rate above the applicable maximum Mortgage
Rate (the "Maximum Mortgage Rate") or below the
applicable minimum Mortgage Rate (the "Minimum Mortgage
Rate"), if any, for such ARM Loan. In addition, to the
extent specified in the related Prospectus Supplement,
certain of the ARM Loans may provide for limitations on
the maximum amount by which their mortgage rates may
adjust for any single adjustment period (the "Periodic
Cap"). Some ARM Loans provide for limitations on the
amount of scheduled payments of principal and interest.
Certain ARM Loans may be subject to negative
amortization from time to time prior to their maturity
(such ARM Loans, "Neg-Am ARM Loans"). Such negative
amortization may result from either the adjustment of the
Mortgage Rate on a more frequent basis than the
adjustment of the scheduled payment or the application of
a cap on the size of the scheduled payment. In the first
case, negative amortization results if an increase in the
Mortgage Rate occurs prior to an adjustment of the
scheduled payment on the related Mortgage Loan and such
increase causes accrued monthly interest on the Mortgage
Loan to exceed the scheduled payment. In the second
case, negative amortization results if an increase in the
Mortgage Rate causes accrued monthly interest on a
Mortgage Loan to exceed the limit on the size of the
scheduled payment on such Mortgage Loan. In the event
that the scheduled payment is not sufficient to pay the
accrued monthly interest on a Neg-Am ARM Loan, the amount
of accrued monthly interest that exceeds the scheduled
payment on such Mortgage Loans (the "Deferred Interest")
is added to the principal balance of such ARM Loan and is
to be repaid from future scheduled payments. Neg-Am ARM
Loans do not provide for the extension of their original
stated maturity to accommodate changes in their Mortgage
Rate. The related Prospectus Supplement will specify
whether the ARM Loans underlying a series are Neg-Am ARM
Loans.
A Mortgage Pool may contain ARM Loans which allow
the Mortgagors to convert the adjustable rates on such
Mortgage Loans to a fixed rate at one or more specified
periods during the life of such Mortgage Loans (each, a
"Convertible Mortgage Loan"), generally not later than
ten years subsequent to the date of origination. If
specified in the related Prospectus Supplement, upon any
conversion, the Company will repurchase or Residential
Funding, the applicable Servicer or Sub-Servicer or a
third party will purchase the converted Mortgage Loan as
and to the extent set forth in the related Prospectus
Supplement. Alternatively, if specified in the related
Prospectus Supplement, the Company or Residential Funding
(or another party specified therein) may agree to act as
remarketing agent with respect to such converted Mortgage
Loans and, in such capacity, to use its best efforts to
arrange for the sale of converted Mortgage Loans under
specified conditions. Upon the failure of any party so
obligated to purchase any such converted Mortgage Loan,
the inability of any remarketing agent to arrange for the
sale of the converted Mortgage Loan and the unwillingness
of such remarketing agent to exercise any election to
purchase the converted Mortgage Loan for its own account,
the related Mortgage Pool will thereafter include both
fixed rate and adjustable rate Mortgage Loans.
If specified in the related Prospectus Supplement,
certain of the Mortgage Loans may be Buy-Down Loans
pursuant to which the monthly payments made by the
Mortgagor during the early years of the Mortgage Loan
(the "Buy-Down Period") will be less than the scheduled
monthly payments on the Mortgage Loan, the resulting
difference to be made up from (i) an amount (such amount,
exclusive of investment earnings thereon, being
hereinafter referred to as "Buy-Down Funds") contributed
by the seller of the Mortgaged Property or another source
and placed in an escrow account, (ii) if the Buy-Down
Funds are contributed on a present value basis,
investment earnings on such Buy-Down Funds or (iii)
additional buydown funds to be contributed over time by
the Mortgagor's employer or another source.
The related Prospectus Supplement will provide
material information concerning the types and
characteristics of the Mortgage Loans included in a Trust
Fund as of the related Cut-off Date. In the event that
Mortgage Loans are added to or deleted from the Trust
Fund after the date of the related Prospectus Supplement
and prior to the Closing Date for the related series of
Certificates, the final characteristics of the Mortgage
Pool will be noted in the Form 8-K.
Certain Mortgage Pools may include Mortgage Loans
that are one or more months delinquent with regard to
payment of principal or interest at the time of their
deposit into a Trust Fund. The related Prospectus
Supplement will set forth the percentage of Mortgage
Loans that are so delinquent. In addition, the related
Prospectus Supplement will set forth the percentage of
Mortgage Loans that have been delinquent more than once
during the preceding twelve months. Delinquent Mortgage
Loans are more likely to result in losses than Mortgage
Loans that have a current payment status.
Under the Pooling and Servicing Agreement for each
series of Certificates, the Company will cause the
Mortgage Loans constituting each Mortgage Pool to be
assigned to the Trustee for such series of Certificates,
for the benefit of the holders of all such Certificates.
Such assignment of the Mortgage Loans to the Trustee will
be without recourse. See "Description of the
Certificates-Assignment of Mortgage Loans."
Underwriting Policies
The Company generally expects that the originator of
each of the Mortgage Loans included in a Trust Fund for
a series will have applied, consistent with applicable
federal and state laws and regulations, underwriting
procedures intended to evaluate the borrower's credit
standing and repayment ability and/or the value and
adequacy of the related property as collateral. If so
specified in the related Prospectus Supplement, all or a
portion of the Mortgage Loans constituting the Mortgage
Pool for a series of Certificates may have been acquired
either directly or indirectly by the Company through the
AlterNet Mortgage Program. Any FHA Loans or VA Loans
will have been originated in compliance with the
underwriting policies of the FHA or VA, respectively.
The underwriting criteria applied by the originators of
the Mortgage Loans included in a Mortgage Pool may vary
significantly among Mortgage Collateral Sellers. The
related Prospectus Supplement will describe generally
certain underwriting criteria, to the extent known by the
Company, that were applied by the originators of such
Mortgage Loans. The Company generally will have less
detailed information concerning the origination of
seasoned Mortgage Loans than it will have concerning
newly-originated Mortgage Loans.
General Standards. Generally, each Mortgagor will
have been required to complete an application designed to
provide to the original lender pertinent credit
information concerning the Mortgagor. As part of the
description of the Mortgagor's financial condition, such
Mortgagor will have furnished information (which may be
supplied solely in such application) with respect to its
assets, liabilities, income, credit history, employment
history and personal information, and furnished an
authorization to apply for a credit report which
summarizes the borrower's credit history with local
merchants and lenders and any record of bankruptcy. The
Mortgagor may also have been required to authorize
verifications of deposits at financial institutions where
the Mortgagor had demand or savings accounts. In the
case of investment properties, only income derived from
the Mortgaged Property may have been considered for
underwriting purposes, rather than the income of the
Mortgagor from other sources. With respect to Mortgaged
Property consisting of vacation or second homes, no
income derived from the property generally will have been
considered for underwriting purposes.
As described in the related Prospectus Supplement,
certain Mortgage Loans may have been originated under
"limited documentation" or "no documentation" programs
which require less documentation and verification than do
traditional "full documentation" programs. Generally,
under such a program, minimal investigation into the
Mortgagor's credit history and income profile is
undertaken by the originator and such underwriting may be
based primarily or entirely on an appraisal of the
Mortgaged Property and the Loan-to-Value Ratio at
origination.
The adequacy of the Mortgaged Property as security
for repayment of the related Mortgage Loan will generally
have been determined by appraisal in accordance with pre-
established appraisal procedure guidelines for appraisals
established by or acceptable to the originator.
Appraisers may be staff appraisers employed by the
originator or independent appraisers selected in
accordance with pre-established guidelines established by
the originator. The appraisal procedure guidelines
generally will have required the appraiser or an agent on
its behalf to personally inspect the property and to
verify whether the property was in good condition and
that construction, if new, had been substantially
completed. The appraisal generally will have been based
upon a market data analysis of recent sales of comparable
properties and, when deemed applicable, an analysis based
on income generated from the property or a replacement
cost analysis based on the current cost of constructing
or purchasing a similar property.
The underwriting standards applied by an originator
generally require that the underwriting officers be
satisfied that the value of the property being financed,
as indicated by an appraisal or other acceptable
valuation method, currently supports and is anticipated
to support in the future the outstanding loan balance.
In fact, certain states where the Mortgaged Properties
may be located have "anti-deficiency" laws requiring, in
general, that lenders providing credit on single family
property look solely to the property for repayment in the
event of foreclosure. See "Certain Legal Aspects of
Mortgage Loans and Contracts." Any of these factors
could change nationwide or merely could affect a locality
or region in which all or some of the Mortgaged
Properties are located. However, declining values of
real estate, as experienced recently in certain regions,
or increases in the principal balances of certain
Mortgage Loans, such as GPM Loans and Neg-Am ARM Loans,
could cause the principal balance of some or all of the
Mortgage Loans to exceed the value of the Mortgaged
Properties.
Based on the data provided in the application,
certain verifications (if required by the originator of
the Mortgage Loan) and the appraisal or other valuation
of the Mortgaged Property, a determination will have been
made by the original lender that the Mortgagor's monthly
income would be sufficient to enable the Mortgagor to
meet its monthly obligations on the Mortgage Loan and
other expenses related to the property (such as property
taxes, utility costs, standard hazard and primary
mortgage insurance and, if applicable, maintenance fees
and other levies assessed by a Cooperative) and other
fixed obligations other than housing expenses. The
originator's guidelines for Mortgage Loans generally will
specify that scheduled payments on a Mortgage Loan during
the first year of its term plus taxes and insurance
(including primary mortgage insurance) and all scheduled
payments on obligations that extend beyond one year
(including those mentioned above and other fixed
obligations) would equal no more than specified
percentages of the prospective Mortgagor's gross income.
The originator may also consider the amount of liquid
assets available to the Mortgagor after origination.
Residential Funding, on behalf of the Company,
generally will review a portion of the Mortgage Loans
constituting the Mortgage Pool for a Series of
Certificates to assess the likelihood of repayment of the
Mortgage Loan from the various sources for such
repayment, including the Mortgagor, the Mortgaged
Property, and primary mortgage insurance, if any. In
reviewing seasoned Mortgage Loans (those which have been
outstanding for more than 12 months) Residential Funding
may also take into consideration the Mortgagor's actual
payment history in assessing a Mortgagor's current
ability to make payments on the Mortgage Loan. In
addition, Residential Funding may conduct additional
procedures to assess the current value of the Mortgaged
Properties. Such procedures may consist of drive by
appraisals or real estate broker's price opinions. The
Company may also consider a specific area's housing value
trends. These alternative valuation methods are not
generally as reliable as the type of mortgagor financial
information or appraisals that are generally obtained at
origination.
The Company anticipates that Mortgage Loans included
in Mortgage Pools for certain series of Certificates will
have been originated based on underwriting standards that
are less stringent than for other first mortgage loan
lending programs. In such cases, borrowers may have
credit histories that contain delinquencies on mortgage
and/or consumer debts. In addition, some borrowers may
have filed bankruptcy within a few years of the time of
origination of the related Mortgage Loan. Likewise,
Mortgage Loans included in a Trust Fund may have been
originated in connection with a governmental program
under which underwriting standards were significantly
less stringent and designed to promote home ownership or
the availability of affordable residential rental
property notwithstanding higher risks of default and
losses. As discussed above, in evaluating seasoned
mortgage loans, the Company may place greater weight on
payment history or market and other economic trends and
less weight on underwriting factors generally applied to
newly originated mortgage loans.
The AlterNet Program. The underwriting standards
with respect to AlterNet Loans will generally conform to
those published in the AlterNet Seller Guide (the
"AlterNet Seller Guide"), as modified from time to time.
The AlterNet Seller Guide will set forth general
underwriting standards relating to mortgage loans made to
borrowers having a range of imperfect credit histories,
ranging from minor delinquencies to borrower
bankruptcies. The underwriting standards set forth in
the AlterNet Seller Guide are revised based on changing
conditions in the residential mortgage market and the
market for the Company's mortgage pass-through
certificates and may also be waived by Residential
Funding from time to time. The Prospectus Supplement for
each series of Certificates secured by AlterNet Loans
will set forth the general underwriting criteria
applicable to such Mortgage Loans.
A portion of AlterNet Loans generally will be
reviewed by Residential Funding or by a designated third
party for compliance with applicable underwriting
criteria. Certain of the AlterNet Loans may be purchased
in negotiated transactions (which may be governed by
agreements relating to ongoing purchases of AlterNet
Loans by Residential Funding) ("Master Commitments"),
from AlterNet Program Sellers who will represent that
AlterNet Loans have been originated in accordance with
underwriting standards agreed to by Residential Funding.
Certain other AlterNet Loans will be purchased from
AlterNet Program Sellers who will represent that AlterNet
Loans were originated pursuant to underwriting standards
determined by a mortgage insurance company acceptable to
Residential Funding. Residential Funding may accept a
certification from such insurance company as to an
AlterNet Loan's insurability in a mortgage pool as of the
date of certification as evidence of an AlterNet Loan
conforming to applicable underwriting standards. Such
certifications will likely have been issued before the
purchase of the AlterNet Loan by Residential Funding or
the Company.
FHA and VA Programs. With respect to FHA Loans and
VA Loans, traditional underwriting guidelines used by the
FHA and the VA, as the case may be, which were in effect
at the time of origination of each such Mortgage Loan
will have generally been applied.
The Contracts
General
The Trust Fund for a series may include a Contract
Pool evidencing interests in Contracts originated by one
or more manufactured housing dealers, or such other
entity or entities described in the related Prospectus
Supplement. The Contracts may be conventional Contracts
or Contracts insured by the FHA ("FHA Contracts") or
partially guaranteed by the VA ("VA Contracts"). Each
Contract will be secured by a Manufactured Home. Unless
otherwise specified in the related Prospectus Supplement,
the Contracts will be fully amortizing.
The Manufactured Homes securing the Contracts will
consist of "manufactured homes" within the meaning of 42
U.S.C. Section 5402(6) which are treated as "single
family residences" for the purposes of the REMIC
provisions of the Code. Accordingly, a Manufactured Home
will be a structure built on a permanent chassis, which
is transportable in one or more sections and customarily
used at a fixed location, has a minimum of 400 square
feet of living space and minimum width in excess of 8.5
feet and is designed to be used as a dwelling with or
without a permanent foundation when connected to the
required utilities, and includes the plumbing, heating,
air conditioning, and electrical systems contained
therein.
The related Prospectus Supplement will provide
information concerning the types or characteristics of
the Contracts included in a Trust Fund as of the related
Cut-off Date. In the event that Contracts are added to
or deleted from the Trust Fund after the date of the
related Prospectus Supplement, the final characteristics
of the Contract Pool will be noted in the Form 8-K.
Certain Contract Pools may include Contracts that
are one or more months delinquent with regard to payment
of principal or interest at the time of their deposit
into a Trust Fund. The related Prospectus Supplement
will set forth the percentage of Contracts that are
delinquent and whether such Contracts have been so
delinquent more than once during the preceding twelve
months. Contract Pools that contain delinquent Contracts
are more likely to sustain losses than are Contract Pools
that contain Contracts that have a current payment
status.
Underwriting Policies
Conventional Contracts will comply with the
underwriting policies of the applicable originator or
Mortgage Collateral Seller, which will be described in
the related Prospectus Supplement. With respect to FHA
Contracts and VA Contracts, traditional underwriting
guidelines used by the FHA and the VA, as the case may
be, which were in effect at the time of origination of
each such Contract will generally have been applied.
With respect to a Contract made in connection with
the Mortgagor's purchase of a Manufactured Home, the
"Appraised Value" is generally the sales price of the
Manufactured Home or the amount determined by a
professional appraiser. The appraiser must personally
inspect the Manufactured Home and prepare a report which
includes market data based on recent sales of comparable
Manufactured Homes and, when deemed applicable, a
replacement cost analysis based on the current cost of a
similar Manufactured Home. The Loan-to-Value Ratio for
a Contract generally will be equal to the original
principal amount of the Contract divided by the lesser of
the Appraised Value or the sales price for the
Manufactured Home; however, unless otherwise specified in
the related Prospectus Supplement, an appraisal of the
Manufactured Home will not be required.
The Agency Securities
Government National Mortgage Association
Ginnie Mae is a wholly-owned corporate
instrumentality of the United States within HUD. Section
306(g) of Title III of the National Housing Act of 1934,
as amended (the "Housing Act"), authorizes Ginnie Mae to
guarantee the timely payment of the principal of and
interest on certificates representing interests in a pool
of mortgages (i) insured by the FHA, under the Housing
Act or under Title V of the Housing Act of 1949, or (ii)
partially guaranteed by the VA under the Servicemen's
Readjustment Act of 1944, as amended, or under Chapter 37
of Title 38, United States Code.
Section 306(g) of the Housing Act provides that "the
full faith and credit of the United States is pledged to
the payment of all amounts which may be required to be
paid under any guarantee under this subsection." In
order to meet its obligations under any such guarantee,
Ginnie Mae may, under Section 306(d) of the Housing Act,
borrow from the United States Treasury an amount that is
at any time sufficient to enable Ginnie Mae to perform
its obligations under its guarantee. See "Additional
Information" for the availability of further information
regarding Ginnie Mae and Ginnie Mae Securities.
Ginnie Mae Securities
Unless otherwise specified in the related Prospectus
Supplement, each Ginnie Mae Security relating to a series
(which may be a "Ginnie Mae I Certificate" or a "Ginnie
Mae II Certificate" as referred to by Ginnie Mae) will be
a "fully modified pass-through" mortgage-backed
certificate issued and serviced by a mortgage banking
company or other financial concern approved by Ginnie
Mae, except with respect to any stripped mortgage backed
securities guaranteed by Ginnie Mae or any REMIC
securities issued by Ginnie Mae. The characteristics of
any Ginnie Mae Securities included in the Trust Fund for
a series of Certificates will be set forth in the related
Prospectus Supplement.
Federal Home Loan Mortgage Corporation
Freddie Mac is a corporate instrumentality of the
United States created pursuant to Title III of the
Emergency Home Finance Act of 1970, as amended (the
"Freddie Mac Act"). Freddie Mac was established
primarily for the purpose of increasing the availability
of mortgage credit for the financing of needed housing.
The principal activity of Freddie Mac currently consists
of purchasing first-lien, conventional, residential
mortgage loans or participation interests in such
mortgage loans and reselling the mortgage loans so
purchased in the form of guaranteed mortgage securities,
primarily Freddie Mac Securities. In 1981, Freddie Mac
initiated its Home Mortgage Guaranty Program under which
it purchases mortgage loans from sellers with Freddie Mac
Securities representing interests in the mortgage loans
so purchased. All mortgage loans purchased by Freddie
Mac must meet certain standards set forth in the Freddie
Mac Act. Freddie Mac is confined to purchasing, so far
as practicable, mortgage loans that it deems to be of
such quality and type as to meet generally the purchase
standards imposed by private institutional mortgage
investors. See "Additional Information" for the
availability of further information regarding Freddie Mac
and Freddie Mac Securities. Neither the United States
nor any agency thereof is obligated to finance Freddie
Mac's operations or to assist Freddie Mac in any other
manner.
Freddie Mac Securities
Unless otherwise specified in the related Prospectus
Supplement, each Freddie Mac Security relating to a
series will represent an undivided interest in a pool of
mortgage loans that typically consists of conventional
loans (but may include FHA Loans and VA Loans) purchased
by Freddie Mac, except with respect to any stripped
mortgage backed securities issued by Freddie Mac. Each
such pool will consist of mortgage loans (i)
substantially all of which are secured by one- to four-
family residential properties or (ii) if specified in the
related Prospectus Supplement, are secured by five or
more family residential properties. The characteristics
of any Freddie Mac Securities included in the Trust Fund
for a series of Certificates will be set forth in the
related Prospectus Supplement.
Federal National Mortgage Association
Fannie Mae is a federally chartered and privately
owned corporation organized and existing under the
Federal National Mortgage Association Charter Act (12
U.S.C. Section 1716 et seq.). It is the nation's largest
supplier of residential mortgage funds. Fannie Mae was
originally established in 1938 as a United States
government agency to provide supplemental liquidity to
the mortgage market and was transformed into a
stockholder-owned and privately managed corporation by
legislation enacted in 1968. Fannie Mae provides funds
to the mortgage market primarily by purchasing home
mortgage loans from local lenders, thereby replenishing
their funds for additional lending. See "Additional
Information" for the availability of further information
respecting Fannie Mae and Fannie Mae Securities.
Although the Secretary of the Treasury of the United
States has authority to lend Fannie Mae up to $2.25
billion outstanding at any time, neither the United
States nor any agency thereof is obligated to finance
Fannie Mae's operations or to assist Fannie Mae in any
other manner.
Fannie Mae Securities
Unless otherwise specified in the related Prospectus
Supplement, each Fannie Mae Security relating to a series
will represent a fractional undivided interest in a pool
of mortgage loans formed by Fannie Mae, except with
respect to any stripped mortgage backed securities issued
by Fannie Mae. Mortgage loans underlying Fannie Mae
Securities will consist of (i) fixed, variable or
adjustable rate conventional mortgage loans or (ii)
fixed-rate FHA Loans or VA Loans. Such mortgage loans
may be secured by either one- to four-family or multi-
family residential properties. The characteristics of
any Fannie Mae Securities included in the Trust Fund for
a series of Certificates will be set forth in the related
Prospectus Supplement.
Mortgage Collateral Sellers
The Mortgage Collateral to be included in a Trust
Fund will be purchased by the Company directly or
indirectly (through Residential Funding or other
affiliates) from Mortgage Collateral Sellers that may be
(a) banks, savings and loan associations, mortgage
bankers, investment banking firms, insurance companies,
the Resolution Trust Corporation (the "RTC"), the Federal
Deposit Insurance Corporation (the "FDIC") and other
mortgage loan originators or sellers not affiliated with
the Company (each, an "Unaffiliated Seller") or (b) GMAC
Mortgage, the indirect parent of the Company, and its
affiliates (each, an "Affiliated Seller"). Such
purchases may occur by one or more of the following
methods: (i) one or more direct or indirect purchases
from Unaffiliated Sellers, which may occur simultaneously
with the issuance of the Certificates or which may occur
over an extended period of time; (ii) multiple direct or
indirect purchases through the AlterNet Mortgage Program;
or (iii) one or more purchases from Affiliated Sellers.
The Prospectus Supplement for a series of Certificates
will disclose the method or methods used to acquire the
Mortgage Collateral for such series. The Company may
issue one or more classes of Certificates to a Mortgage
Collateral Seller as consideration for the purchase of
the Mortgage Collateral securing such series of
Certificates, if so described in the related Prospectus
Supplement.
The Mortgage Collateral Sellers that participate in
the AlterNet Mortgage Program (each, an "AlterNet Program
Seller") will have been selected by Residential Funding
on the basis of criteria set forth in the AlterNet Seller
Guide. An AlterNet Program Seller may be an affiliate of
the Company and the Company presently anticipates that
GMAC Mortgage Corporation of PA, an affiliate of the
Company, will be an AlterNet Program Seller. Except in
the case of the RTC, the FDIC and investment banking
firms, unless otherwise specified in the related
Prospectus Supplement, each AlterNet Program Seller will
have been a HUD-approved mortgagee or a financial
institution supervised by a federal or state authority
and will have had generally a minimum of two years'
experience (which may be through a predecessor entity) in
originating mortgage loans. If an AlterNet Program
Seller becomes subject to the direct or indirect control
of RTC or FDIC or if an AlterNet Program Seller's net
worth, financial performance or delinquency and
foreclosure rates are adversely impacted, such
institution may continue to be treated as an AlterNet
Program Seller. Any such event may adversely affect the
ability of any such AlterNet Program Seller to repurchase
Mortgage Collateral in the event of a breach of a
representation or warranty which has not been cured. See
"-Repurchases of Mortgage Collateral" below.
Representations with Respect to Mortgage Collateral
Mortgage Collateral Sellers generally will make
certain limited representations and warranties with
respect to the Mortgage Collateral that they sell.
However, Mortgage Collateral purchased from certain
Unaffiliated Sellers may be purchased with very limited
representations and warranties. The Company will assign
to the Trustee for the benefit of the related
Certificateholders all of its right, title and interest
in each agreement pursuant to which it purchased any item
of Mortgage Collateral from a Mortgage Collateral Seller,
to the extent such agreement relates to (i) the
representations and warranties made by a Mortgage
Collateral Seller or Residential Funding, as the case may
be, in respect of such item of Mortgage Collateral and
(ii) any remedies provided for any breach of such
representations and warranties.
With respect to any Mortgage Loan (including
AlterNet Loans) or Contract constituting a part of the
Trust Fund, unless otherwise disclosed in the related
Prospectus Supplement, Residential Funding generally will
represent and warrant that: (i) as of the Cut-off Date,
the information set forth in a listing of the related
Mortgage Loan or Contract was true and correct in all
material respects; (ii) except in the case of Cooperative
Loans, a policy of title insurance was effective or
attorney's certificate was received at origination, and
each policy remained in full force and effect on the date
of sale of the related Mortgage Loan or Contract to the
Company; (iii) to the best of Residential Funding's
knowledge, if required by applicable underwriting
standards, the Mortgage Loan or Contract is the subject
of a Primary Insurance Policy; (iv) Residential Funding
had good title to the Mortgage Loan or Contract and the
Mortgage Loan or Contract is not subject to offsets,
defenses or counterclaims except as may be provided under
the Relief Act and except with respect to any buydown
agreement for a Buy-Down Loan; (v) each Mortgaged
Property is free of material damage and in good repair;
(vi) the Mortgage Loan or Contract was not one month or
more delinquent in payment of principal and interest as
of the related Cut-off Date and was not so delinquent
more than once during the twelve-month period prior to
the Cut-off Date; and (vii) there is no delinquent tax or
assessment lien against the related Mortgaged Property.
In the event of a breach of a representation or
warranty made by Residential Funding that materially
adversely affects the interests of the Certificateholders
in the Mortgage Loan or Contract, Residential Funding
will be obligated to repurchase any such Mortgage Loan or
Contract or substitute for such Mortgage Loan or Contract
as described below. In addition, unless otherwise
specified in the related Prospectus Supplement,
Residential Funding will be obligated to repurchase or
substitute for any Mortgage Loan as to which it is
discovered that the related Mortgage does not create a
valid first lien on, or in the case of a Contract a
perfected security interest in, the related Mortgaged
Property, subject only to (a) liens of real property
taxes and assessments not yet due and payable, (b)
covenants, conditions and restrictions, rights of way,
easements and other matters of public record as of the
date of recording of such Mortgage and certain other
permissible title exceptions and (c) other encumbrances
to which like properties are commonly subject which do
not materially adversely affect the value, use, enjoyment
or marketability of the Mortgaged Property. In addition,
unless otherwise specified in the related Prospectus
Supplement, with respect to any Mortgage Loan or Contract
as to which the Company delivers to the Trustee an
affidavit certifying that the original Mortgage Note or
Contract has been lost or destroyed, if such Mortgage
Loan or Contract subsequently is in default and the
enforcement thereof or of the related Mortgage or
Contract is materially adversely affected by the absence
of the original Mortgage Note or Contract, Residential
Funding will be obligated to repurchase or substitute for
such Mortgage Loan or Contract in the manner described
below. However, unless otherwise set forth in the
related Prospectus Supplement, Residential Funding will
not be required to repurchase or substitute for any
Mortgage Loan or Contract if the circumstances giving
rise to such requirement also constitute fraud in the
origination of the related Mortgage Loan or Contract.
Furthermore, because the listing of the related Mortgage
Collateral generally contains information with respect to
the Mortgage Collateral as of the Cut-off Date,
prepayments and, in certain limited circumstances,
modifications to the interest rate and principal and
interest payments may have been made with respect to one
or more of the related items of Mortgage Collateral
between the Cut-off Date and the Closing Date. Neither
Residential Funding nor any Seller will be required to
repurchase or substitute for any item of Mortgage
Collateral as a result of any such prepayment or
modification.
All of the representations and warranties of a
Mortgage Collateral Seller in respect of an item of
Mortgage Collateral will have been made as of the date on
which such Mortgage Collateral Seller sold the Mortgage
Collateral to the Company or Residential Funding or one
of their affiliates. The date as of which such
representations and warranties were made generally will
be a date prior to the date of issuance of the related
series of Certificates. A substantial period of time may
elapse between the date as of which the representations
and warranties were made and the date of issuance of the
related series of Certificates. The Mortgage Collateral
Seller's repurchase obligation (or, if specified in the
related Prospectus Supplement, limited substitution
option) will not arise if, after the sale of the related
Mortgage Collateral, an event occurs that would have
given rise to such an obligation had the event occurred
prior to such period.
Repurchases of Mortgage Collateral
If a Mortgage Collateral Seller or Residential
Funding, as the case may be, cannot cure a breach of any
representation or warranty made by it in respect of an
item of Mortgage Collateral within 90 days after notice
from the Master Servicer, the Servicer, the Certificate
Administrator or the Trustee, and such breach materially
and adversely affects the interests of the
Certificateholders in such item of Mortgage Collateral,
such Mortgage Collateral Seller or Residential Funding,
as the case may be, will be obligated to purchase such
item of Mortgage Collateral at a price set forth in the
related Pooling and Servicing Agreement or Trust
Agreement. Likewise, as described under "Description of
the Certificates-Review of Mortgage Loan or Contract
Documents," if the Company or the Mortgage Collateral
Seller, as applicable, cannot cure certain documentary
defects with respect to a Mortgage Loan or Contract, the
Company or the Mortgage Collateral Seller, as applicable,
will be required to repurchase such item of Mortgage
Collateral. Unless otherwise specified in the related
Prospectus Supplement, the "Purchase Price" for any such
item of Mortgage Collateral will be equal to the
principal balance thereof as of the date of purchase plus
accrued and unpaid interest to the first day of the month
following the month of repurchase (less the amount,
expressed as a percentage per annum, payable in respect
of servicing or administrative compensation and the
Spread, if any). In certain limited cases, a
substitution may be made in lieu of such repurchase
obligation. See "-Limited Right of Substitution" below.
The Master Servicer, the Servicer or the Certificate
Administrator, as applicable, will be required under the
applicable Pooling and Servicing Agreement or Trust
Agreement to enforce this repurchase obligation, or the
substitution right described below, for the benefit of
the Trustee and the Certificateholders, using practices
it would employ in its good faith business judgment and
which are normal and usual in its general mortgage
servicing activities. If, as a result of a breach of
representation or warranty, a Mortgage Collateral Seller
is required, but fails, to repurchase the related
Mortgage Collateral, the Company or Residential Funding
will only be required to repurchase such Mortgage
Collateral if the Company or Residential Funding has
assumed such representations and warranties.
Consequently, such Mortgage Collateral will remain in the
related Trust Fund and any related losses not borne by
any applicable credit enhancement will be borne by
Certificateholders. If the Mortgage Collateral Seller
fails to honor its repurchase or substitution obligation,
such obligation will not become an obligation of
Residential Funding, the Master Servicer or Servicer
(although Residential Funding, the Master Servicer or
Servicer may have an independent obligation to repurchase
or substitute for such Mortgage Collateral). In
instances where a Mortgage Collateral Seller is unable or
disputes its obligation to repurchase affected Mortgage
Collateral, the Master Servicer or Servicer, using
practices it would employ in its good faith business
judgment and which are normal and usual in its general
mortgage servicing activities, may negotiate and enter
into settlement agreements with such Mortgage Collateral
Seller that could provide for, among other things, the
repurchase of only a portion of the affected Mortgage
Collateral. Any such settlement could lead to losses on
the Mortgage Collateral which would be borne by the
related Certificateholders. In accordance with the above
described practices, the Master Servicer or Servicer will
not be required to enforce any purchase obligation of a
Mortgage Collateral Seller arising from any
misrepresentation by the Mortgage Collateral Seller, if
the Master Servicer or Servicer determines in the
reasonable exercise of its business judgment that the
matters related to such misrepresentation did not
directly cause or are not likely to directly cause a loss
on the related Mortgage Collateral. Unless otherwise
specified in the related Prospectus Supplement, the
foregoing repurchase obligations and the limited right of
substitution (described below) will constitute the sole
remedies available to Certificateholders or the Trustee
for a breach of any representation by a Mortgage
Collateral Seller in its capacity as a seller of Mortgage
Collateral, or for any other event giving rise to such
obligations as described above.
The Company and Residential Funding generally
monitor which Mortgage Collateral Sellers are under the
control of the RTC or the FDIC, or are insolvent,
otherwise in receivership or conservatorship or
financially distressed. Such Mortgage Collateral Sellers
may not be able or permitted to repurchase Mortgage
Collateral for which there has been a breach of
representation or warranty. Moreover, any such Mortgage
Collateral Seller may make no representations or
warranties with respect to Mortgage Collateral sold by
it. The RTC or FDIC (either in their corporate capacity
or as receiver for a depository institution), may also be
a Mortgage Collateral Seller, in which event neither the
RTC nor the FDIC, as applicable, nor the related
depository institution, may make representations or
warranties with respect to the Mortgage Collateral sold,
or only limited representations or warranties may be made
(for example, that the related legal documents are
enforceable). The RTC or FDIC, as applicable, may have
no obligation to repurchase any Mortgage Collateral for
a breach of a representation or warranty. In addition,
Mortgage Collateral that is purchased either directly or
indirectly from the RTC may be subject to a contract
right of the RTC to repurchase such Mortgage Collateral
under certain limited circumstances.
Limited Right of Substitution
In the case of a Mortgage Loan or Contract required
to be repurchased from the Trust Fund (a "Repurchased
Mortgage Loan" or a "Repurchased Contract," respectively)
the related Mortgage Collateral Seller or Residential
Funding, as applicable, may substitute a new Mortgage
Loan or Contract (a "Qualified Substitute Mortgage Loan"
or a "Qualified Substitute Contract," respectively) for
the Repurchased Mortgage Loan or Contract that was
removed from the Trust Fund, during the limited time
period described below. Any such substitution must be
effected within 120 days of the date of the issuance of
the Certificates with respect to a Trust Fund for which
no REMIC election is to be made. With respect to a Trust
Fund for which a REMIC election is to be made, except as
otherwise provided in the related Prospectus Supplement,
such substitution must be effected within two years of
the date of the issuance of the Certificates, and may not
be made if such substitution would cause the Trust Fund
to fail to qualify as a REMIC or result in a prohibited
transaction tax under the Code.
Except as otherwise provided in the related
Prospectus Supplement, any Qualified Substitute Mortgage
Loan or Qualified Substitute Contract generally will, on
the date of substitution: (i) have an outstanding
principal balance, after deduction of the principal
portion of the monthly payment due in the month of
substitution, not in excess of the outstanding principal
balance of the Repurchased Mortgage Loan or Repurchased
Contract; (ii) have a Mortgage Rate and a Net Mortgage
Rate not less than (and not more than one percentage
point greater than) the Mortgage Rate and Net Mortgage
Rate, respectively, of the Repurchased Mortgage Loan or
Repurchased Contract as of the date of substitution;
(iii) have a Loan-to-Value Ratio at the time of
substitution no higher than that of the Repurchased
Mortgage Loan or Repurchased Contract; (iv) have a
remaining term to maturity not greater than (and not more
than one year less than) that of the Repurchased Mortgage
Loan or Repurchased Contract; and (v) comply with all of
the representations and warranties set forth in the
related Pooling and Servicing Agreement as of the date of
substitution. In the event the outstanding principal
balance of a Qualified Substitute Mortgage Loan or
Qualified Substitute Contract is less than the
outstanding principal balance of the related Repurchased
Mortgage Loan or Repurchased Contract, the amount of such
shortfall shall be deposited into the Custodial Account
in the month of substitution for distribution to the
related Certificateholders. The related Pooling and
Servicing Agreement may include additional requirements
relating to ARM Loans or other specific types of Mortgage
Loans or Contracts, or additional provisions relating to
meeting the foregoing requirements on an aggregate basis
where a number of substitutions occur contemporaneously.
Unless otherwise specified in the related Prospectus
Supplement, a Mortgage Collateral Seller will have no
option to substitute for a Mortgage Loan or Contract that
it is obligated to repurchase in connection with a breach
of a representation and warranty.
DESCRIPTION OF THE CERTIFICATES
General
The Certificates will be issued in series. Each
series of Certificates (or, in certain instances, two or
more series of Certificates) will be issued pursuant to
a Pooling and Servicing Agreement or, in the case of
Certificates backed by Agency Securities, a Trust
Agreement, similar to one of the forms filed as an
exhibit to the Registration Statement of which this
Prospectus is a part. Each Pooling and Servicing
Agreement or Trust Agreement will be filed with the
Commission as an exhibit to a Form 8-K. The following
summaries (together with additional summaries under "The
Pooling and Servicing Agreement" below) describe certain
provisions relating to the Certificates common to each
Pooling and Servicing Agreement or Trust Agreement. All
references herein to a "Pooling and Servicing Agreement"
and any discussion of the provisions thereof will also
apply to Trust Agreements. The summaries do not purport
to be complete and are subject to, and are qualified in
their entirety by reference to, all of the provisions of
the Pooling and Servicing Agreement for each Trust Fund
and the related Prospectus Supplement.
Each series of Certificates may consist of any one
or a combination of the following: (i) a single class of
Certificates; (ii) two or more classes of Certificates,
one or more classes of which may be Senior Certificates
that are senior in right of payment to any class or
classes of Mezzanine Certificates and to any other class
or classes of Subordinate Certificates, and as to which
certain classes of Senior Certificates may be senior to
other classes of Senior Certificates, as described in the
respective Prospectus Supplement (any such series, a
"Senior/Subordinate Series"); (iii) one or more classes
of Strip Certificates which will be entitled to (a)
principal distributions, with disproportionate, nominal
or no interest distributions or (b) interest
distributions, with disproportionate, nominal or no
principal distributions; (iv) two or more classes of
Certificates which differ as to the timing, sequential
order, rate, pass-through rate or amount of distributions
of principal or interest or both, or as to which
distributions of principal or interest or both on any
class may be made upon the occurrence of specified
events, in accordance with a schedule or formula
(including "planned amortization classes" and "targeted
amortization classes"), or on the basis of collections
from designated portions of the Mortgage Pool or Contract
Pool, which series may include one or more classes of
Accrual Certificates with respect to which certain
accrued interest will not be distributed but rather will
be added to the principal balance thereof on each
Distribution Date for the period described in the related
Prospectus Supplement; or (v) other types of classes of
Certificates, as described in the related Prospectus
Supplement. Credit support for each series of
Certificates will be provided by a Mortgage Pool
Insurance Policy, Special Hazard Insurance Policy,
Bankruptcy Bond, Letter of Credit, Reserve Fund,
Certificate Insurance Policy or other credit enhancement
as described under "Description of Credit Enhancement,"
or by the subordination of one or more classes of
Certificates as described under "Subordination" or by any
combination of the foregoing.
Form of Certificates
As specified in the related Prospectus Supplement,
the Certificates of each series will be issued either as
physical certificates or in book-entry form. If issued
as physical certificates, the Certificates will be in fully-
registered form only in the denominations specified in
the related Prospectus Supplement, and will be
transferrable and exchangeable at the corporate trust
office of the person appointed under the related Pooling
and Servicing Agreement to register the Certificates (the
"Certificate Registrar"). No service charge will be made
for any registration of exchange or transfer of
Certificates, but the Trustee may require payment of a
sum sufficient to cover any tax or other governmental
charge. The term "Certificateholder" as used herein
refers to the entity whose name appears on the records of
the Certificate Registrar (or, if applicable, a transfer
agent) as the registered holder thereof, except as
otherwise indicated in the related Prospectus Supplement.
If issued in book-entry form, specified classes of
a series of Certificates will be initially issued through
the book-entry facilities of The Depository Trust Company
("DTC"). As to any such class of Certificates so issued
("DTC Registered Certificates"), the record holder of
such Certificates will be DTC's nominee. DTC is a
limited-purpose trust company organized under the laws of
the State of New York, which holds securities for its
participating organizations ("Participants") and
facilitates the clearance and settlement of securities
transactions between Participants through electronic
book-entry changes in the accounts of Participants.
Participants include securities brokers and dealers,
banks, trust companies and clearing corporations and may
include certain other organizations. Other institutions
that are not Participants but clear through or maintain
a custodial relationship with Participants (such
institutions, "Indirect Participants") have indirect
access to DTC's clearance system.
Unless otherwise specified in the related Prospectus
Supplement, no person acquiring an interest in any DTC
Registered Certificates (each such person, a "Beneficial
Owner") will be entitled to receive a Certificate
representing such interest in registered, certificated
form, unless either (i) DTC ceases to act as depository
in respect thereof and a successor depository is not
obtained or (ii) the Company elects in its sole
discretion to discontinue the registration of such
Certificates through DTC. Prior to any such event,
Beneficial Owners will not be recognized by the Trustee,
the Master Servicer, any Servicer or the Certificate
Administrator as holders of the related Certificates for
purposes of the Pooling and Servicing Agreement and
Beneficial Owners will be able to exercise their rights
as owners of such Certificates only indirectly through
DTC, Participants and Indirect Participants. Any
Beneficial Owner that desires to purchase, sell or
otherwise transfer any interest in DTC Registered
Certificates may do so only through DTC, either directly
if such Beneficial Owner is a Participant or indirectly
through Participants and, if applicable, Indirect
Participants. Pursuant to the procedures of DTC,
transfers of the beneficial ownership of any DTC
Registered Certificates will be required to be made in
minimum denominations specified in the related Prospectus
Supplement. The ability of a Beneficial Owner to pledge
DTC Registered Certificates to persons or entities that
are not Participants in the DTC system, or to otherwise
act with respect to such Certificates, may be limited
because of the lack of physical certificates evidencing
such Certificates and because DTC may act only on behalf
of Participants.
Distributions in respect of the DTC Registered
Certificates will be forwarded by the Trustee to DTC, and
DTC will be responsible for forwarding such payments to
Participants, each of which will be responsible for
disbursing such payments to the Beneficial Owners it
represents or, if applicable, to Indirect Participants.
Accordingly, Beneficial Owners may experience delays in
the receipt of payments in respect of their Certificates.
Under DTC's procedures, DTC will take actions permitted
to be taken by holders of any class of DTC Registered
Certificates under the Pooling and Servicing Agreement
only at the direction of one or more Participants to
whose account the DTC Registered Certificates are
credited and whose aggregate holdings represent no less
than any minimum amount of Percentage Interests or voting
rights required therefor. DTC may take conflicting
actions with respect to any action of Certificateholders
of any Class to the extent that Participants authorize
such actions. None of the Master Servicer, the
Certificate Administrator, the Company, any Servicer, the
Trustee or any of their respective affiliates will have
any liability for any aspect of the records relating to
or payments made on account of beneficial ownership
interests in the DTC Registered Certificates, or for
maintaining, supervising or reviewing any records
relating to such beneficial ownership interests.
Assignment of Mortgage Loans
At the time of issuance of a series of Certificates,
the Company will cause the Mortgage Loans being included
in the related Trust Fund to be assigned to the Trustee
or its nominee (which may be the Custodian) together with
all principal and interest received on or with respect to
such Mortgage Loans after the Cut-off Date (other than
principal and interest due on or before the Cut-off Date
and any Spread). The Trustee will, concurrently with
such assignment, deliver a series of Certificates to the
Company in exchange for the Mortgage Loans. Each
Mortgage Loan will be identified in a schedule appearing
as an exhibit to the related Pooling and Servicing
Agreement. Such schedule will include, among other
things, information as to the principal balance of each
Mortgage Loan as of the Cut-off Date, as well as
information respecting the Mortgage Rate, the currently
scheduled monthly payment of principal and interest, the
maturity of the Mortgage Note and the Loan-to-Value Ratio
at origination or modification (without regard to any
secondary financing).
In addition, the Company will, as to each Mortgage
Loan other than a Mortgage Loan underlying any Agency
Securities, deliver to the Trustee (or to the Custodian)
the legal documents relating to such Mortgage Loan that
are in possession of the Company, which may include: (i)
the note evidencing such Mortgage Loan (the "Mortgage
Note") (and any modification or amendment thereto)
endorsed without recourse either in blank or to the order
of the Trustee (or its nominee); (ii) the Mortgage
(except for any Mortgage not returned from the public
recording office) with evidence of recording indicated
thereon or, in the case of a Cooperative Loan, the
respective security agreements and any applicable UCC
financing statements; (iii) an assignment in recordable
form of the Mortgage (or, with respect to a Cooperative
Loan, an assignment of the respective security
agreements, any applicable UCC financing statements,
recognition agreements, relevant stock certificates,
related blank stock powers and the related proprietary
leases or occupancy agreements); and (iv) if applicable,
any riders or modifications to such Mortgage Note and
Mortgage, together with certain other documents at such
times as set forth in the related Pooling and Servicing
Agreement. Such assignments may be blanket assignments
covering Mortgages secured by Mortgaged Properties
located in the same county, if permitted by law. If so
provided in the related Prospectus Supplement, the
Company may not be required to deliver one or more of
such documents if such documents are missing from the
files of the party from whom such Mortgage Loans were
purchased.
In the event that, with respect to any Mortgage
Loan, the Company cannot deliver the Mortgage or any
assignment with evidence of recording thereon
concurrently with the execution and delivery of the
related Pooling and Servicing Agreement because of a
delay caused by the public recording office, the Company
will deliver or cause to be delivered to the Trustee or
the Custodian a true and correct photocopy of such
Mortgage or assignment. The Company will deliver or
cause to be delivered to the Trustee or the Custodian
such Mortgage or assignment with evidence of recording
indicated thereon after receipt thereof from the public
recording office or from the related Servicer or Sub-
Servicer.
Assignments of the Mortgage Loans to the Trustee
will be recorded in the appropriate public recording
office, except in states where, in the opinion of counsel
acceptable to the Trustee, such recording is not required
to protect the Trustee's interests in the Mortgage Loan
against the claim of any subsequent transferee or any
successor to or creditor of the Company or the originator
of such Mortgage Loan, or except as otherwise specified
in the related Prospectus Supplement.
Assignment of Contracts
The Company will cause the Contracts constituting
the Contract Pool to be assigned to the Trustee or its
nominee (which may be the Custodian), together with
principal and interest due on or with respect to the
Contracts after the Cut-off Date, but not including
principal and interest due on or before the Cut-off Date
or any Spread. Each Contract will be identified in a
schedule appearing as an exhibit to the Pooling and
Servicing Agreement. Such schedule will specify, with
respect to each Contract, among other things: the
original principal amount and the adjusted principal
balance as of the close of business on the Cut-off Date;
the Mortgage Rate; the current scheduled monthly level
payment of principal and interest; and the maturity date
of the Contract.
In addition, the Company, the Servicer or the Master
Servicer, as to each Contract, will deliver or cause to
be delivered to the Trustee, or, as specified in the
related Prospectus Supplement, the Custodian, the
original Contract and copies of documents and instruments
related to each Contract and the security interest in the
Manufactured Home securing each Contract. The Company,
the Master Servicer or the Servicer will cause a UCC-1
financing statement to be executed by the Company
identifying the Trustee as the secured party and
identifying all Contracts as collateral. However, unless
otherwise specified in the related Prospectus Supplement,
the Contracts will not be stamped or otherwise marked to
reflect their assignment from the Company to the Trust
Fund and no recordings or filings will be made in the
jurisdictions in which the Manufactured Homes are
located. See "Certain Legal Aspects of Mortgage Loans
and Contracts-The Contracts."
Review of Mortgage Loan or Contract Documents
The Trustee or the Custodian will hold such
documents in trust for the benefit of the
Certificateholders and, generally within 45 days after
receipt thereof, will review such documents. Unless
otherwise provided in the related Prospectus Supplement,
if any such document is found to be defective in any
material respect, the Trustee or such Custodian shall
immediately notify the Master Servicer or the Servicer,
if any, and the Company, and if so specified in the
related Prospectus Supplement, the Master Servicer, the
Servicer or the Trustee shall immediately notify the
Mortgage Collateral Seller. If the Mortgage Collateral
Seller (or, if so specified in the related Prospectus
Supplement, the Company) cannot cure such defect within
60 days (or within such other period specified in the
related Prospectus Supplement) after notice of the defect
is given to the Mortgage Collateral Seller (or, if
applicable, the Company), the Mortgage Collateral Seller
(or, if applicable, the Company) will, not later than 90
days after such notice (or within such other period
specified in the related Prospectus Supplement), either
repurchase the related Mortgage Loan or Contract or any
property acquired in respect thereof from the Trustee or
substitute for such Mortgage Loan or Contract, a new
Mortgage Loan or Contract in accordance with the
standards set forth herein. See "The Trust Funds-
Repurchases of Mortgage Collateral." Unless otherwise
specified in the related Prospectus Supplement, the
obligation to repurchase or substitute for a Mortgage
Loan or Contract constitutes the sole remedy available to
the Certificateholders or the Trustee for a material
defect in a constituent document.
Assignment of Agency Securities
The Company will transfer, convey and assign to the
Trustee or its nominee (which may be the Custodian) all
right, title and interest of the Company in the Agency
Securities and other property to be included in the Trust
Fund for a series. Such assignment will include all
principal and interest due on or with respect to the
Agency Securities after the Cut-off Date specified in the
related Prospectus Supplement (except for any Spread).
The Company will cause the Agency Securities to be
registered in the name of the Trustee or its nominee, and
the Trustee will concurrently authenticate and deliver
the Certificates. Unless otherwise specified in the
related Prospectus Supplement, the Trustee will not be in
possession of or be assignee of record of any underlying
assets for a Agency Security. Each Agency Security will
be identified in a schedule appearing as an exhibit to
the related Pooling and Servicing Agreement, which will
specify as to each Agency Security the original principal
amount and outstanding principal balance as of the Cut-
off Date; the annual pass-through rate or interest rate
for each Agency Security conveyed to the Trustee.
Spread
The Company, the Servicer, the Mortgage Collateral
Seller, the Master Servicer or any of their affiliates,
or such other entity as may be specified in the related
Prospectus Supplement may retain or be paid a portion of
interest (the "Spread") due with respect to the related
Mortgage Collateral. The payment of any Spread will be
disclosed in the related Prospectus Supplement. The
Spread may be in addition to any other payment (such as
the Servicing Fee) that any such entity is otherwise
entitled to receive with respect to the Mortgage
Collateral. Any Spread in respect of an item of Mortgage
Collateral will represent a specified portion of the
interest payable thereon and will not be part of the
related Trust Fund. Any partial recovery of interest in
respect of an item of Mortgage Collateral will be
allocated between the owners of any Spread and the
Certificateholders entitled to payments of interest as
provided in the applicable Pooling and Servicing
Agreement.
Payments on Mortgage Collateral
The Trustee or the Master Servicer, if any, will, as
to each series of Certificates, establish and maintain in
trust the Certificate Account which will be a separate
account that may be interest bearing or non-interest
bearing in the name of the Trustee, maintained with a
depository institution and in a manner acceptable to each
Rating Agency. If permitted by each such Rating Agency,
a Certificate Account may contain funds relating to one
or more series of Certificates.
The Trustee, the Servicer or the Master Servicer, if
any, will establish a Custodial Account which will be a
separate trust account, into which payments on the
Mortgage Collateral for such series may be transferred on
a periodic basis and from which funds may be transferred
to the Certificate Account in order to make payments to
Certificateholders. The Custodial Account may contain
funds relating to more than one series of Certificates as
well as payments received on other mortgage loans
serviced or master serviced by the Master Servicer or the
Servicer, as applicable. Amounts held in the Certificate
Account or a Custodial Account may be invested in
Permitted Investments. See "-Collection of Payments on
Mortgage Loans and Contracts" below. In addition, if so
stated in such Prospectus Supplement, one or more other
trust accounts, including any Reserve Funds, will be
established into which cash, certificates of deposit or
letters of credit, or a combination thereof, will be
deposited by the Company, if such assets are required to
make timely distributions with respect to the
Certificates of a series, are required as a condition to
the rating of such Certificates or are required in order
to provide for certain contingencies as described in the
related Prospectus Supplement.
Collection of Payments on Mortgage Loans and
Contracts
Each Servicer or the Master Servicer, if any, will
be required to deposit into the Custodial Account (unless
otherwise specified in the related Prospectus Supplement)
all amounts enumerated in the following paragraph in
respect of the Mortgage Loans or Contracts serviced by
it, less the Servicing Fee and Spread, if any.
The Servicer or Master Servicer, as applicable, will
deposit or will cause to be deposited into the Custodial
Account certain payments and collections received by it
subsequent to the Cut-off Date (other than payments due
on or before the Cut-off Date), as specifically set forth
in the related Pooling and Servicing Agreement, which
(except as otherwise provided therein) generally will
include the following:
(i) all payments on account of principal of
the Mortgage Loans or Contracts comprising a Trust
Fund;
(ii) all payments on account of interest on
the Mortgage Loans comprising such Trust Fund, net
of the portion of each payment thereof retained by
the Servicer or Sub-Servicer, if any, as Spread,
its servicing or other compensation;
(iii) all amounts (net of unreimbursed
liquidation expenses and insured expenses incurred,
and unreimbursed Servicing Advances made, by the
related Servicer or Sub-Servicer) received and
retained in connection with the liquidation of any
defaulted Mortgage Loan or Contract, by foreclosure
or otherwise ("Liquidation Proceeds"), including
all proceeds of any Special Hazard Insurance
Policy, Bankruptcy Bond, Mortgage Pool Insurance
Policy, Contract Pool Insurance Policy, Primary
Insurance Policy and any title, hazard or other
insurance policy covering any Mortgage Loan or
Contract in such Trust Fund (together with any
payments under any Letter of Credit, "Insurance
Proceeds") or proceeds from any alternative
arrangements established in lieu of any such
insurance and described in the applicable
Prospectus Supplement, other than proceeds to be
applied to the restoration of the related property
or released to the Mortgagor in accordance with the
Master Servicer's or Servicer's normal servicing
procedures;
(iv) any Buy-Down Funds (and, if applicable,
investment earnings thereon) required to be paid to
Certificateholders, as described below;
(v) all proceeds of any Mortgage Loan or
Contract in such Trust Fund purchased (or, in the
case of a substitution, certain amounts
representing a principal adjustment) by the Master
Servicer, the Company, Residential Funding, any
Sub-Servicer or Mortgage Collateral Seller or any
other person pursuant to the terms of the Pooling
and Servicing Agreement. See "The Trust Funds-
Representations with Respect to Mortgage
Collateral" and "-Repurchases of Defective Mortgage
Collateral" herein;
(vi) any amount required to be deposited by
the Master Servicer in connection with losses
realized on investments of funds held in the
Custodial Account, as described below; and
(vii) any amounts required to be
transferred from the Certificate Account to the
Custodial Account.
Both the Custodial Account and the Certificate
Account must be either (i) maintained with a depository
institution whose debt obligations at the time of any
deposit therein are rated by any Rating Agency that rated
any Certificates of the related series not less than a
specified level comparable to the rating category of such
Certificates, (ii) an account or accounts the deposits in
which are fully insured to the limits established by the
FDIC, provided that any deposits not so insured shall be
otherwise maintained such that, as evidenced by an
opinion of counsel, the Certificateholders have a claim
with respect to the funds in such accounts or a perfected
first priority security interest in any collateral
securing such funds that is superior to the claims of any
other depositors or creditors of the depository
institution with which such accounts are maintained,
(iii) in the case of the Custodial Account, a trust
account or accounts maintained in either the corporate
trust department or the corporate asset services
department of a financial institution which has debt
obligations that meet certain rating criteria, (iv) in
the case of the Certificate Account, a trust account or
accounts maintained with the Trustee or (v) such other
account or accounts acceptable to any applicable Rating
Agency (an "Eligible Account"). The collateral that is
eligible to secure amounts in an Eligible Account is
limited to certain permitted investments, which are
generally limited to United States government securities
and other investments that are rated, at the time of
acquisition, in one of the categories permitted by the
related Pooling and Servicing Agreement ("Permitted
Investments").
Unless otherwise set forth in the related Prospectus
Supplement, not later than the business day preceding
each Distribution Date, the Master Servicer or Servicer,
as applicable, will withdraw from the Custodial Account
and deposit into the applicable Certificate Account, in
immediately available funds, the amount to be distributed
therefrom to Certificateholders on such Distribution
Date. The Master Servicer, the Servicer or the Trustee,
as applicable, will also deposit or cause to be deposited
into the Certificate Account: (i) the amount of any
advances made by the Master Servicer or the Servicer as
described herein under "-Advances," (ii) any payments
under any Letter of Credit, and any amounts required to
be transferred to the Certificate Account from a Reserve
Fund, as described under "Description of Credit
Enhancement" below, (iii) any amounts required to be paid
by the Master Servicer or Servicer out of its own funds
due to the operation of a deductible clause in any
blanket policy maintained by the Master Servicer or
Servicer to cover hazard losses on the Mortgage Loans as
described under "Insurance Policies on Mortgage Loans or
Contracts" below, (iv) any distributions received on any
Agency Securities included in the Trust Fund and (v) any
other amounts as set forth in the related Pooling and
Servicing Agreement.
The portion of any payment received by the Master
Servicer or the Servicer in respect of a Mortgage Loan
that is allocable to Spread will generally be deposited
into the Custodial Account, but will not be deposited in
the Certificate Account for the related series of
Certificates and will be distributed as provided in the
related Pooling and Servicing Agreement.
Funds on deposit in the Custodial Account may be
invested in Permitted Investments maturing in general not
later than the business day preceding the next
Distribution Date and funds on deposit in the related
Certificate Account may be invested in Permitted
Investments maturing, in general, no later than the
Distribution Date. Unless otherwise specified in the
related Prospectus Supplement, all income and gain
realized from any such investment will be for the account
of the Servicer or the Master Servicer as additional
servicing compensation. The amount of any loss incurred
in connection with any such investment must be deposited
in the Custodial Account or in the Certificate Account,
as the case may be, by the Servicer or the Master
Servicer out of its own funds upon realization of such
loss.
Collection of Payments on Agency Securities
The Trustee or the Certificate Administrator, as
specified in the related Prospectus Supplement, will
deposit in the Certificate Account all payments on the
Agency Securities as they are received after the Cut-off
Date. If the Trustee has not received a distribution
with respect to any Agency Security by the second
business day after the date on which such distribution
was due and payable, the Trustee will request the issuer
or guarantor, if any, of such Agency Security to make
such payment as promptly as possible and legally
permitted. The Trustee may take such legal action
against such issuer or guarantor as the Trustee deems
appropriate under the circumstances, including the
prosecution of any claims in connection therewith. The
reasonable legal fees and expenses incurred by the
Trustee in connection with the prosecution of such legal
action will be reimbursable to the Trustee out of the
proceeds of any such action and will be retained by the
Trustee prior to the deposit of any remaining proceeds in
the Certificate Account pending distribution thereof to
the Certificateholders of the affected series. In the
event that the Trustee has reason to believe that the
proceeds of any such legal action may be insufficient to
cover its projected legal fees and expenses, the Trustee
will notify such Certificateholders that it is not
obligated to pursue any such available remedies unless
adequate indemnity for its legal fees and expenses is
provided by such Certificateholders.
Withdrawals from the Custodial Account
The Servicer or the Master Servicer, as applicable,
may, from time to time, make withdrawals from the
Custodial Account for certain purposes, as specifically
set forth in the related Pooling and Servicing Agreement,
which (except as otherwise provided therein) generally
will include the following:
(i) to make deposits to the Certificate
Account in the amounts and in the manner provided
in the Pooling and Servicing Agreement and
described above under "-Payments on Mortgage
Collateral";
(ii) to reimburse itself or any Sub-Servicer
for Advances, or for amounts advanced in respect of
taxes, insurance premiums or similar expenses
("Servicing Advances") as to any Mortgaged
Property, out of late payments, Insurance Proceeds,
Liquidation Proceeds or collections on the Mortgage
Loan or Contract with respect to which such
Advances or Servicing Advances were made;
(iii) to pay to itself or any Sub-Servicer
unpaid Servicing Fees and subservicing fees, out of
payments or collections of interest on each
Mortgage Loan or Contract;
(iv) to pay to itself as additional servicing
compensation any investment income on funds
deposited in the Custodial Account, any amounts
remitted by Sub-Servicers as interest in respect of
partial prepayments on the Mortgage Loans or
Contracts, and, if so provided in the Pooling and
Servicing Agreement, any profits realized upon
disposition of a Mortgaged Property acquired by
deed in lieu of foreclosure or repossession or
otherwise allowed under the Pooling and Servicing
Agreement;
(v) to pay to itself, a Sub-Servicer,
Residential Funding, the Company or the Mortgage
Collateral Seller all amounts received with respect
to each Mortgage Loan or Contract purchased,
repurchased or removed pursuant to the terms of the
Pooling and Servicing Agreement and not required to
be distributed as of the date on which the related
Purchase Price is determined;
(vi) to pay the Company or its assignee, or
any other party named in the related Prospectus
Supplement, all amounts allocable to the Spread, if
any, out of collections or payments which represent
interest on each Mortgage Loan or Contract
(including any Mortgage Loan or Contract as to
which title to the underlying Mortgaged Property
was acquired);
(vii) to reimburse itself or any Sub-
Servicer for any Advance previously made which the
Master Servicer has determined to not be ultimately
recoverable from Liquidation Proceeds, Insurance
Proceeds or otherwise (a "Nonrecoverable Advance"),
subject to any limitations set forth in the Pooling
and Servicing Agreement as described in the related
Prospectus Supplement;
(viii) to reimburse itself or the Company
for certain other expenses incurred for which it or
the Company is entitled to reimbursement or against
which it or the Company is indemnified pursuant to
the Pooling and Servicing Agreement; and
(ix) to clear the Custodial Account of amounts
relating to the corresponding Mortgage Loans or
Contracts in connection with the termination of the
Trust Fund pursuant to the Pooling and Servicing
Agreement, as described in "The Pooling and
Servicing Agreement-Termination; Retirement of
Certificates."
Distributions
Distributions of principal and interest (or, where
applicable, of principal only or interest only) on each
class of Certificates entitled thereto will be made on
each Distribution Date either by the Trustee, the Master
Servicer or the Certificate Administrator acting on
behalf of the Trustee or a paying agent appointed by the
Trustee (the "Paying Agent"). Such distributions will be
made to the persons who are registered as the holders of
such Certificates at the close of business on the last
business day of the preceding month (the "Record Date").
Distributions will be made in immediately available funds
(by wire transfer or otherwise) to the account of a
Certificateholder at a bank or other entity having
appropriate facilities therefor, if such
Certificateholder has so notified the Trustee, the Master
Servicer, the Certificate Administrator or the Paying
Agent, as the case may be, and the applicable Pooling and
Servicing Agreement provides for such form of payment, or
by check mailed to the address of the person entitled
thereto as it appears on the Certificate Register. The
final distribution in retirement of the Certificates will
be made only upon presentation and surrender of the
Certificates at the office or agency of the Trustee
specified in the notice to Certificateholders.
Distributions will be made to each Certificateholder in
accordance with such holder's Percentage Interest in a
particular class. The "Percentage Interest" represented
by a Certificate of a particular class will be equal to
the percentage obtained by dividing the initial principal
balance or notional amount of such Certificate by the
aggregate initial amount or notional balance of all the
Certificates of such class.
Principal and Interest on the Certificates
The method of determining, and the amount of,
distributions of principal and interest (or, where
applicable, of principal only or interest only) on a
particular series of Certificates will be described in
the related Prospectus Supplement. Distributions of
interest on each class of Certificates will be made prior
to distributions of principal thereon. Each class of
Certificates (other than certain classes of Strip
Certificates) may have a different Pass-Through Rate,
which may be a fixed, variable or adjustable Pass-Through
Rate, or any combination of two or more such Pass-Through
Rates. The related Prospectus Supplement will specify
the Pass-Through Rate or Rates for each class, or the
initial Pass-Through Rate or Rates and the method for
determining the Pass-Through Rate or Rates. Unless
otherwise specified in the related Prospectus Supplement,
interest on the Certificates will be calculated on the
basis of a 360-day year consisting of twelve 30-day
months.
On each Distribution Date for a series of
Certificates, the Trustee or the Master Servicer or the
Certificate Administrator on behalf of the Trustee will
distribute or cause the Paying Agent to distribute, as
the case may be, to each holder of record on the Record
Date of a class of Certificates, an amount equal to the
Percentage Interest represented by the Certificate held
by such holder multiplied by such class's Distribution
Amount. The "Distribution Amount" for a class of
Certificates for any Distribution Date will be the
portion, if any, of the Principal Distribution Amount (as
defined in the related Prospectus Supplement) allocable
to such class for such Distribution Date, plus, if such
class is entitled to payments of interest on such
Distribution Date, one month's interest at the applicable
Pass-Through Rate on the principal balance or notional
amount of such class specified in the applicable
Prospectus Supplement, less certain interest shortfalls,
which generally will include (i) any Deferred Interest
added to the principal balance of the Mortgage Loans
and/or the outstanding balance of one or more classes of
Certificates on the related Due Date, (ii) any other
interest shortfalls (including, without limitation,
shortfalls resulting from application of the Relief Act
or similar legislation or regulations as in effect from
time to time) allocable to Certificateholders which are
not covered by advances or the applicable credit
enhancement and (iii) unless otherwise specified in the
related Prospectus Supplement, Prepayment Interest
Shortfalls, in each case in such amount that is allocated
to such class on the basis set forth in the Prospectus
Supplement.
In the case of a series of Certificates which
includes two or more classes of Certificates, the timing,
sequential order, priority of payment or amount of
distributions in respect of principal, and any schedule
or formula or other provisions applicable to the
determination thereof (including distributions among
multiple classes of Senior Certificates or Subordinate
Certificates) shall be set forth in the related
Prospectus Supplement. Distributions in respect of
principal of any class of Certificates will be made on a
pro rata basis among all of the Certificates of such
class unless otherwise set forth in the related
Prospectus Supplement.
Except as otherwise provided in the related Pooling
and Servicing Agreement, on or prior to the 20th day (or,
if such day is not a business day, the next business day)
of the month of distribution (the "Determination Date"),
the Master Servicer or the Certificate Administrator, as
applicable, will determine the amounts of principal and
interest which will be passed through to
Certificateholders on the succeeding Distribution Date.
Prior to the close of business on the business day
succeeding each Determination Date, the Master Servicer
or the Certificate Administrator, as applicable, will
furnish a statement to the Trustee (the information in
such statement to be made available to Certificateholders
by the Master Servicer or the Certificate Administrator,
as applicable, on request) setting forth, among other
things, the amount to be distributed on the next
succeeding Distribution Date.
Example of Distributions
The following chart sets forth an example of the
flow of funds as it would relate to a hypothetical series
of Certificates issued, and with a Cut-off Date
occurring, in June 1995:
Date Note Description
June 1 (A) Cut-off Date.
June 2-30 (B) The Servicers or the Sub-
Servicers, as applicable, receive
any Principal Prepayments and
applicable interest on such
Principal Prepayments.
June 30 (C) Record Date.
July 1 (D) The due date for a Mortgage Loan or
Contract (the "Due Date").
July 18 (E) The Servicers or the Sub-Servicers,
as applicable, remit to the Master
Servicer or the Servicer, as
applicable, scheduled payments of
principal and interest due on July 1
and received or advanced by them.
July 20 (F) Determination Date.
July 25 (G) Distribution Date.
Succeeding months follow the pattern of (B) through (G),
except that for succeeding months (B) will also include
the first day of such month. Certain series of
Certificates may have different prepayment periods, Cut-
off Dates, Record Dates, Due Dates, remittance dates,
Determination Dates and/or Distribution Dates than those
set forth above.
(A) The initial principal balance of the Mortgage Pool
or Contract Pool will be the aggregate principal
balance of the Mortgage Loans or Contracts at the
close of business on June 1, 1995, after deducting
principal payments due on or before such date.
Those principal payments due on or before June 1,
and the accompanying interest payments, and any
Principal Prepayments received as of the close of
business on June 1, 1995 are not part of the
Mortgage Pool or Contract Pool and will not be
passed through to Certificateholders.
(B) Any principal payments received in advance of the
scheduled Due Date and not accompanied by a payment
of interest for any period following the date of
payment ("Principal Prepayments") may be received
at any time during this period and will be remitted
to the Master Servicer or Servicer as described in
(E) below for distribution to Certificateholders as
described in (F) below. When a Mortgage Loan or
Contract is prepaid in full, interest on the amount
prepaid is collected from the Mortgagor only to the
date of payment. Partial Principal Prepayments are
applied so as to reduce the principal balances of
the related Mortgage Loans or Contracts as of the
first day of the month in which the payments are
made; no interest will be paid to
Certificateholders in respect of such prepaid
amounts for the month in which such partial
Principal Prepayments were received.
(C) Distributions on July 25 will be made to
Certificateholders of record at the close of
business on June 30.
(D) Scheduled principal and interest payments are due
from Mortgagors.
(E) Payments due on July 1 from Mortgagors will be
deposited by the Sub-Servicers in subservicing
accounts or Servicers in collection accounts (or
will be otherwise managed in a manner acceptable to
the Rating Agencies) as received and will include
the scheduled principal payments plus interest on
the June balances (with the exception of interest
from the date of prepayment of any Mortgage Loan or
Contract prepaid in full during June and interest
on the amount of partial Principal Prepayments in
June). Funds required to be remitted from the
collection accounts or the subservicing accounts to
the Master Servicer or the Servicer, as applicable,
will be so remitted on July 18 together with any
required Advances by the Servicer or the Sub-
Servicers (except that Principal Prepayments in
full and certain Principal Prepayments in part
received by Sub-Servicers during the month of June
will have been remitted to the Master Servicer or
the Servicer, as applicable, within five business
days of receipt).
(F) On July 20, the Master Servicer or the Certificate
Administrator, if any, will determine the amounts
of principal and interest which will be passed
through on July 25 to the holders of each class of
Certificates. The Master Servicer or the
Certificate Administrator, if any, will be
obligated to distribute those payments due July 1
which have been received from Servicers or Sub-
Servicers prior to and including July 18, as well
as all Principal Prepayments received on Mortgage
Loans in June (with interest adjusted to the
Pass-Through Rates applicable to the respective
classes of Certificates and reduced on account of
Principal Prepayments as described above).
Distributions to the holders of Senior
Certificates, if any, on July 25 may include
certain amounts otherwise distributable to the
holders of the related Subordinate Certificates,
amounts withdrawn from any Reserve Fund and amounts
advanced by the Master Servicer or the Servicer
under the circumstances described in
"Subordination" and "-Advances."
(G) On July 25, the amounts determined on July 20 will
be distributed to Certificateholders.
If provided in the related Prospectus Supplement,
the Distribution Date with respect to any series of
Certificates as to which the Trust Fund includes Agency
Securities may be a specified date or dates other than
the 25th day of each month in order to allow for the
receipt of distributions on such Agency Securities.
Advances
Unless otherwise specified in the related Prospectus
Supplement, the Master Servicer or the applicable
Servicer will agree to advance (either out of its own
funds, funds advanced to it by Servicers or Sub-
Servicers, as applicable, or funds being held in the
Custodial Account for future distribution), for the
benefit of the related Certificateholders, on or before
each Distribution Date, an amount equal to the aggregate
of all scheduled payments of principal (other than any
Balloon Amount in the case of a Balloon Loan) and
interest at the applicable Pass-Through Rate or Net
Mortgage Rate, as the case may be (an "Advance"), which
were delinquent as of the close of business on the
business day preceding the related Determination Date on
the related Mortgage Loans or Contracts, but only to the
extent that such Advances would, in the judgment of the
Master Servicer or the Servicer, be recoverable out of
late payments by the Mortgagors, Liquidation Proceeds,
Insurance Proceeds or otherwise. If a Trust Fund
includes Agency Securities, any advancing obligations
with respect to underlying Mortgage Loans or Contracts
will be pursuant to the terms of such Agency Securities
and may differ from the provisions relating to Advances
described herein.
Advances are intended to maintain a regular flow of
scheduled interest and principal payments to related
Certificateholders. Such Advances do not represent an
obligation of the Master Servicer or the Servicer to
guarantee or insure against losses. If Advances have
been made by the Master Servicer or Servicer from cash
being held for future distribution to Certificateholders,
such funds will be required to be replaced on or before
any future Distribution Date to the extent that funds in
the Certificate Account on such Distribution Date would
be less than payments required to be made to
Certificateholders. Any Advances will be reimbursable to
the Master Servicer or Servicer out of recoveries on the
related Mortgage Loans or Contracts for which such
amounts were advanced (e.g., late payments made by the
related Mortgagor, any related Liquidation Proceeds and
Insurance Proceeds, proceeds of any applicable form of
credit enhancement or proceeds of any Mortgage Collateral
purchased by the Company, Residential Funding, a Sub-
Servicer or a Mortgage Collateral Seller under the
circumstances described above). Such Advances will also
be reimbursable from cash otherwise distributable to
Certificateholders to the extent that the Master Servicer
or Servicer shall determine that any such Advances
previously made are not ultimately recoverable as
described above. With respect to any Senior/Subordinate
Series, so long as the related Subordinate Certificates
remain outstanding and subject to certain limitations
with respect to Special Hazard Losses, Fraud Losses,
Bankruptcy Losses and Extraordinary Losses, such Advances
may also be reimbursable out of amounts otherwise
distributable to holders of the Subordinate Certificates,
if any. The Master Servicer or the Servicer will also be
obligated to make Servicing Advances, to the extent
recoverable out of Liquidation Proceeds or otherwise, in
respect of certain taxes and insurance premiums not paid
by Mortgagors on a timely basis. Funds so advanced will
be reimbursable to the Master Servicer or Servicer to the
extent permitted by the Pooling and Servicing Agreement.
The Master Servicer's or Servicer's obligation to make
Advances may be supported by another entity, a letter of
credit or other method as may be described in the related
Pooling and Servicing Agreement. In the event that the
short-term or long-term obligations of the provider of
such support are downgraded by a Rating Agency rating the
related Certificates or if any collateral supporting such
obligation is not performing or is removed pursuant to
the terms of any agreement described in the related
Prospectus Supplement, the Certificates may also be
downgraded.
Prepayment Interest Shortfalls
When a Mortgagor prepays a Mortgage Loan or Contract
in full between scheduled Due Dates for such Mortgage
Loan or Contract, the Mortgagor pays interest on the
amount prepaid only to but not including the date on
which such Principal Prepayment is made. Similarly,
Liquidation Proceeds from a Mortgaged Property will not
include interest for any period after the date on which
the liquidation took place. The shortfall between a full
month's interest due with respect to a Mortgage Loan or
Contract and the amount of interest paid or recovered
with respect thereto in the event of a prepayment or
liquidation is referred to as a "Prepayment Interest
Shortfall." If so specified in the related Prospectus
Supplement, to the extent funds are available from the
Servicing Fee, the Servicer or Master Servicer may make
an additional payment to Certificateholders with respect
to any Mortgage Loan or Contract that prepaid in full
during the related prepayment period equal to the amount,
if any, necessary to assure that, on the related
Distribution Date, the Available Distribution Amount
would include with respect to each such Mortgage Loan or
Contract an amount equal to interest at the Mortgage Rate
(less the Servicing Fee and Spread, if any) for such
Mortgage Loan or Contract from the date of such
prepayment or liquidation through the related Due Date
(such amount, "Compensating Interest"). Compensating
Interest may be limited to the aggregate amount (or any
portion thereof) of the Servicing Fee received by the
Servicer or Master Servicer in that month in relation to
the Mortgage Loans or Contracts, or in any other manner,
and, if so limited, may not be sufficient to cover the
Prepayment Interest Shortfall. If so disclosed in the
related Prospectus Supplement, Prepayment Interest
Shortfalls may be applied to reduce interest otherwise
payable with respect to one or more classes of
Certificates of a series. See "Yield Considerations."
Reports to Certificateholders
On each Distribution Date, the Master Servicer or
the Certificate Administrator, as applicable, will
forward or cause to be forwarded to each
Certificateholder of record a statement or statements
with respect to the related Trust Fund setting forth the
information described in the related Pooling and
Servicing Agreement. Except as otherwise provided in the
related Pooling and Servicing Agreement, such information
generally will include the following (as applicable):
(i) the amount, if any, of such distribution
allocable to principal;
(ii) the amount, if any, of such distribution
allocable to interest and the amount, if any, of
any shortfall in the amount of interest and
principal;
(iii) the aggregate unpaid principal
balance of the Mortgage Collateral after giving
effect to the distribution of principal on such
Distribution Date;
(iv) the outstanding principal balance or
notional amount of each class of Certificates after
giving effect to the distribution of principal on
such Distribution Date;
(v) based on the most recent reports
furnished by Servicers or Sub-Servicers, the number
and aggregate principal balances of any items of
Mortgage Collateral in the related Trust Fund that
are delinquent (a) one month, (b) two months and
(c) three months, and that are in foreclosure;
(vi) the book value of any property acquired
by such Trust Fund through foreclosure or grant of
a deed in lieu of foreclosure;
(vii) the balance of the Reserve Fund, if
any, at the close of business on such Distribution
Date;
(viii) the Senior Percentage, if
applicable, after giving effect to the
distributions on such Distribution Date;
(ix) the amount of coverage under any Letter
of Credit, Mortgage Pool Insurance Policy or other
form of credit enhancement covering default risk as
of the close of business on the applicable
Determination Date and a description of any credit
enhancement substituted therefor;
(x) if applicable, the Special Hazard Amount,
Fraud Loss Amount and Bankruptcy Amount as of the
close of business on the applicable Distribution
Date and a description of any change in the
calculation of such amounts;
(xi) in the case of Certificates benefiting
from alternative credit enhancement arrangements
described in a Prospectus Supplement, the amount of
coverage under such alternative arrangements as of
the close of business on the applicable
Determination Date; and
(xii) with respect to any series of
Certificates as to which the Trust Fund includes
Agency Securities, certain additional information
as required under the related Pooling and Servicing
Agreement.
Each amount set forth pursuant to clause (i) and
(ii) above will be expressed as a dollar amount per
Single Certificate. As to a particular class of
Certificates, a "Single Certificate" generally will
evidence a Percentage Interest obtained by dividing
$1,000 by the initial principal balance or notional
balance of all the Certificates of such class, except as
otherwise provided in the related Pooling and Servicing
Agreement. In addition to the information described
above, reports to Certificateholders will contain such
other information as is set forth in the applicable
Pooling and Servicing Agreement, which may include,
without limitation, information as to Advances,
reimbursements to Sub-Servicers, Servicers and the Master
Servicer and losses borne by the related Trust Fund.
In addition, within a reasonable period of time
after the end of each calendar year, the Master Servicer
or the Certificate Administrator, as applicable, will
furnish a report to each person that was a holder of
record any class of Certificates at any time during such
calendar year. Such report will include information as
to the aggregate of amounts reported pursuant to clauses
(i) and (ii) above for such calendar year or, in the
event such person was a holder of record of a class of
Certificates during a portion of such calendar year, for
the applicable portion of such year.
Servicing and Administration of Mortgage Collateral
General
The Master Servicer, the Certificate Administrator
or any Servicer, as applicable, that is a party to a
Pooling and Servicing Agreement, will be required to
perform the services and duties specified in the related
Pooling and Servicing Agreement. The duties to be
performed by the Master Servicer or each Servicer,
subject to the general supervision by the Master Servicer
or the Certificate Administrator, if any, will include
the customary functions of a servicer, including
collection of payments from Mortgagors; maintenance of
any primary mortgage insurance, hazard insurance and
other types of insurance; processing of assumptions or
substitutions; attempting to cure delinquencies;
supervising foreclosures; inspection and management of
Mortgaged Properties under certain circumstances; and
maintaining accounting records relating to the Mortgage
Collateral. Each Servicer or the Master Servicer, if
any, may be obligated, under certain circumstances, to
make Advances in respect of delinquent installments of
principal of and interest on Mortgage Loans or Contracts
and in respect of certain taxes and insurance premiums
not paid on a timely basis by Mortgagors, as described
under "-Advances" above. With respect to any series of
Certificates for which the Trust Fund includes Agency
Securities, the Master Servicer's or Certificate
Administrator's servicing and administration obligations
will be set forth in the related Prospectus Supplement.
Pursuant to each Pooling and Servicing Agreement,
each Servicer or the Master Servicer, if there are no
Servicers for the related series, may enter into sub-
servicing agreements (each, a "Sub-Servicing Agreement")
with one or more Sub-Servicers who will agree to perform
certain functions for the Servicer or Master Servicer
relating to the servicing and administration of the
Mortgage Loans or Contracts included in the Trust Fund
relating to such Sub-Servicing Agreement. Under any Sub-
Servicing Agreement, each Sub-Servicer, will agree, among
other things, to perform some or all of the Servicer's or
the Master Servicer's servicing obligations, including
but not limited to, making Advances to the related
Certificateholders. The Servicer or the Master Servicer,
as applicable, will remain liable for its servicing
obligations that are delegated to a Sub-Servicer as if
such Servicer or the Master Servicer alone were servicing
such Mortgage Loans or Contracts.
Collection and Other Servicing Procedures
Each Servicer or the Master Servicer, as applicable,
will make reasonable efforts to collect all payments
called for under the Mortgage Loans or Contracts and
will, consistent with the related Pooling and Servicing
Agreement and any applicable insurance policy or other
credit enhancement, follow such collection procedures as
it follows with respect to mortgage loans or contracts
serviced by it that are comparable to the Mortgage Loans
or Contracts. The Servicer or the Master Servicer may,
in its discretion, waive any prepayment charge in
connection with the prepayment of a Mortgage Loan or
extend the due dates for payments due on a Mortgage Note
or Contract, provided that the insurance coverage for
such Mortgage Loan or Contract or any coverage provided
by any alternative credit enhancement will not be
adversely affected.
The Master Servicer, any Servicer or one or more
Sub-Servicers with respect to a given Trust Fund may
establish and maintain an escrow account (the "Escrow
Account") in which Mortgagors will be required to deposit
amounts sufficient to pay taxes, assessments, certain
mortgage and hazard insurance premiums and other
comparable items. Withdrawals from any such Escrow
Account may be made to effect timely payment of taxes,
assessments, mortgage and hazard insurance, to refund to
Mortgagors amounts determined to be owed, to pay interest
on balances in any such Escrow Account, if required, to
repair or otherwise protect the Mortgaged Properties and
to clear and terminate such account. The Master Servicer
or any Servicer or Sub-Servicer, as the case may be, will
be responsible for the administration of each such Escrow
Account and will be obligated to make advances to such
accounts when a deficiency exists therein. The Master
Servicer, Servicer or Sub-Servicer will be entitled to
reimbursement for any such advances from the Collection
Account.
Other duties and responsibilities of each Servicer,
the Master Servicer and the Certificate Administrator are
described above under "-Payments on Mortgage Collateral."
Servicing Compensation and Payment of Expenses
Each Servicer, the Master Servicer or the
Certificate Administrator, as applicable, will be paid
compensation for the performance of its servicing
obligations, which compensation will be part of the
servicing fee (the "Servicing Fee") specified in the
related Prospects Supplement. Any Sub-Servicer will be
entitled to receive a portion of the Servicing Fee.
Except as otherwise provided in the related Prospectus
Supplement, the Servicer or the Master Servicer, if any,
will deduct the Servicing Fee with respect to the
Mortgage Loans or Contracts underlying the Certificates
of a Series in an amount to be specified in the related
Prospectus Supplement. The Servicing Fee may be fixed or
variable. In addition to the Servicing Fee, unless
otherwise specified in the related Prospectus Supplement,
the Master Servicer, any Servicer or the relevant Sub-
Servicers, if any, will be entitled to servicing
compensation in the form of assumption fees, late
payments charges or excess proceeds following disposition
of property in connection with defaulted Mortgage Loans
or Contracts and any earnings on investments held in the
Certificate Account or any Custodial Account. Any Spread
retained by a Mortgage Collateral Seller, the Master
Servicer, or any Servicer or Sub-Servicer will not
constitute part of the Servicing Fee. Notwithstanding
the foregoing, with respect to a series of Certificates
as to which the Trust Fund includes Agency Securities,
the compensation payable to the Master Servicer or
Certificate Administrator for servicing and administering
such Agency Securities on behalf of the holders of such
Certificates may be based on a percentage per annum
described in the related Prospectus Supplement of the
outstanding balance of such Agency Securities and may be
retained from distributions of interest thereon, if so
specified in the related Prospectus Supplement.
Unless otherwise specified in the related Prospectus
Supplement, the Servicer, the Master Servicer or the
Certificate Administrator will pay from the Servicing Fee
the fees of any Sub-Servicers, certain expenses incurred
in connection with the servicing of the Mortgage Loans or
Contracts, including, without limitation, payment of
certain of the insurance policy premiums, fees or other
amounts payable for any alternative credit enhancement,
payment of the fees and disbursements of the Trustee (and
any Custodian selected by the Trustee), the Certificate
Registrar, any Paying Agent, independent accountants and
payment of expenses incurred in enforcing the obligations
of Sub-Servicers, Servicers and Mortgage Collateral
Sellers and in preparation of reports to
Certificateholders. Certain of these expenses may be
reimbursable from Liquidation Proceeds or insurance
policies and, in the case of enforcement of the
obligations of Sub-Servicers, from any recoveries in
excess of amounts due with respect to the related
Mortgage Loans or Contracts or from specific recoveries
of costs. The related Pooling and Servicing Agreement
may provide that the Certificate Administrator, the
Master Servicer, and any Servicer and Sub-Servicer may
obtain their respective fees by deducting them from
amounts otherwise required to be deposited into the
Collection Account.
The related Trust Fund will suffer no loss by reason
of the expenses of the Servicer or Master Servicer
described above to the extent claims are fully paid from
amounts in any Reserve Fund, any related insurance
policies, the Liquidation Proceeds or any applicable
alternative credit enhancement described in the related
Prospectus Supplement. In the event, however, that
claims are either not made or are not fully paid from
such sources, the related Trust Fund will suffer a loss
to the extent that Liquidation Proceeds, after
reimbursement of the expenses of the Master Servicer or
any Servicer or Sub-Servicer, are less than the principal
balance of and accrued interest on the related Mortgage
Loan or Contract. In addition, the Master Servicer or
any Servicer or Sub-Servicer, as applicable, will be
entitled to reimbursement of expenditures incurred by it
in connection with the restoration of Mortgaged Property,
such right of reimbursement being prior to the rights of
the Certificateholders to receive any payments from any
Reserve Fund or from any related Insurance Proceeds,
Liquidation Proceeds or any proceeds of alternative
credit enhancement.
Evidence as to Compliance
Each Servicer, the Master Servicer or the
Certificate Administrator, as appropriate, will, with
respect to each series of Certificates, deliver to the
Trustee, on or before the date in each year specified in
the related Pooling and Servicing Agreement, an officer's
certificate stating that (i) a review of the activities
of the Certificate Administrator, each Servicer or the
Master Servicer and each Sub-Servicer, as applicable,
during the preceding calendar year and of performance
under such Pooling and Servicing Agreement and the
applicable Sub-Servicing Agreement, if any, has been made
under the supervision of such officer, and (ii) to the
best of such officer's knowledge, based on such review,
the Certificate Administrator, each Servicer or the
Master Servicer and each Sub-Servicer, as applicable, has
fulfilled all its obligations under such Pooling and
Servicing Agreement throughout such year, or, if there
has been a default in the fulfillment of any such
obligation, specifying each such default known to such
officer and the nature and status thereof. If set forth
in the Prospectus Supplement, such officer's certificate
shall be accompanied by a statement of a firm of
independent public accountants to the effect that, on the
basis of an examination of certain documents and records
relating to servicing of the Mortgage Loans or Contracts,
including similar reports delivered by each Servicer or
Sub-Servicer (upon which such firm is entitled to rely),
conducted in accordance with the Uniform Single Audit
Program for Mortgage Bankers or similar standards
acceptable to the Servicer, the Master Servicer or the
Certificate Administrator, as applicable, the servicing
of the Mortgage Loans or Contracts was conducted in
compliance with the provisions of the related Pooling and
Servicing Agreement and the applicable Sub-Servicing
Agreement, if any, except for (a) such exceptions as such
firm believes to be immaterial and (b) such other
exceptions as are set forth in such statement.
Certain Other Matters Regarding Servicing
Each Servicer, the Master Servicer or the
Certificate Administrator, as applicable, may not resign
from its obligations and duties under the related Pooling
and Servicing Agreement except with the consent of all
Certificateholders or upon a determination that its
duties thereunder are no longer permissible under
applicable law. No such resignation will become
effective until the Trustee or a successor servicer or
administrator has assumed the Servicer's, the Master
Servicer's or the Certificate Administrator's obligations
and duties under such Pooling and Servicing Agreement.
A Servicer, the Master Servicer or the Certificate
Administrator, as applicable, may be removed upon the
occurrence of certain Events of Default described below
under "The Pooling and Servicing Agreement-Events of
Default" and "-Rights Upon Event of Default."
Each Pooling and Servicing Agreement will also
provide that neither the Servicer, the Master Servicer or
the Certificate Administrator, nor any director, officer,
employee or agent thereof, will be under any liability to
the Trust Fund or the Certificateholders for any action
taken or for restraining from taking any action in good
faith pursuant to the Pooling and Servicing Agreement, or
for errors in judgment. However, neither the Servicer,
the Master Servicer or the Certificate Administrator nor
any such person will be protected against any liability
which would otherwise be imposed by reason of the failure
to perform its obligations in compliance with any
standard of care set forth in the Pooling and Servicing
Agreement. The Servicer, the Master Servicer or the
Certificate Administrator, as applicable, may, in its
discretion, undertake any such action that it may deem
necessary or desirable with respect to the Pooling and
Servicing Agreement and the rights and duties of the
parties thereto and the interest of the
Certificateholders thereunder. In such event, the legal
expenses and costs of such action and any liability
resulting therefrom will be expenses, costs and
liabilities of the Trust Fund and the Servicer, the
Master Servicer or the Certificate Administrator will be
entitled to be reimbursed therefor out of funds otherwise
distributable to Certificateholders.
The Master Servicer or Servicer may in its
discretion (i) waive any late payment charge or any
prepayment charge or penalty interest in connection with
the prepayment of a Mortgage Loan or Contract and (ii)
extend the Due Date for payments due on a Mortgage Loan
or Contract, if the Master Servicer or Servicer has
determined that any such waiver or extension will not
impair the coverage of any related insurance policy,
materially adversely affect the lien of the related
Mortgage or, if a REMIC election has been made with
respect to the Trust Fund, adversely affect such REMIC
status.
The Master Servicer will be required to maintain a
fidelity bond and errors and omissions policy with
respect to its officers and employees and other persons
acting on behalf of the Master Servicer in connection
with its activities under the Pooling and Servicing
Agreement.
A Servicer, the Master Servicer or the Certificate
Administrator may have other business relationships with
the Company, any Mortgage Collateral Seller or their
affiliates.
Special Servicing
If provided for in the related Prospectus
Supplement, the Pooling and Servicing Agreement for a
series of Certificates may name a special servicer (a
"Special Servicer"). The Special Servicer will be
responsible for the servicing of certain delinquent
Mortgage Loans or Contracts as described in the
Prospectus Supplement. The Special Servicer may have
certain discretion to extend relief to Mortgagors whose
payments become delinquent. The Special Servicer may be
permitted to grant a period of temporary indulgence to a
Mortgagor or may enter into a liquidating plan providing
for repayment by the Mortgagor, in each case without the
prior approval of the Master Servicer or the Servicer, as
applicable. Other types of forbearance generally will
require the approval of the Master Servicer or Servicer,
as applicable.
Enforcement of "Due-on-Sale" Clauses
Unless otherwise specified in the related Prospectus
Supplement, when any Mortgaged Property relating to a
Mortgage Loan or Contract (other than an ARM Loan
described below) is about to be conveyed by the
Mortgagor, the Master Servicer or the Servicer, as
applicable, directly or through a Sub-Servicer, to the
extent it has knowledge of such proposed conveyance,
generally will be obligated to exercise the Trustee's
rights to accelerate the maturity of such Mortgage Loan
or Contract under any due-on-sale clause applicable
thereto. A due-on-sale clause will be enforced only if
the exercise of such rights is permitted by applicable
law and only to the extent it would not adversely affect
or jeopardize coverage under any Primary Insurance Policy
or applicable credit enhancement arrangements. See
"Certain Legal Aspects of Mortgage Loans and Contracts-
The Mortgage Loans-Enforceability of Certain Provisions"
and "-The Contracts Due-on-Sale Clauses." If the Master
Servicer, Servicer or Sub-Servicer is prevented from
enforcing a due-on-sale clause under applicable law or if
the Master Servicer, Servicer or Sub-Servicer determines
that it is reasonably likely that a legal action would be
instituted by the related Mortgagor to avoid enforcement
of such due-on-sale clause, the Master Servicer, Servicer
or Sub-Servicer will enter into an assumption and
modification agreement with the person to whom such
property has been or is about to be conveyed, pursuant to
which such person becomes liable under the Mortgage Note
or Contract subject to certain specified conditions. The
original Mortgagor may be released from liability on a
Mortgage Loan or Contract if the Master Servicer,
Servicer or Sub-Servicer shall have determined in good
faith that such release will not adversely affect the
collectability of the Mortgage Loan or Contract. In the
event of the sale of a Mortgaged Property subject to an
ARM Loan, such ARM Loan may be assumed if it is by its
terms assumable and if, in the reasonable judgment of the
Master Servicer, Servicer or Sub-Servicer, the proposed
transferee of the related Mortgaged Property establishes
its ability to repay the loan and the security for such
ARM Loan would not be impaired by the assumption. If a
Mortgagor transfers the Mortgaged Property subject to an
ARM Loan without consent, such ARM Loan may be declared
due and payable. In connection with any such assumption,
the Mortgage Rate borne by the related Mortgage Note or
Contract may not be altered. Mortgagors may, from time
to time, request partial releases of the Mortgaged
Properties, easements, consents to alteration or
demolition and other similar matters. The Master
Servicer, Servicer or Sub-Servicer may approve such a
request if it has determined, exercising its good faith
business judgment, that such approval will not adversely
affect the security for, and the timely and full
collectability of, the related Mortgage Loan or Contract.
Any fee collected by the Master Servicer, Servicer or
Sub-Servicer for entering into an assumption or
substitution of liability agreement or for processing a
request for partial release of the Mortgaged Property
generally will be retained by the Master Servicer,
Servicer or Sub-Servicer as additional servicing
compensation.
Realization Upon Defaulted Property
In the event that title to any Mortgaged Property is
acquired in foreclosure or by deed in lieu of foreclosure
(or, in the case of Contracts in certain states, by
repossession of the related Manufactured Home), the deed
or certificate of sale will be issued to the Trustee or
to its nominee on behalf of Certificateholders.
Notwithstanding any such acquisition of title and
cancellation of the related Mortgage Loan or Contract,
such Mortgage Loan (an "REO Mortgage Loan") or Contract
(an "REO Contract") will be considered for most purposes
to be an outstanding Mortgage Loan or Contract held in
the Trust Fund until such time as the Mortgaged Property
is sold and all recoverable Liquidation Proceeds and
Insurance Proceeds have been received with respect to
such defaulted Mortgage Loan (a "Liquidated Mortgage
Loan") or Contract (a "Liquidated Contract"). For
purposes of calculations of amounts distributable to
Certificateholders in respect of an REO Mortgage Loan or
an REO Contract, the amortization schedule in effect at
the time of any such acquisition of title (before any
adjustment thereto by reason of any bankruptcy or any
similar proceeding or any moratorium or similar waiver or
grace period) will be deemed to have continued in effect
(and, in the case of an ARM Loan, such amortization
schedule will be deemed to have adjusted in accordance
with any interest rate changes occurring on any
adjustment date therefor) so long as such REO Mortgage
Loan or REO Contract is considered to remain in the Trust
Fund. If a REMIC election has been made, any Mortgaged
Property so acquired by the Trust Fund must be disposed
of in accordance with applicable federal income tax
regulations and consistent with the status of the Trust
Fund as a REMIC. To the extent provided in the related
Pooling and Servicing Agreement, any income (net of
expenses and other than gains described below) received
by the Sub-Servicer, Servicer or Master Servicer on such
Mortgaged Property prior to its disposition will be
deposited in the Custodial Account upon receipt and will
be available at such time for making payments to
Certificateholders.
With respect to a Mortgage Loan or Contract in
default, the Master Servicer or Servicer may pursue
foreclosure (or similar remedies) concurrently with
pursuing any remedy for a breach of a representation and
warranty. However, the Master Servicer or Servicer is
not required to continue to pursue both such remedies if
it determines that one such remedy is more likely to
result in a greater recovery. Upon the first to occur of
final liquidation and a repurchase or substitution
pursuant to a breach of a representation and warranty,
such Mortgage Loan or Contract will be removed from the
related Trust Fund. The Master Servicer or Servicer may
elect to treat a defaulted Mortgage Loan or Contract as
having been finally liquidated if substantially all
amounts expected to be received in connection therewith
have been received. Any additional liquidation expenses
relating to such Mortgage Loan or Contract thereafter
incurred will be reimbursable to the Master Servicer or
Servicer (or any Sub-Servicer) from any amounts otherwise
distributable to the related Certificateholders, or may
be offset by any subsequent recovery related to such
Mortgage Loan or Contract. Alternatively, for purposes
of determining the amount of related Liquidation Proceeds
to be distributed to Certificateholders, the amount of
any Realized Loss or the amount required to be drawn
under any applicable form of credit enhancement, the
Master Servicer or Servicer may take into account minimal
amounts of additional receipts expected to be received,
as well as estimated additional liquidation expenses
expected to be incurred in connection with such defaulted
Mortgage Loan or Contract.
With respect to certain series of Certificates, if
so provided in the related Prospectus Supplement, the
applicable form of credit enhancement may provide, to the
extent of coverage thereunder, that a defaulted Mortgage
Loan or Contract or REO Mortgage Loan or REO Contract
will be removed from the Trust Fund prior to the final
liquidation thereof. In addition, the Master Servicer or
Servicer may have the option to purchase from the Trust
Fund any defaulted Mortgage Loan or Contract after a
specified period of delinquency. In the case of a
Senior/Subordinate Series, unless otherwise specified in
the related Prospectus Supplement, if a final liquidation
of a Mortgage Loan or Contract resulted in a Realized
Loss and within two years thereafter the Master Servicer
or Servicer receives a subsequent recovery specifically
related to such Mortgage Loan or Contract (in connection
with a related breach of a representation or warranty or
otherwise), such subsequent recovery shall be distributed
to the then-current Certificateholders of any outstanding
class to which such Realized Loss was allocated (with the
amounts to be distributed allocated among such classes in
the same proportions as such Realized Loss was
allocated), provided that no such distribution shall
result in distributions on the Certificates of any such
class in excess of the total amounts of principal and
interest that would have been distributable thereon if
such Mortgage Loan or Contract had been liquidated with
no Realized Loss. In the case of a series of
Certificates other than a Senior/Subordinate Series, if
so provided in the related Prospectus Supplement, the
applicable form of credit enhancement may provide for
reinstatement subject to certain conditions in the event
that, following the final liquidation of a Mortgage Loan
or Contract and a draw under such credit enhancement,
subsequent recoveries are received. If a defaulted
Mortgage Loan or Contract or REO Mortgage Loan or REO
Contract is not so removed from the Trust Fund, then,
upon the final liquidation thereof, if a loss is realized
which is not covered by any applicable form of credit
enhancement or other insurance, the Certificateholders
will bear such loss. However, if a gain results from the
final liquidation of an REO Mortgage Loan or REO Contract
which is not required by law to be remitted to the
related Mortgagor, the Master Servicer or the Servicer
will be entitled to retain such gain as additional
servicing compensation unless the related Prospectus
Supplement provides otherwise. For a description of the
Certificate Administrator's, the Master Servicer's or the
Servicer's obligations to maintain and make claims under
applicable forms of credit enhancement and insurance
relating to the Mortgage Loans or Contracts, see
"Description of Credit Enhancement" and "Insurance
Policies on Mortgage Loans or Contracts."
For a discussion of legal rights and limitations
associated with the foreclosure of a Mortgage Loan or
Contract, see "Certain Legal Aspects of Mortgage Loans
and Contracts."
The Master Servicer or the Certificate
Administrator, as applicable, will deal with any
defaulted Agency Securities in the manner set forth in
the related Prospectus Supplement.
SUBORDINATION
A Senior/Subordinate Series of Certificates will
consist of one or more classes of Senior Certificates and
one or more classes of Subordinate Certificates, as set
forth in the related Prospectus Supplement.
Subordination of the Subordinate Certificates of any
Senior/Subordinate Series will be effected by the
following method, unless an alternative method is
specified in the related Prospectus Supplement. In
addition, certain classes of Senior (or Subordinate)
Certificates may be senior to other classes of Senior (or
Subordinate) Certificates, as specified in the related
Prospectus Supplement.
With respect to any Senior/Subordinate Series, the
total amount available for distribution on each
Distribution Date, as well as the method for allocating
such amount among the various classes of Certificates
included in such series, will be described in the related
Prospectus Supplement. Generally, with respect to any
such series, the amount available for distribution will
be allocated first to interest on the Senior Certificates
and then to principal of the Senior Certificates up to
the amounts described in the related Prospectus
Supplement, prior to allocation of any amounts to the
Subordinate Certificates.
With respect to any defaulted Mortgage Loan or
Contract that is finally liquidated, the amount of loss
realized, if any (as more fully described in the related
Pooling and Servicing Agreement, a "Realized Loss"), will
equal the portion of the Stated Principal Balance
remaining after application of all amounts recovered (net
of amounts reimbursable to the Master Servicer or
Servicer for related Advances and expenses) towards
interest and principal owing on the Mortgage Loan. With
respect to a Mortgage Loan or Contract, the principal
balance of which has been reduced in connection with
bankruptcy proceedings, the amount of such reduction will
be treated as a Realized Loss. If so provided in the
Pooling and Servicing Agreement, the Master Servicer may
be permitted, under certain circumstances, to purchase
any Mortgage Loan that is three or more months delinquent
in payments of principal and interest, at the Purchase
Price. Any Realized Loss incurred in connection with any
such Mortgage Loan will be passed through to the then
outstanding Certificateholders of the related series in
the same manner as Realized Losses on Mortgage Loans that
have not been so purchased.
In the event of any Realized Losses not in excess of
the limitations described below (other than Extraordinary
Losses), the rights of the Subordinate Certificateholders
to receive distributions will be subordinate to the
rights of the Senior Certificateholders.
Except as noted below, Realized Losses will be
allocated to the Subordinate Certificates of the related
series until the outstanding principal balance thereof
has been reduced to zero. Additional Realized Losses, if
any, will be allocated to the Senior Certificates. If
such series includes more than one class of Senior
Certificates, such additional Realized Losses will be
allocated either on a pro rata basis among all of the
Senior Certificates in proportion to their respective
outstanding principal balances or as otherwise provided
in the related Prospectus Supplement.
With respect to certain Realized Losses resulting
from physical damage to Mortgaged Properties which are
generally of the same type as are covered under a Special
Hazard Insurance Policy, the amount thereof that may be
allocated to the Subordinate Certificates of the related
series may be limited to an amount (the "Special Hazard
Amount") specified in the related Prospectus Supplement.
See "Description of Credit Enhancement-Special Hazard
Insurance Policies." If so, any Special Hazard Losses in
excess of the Special Hazard Amount will be allocated
among all outstanding classes of Certificates of the
related series, either on a pro rata basis in proportion
to their outstanding principal balances, or as otherwise
provided in the related Prospectus Supplement. The
respective amounts of other specified types of losses
(including Fraud Losses and Bankruptcy Losses) that may
be borne solely by the Subordinate Certificates may be
similarly limited to an amount (with respect to Fraud
Losses, the "Fraud Loss Amount" and with respect to
Bankruptcy Losses, the "Bankruptcy Amount"), and the
Subordinate Certificates may provide no coverage with
respect to certain other specified types of losses, as
described in the related Prospectus Supplement, in which
case such losses would be allocated on a pro rata basis
among all outstanding classes of Certificates. Each of
the Special Hazard Amount, Fraud Loss Amount and
Bankruptcy Amount may be subject to periodic reductions
and may be subject to further reduction or termination,
without the consent of the Certificateholders, upon the
written confirmation from each applicable Rating Agency
that the then-current rating of the related series of
Certificates will not be adversely affected thereby.
Generally, any allocation of a Realized Loss
(including a Special Hazard Loss) to a Certificate will
be made by reducing the outstanding principal balance
thereof as of the Distribution Date following the
calendar month in which such Realized Loss was incurred.
At any given time, the percentage of the outstanding
principal balances of all of the Certificates evidenced
by the Senior Certificates is the "Senior Percentage,"
determined in the manner set forth in the related
Prospectus Supplement. The "Stated Principal Balance" of
any item of Mortgage Collateral as of any date of
determination is equal to the principal balance thereof
as of the Cut-off Date, after application of all
scheduled principal payments due on or before the Cut-off
Date, whether received or not, reduced by all amounts
allocable to principal that are distributed to
Certificateholders on or before the date of
determination, and as further reduced to the extent that
any Realized Loss thereon has been allocated to any
Certificates on or before such date.
As set forth above, the rights of holders of the
various classes of Certificates of any series to receive
distributions of principal and interest is determined by
the aggregate outstanding principal balance of each such
class (or, if applicable, the related notional amount).
The outstanding principal balance of any Certificate will
be reduced by all amounts previously distributed on such
Certificate in respect of principal and by any Realized
Losses allocated thereto. If there are no Realized
Losses or Principal Prepayments on any item of Mortgage
Collateral, the respective rights of the holders of
Certificates of any series to future distributions
generally would not change. However, to the extent set
forth in the related Prospectus Supplement, holders of
Senior Certificates may be entitled to receive a
disproportionately larger amount of prepayments received
during certain specified periods, which will have the
effect (absent offsetting losses) of accelerating the
amortization of the Senior Certificates and increasing
the respective percentage ownership interest evidenced by
the Subordinate Certificates in the related Trust Fund
(with a corresponding decrease in the Senior Percentage),
thereby preserving the availability of the subordination
provided by the Subordinate Certificates. In addition,
as set forth above, certain Realized Losses generally
will be allocated first to Subordinate Certificates by
reduction of the outstanding principal balance thereof,
which will have the effect of increasing the respective
ownership interest evidenced by the Senior Certificates
in the related Trust Fund.
If so provided in the related Prospectus Supplement,
certain amounts otherwise payable on any Distribution
Date to holders of Subordinate Certificates may be
deposited into a Reserve Fund. Amounts held in any
Reserve Fund may be applied as described under
"Description of Credit Enhancement-Reserve Funds" and in
the related Prospectus Supplement.
With respect to any Senior/Subordinate Series, the
terms and provisions of the subordination may vary from
those described above. Any such variation and any
additional credit enhancement will be described in the
related Prospectus Supplement.
DESCRIPTION OF CREDIT ENHANCEMENT
General
Credit support with respect to each series of
Certificates may be comprised of one or more of the
following components. Each component will have a dollar
limit and will provide coverage with respect to Realized
Losses that are (i) attributable to the Mortgagor's
failure to make any payment of principal or interest as
required under the Mortgage Note or Contract, but not
including Special Hazard Losses, Extraordinary Losses or
other losses resulting from damage to a Mortgaged
Property, Bankruptcy Losses or Fraud Losses (any such
loss, a "Defaulted Mortgage Loss"); (ii) of a type
generally covered by a Special Hazard Insurance Policy
(any such loss, a "Special Hazard Loss"); (iii)
attributable to certain actions which may be taken by a
bankruptcy court in connection with a Mortgage Loan,
including a reduction by a bankruptcy court of the
principal balance of or the Mortgage Rate on a Mortgage
Loan or Contract or an extension of its maturity (any
such loss, a "Bankruptcy Loss"); and (iv) incurred on
defaulted Mortgage Loans or Contracts as to which there
was fraud in the origination of such Mortgage Loans or
Contracts (any such loss, a "Fraud Loss").
Unless otherwise specified in the related Prospectus
Supplement, credit support will not provide protection
against all risks of loss and will not guarantee
repayment of the entire outstanding principal balance of
the Certificates and interest thereon. If losses occur
which exceed the amount covered by credit support or
which are not covered by the credit support,
Certificateholders will bear their allocable share of
deficiencies. In particular, Defaulted Mortgage Losses,
Special Hazard Losses, Bankruptcy Losses and Fraud Losses
in excess of the amount of coverage provided therefor and
losses occasioned by war, civil insurrection, certain
governmental actions, nuclear reaction and certain other
risks ("Extraordinary Losses") will not be covered. To
the extent that the credit enhancement for any series of
Certificates is exhausted, the Certificateholders will
bear all further risks of loss not otherwise insured
against.
As set forth below and in the related Prospectus
Supplement, (i) coverage with respect to Defaulted
Mortgage Losses may be provided by a Mortgage Pool
Insurance Policy or Contract Pool Insurance Policy, (ii)
coverage with respect to Special Hazard Losses may be
provided by a Special Hazard Insurance Policy, (iii)
coverage with respect to Bankruptcy Losses may be
provided by a Bankruptcy Bond and (iv) coverage with
respect to Fraud Losses may be provided by a Mortgage
Pool Insurance Policy or mortgage repurchase bond. In
addition, if so specified in the applicable Prospectus
Supplement, in lieu of or in addition to any or all of
the foregoing arrangements, credit enhancement may be in
the form of a Reserve Fund to cover such losses, in the
form of subordination of one or more classes of
Certificates as described under "Subordination," or in
the form of a Certificate Insurance Policy, a Letter of
Credit, surety bonds or other types of insurance
policies, certain other secured or unsecured corporate
guarantees or in such other form as may be described in
the related Prospectus Supplement, or in the form of a
combination of two or more of the foregoing. The credit
support may be provided by an assignment of the right to
receive certain cash amounts, a deposit of cash into a
Reserve Fund or other pledged assets, or by banks,
insurance companies, guarantees or any combination
thereof identified in the related Prospectus Supplement.
Each Prospectus Supplement will include a
description of (a) the amount payable under the credit
enhancement arrangement, if any, provided with respect to
a series, (b) any conditions to payment thereunder not
otherwise described herein, (c) the conditions under
which the amount payable under such credit support may be
reduced and under which such credit support may be
terminated or replaced and (d) the material provisions of
any agreement relating to such credit support.
Additionally, each such Prospectus Supplement will set
forth certain information with respect to the issuer of
any third-party credit enhancement.
The descriptions of any insurance policies, bonds or
other instruments described in this Prospectus or any
Prospectus Supplement and the coverage thereunder do not
purport to be complete and are qualified in their
entirety by reference to the actual forms of such
policies, copies of which will be exhibits to the Current
Report on Form 8-K to be filed with the Securities and
Exchange Commission in connection with the issuance of
the related series of Certificates.
Letters of Credit
If any component of credit enhancement as to any
series of Certificates is to be provided by a letter of
credit (the "Letter of Credit"), a bank (the "Letter of
Credit Bank") will deliver to the Trustee an irrevocable
Letter of Credit. The Letter of Credit may provide
direct coverage with respect to the Mortgage Collateral.
The Letter of Credit Bank, the amount available under the
Letter of Credit with respect to each component of credit
enhancement, the expiration date of the Letter of Credit,
and a more detailed description of the Letter of Credit
will be specified in the related Prospectus Supplement.
On or before each Distribution Date, the Letter of Credit
Bank will be required to make certain payments after
notification from the Trustee, to be deposited in the
related Certificate Account with respect to the coverage
provided thereby. The Letter of Credit may also provide
for the payment of Advances.
Mortgage Pool Insurance Policies
Any pool-wide insurance policy covering losses on
Mortgage Loans (each, a "Mortgage Pool Insurance Policy")
obtained by the Company for a Trust Fund will be issued
by the insurer named in the related Prospectus Supplement
(the "Pool Insurer"). Each Mortgage Pool Insurance
Policy, subject to the limitations described below and in
the Prospectus Supplement, if any, will cover Defaulted
Mortgage Losses in an amount specified in the applicable
Prospectus Supplement. As set forth under "-Maintenance
of Credit Enhancement" below, the Master Servicer,
Servicer or Certificate Administrator, as applicable,
will use its best reasonable efforts to maintain the
Mortgage Pool Insurance Policy and to present claims
thereunder to the Pool Insurer on behalf of itself, the
Trustee and the Certificateholders. The Mortgage Pool
Insurance Policies, however, are not blanket policies
against loss, since claims thereunder may only be made
respecting particular defaulted Mortgage Loans and only
upon satisfaction of certain conditions precedent
described below. Unless specified in the related
Prospectus Supplement, the Mortgage Pool Insurance
Policies may not cover losses due to a failure to pay or
denial of a claim under a Primary Insurance Policy,
irrespective of the reason therefor.
Each Mortgage Pool Insurance Policy will provide
that no claims may be validly presented thereunder
unless, among other things, (i) any required Primary
Insurance Policy is in effect for the defaulted Mortgage
Loan and a claim thereunder has been submitted and
settled, (ii) hazard insurance on the property securing
such Mortgage Loan has been kept in force and real estate
taxes and other protection and preservation expenses have
been paid by the Master Servicer, Servicer or Sub-
Servicer, (iii) if there has been physical loss or damage
to the Mortgaged Property, it has been restored to its
condition (reasonable wear and tear excepted) at the
Cut-off Date and (iv) the insured has acquired good and
merchantable title to the Mortgaged Property free and
clear of liens except certain permitted encumbrances.
Upon satisfaction of these conditions, the Pool Insurer
will have the option either (a) to purchase the property
securing the defaulted Mortgage Loan at a price equal to
the outstanding principal balance thereof plus accrued
and unpaid interest at the applicable Mortgage Rate to
the date of purchase and certain expenses incurred by the
Master Servicer, Servicer or Sub-Servicer on behalf of
the Trustee and Certificateholders, or (b) to pay the
amount by which the sum of the outstanding principal
balance of the defaulted Mortgage Loan plus accrued and
unpaid interest at the Mortgage Rate to the date of
payment of the claim and the aforementioned expenses
exceeds the proceeds received from an approved sale of
the Mortgaged Property, in either case net of certain
amounts paid or assumed to have been paid under any
related Primary Insurance Policy. Certificateholders
will experience a shortfall in the amount of interest
payable on the related Certificates in connection with
the payment of claims under a Mortgage Pool Insurance
Policy because the Pool Insurer is only required to remit
unpaid interest through the date a claim is paid rather
than through the end of the month in which such claim is
paid. In addition, the Certificateholders will also
experience losses with respect to the related
Certificates in connection with payments made under a
Mortgage Pool Insurance Policy to the extent that the
Master Servicer, Servicer or Sub-Servicer expends funds
to cover unpaid real estate taxes or to repair the
related Mortgaged Property in order to make a claim under
a Mortgage Pool Insurance Policy, as those amounts will
not be covered by payments under such policy and will be
reimbursable to the Master Servicer, Servicer or Sub-
Servicer from funds otherwise payable to the
Certificateholders. If any Mortgaged Property securing
a defaulted Mortgage Loan is damaged and proceeds, if any
(see "-Special Hazard Insurance Policies" below for risks
which are not covered by such policies), from the related
hazard insurance policy or applicable Special Hazard
Instrument are insufficient to restore the damaged
property to a condition sufficient to permit recovery
under the Mortgage Pool Insurance Policy, the Master
Servicer, Servicer or Sub-Servicer is not required to
expend its own funds to restore the damaged property
unless it determines that (a) such restoration will
increase the proceeds to Certificateholders on
liquidation of the Mortgage Loan after reimbursement of
the Master Servicer, Servicer or Sub-Servicer for its
expenses and (b) such expenses will be recoverable by it
through Liquidation Proceeds or Insurance Proceeds.
Unless otherwise specified in the related Prospectus
Supplement, a Mortgage Pool Insurance Policy (and certain
Primary Insurance Policies) will likely not insure
against loss sustained by reason of a default arising
from, among other things, (i) fraud or negligence in the
origination or servicing of a Mortgage Loan, including
misrepresentation by the Mortgagor, the Mortgage
Collateral Seller or other persons involved in the
origination thereof, or (ii) failure to construct a
Mortgaged Property in accordance with plans and
specifications. Depending upon the nature of the event,
a breach of representation made by a Mortgage Collateral
Seller may also have occurred. Such a breach, unless
otherwise specified in the related Prospectus Supplement,
would not give rise to a repurchase obligation on the
part of the Company or Residential Funding.
The original amount of coverage under each Mortgage
Pool Insurance Policy will be reduced over the life of
the related series of Certificates by the aggregate
amount of claims paid less the aggregate of the net
amounts realized by the Pool Insurer upon disposition of
all foreclosed properties. The amount of claims paid
includes certain expenses incurred by the Master
Servicer, Servicer or Sub-Servicer as well as accrued
interest on delinquent Mortgage Loans to the date of
payment of the claim. See "Certain Legal Aspects of
Mortgage Loans and Contracts-Foreclosure." Accordingly,
if aggregate net claims paid under any Mortgage Pool
Insurance Policy reach the original policy limit,
coverage under that Mortgage Pool Insurance Policy will
be exhausted and any further losses will be borne by the
related Certificateholders. In addition, unless the
Master Servicer or Servicer could determine that an
Advance in respect of a delinquent Mortgage Loan would be
recoverable to it from the proceeds of the liquidation of
such Mortgage Loan or otherwise, the Master Servicer or
Servicer would not be obligated to make an Advance
respecting any such delinquency since the Advance would
not be ultimately recoverable to it from either the
Mortgage Pool Insurance Policy or from any other related
source. See "Description of the Certificates-Advances."
Since each Mortgage Pool Insurance Policy will
require that the property subject to a defaulted Mortgage
Loan be restored to its original condition prior to
claiming against the Pool Insurer, such policy will not
provide coverage against hazard losses. As set forth
under "Insurance Policies on Mortgage Loans or Contracts-
Standard Hazard Insurance on Mortgaged Properties," the
hazard policies covering the Mortgage Loans typically
exclude from coverage physical damage resulting from a
number of causes and, even when the damage is covered,
may afford recoveries which are significantly less than
full replacement cost of such losses. Additionally, no
coverage in respect of Special Hazard Losses, Fraud
Losses or Bankruptcy Losses will cover all risks, and the
amount of any such coverage will be limited. See "-
Special Hazard Insurance Policies" below. As a result,
certain hazard risks will not be insured against and may
be borne by Certificateholders.
Contract Pools may be covered by pool insurance
policies (each, a "Contract Pool Insurance Policy") that
are similar to the Mortgage Pool Insurance Policies
described above.
Special Hazard Insurance Policies
Any insurance policy covering Special Hazard Losses
(a "Special Hazard Insurance Policy") obtained for a
Trust Fund will be issued by the insurer named in the
related Prospectus Supplement (the "Special Hazard
Insurer"). Each Special Hazard Insurance Policy, subject
to limitations described below and in the related
Prospectus Supplement, if any, will protect the related
Certificateholders from Special Hazard Losses which are
(i) losses due to direct physical damage to a Mortgaged
Property other than any loss of a type covered by a
hazard insurance policy or a flood insurance policy, if
applicable, and (ii) losses from partial damage caused by
reason of the application of the co-insurance clauses
contained in hazard insurance policies. See "Insurance
Policies on Mortgage Loans or Contracts." A Special
Hazard Insurance Policy will not cover losses occasioned
by war, civil insurrection, certain governmental actions,
errors in design, faulty workmanship or materials (except
under certain circumstances), nuclear reaction, chemical
contamination or waste by the Mortgagor. Aggregate
claims under a Special Hazard Insurance Policy will be
limited to the amount set forth in the related Pooling
and Servicing Agreement and will be subject to reduction
as set forth in such related Pooling and Servicing
Agreement. A Special Hazard Insurance Policy will
provide that no claim may be paid unless hazard and, if
applicable, flood insurance on the property securing the
Mortgage Loan or Contract has been kept in force and
other protection and preservation expenses have been paid
by the Master Servicer or Servicer.
Subject to the foregoing limitations, a Special
Hazard Insurance Policy will provide that, where there
has been damage to property securing a foreclosed
Mortgage Loan (title to which has been acquired by the
insured) and to the extent such damage is not covered by
the hazard insurance policy or flood insurance policy, if
any, maintained by the Mortgagor or the Master Servicer,
Servicer or Sub-Servicer, the insurer will pay the lesser
of (i) the cost of repair or replacement of such property
or (ii) upon transfer of the property to the insurer, the
unpaid principal balance of such Mortgage Loan or
Contract at the time of acquisition of such property by
foreclosure or deed in lieu of foreclosure, plus accrued
interest at the Mortgage Rate to the date of claim
settlement and certain expenses incurred by the Master
Servicer, Servicer or Sub-Servicer with respect to such
property. If the property is transferred to a third
party in a sale approved by the Special Hazard Insurer,
the amount that the Special Hazard Insurer will pay will
be the amount under (ii) above reduced by the net
proceeds of the sale of the property. If the unpaid
principal balance plus accrued interest and certain
expenses is paid by the Special Hazard Insurer, the
amount of further coverage under the related Special
Hazard Insurance Policy will be reduced by such amount
less any net proceeds from the sale of the property. Any
amount paid as the cost of repair of the property will
further reduce coverage by such amount. Restoration of
the property with the proceeds described under (i) above
will satisfy the condition under each Mortgage Pool
Insurance Policy or Contract Pool Insurance Policy that
the property be restored before a claim under such policy
may be validly presented with respect to the defaulted
Mortgage Loan or Contract secured by such property. The
payment described under (ii) above will render
presentation of a claim in respect of such Mortgage Loan
or Contract under the related Mortgage Pool Insurance
Policy or Contract Pool Insurance Policy unnecessary.
Therefore, so long as a Mortgage Pool Insurance Policy or
Contract Pool Insurance Policy remains in effect, the
payment by the insurer under a Special Hazard Insurance
Policy of the cost of repair or of the unpaid principal
balance of the related Mortgage Loan or contract plus
accrued interest and certain expenses will not affect the
total Insurance Proceeds paid to Certificateholders, but
will affect the relative amounts of coverage remaining
under the related Special Hazard Insurance Policy and
Mortgage Pool Insurance Policy or Contract Pool Insurance
Policy.
To the extent set forth in the related Prospectus
Supplement, coverage in respect of Special Hazard Losses
for a series of Certificates may be provided, in whole or
in part, by a type of special hazard coverage other than
a Special Hazard Insurance Policy or by means of a
representation of the Company or Residential Funding.
Bankruptcy Bonds
In the event of a personal bankruptcy of a
Mortgagor, a bankruptcy court may establish the value of
the Mortgaged Property of such Mortgagor at an amount
less than the then outstanding principal balance of the
Mortgage Loan or Contract secured by such Mortgaged
Property (such difference, a "Deficient Valuation"). The
amount of the secured debt could then be reduced to such
value and, thus, the holder of such Mortgage Loan or
Contract would become an unsecured creditor to the extent
the outstanding principal balance of such Mortgage Loan
or Contract exceeds the value assigned to the Mortgaged
Property by the bankruptcy court. In addition, certain
other modifications of the terms of a Mortgage Loan or
Contract can result from a bankruptcy proceeding,
including a reduction in the amount of the Monthly
Payment on the related Mortgage Loan (a "Debt Service
Reduction"). See "Certain Legal Aspects of Mortgage
Loans and Contracts-Mortgage Loans-Anti-Deficiency
Legislation and Other Limitations on Lenders." Any
Bankruptcy Bond to provide coverage for Bankruptcy Losses
resulting from proceedings under the federal Bankruptcy
Code obtained for a Trust Fund will be issued by an
insurer named in the related Prospectus Supplement. The
level of coverage under each Bankruptcy Bond will be set
forth in the related Prospectus Supplement.
Reserve Funds
If so specified in the related Prospectus
Supplement, the Company will deposit or cause to be
deposited in an account (a "Reserve Fund") any
combination of cash or Permitted Investments in specified
amounts, or any other instrument satisfactory to the
Rating Agency or Agencies, which will be applied and
maintained in the manner and under the conditions
specified in such Prospectus Supplement. In the
alternative or in addition to such deposit, to the extent
described in the related Prospectus Supplement, a Reserve
Fund may be funded through application of all or a
portion of amounts otherwise payable on any related
Subordinate Certificates, from the Spread or otherwise.
To the extent that the funding of the Reserve Fund is
dependent on amounts otherwise payable on related
Subordinate Certificates, Spread or other cash flows
attributable to the related Mortgage Loans or on
reinvestment income, the Reserve Fund may provide less
coverage than initially expected if the cash flows or
reinvestment income on which such funding is dependent
are lower than anticipated. With respect to any series
of Certificates as to which credit enhancement includes
a Letter of Credit, if so specified in the related
Prospectus Supplement, under certain circumstances the
remaining amount of the Letter of Credit may be drawn by
the Trustee and deposited in a Reserve Fund. Amounts in
a Reserve Fund may be distributed to Certificateholders,
or applied to reimburse the Master Servicer or Servicer
for outstanding Advances, or may be used for other
purposes, in the manner and to the extent specified in
the related Prospectus Supplement. Unless otherwise
specified in the related Prospectus Supplement, any such
Reserve Fund will not be deemed to be part of the related
Trust Fund. A Reserve Fund may provide coverage to more
than one series of Certificates, if set forth in the
related Prospectus Supplement.
Unless otherwise specified in the related Prospectus
Supplement, the Trustee will have a perfected security
interest for the benefit of the Certificateholders in the
assets in the Reserve Fund. However, to the extent that
the Company, any affiliate thereof or any other entity
has an interest in any Reserve Fund, in the event of the
bankruptcy, receivership or insolvency of such entity,
there could be delays in withdrawals from the Reserve
Fund and the corresponding payments to the
Certificateholders. Such delays could adversely affect
the yield to investors on the related Certificates.
Amounts deposited in any Reserve Fund for a series
will be invested in Permitted Investments by, or at the
direction of, and for the benefit of a Servicer, the
Master Servicer, the Certificate Administrator or any
other person named in the related Prospectus Supplement.
Certificate Insurance Policies
If so specified in the related Prospectus
Supplement, the Company may obtain one or more
certificate insurance policies (each, a "Certificate
Insurance Policy"), issued by insurers acceptable to the
Rating Agency or Agencies rating the Certificates offered
pursuant to such Prospectus Supplement, insuring the
holders of one or more classes of Certificates the
payment of amounts due in accordance with the terms of
such class or classes of Certificates. Any Certificate
Insurance Policy will have the characteristics described
in and will be subject to such limitations and exceptions
as set forth in the related Prospectus Supplement.
Surety Bonds
If so specified in the related Prospectus
Supplement, the Company may obtain one or more surety
bonds (each, a "Surety Bond"), issued by insurers
acceptable to the Rating Agency or Agencies rating the
Certificates offered pursuant to such Prospectus
Supplement, insuring the holders of one or more classes
of Certificates the payment of amounts due in accordance
with the terms of such class or classes of Certificates.
Any surety bond will have the characteristics described
in and will be subject to such limitations and exceptions
as set forth in the related Prospectus Supplement.
Maintenance of Credit Enhancement
If credit enhancement has been obtained for a series
of Certificates, the Master Servicer, the Servicer or the
Certificate Administrator will be obligated to exercise
its best reasonable efforts to keep or cause to be kept
such credit enhancement in full force and effect
throughout the term of the applicable Pooling and
Servicing Agreement or Trust Agreement, unless coverage
thereunder has been exhausted through payment of claims
or otherwise, or substitution therefor is made as
described below under "-Reduction or Substitution of
Credit Enhancement." The Master Servicer, the Servicer
or the Certificate Administrator, as applicable, on
behalf of itself, the Trustee and Certificateholders,
will be required to provide information required for the
Trustee to draw under any applicable credit enhancement.
Unless otherwise specified in the related Prospectus
Supplement, the Master Servicer, the Servicer or the
Certificate Administrator will agree to pay the premiums
for each Mortgage Pool Insurance Policy, Contract Pool
Insurance Policy, Special Hazard Insurance Policy,
Bankruptcy Bond, Certificate Insurance Policy or Surety
Bond, as applicable, on a timely basis. In the event the
related insurer ceases to be a "Qualified Insurer"
because it ceases to be qualified under applicable law to
transact such insurance business or coverage is
terminated for any reason other than exhaustion of such
coverage, the Master Servicer, the Servicer or the
Certificate Administrator will use its best reasonable
efforts to obtain from another Qualified Insurer a
comparable replacement insurance policy or bond with a
total coverage equal to the then outstanding coverage of
such policy or bond. If the cost of the replacement
policy is greater than the cost of such policy or bond,
the coverage of the replacement policy or bond will,
unless otherwise agreed to by the Company, be reduced to
a level such that its premium rate does not exceed the
premium rate on the original insurance policy. In the
event that the Pool Insurer ceases to be a Qualified
Insurer because it ceases to be approved as an insurer by
Freddie Mac, Fannie Mae or any successor entity, the
Master Servicer, the Servicer or the Certificate
Administrator, as applicable, will review, not less often
than monthly, the financial condition of the Pool Insurer
with a view toward determining whether recoveries under
the Mortgage Pool Insurance Policy or Contract Pool
Insurance Policy are jeopardized for reasons related to
the financial condition of the Pool Insurer. If the
Master Servicer, the Servicer or the Certificate
Administrator determines that recoveries are so
jeopardized, it will exercise its best reasonable efforts
to obtain from another Qualified Insurer a replacement
insurance policy as described above, subject to the same
cost limit. Any losses in market value of the
Certificates associated with any reduction or withdrawal
in rating by an applicable Rating Agency shall be borne
by the Certificateholders.
If any property securing a defaulted Mortgage Loan
or Contract is damaged and proceeds, if any, from the
related hazard insurance policy or any applicable Special
Hazard Insurance Policy are insufficient to restore the
damaged property to a condition sufficient to permit
recovery under any Letter of Credit, Mortgage Pool
Insurance Policy, Contract Pool Insurance Policy or any
related Primary Insurance Policy, the Master Servicer or
the Servicer, as applicable, is not required to expend
its own funds to restore the damaged property unless it
determines (i) that such restoration will increase the
proceeds to one or more classes of Certificateholders on
liquidation of the Mortgage Loan after reimbursement of
the Master Servicer or the Servicer, as applicable, for
its expenses and (ii) that such expenses will be
recoverable by it through Liquidation Proceeds or
Insurance Proceeds. If recovery under any Letter of
Credit, Mortgage Pool Insurance Policy, Contract Pool
Insurance Policy, other credit enhancement or any related
Primary Insurance Policy is not available because the
Master Servicer or the Servicer, as applicable, has been
unable to make the above determinations, has made such
determinations incorrectly or recovery is not available
for any other reason, the Master Servicer or the
Servicer, as applicable, is nevertheless obligated to
follow such normal practices and procedures (subject to
the preceding sentence) as it deems necessary or
advisable to realize upon the defaulted Mortgage Loan and
in the event such determination has been incorrectly
made, is entitled to reimbursement of its expenses in
connection with such restoration.
Reduction or Substitution of Credit Enhancement
Unless otherwise specified in the Prospectus
Supplement, the amount of credit support provided with
respect to any series of Certificates may be reduced
under certain specified circumstances. In most cases,
the amount available as credit support will be subject to
periodic reduction on a non-discretionary basis in
accordance with a schedule or formula set forth in the
related Pooling and Servicing Agreement or Trust
Agreement. Additionally, in most cases, such credit
support may be replaced, reduced or terminated, and the
formula used in calculating the amount of coverage with
respect to Bankruptcy Losses, Special Hazard Losses or
Fraud Losses may be changed, without the consent of the
Certificateholders, upon the written assurance from each
applicable Rating Agency that the then-current rating of
the related series of Certificates will not be adversely
affected thereby. Furthermore, in the event that the
credit rating of any obligor under any applicable credit
enhancement is downgraded, the credit rating of each
class of the related Certificates may be downgraded to a
corresponding level, and, unless otherwise specified in
the related Prospectus Supplement, the Master Servicer,
the Servicer or the Certificate Administrator, as
applicable, will not be obligated to obtain replacement
credit support in order to restore the rating of the
Certificates. The Master Servicer, the Servicer or the
Certificate Administrator, as applicable, will also be
permitted to replace such credit support with other
credit enhancement instruments issued by obligors whose
credit ratings are equivalent to such downgraded level
and in lower amounts which would satisfy such downgraded
level, provided that the then-current rating of each
class of the related series of Certificates is
maintained. Where the credit support is in the form of
a Reserve Fund, a permitted reduction in the amount of
credit enhancement will result in a release of all or a
portion of the assets in the Reserve Fund to the Company,
the Master Servicer or such other person that is entitled
thereto. Any assets so released will not be available
for distributions in future periods.
INSURANCE POLICIES ON MORTGAGE LOANS OR CONTRACTS
Each Mortgage Loan or Contract will be required to
be covered by a hazard insurance policy (as described
below) and, in certain cases, a Primary Insurance Policy.
In addition, FHA Loans and VA Loans will be covered by
the government mortgage insurance programs described
below. The descriptions of any insurance policies set
forth in this Prospectus or any Prospectus Supplement and
the coverage thereunder do not purport to be complete and
are qualified in their entirety by reference to such
forms of policies.
Primary Mortgage Insurance Policies
Unless otherwise specified in the related Prospectus
Supplement, (i) each Mortgage Loan having a Loan-to-Value
Ratio at origination of over 80% will be covered by a
primary mortgage guaranty insurance policy (a "Primary
Insurance Policy") insuring against default on such
Mortgage Loan as to at least the principal amount thereof
exceeding 75% of the Appraised Value of the Mortgaged
Property at origination of the Mortgage Loan, unless and
until the principal balance of the Mortgage Loan is
reduced to a level that would produce a Loan-to-Value
Ratio equal to or less than 80%, and (ii) the Company or
the related Mortgage Collateral Seller will represent and
warrant that, to the best of such entity's knowledge,
such Mortgage Loans are so covered. Mortgage Loans which
are subject to negative amortization will only be covered
by a Primary Insurance Policy if such coverage was so
required upon their origination, notwithstanding that
subsequent negative amortization may cause such Mortgage
Loan's Loan-to-Value Ratio (based on the then-current
balance) to subsequently exceed the limits which would
have required such coverage upon their origination.
While the terms and conditions of the Primary
Insurance Policies issued by one primary mortgage
guaranty insurer (a "Primary Insurer") will differ from
those in Primary Insurance Policies issued by other
Primary Insurers, each Primary Insurance Policy generally
will pay either: (i) the insured percentage of the loss
on the related Mortgaged Property; (ii) the entire amount
of such loss, after receipt by the Primary Insurer of
good and merchantable title to, and possession of, the
Mortgaged Property; or (iii) at the option of the Primary
Insurer under certain Primary Insurance Policies, the sum
of the delinquent monthly payments plus any advances made
by the insured, both to the date of the claim payment
and, thereafter, monthly payments in the amount that
would have become due under the Mortgage Loan if it had
not been discharged plus any advances made by the insured
until the earlier of (a) the date the Mortgage Loan would
have been discharged in full if the default had not
occurred or (b) an approved sale. The amount of the loss
as calculated under a Primary Insurance Policy covering
a Mortgage Loan will generally consist of the unpaid
principal amount of such Mortgage Loan and accrued and
unpaid interest thereon and reimbursement of certain
expenses, less (i) rents or other payments collected or
received by the insured (other than the proceeds of
hazard insurance) that are derived from the related
Mortgaged Property, (ii) hazard insurance proceeds in
excess of the amount required to restore such Mortgaged
Property and which have not been applied to the payment
of the Mortgage Loan, (iii) amounts expended but not
approved by the Primary Insurer, (iv) claim payments
previously made on such Mortgage Loan and (v) unpaid
premiums and certain other amounts.
As conditions precedent to the filing or payment of
a claim under a Primary Insurance Policy, in the event of
default by the Mortgagor, the insured will typically be
required, among other things, to: (i) advance or
discharge (a) hazard insurance premiums and (b) as
necessary and approved in advance by the Primary Insurer,
real estate taxes, protection and preservation expenses
and foreclosure and related costs; (ii) in the event of
any physical loss or damage to the Mortgaged Property,
have the Mortgaged Property restored to at least its
condition at the effective date of the Primary Insurance
Policy (ordinary wear and tear excepted); and (iii)
tender to the Primary Insurer good and merchantable title
to, and possession of, the Mortgaged Property.
The Pooling and Servicing Agreement for a series
generally will require that the Master Servicer or
Servicer maintain, or cause to be maintained, coverage
under a Primary Insurance Policy to the extent such
coverage was in place on the Cut-off Date. In the event
that the Company gains knowledge that, as of the Closing
Date, a Mortgage Loan had a Loan-to-Value Ratio at
origination in excess of 80% and was not the subject of
a Primary Insurance Policy (and was not included in any
exception to such standard disclosed in the related
Prospectus Supplement) and that such Mortgage Loan has a
then current Loan-to-Value Ratio in excess of 80%, then
the Master Servicer or the Servicer is required to use
its reasonable efforts to obtain and maintain a Primary
Insurance Policy to the extent that such a policy is
obtainable at a reasonable price.
Any primary mortgage insurance or primary credit
insurance policies relating to Contracts will be
described in the related Prospectus Supplement.
Standard Hazard Insurance on Mortgaged Properties
The terms of the Mortgage Loans require each
Mortgagor to maintain a hazard insurance policy covering
the related Mortgaged Property and providing for coverage
at least equal to that of the standard form of fire
insurance policy with extended coverage customary in the
state in which the property is located. Such coverage
generally will be in an amount equal to the lesser of the
principal balance of such Mortgage Loan or 100% of the
insurable value of the improvements securing the Mortgage
Loan. The Pooling and Servicing Agreement will provide
that the Master Servicer or Servicer shall cause such
hazard policies to be maintained or shall obtain a
blanket policy insuring against losses on the Mortgage
Loans. The ability of the Master Servicer or Servicer to
ensure that hazard insurance proceeds are appropriately
applied may be dependent on its being named as an
additional insured under any hazard insurance policy and
under any flood insurance policy referred to below, or
upon the extent to which information in this regard is
furnished to the Master Servicer or the Servicer by
Mortgagors or Sub-Servicers.
In general, the standard form of fire and extended
coverage policy covers physical damage to or destruction
of the improvements on the property by fire, lightning,
explosion, smoke, windstorm, hail, riot, strike and civil
commotion, subject to the conditions and exclusions
specified in each policy. The policies relating to the
Mortgage Loans will be underwritten by different insurers
under different state laws in accordance with different
applicable state forms and therefore will not contain
identical terms and conditions, the basic terms thereof
are dictated by respective state laws. Such policies
typically do not cover any physical damage resulting from
the following: war, revolution, governmental actions,
floods and other water-related causes, earth movement
(including earthquakes, landslides and mudflows), nuclear
reactions, wet or dry rot, vermin, rodents, insects or
domestic animals, theft and, in certain cases, vandalism.
The foregoing list is merely indicative of certain kinds
of uninsured risks and is not intended to be
all-inclusive. Where the improvements securing a
Mortgage Loan are located in a federally designated flood
area at the time of origination of such Mortgage Loan,
the Pooling and Servicing Agreement generally requires
the Master Servicer or Servicer to cause to be maintained
for each such Mortgage Loan serviced, flood insurance (to
the extent available) in an amount equal in general to
the lesser of the amount required to compensate for any
loss or damage on a replacement cost basis or the maximum
insurance available under the federal flood insurance
program.
Since the amount of hazard insurance that Mortgagors
are required to maintain on the improvements securing the
Mortgage Loans may decline as the principal balances
owing thereon decrease, and since residential properties
have historically appreciated in value over time, hazard
insurance proceeds could be insufficient to restore fully
the damaged property in the event of a partial loss. See
"Subordination" above for a description of when
subordination is provided, the protection (limited to the
Special Hazard Amount as described in the related
Prospectus Supplement) afforded by such subordination,
and "Description of Credit Enhancement-Special Hazard
Insurance Policies" for a description of the limited
protection afforded by any Special Hazard Insurance
Policy against losses occasioned by hazards which are
otherwise uninsured against.
Standard Hazard Insurance on Manufactured Homes
The terms of the Pooling and Servicing Agreement
will require the Servicer or the Master Servicer, as
applicable, to cause to be maintained with respect to
each Contract one or more Standard Hazard Insurance
Policies which provide, at a minimum, the same coverage
as a standard form fire and extended coverage insurance
policy that is customary for manufactured housing, issued
by a company authorized to issue such policies in the
state in which the Manufactured Home is located, and in
an amount which is not less than the maximum insurable
value of such Manufactured Home or the principal balance
due from the Mortgagor on the related Contract, whichever
is less. Such coverage may be provided by one or more
blanket insurance policies covering losses on the
Contracts resulting from the absence or insufficiency of
individual Standard Hazard Insurance Policies. If a
Manufactured Home's location was, at the time of
origination of the related Contract, within a federally
designated flood area, the Servicer or the Master
Servicer also will be required to maintain flood
insurance.
If the Servicer or the Master Servicer repossesses
a Manufactured Home on behalf of the Trustee, the
Servicer or the Master Servicer will either (i) maintain
at its expense hazard insurance with respect to such
Manufactured Home or (ii) indemnify the Trustee against
any damage to such Manufactured Home prior to resale or
other disposition.
FHA Mortgage Insurance
The Housing Act authorizes various FHA mortgage
insurance programs. Some of the Mortgage Loans may be
insured under either Section 203(b), Section 234 or
Section 235 of the Housing Act. Under Section 203(b),
FHA insures mortgage loans of up to 30 years' duration
for the purchase of one- to four-family dwelling units.
Mortgage loans for the purchase of condominium units are
insured by FHA under Section 234. Loans insured under
these programs must bear interest at a rate not exceeding
the maximum rate in effect at the time the loan is made,
as established by HUD, and may not exceed specified
percentages of the lesser of the appraised value of the
property and the sales price, less seller paid closing
costs for the property, up to certain specified maximums.
In addition, FHA imposes initial investment minimums and
other requirements on mortgage loans insured under the
Section 203(b) and Section 234 programs.
Under Section 235, assistance payments are paid by
HUD to the mortgagee on behalf of eligible mortgagors for
as long as the mortgagors continue to be eligible for the
payments. To be eligible, a mortgagor must be part of a
family, have income within the limits prescribed by HUD
at the time of initial occupancy, occupy the property and
meet requirements for recertification at least annually.
The regulations governing these programs provide
that insurance benefits are payable either (i) upon
foreclosure (or other acquisition of possession) and
conveyance of the mortgaged premises to HUD or (ii) upon
assignment of the defaulted mortgage loan to HUD. The
FHA insurance that may be provided under these programs
upon the conveyance of the home to HUD is equal to 100%
of the outstanding principal balance of the mortgage
loan, plus accrued interest, as described below, and
certain additional costs and expenses. When entitlement
to insurance benefits results from assignment of the
mortgage loan to HUD, the insurance payment is computed
as of the date of the assignment and includes the unpaid
principal amount of the mortgage loan plus mortgage
interest accrued and unpaid to the assignment date.
When entitlement to insurance benefits results from
foreclosure (or other acquisition of possession) and
conveyance, the insurance payment is equal to the unpaid
principal amount of the mortgage loan, adjusted to
reimburse the mortgagee for certain tax, insurance and
similar payments made by it and to deduct certain amounts
received or retained by the mortgagee after default, plus
reimbursement not to exceed two-thirds of the mortgagee's
foreclosure costs. Any FHA insurance relating to
Contracts underlying a series of Certificates will be
described in the related Prospectus Supplement.
VA Mortgage Guaranty
The Servicemen's Readjustment Act of 1944, as
amended, permits a veteran (or, in certain instances, his
or her spouse) to obtain a mortgage loan guaranty by the
VA covering mortgage financing of the purchase of a one-
to four-family dwelling unit to be occupied as the
veteran's home at an interest rate not exceeding the
maximum rate in effect at the time the loan is made, as
established by HUD. The program has no limit on the
amount of a mortgage loan, requires no down payment from
the purchaser and permits the guaranty of mortgage loans
with terms, limited by the estimated economic life of the
property, up to 30 years. The maximum guaranty that may
be issued by the VA under this program is 50% of the
original principal amount of the mortgage loan up to a
certain dollar limit established by the VA. The
liability on the guaranty is reduced or increased pro
rata with any reduction or increase in the amount of
indebtedness, but in no event will the amount payable on
the guaranty exceed the amount of the original guaranty.
Notwithstanding the dollar and percentage limitations of
the guaranty, a mortgagee will ordinarily suffer a
monetary loss only when the difference between the
unsatisfied indebtedness and the proceeds of a
foreclosure sale of mortgaged premises is greater than
the original guaranty as adjusted. The VA may, at its
option, and without regard to the guaranty, make full
payment to a mortgagee of the unsatisfied indebtedness on
a mortgage upon its assignment to the VA.
Since there is no limit imposed by the VA on the
principal amount of a VA-guaranteed mortgage loan but
there is a limit on the amount of the VA guaranty,
additional coverage under a Primary Mortgage Insurance
Policy may be required by the Company for VA loans in
excess of certain amounts. The amount of any such
additional coverage will be set forth in the related
Prospectus Supplement. Any VA guaranty relating to
Contracts underlying a series of Certificates will be
described in the related Prospectus Supplement.
THE COMPANY
The Company is an indirect wholly-owned subsidiary
of GMAC Mortgage which is a wholly-owned subsidiary of
GMAC. The Company was incorporated in the State of
Delaware in November 1994. The Company was organized for
the purpose of acquiring mortgage loans and contracts and
issuing securities backed by such mortgage loans or
contracts. The Company anticipates that it will in many
cases have acquired Mortgage Loans indirectly through
Residential Funding, which is also an indirect wholly-
owned subsidiary of GMAC Mortgage. The Company does not
have, nor is it expected in the future to have, any
significant assets.
The Certificates do not represent an interest in or
an obligation of the Company. The Company's only
obligations with respect to a series of Certificates will
be pursuant to certain limited representations and
warranties made by the Company or as otherwise provided
in the related Prospectus Supplement.
The Company maintains its principal office at 8400
Normandale Lake Boulevard, Suite 700, Minneapolis,
Minnesota 55437. Its telephone number is (612) 832-7000.
RESIDENTIAL FUNDING CORPORATION
Unless otherwise specified in the related Prospectus
Supplement, Residential Funding, an affiliate of the
Company, will act as the Master Servicer or Certificate
Administrator for each series of Certificates.
Residential Funding buys conventional mortgage loans
under several loan purchase programs from mortgage loan
originators or sellers nationwide that meet its
seller/servicer eligibility requirements and services
mortgage loans for its own account and for others.
Residential Funding's principal executive offices are
located at 8400 Normandale Lake Boulevard, Suite 700,
Minneapolis, Minnesota 55437. Its telephone number is
(612) 832-7000. Residential Funding conducts operations
from its headquarters in Minneapolis and from offices
located in California, Connecticut, Florida, Georgia,
Rhode Island and Washington, D.C. At September 30, 1994,
Residential Funding was master servicing a mortgage loan
portfolio of approximately $23,552 million.
THE POOLING AND SERVICING AGREEMENT
As described above under "Description of the
Certificates-General," each series of Certificates will
be issued pursuant to a Pooling and Servicing Agreement
or, if the Trust Fund for a series of Certificates
contains Agency Securities, a Trust Agreement. The
discussion below covers Pooling and Servicing Agreements,
but its terms are also generally applicable to Trust
Agreements. The following summaries describe certain
additional provisions common to each Pooling and
Servicing Agreement and are qualified entirely by
reference to the actual terms of the Pooling and
Servicing Agreement for a series of Certificates.
Servicing and Administration
The Pooling and Servicing Agreement for a series of
Certificates will set forth the party responsible for
performing servicing functions for such series which may
be the Master Servicer or one or more Servicers. If
there is more than one Servicer and there is no Master
Servicer, a Certificate Administrator may be party to the
Pooling and Servicing Agreement. The Certificate
Administrator will not be responsible for servicing
Mortgage Loans or Contracts and instead will perform
certain specified administrative and reporting functions
with regard to the Trust Fund. In addition, if the Trust
Fund for a series of Certificates contains Agency
Securities, generally the Certificate Administrator will
perform collection, administrative and reporting
functions pursuant to a Trust Agreement and no Master
Servicer or Servicer will be appointed for such series.
The Master Servicer or any Servicer for a series of
Certificates generally will perform the functions set
forth under "Description of the Certificates-Servicing
and Administration of Mortgage Collateral" above.
Events of Default
Events of Default under the Pooling and Servicing
Agreement in respect of a series of Certificates, unless
otherwise specified in the Prospectus Supplement, will
include: (i) in the case of a Trust Fund including
Mortgage Loans or Contracts, any failure by the
Certificate Administrator, the Master Servicer or a
Servicer (if such Servicer is a party to the Pooling and
Servicing Agreement) to make a required deposit to the
Certificate Account or, if the Certificate Administrator
or the Master Servicer is the Paying Agent, to distribute
to the holders of any class of Certificates of such
series any required payment which continues unremedied
for five days after the giving of written notice of such
failure to the Master Servicer or the Certificate
Administrator, as applicable, by the Trustee or the
Company, or to the Master Servicer, the Certificate
Administrator, the Company and the Trustee by the holders
of Certificates of such class evidencing not less than
25% of the aggregate Percentage Interests constituting
such class; (ii) any failure by the Master Servicer or
the Certificate Administrator, as applicable, duly to
observe or perform in any material respect any other of
its covenants or agreements in the Pooling and Servicing
Agreement with respect to such series of Certificates
which continues unremedied for 30 days (15 days in the
case of a failure to pay the premium for any insurance
policy which is required to be maintained under the
Pooling and Servicing Agreement) after the giving of
written notice of such failure to the Master Servicer or
the Certificate Administrator, as applicable, by the
Trustee or the Company, or to the Master Servicer, the
Certificate Administrator, the Company and the Trustee by
the holders of any class of Certificates of such series
evidencing not less than 25% (33% in the case of a Trust
Fund including Agency Securities) of the aggregate
Percentage Interests constituting such class; and (iii)
certain events of insolvency, readjustment of debt,
marshalling of assets and liabilities or similar
proceedings regarding the Master Servicer or the
Certificate Administrator, as applicable, and certain
actions by the Master Servicer or the Certificate
Administrator indicating its insolvency or inability to
pay its obligations. A default pursuant to the terms of
any Agency Securities included in any Trust Fund will not
constitute an Event of Default under the related Pooling
and Servicing Agreement.
Rights Upon Event of Default
So long as an Event of Default remains unremedied,
either the Company or the Trustee may, and, at the
direction of the holders of Certificates evidencing not
less than 51% of the aggregate voting rights in the
related Trust Fund, the Trustee shall, by written
notification to the Master Servicer or the Certificate
Administrator, as applicable, and to the Company or the
Trustee, terminate all of the rights and obligations of
the Master Servicer or the Certificate Administrator
under the Pooling and Servicing Agreement (other than any
rights of the Master Servicer or the Certificate
Administrator as Certificateholder) covering such Trust
Fund and in and to the Mortgage Collateral and the
proceeds thereof, whereupon the Trustee or, upon notice
to the Company and with the Company's consent, its
designee will succeed to all responsibilities, duties and
liabilities of the Master Servicer or the Certificate
Administrator under such Pooling and Servicing Agreement
(other than the obligation to purchase Mortgage
Collateral under certain circumstances) and will be
entitled to similar compensation arrangements. In the
event that the Trustee would be obligated to succeed the
Master Servicer but is unwilling so to act, it may
appoint (or if it is unable so to act, it shall appoint)
or petition a court of competent jurisdiction for the
appointment of, a Fannie Mae or Freddie Mac approved
mortgage servicing institution with a net worth of at
least $10,000,000 to act as successor to the Master
Servicer under the Pooling and Servicing Agreement
(unless otherwise set forth in the Pooling and Servicing
Agreement). Pending such appointment, the Trustee is
obligated to act in such capacity. The Trustee and such
successor may agree upon the servicing compensation to be
paid, which in no event may be greater than the
compensation to the initial Master Servicer or the
Certificate Administrator under the Pooling and Servicing
Agreement.
No Certificateholder will have any right under a
Pooling and Servicing Agreement to institute any
proceeding with respect to such Pooling and Servicing
Agreement unless such holder previously has given to the
Trustee written notice of default and the continuance
thereof and unless the holders of Certificates of any
class evidencing not less than 25% of the aggregate
Percentage Interests constituting such class have made
written request upon the Trustee to institute such
proceeding in its own name as Trustee thereunder and have
offered to the Trustee reasonable indemnity and the
Trustee for 60 days after receipt of such request and
indemnity has neglected or refused to institute any such
proceeding. However, the Trustee will be under no
obligation to exercise any of the trusts or powers vested
in it by the Pooling and Servicing Agreement or to
institute, conduct or defend any litigation thereunder or
in relation thereto at the request, order or direction of
any of the holders of Certificates covered by such
Pooling and Servicing Agreement, unless such
Certificateholders have offered to the Trustee reasonable
security or indemnity against the costs, expenses and
liabilities which may be incurred therein or thereby.
Amendment
Each Pooling and Servicing Agreement may be amended
by the Company, the Master Servicer, the Certificate
Administrator or any Servicer, as applicable, and the
Trustee, without the consent of the related
Certificateholders: (i) to cure any ambiguity; (ii) to
correct or supplement any provision therein which may be
inconsistent with any other provision therein or to
correct any error; (iii) to change the timing and/or
nature of deposits in the Custodial Account or the
Certificate Account or to change the name in which the
Custodial Account is maintained (except that (a) deposits
to the Certificate Account may not occur later than the
related Distribution Date, (b) such change may not
adversely affect in any material respect the interests of
any Certificateholder, as evidenced by an opinion of
counsel, and (c) such change may not adversely affect the
then-current rating of any rated classes of Certificates,
as evidenced by a letter from each applicable Rating
Agency); (iv) if a REMIC election has been made with
respect to the related Trust Fund, to modify, eliminate
or add to any of its provisions (a) to the extent
necessary to maintain the qualification of the Trust Fund
as a REMIC or to avoid or minimize the risk of imposition
of any tax on the related Trust Fund, provided that the
Trustee has received an opinion of counsel to the effect
that (1) such action is necessary or desirable to
maintain such qualification or to avoid or minimize such
risk and (2) such action will not adversely affect in any
material respect the interests of any related
Certificateholder or (b) to restrict the transfer of the
REMIC Residual Certificates, provided that the Company
has determined that such change would not adversely
affect the applicable ratings of any classes of the
Certificates, as evidenced by a letter from each
applicable Rating Agency, and that any such amendment
will not give rise to any tax with respect to the
transfer of the REMIC Residual Certificates to a
non-permitted transferee; or (v) to make any other
provisions with respect to matters or questions arising
under such Pooling and Servicing Agreement which are not
materially inconsistent with the provisions thereof, so
long as such action will not adversely affect in any
material respect the interests of any Certificateholder.
The Pooling and Servicing Agreement may also be
amended by the Company, the Master Servicer, the
Certificate Administrator or any Servicer, as applicable,
and the Trustee with the consent of the holders of
Certificates of each class affected thereby evidencing,
in each case, not less than 66% of the aggregate
Percentage Interests constituting such class for the
purpose of adding any provisions to or changing in any
manner or eliminating any of the provisions of such
Pooling and Servicing Agreement or of modifying in any
manner the rights of the related Certificateholders,
except that no such amendment may (i) reduce in any
manner the amount of, or delay the timing of, payments
received on Mortgage Collateral which are required to be
distributed on a Certificate of any class without the
consent of the holder of such Certificate or (ii) reduce
the percentage of Certificates of any class the holders
of which are required to consent to any such amendment
unless the holders of all Certificates of such class have
consented to the change in such percentage.
Notwithstanding the foregoing, if a REMIC election
has been made with respect to the related Trust Fund, the
Trustee will not be entitled to consent to any amendment
to a Pooling and Servicing Agreement without having first
received an opinion of counsel to the effect that such
amendment or the exercise of any power granted to the
Master Servicer, the Certificate Administrator, any
Servicer, the Company or the Trustee in accordance with
such amendment will not result in the imposition of a tax
on the related Trust Fund or cause such Trust Fund to
fail to qualify as a REMIC.
Termination; Retirement of Certificates
The obligations created by the Pooling and Servicing
Agreement for each series of Certificates (other than
certain limited payment and notice obligations of the
Trustee and the Company, respectively) will terminate
upon the payment to the related Certificateholders of all
amounts held in the Certificate Account or by the Master
Servicer or any Servicer and required to be paid to
Certificateholders following the earlier of (i) the final
payment or other liquidation or disposition (or any
advance with respect thereto) of the last item of
Mortgage Collateral subject thereto and all property
acquired upon foreclosure or deed in lieu of foreclosure
of any Mortgage Loan or Contract and (ii) the purchase by
the Master Servicer, the Certificate Administrator, a
Servicer or the Company or, if specified in the related
Prospectus Supplement, by the holder of the REMIC
Residual Certificates (see "Certain Federal Income Tax
Consequences" below) from the Trust Fund for such series
of all remaining Mortgage Collateral and all property
acquired in respect of such Mortgage Collateral. In
addition to the foregoing, the Master Servicer, the
Certificate Administrator or the Company may have the
option to purchase, in whole but not in part, the
Certificates specified in the related Prospectus
Supplement in the manner set forth in the related
Prospectus Supplement. Upon the purchase of such
Certificates or at any time thereafter, at the option of
the Master Servicer, the Certificate Administrator or the
Company, the Mortgage Collateral may be sold, thereby
effecting a retirement of the Certificates and the
termination of the Trust Fund, or the Certificates so
purchased may be held or resold by the Master Servicer,
the Certificate Administrator or the Company. Written
notice of termination of the Pooling and Servicing
Agreement will be given to each Certificateholder, and
the final distribution will be made only upon surrender
and cancellation of the Certificates at an office or
agency appointed by the Trustee which will be specified
in the notice of termination. If the Certificateholders
are permitted to terminate the trust under the applicable
Pooling and Servicing Agreement, a penalty may be imposed
upon the Certificateholders based upon the fee that would
be foregone by the Master Servicer, the Certificate
Administrator or a Servicer, as applicable, because of
such termination.
Any such purchase of Mortgage Collateral and
property acquired in respect of Mortgage Collateral
evidenced by a series of Certificates shall be made at
the option of the Master Servicer, the Certificate
Administrator, a Servicer, the Company or, if applicable,
the holder of the REMIC Residual Certificates at the
price specified in the related Prospectus Supplement.
The exercise of such right will effect early retirement
of the Certificates of that series, but the right of any
such entity to purchase the Mortgage Collateral and
related property will be subject to the criteria, and
will be at the price, set forth in the related Prospectus
Supplement. Such early termination may adversely affect
the yield to holders of certain classes of such
Certificates. If a REMIC election has been made, the
termination of the related Trust Fund will be effected in
a manner consistent with applicable federal income tax
regulations and its status as a REMIC.
The Trustee
The Trustee under each Pooling and Servicing
Agreement will be named in the related Prospectus
Supplement. The commercial bank or trust company serving
as Trustee may have normal banking relationships with the
Company and/or its affiliates, including Residential
Funding.
The Trustee may resign at any time, in which event
the Company will be obligated to appoint a successor
trustee. The Company may also remove the Trustee if the
Trustee ceases to be eligible to continue as such under
the Pooling and Servicing Agreement or if the Trustee
becomes insolvent. Upon becoming aware of such
circumstances, the Company will be obligated to appoint
a successor Trustee. The Trustee may also be removed at
any time by the holders of Certificates evidencing not
less than 51% of the aggregate voting rights in the
related Trust Fund. Any resignation or removal of the
Trustee and appointment of a successor Trustee will not
become effective until acceptance of the appointment by
the successor Trustee.
YIELD CONSIDERATIONS
The yield to maturity of a Certificate will depend
on the price paid by the holder for such Certificate, the
Pass-Through Rate on any such Certificate entitled to
payments of interest (which Pass-Through Rate may vary if
so specified in the related Prospectus Supplement) and
the rate and timing of principal payments (including
prepayments, defaults, liquidations and repurchases) on
the Mortgage Collateral and the allocation thereof to
reduce the principal balance of such Certificate (or
notional amount thereof, if applicable).
The rate of defaults on the Mortgage Loans or
Contracts will affect the rate and timing of principal
prepayments on such Mortgage Collateral and, thus, the
yield on the Certificates. Defaults on the Mortgage
Loans or Contracts may lead to Realized Losses upon
foreclosure and liquidation. To the extent Realized
Losses are not covered by any credit enhancement, they
will be allocated to Certificates as described in the
related Prospectus Supplement and, accordingly, will
affect the yield on such Certificates. In general,
defaults on mortgage loans or manufactured housing
contracts are expected to occur with greater frequency in
their early years. The rate of default on refinance,
limited documentation or no documentation mortgage loans,
and on mortgage loans or manufactured housing contracts
with high Loan-to-Value Ratios, may be higher than for
other types of mortgage loans or manufactured housing
contracts. Likewise, the rate of default on mortgage
loans or manufactured housing contracts that have been
originated pursuant to lower than traditional
underwriting standards may be higher than those
originated pursuant to traditional standards. A Trust
Fund may include Mortgage Loans or Contracts that are one
month or more delinquent at the time of offering of the
related series of Certificates. In addition, the rate
and timing of prepayments, defaults and liquidations on
the Mortgage Loans or Contracts will be affected by the
general economic condition of the region of the country
or the locality in which the related Mortgaged Properties
are located. The risk of delinquencies and loss is
greater and prepayments are less likely in regions where
a weak or deteriorating economy exists, as may be
evidenced by, among other factors, increasing
unemployment or falling property values. In addition,
Manufactured Homes may decline in value even in areas
where real estate values generally have not declined.
Each Prospectus Supplement will highlight any material
characteristics of the Mortgage Collateral in the related
Trust Fund that may make such Mortgage Collateral more
susceptible to default.
To the extent that any document relating to a
Mortgage Loan or Contract is not in the possession of the
Trustee, such deficiency may make it difficult or
impossible to realize on the Mortgaged Property in the
event of foreclosure which will affect the amount of
Liquidation Proceeds received by the Trustee. See
"Description of the Certificates-Assignment of Mortgage
Loans" and "-Assignment of Contracts."
The amount of interest payments with respect to each
item of Mortgage Collateral distributed (or accrued in
the case of Deferred Interest or Accrual Certificates)
monthly to holders of a class of Certificates entitled to
payments of interest will be calculated on the basis of
such class's specified percentage of each such payment of
interest (or accrual in the case of Accrual Certificates)
and will be expressed as a fixed, adjustable or variable
Pass-Through Rate payable on the outstanding principal
balance or notional amount of such Certificate, or any
combination of such Pass-Through Rates, calculated as
described herein and in the related Prospectus
Supplement. See "Description of the Certificates-
Distributions." Holders of Strip Certificates or a class
of Certificates having a Pass-Through Rate that varies
based on the weighted average interest rate of the
underlying Mortgage Collateral will be affected by
disproportionate prepayments and repurchases of Mortgage
Collateral having higher net interest rates or higher
rates applicable to the Strip Certificates, as
applicable.
The effective yield to maturity to each holder of
Certificates entitled to payments of interest will be
below that otherwise produced by the applicable
Pass-Through Rate and purchase price of such Certificate
because, while interest will accrue on each Mortgage Loan
or Contract from the first day of each month, the
distribution of such interest will be made on the 25th
day (or, if such day is not a business day, the next
succeeding business day) of the month following the month
of accrual or, in the case of a Trust Fund including
Agency Certificates, such other day that is specified in
the related Prospectus Supplement.
A class of Certificates may be entitled to payments
of interest at a fixed, variable or adjustable
Pass-Through Rate, or any combination of such Pass-
Through Rates, as specified in the related Prospectus
Supplement. A variable Pass-Through Rate may be
calculated based on the weighted average of the Mortgage
Rates (net of Servicing Fees and any Certificate
Administrator fee or Spread (each, a "Net Mortgage
Rate")) of the related Mortgage Collateral for the month
preceding the Distribution Date, by reference to an index
or otherwise. The aggregate payments of interest on a
class of Certificates, and the yield to maturity thereon,
will be affected by the rate of payment of principal on
the Certificates (or the rate of reduction in the
notional amount of Certificates entitled to payments of
interest only) and, in the case of Certificates
evidencing interests in ARM Loans, by changes in the Net
Mortgage Rates on the ARM Loans. See "Maturity and
Prepayment Considerations" below. The yield on the
Certificates will also be affected by liquidations of
Mortgage Loans or Contracts following Mortgagor defaults
and by purchases of Mortgage Collateral in the event of
breaches of representations made in respect of such
Mortgage Collateral by the Company, the Master Servicer
and others, or conversions of ARM Loans to a fixed
interest rate. See "The Trust Funds-Representations with
Respect to Mortgage Collateral."
In general, if a Certificate is purchased at a
premium over its face amount and payments of principal on
the related Mortgage Collateral occur at a rate faster
than anticipated at the time of purchase, the purchaser's
actual yield to maturity will be lower than that assumed
at the time of purchase. Conversely, if a class of
Certificates is purchased at a discount from its face
amount and payments of principal on the related Mortgage
Collateral occur at a rate slower than that assumed at
the time of purchase, the purchaser's actual yield to
maturity will be lower than that originally anticipated.
If Strip Certificates are issued evidencing a right to
payments of interest only or disproportionate payments of
interest, a faster than expected rate of principal
prepayments on the Mortgage Collateral will negatively
affect the total return to investors in any such
Certificates. If Strip Certificates are issued
evidencing a right to payments of principal only or
disproportionate payments of principal, a slower than
expected rate of principal payments on the Mortgage
Collateral could negatively affect the anticipated yield
on such Strip Certificates. If Certificates with either
of the foregoing characteristics are issued, the total
return to investors of such Certificates will be
extremely sensitive to such prepayments. In addition,
the total return to investors of Certificates evidencing
a right to distributions of interest at a rate that is
based on the weighted average Net Mortgage Rate of the
Mortgage Collateral from time to time will be adversely
affected by principal prepayments on Mortgage Collateral
with Mortgage Rates higher than the weighted average
Mortgage Rate on the Mortgage Collateral. In general,
mortgage loans or manufactured housing contracts with
higher Mortgage Rates prepay at a faster rate than
mortgage loans or manufactured housing contracts with
lower Mortgage Rates. The yield on a class of Strip
Certificates that is entitled to receive a portion of
principal or interest from each item of Mortgage
Collateral in a Trust Fund will be affected by any losses
on the Mortgage Collateral because of the affect on
timing and amount of payments. In certain circumstances,
rapid prepayments may result in the failure of such
holders to recoup their original investment. In
addition, the yield to maturity on certain other types of
classes of Certificates, including Accrual Certificates,
Certificates with a Pass-Through Rate that fluctuates
inversely with or at a multiple of an index or certain
other classes in a series including more than one class
of Certificates, may be relatively more sensitive to the
rate of prepayment on the related Mortgage Collateral
than other classes of Certificates.
The timing of changes in the rate of principal
payments on or repurchases of the Mortgage Collateral may
significantly affect an investor's actual yield to
maturity, even if the average rate of principal payments
experienced over time is consistent with an investor's
expectation. In general, the earlier a prepayment of
principal on the Mortgage Collateral or a repurchase
thereof, the greater will be the effect on an investor's
yield to maturity. As a result, the effect on an
investor's yield of principal payments and repurchases
occurring at a rate higher (or lower) than the rate
anticipated by the investor during the period immediately
following the issuance of a series of Certificates would
not be fully offset by a subsequent like reduction (or
increase) in the rate of principal payments.
Unless otherwise specified in the related Prospectus
Supplement, prepayments in full or final liquidations
will reduce the amount of interest distributed in the
following month to holders of Certificates entitled to
distributions of interest because the resulting
Prepayment Interest Shortfall will not be covered by
Compensating Interest. See "Description of the
Certificates-Prepayment Interest Shortfalls." Unless
otherwise specified in the related Prospectus Supplement,
a partial prepayment of principal is applied so as to
reduce the outstanding principal balance of the related
Mortgage Loan or Contract as of the first day of the
month in which such partial prepayment is received. As
a result, unless otherwise specified in the related
Prospectus Supplement, the effect of a partial prepayment
on a Mortgage Loan or Contract will be to reduce the
amount of interest distributed to holders of Certificates
in the month following the receipt of such partial
prepayment by an amount equal to one month's interest at
the applicable Pass-Through Rate or Net Mortgage Rate, as
the case may be, on the prepaid amount. See "Description
of the Certificates-Prepayment Interest Shortfalls."
Neither full or partial principal prepayments nor
Liquidation Proceeds will be distributed until the
Distribution Date in the month following receipt. See
"Maturity and Prepayment Considerations."
With respect to certain ARM Loans, the Mortgage Rate
at origination may be below the rate that would result
from the sum of the then-applicable Index and Gross
Margin. Under the applicable underwriting standards, the
Mortgagor under each Mortgage Loan or Contract generally
will be qualified on the basis of the Mortgage Rate in
effect at origination and not the higher rate that would
be produced by the sum of the Index and Gross Margin.
The repayment of any such Mortgage Loan or Contract may
thus be dependent on the ability of the Mortgagor to make
larger level monthly payments following the adjustment of
the Mortgage Rate. In addition, the periodic increase in
the amount paid by the Mortgagor of a Buy-Down Loan
during or at the end of the applicable Buy-Down Period
may create a greater financial burden for the Mortgagor,
who might not have otherwise qualified for a mortgage
under the applicable underwriting guidelines, and may
accordingly increase the risk of default with respect to
the related Mortgage Loan.
If so specified in the related Prospectus
Supplement, a Trust Fund may contain Neg-Am ARM Loans
with fluctuating Mortgage Rates that adjust more
frequently than the monthly payment with respect to such
Mortgage Loans or Contracts. During a period of rising
interest rates as well as immediately after origination,
the amount of interest accruing on the principal balance
of such Mortgage Loans may exceed the amount of the
minimum scheduled monthly payment thereon. As a result,
a portion of the accrued interest on Neg-Am ARM Loans may
become Deferred Interest which will be added to the
principal balance thereof and will bear interest at the
applicable Mortgage Rate. The addition of any such
Deferred Interest to the principal balance of any related
class of Certificates will lengthen the weighted average
life thereof and may adversely affect yield to holders
thereof. In addition, with respect to certain Neg-Am ARM
Loans, during a period of declining interest rates, it
might be expected that each minimum scheduled monthly
payment on such a Mortgage Loan would exceed the amount
of scheduled principal and accrued interest on the
principal balance thereof, and since such excess will be
applied to reduce the principal balance of the related
class or classes of Certificates, the weighted average
life of such Certificates will be reduced and may
adversely affect yield to holders thereof.
If so specified in the related Prospectus
Supplement, a Trust Fund may contain GPM Loans or Buy-
Down Loans which have monthly payments that increase
during the first few years following origination.
Mortgagors generally will be qualified for such loans on
the basis of the initial monthly payment. To the extent
that the related Mortgagor's income does not increase at
the same rate as the monthly payment, such a loan may be
more likely to default than a mortgage loan with level
monthly payments.
If so specified in the related Prospectus
Supplement, a Trust Fund may contain Balloon Loans which
require a single payment of a Balloon Amount. The
payment of Balloon Amounts may result in a lower yield on
Certificates than would be the case if all such Mortgage
Collateral was fully-amortizing because the maturity of
a Balloon Loan occurs earlier than that for a fully-
amortizing Mortgage Loan due to the payment of a Balloon
Amount. Balloon Loans also pose a greater risk of
default than fully-amortizing Mortgage Loans because
Mortgagors are required to pay the Balloon Amount upon
maturity. A Mortgagor's ability to pay a Balloon Amount
may depend on its ability to refinance the related
Mortgaged Property.
If credit enhancement for a series of Certificates
is provided by a Letter of Credit, insurance policy or
bond that is issued or guaranteed by an entity that
suffers financial difficulty, such credit enhancement may
not provide the level of support that was anticipated at
the time an investor purchased its Certificate. In the
event of a default under the terms of such a Letter of
Credit, insurance policy or bond, any Realized Losses on
the Mortgage Collateral not covered by such credit
enhancement will be applied to a series of Certificates
in the manner described in the related Prospectus
Supplement and may reduce an investor's anticipated yield
to maturity.
The related Prospectus Supplement may set forth
other factors concerning the Mortgage Collateral securing
a series of Certificates or the structure of such series
that will affect the yield on such Certificates.
MATURITY AND PREPAYMENT CONSIDERATIONS
As indicated above under "The Trust Funds," the
original terms to maturity of the Mortgage Collateral in
a given Trust Fund will vary depending upon the type of
Mortgage Collateral included in such Trust Fund. The
Prospectus Supplement for a series of Certificates will
contain information with respect to the types and
maturities of the Mortgage Collateral in the related
Trust Fund. The prepayment experience, the timing and
rate of repurchases and the timing and amount of
liquidations with respect to the related Mortgage Loans
or Contracts will affect the life and yield of the
related series of Certificates.
Prepayments on mortgage loans and manufactured
housing contracts are commonly measured relative to a
prepayment standard or model. The Prospectus Supplement
for each series of Certificates may describe one or more
such prepayment standards or models and may contain
tables setting forth the projected yields to maturity on
each class of Certificates or the weighted average life
of each class of Certificates and the percentage of the
original principal amount of each class of Certificates
of such series that would be outstanding on specified
payment dates for such series based on the assumptions
stated in such Prospectus Supplement, including
assumptions that prepayments on the Mortgage Collateral
are made at rates corresponding to various percentages of
the prepayment standard or model specified in the related
Prospectus Supplement.
There is no assurance that prepayment of the
Mortgage Collateral underlying a series of Certificates
will conform to any level of the prepayment standard or
model specified in the related Prospectus Supplement. A
number of factors, including homeowner mobility, economic
conditions, changes in mortgagors' housing needs, job
transfers, unemployment, mortgagors' net equity in the
properties securing the mortgages, servicing decisions,
enforceability of due-on-sale clauses, mortgage market
interest rates, mortgage recording taxes, solicitations
and the availability of mortgage funds, may affect
prepayment experience. The rate of prepayment with
respect to conventional fixed-rate mortgage loans and
contracts has fluctuated significantly in recent years.
In general, however, if prevailing interest rates fall
significantly below the Mortgage Rates on the Mortgage
Loans or Contracts underlying a series of Certificates,
the prepayment rate of such Mortgage Loans or Contracts
is likely to be higher than if prevailing rates remain at
or above the rates borne by such Mortgage Loans or
Contracts. It should be noted that Certificates of a
certain series may evidence an interest in Mortgage Loans
or Contracts with different Mortgage Rates. Accordingly,
the prepayment experience of these Certificates will to
some extent be a function of the range of interest rates
of such Mortgage Loans or Contracts.
Unless otherwise specified in the related Prospectus
Supplement, all of the Mortgage Loans or Contracts may be
prepaid without penalty in full or in part at any time.
The terms of the related Pooling and Servicing Agreement
generally will require the Servicer or Master Servicer,
as the case may be, to enforce any due-on-sale clause to
the extent it has knowledge of the conveyance or the
proposed conveyance of the underlying Mortgaged Property
and to the extent permitted by applicable law, except
that any enforcement action that would impair or threaten
to impair any recovery under any related insurance policy
will not be required or permitted. See "Description of
the Certificates-Servicing and Administration of Mortgage
Collateral-Enforcement of `Due-on-Sale' Clauses" and
"Certain Legal Aspects of Mortgage Loans and
Contracts-The Mortgage Loans-Enforceability of Certain
Provisions" and "-The Contracts" for a description of
certain provisions of each Pooling and Servicing
Agreement and certain legal aspects that may affect the
prepayment rate of Mortgage Loans or Contracts.
Certain types of Mortgage Collateral included in a
Trust Fund may have characteristics that make it more
likely to default than collateral provided for mortgage
pass-through certificates from other mortgage purchase
programs. The Company anticipates including "limited
documentation" and "no documentation" Mortgage Loans and
Contracts, as well as Mortgage Loans and Contracts that
were originated in accordance with lower underwriting
standards and which may have been made to Mortgagors with
imperfect credit histories and prior bankruptcies.
Likewise, a Trust Fund may include Mortgage Loans or
Contracts that are one month or more delinquent at the
time of offering of the related series of Certificates.
Such Mortgage Collateral may be susceptible to a greater
risk of default and liquidation than might otherwise be
expected by investors in the related Certificates.
The Master Servicer, a Servicer, a Sub-Servicer or
a Mortgage Collateral Seller may refinance a Mortgage
Loan or Contract in a Trust Fund by accepting full
prepayment thereof and making a new loan secured by a
mortgage on the same property. A Mortgagor may be
legally entitled to require the Master Servicer,
Servicer, Sub-Servicer or Mortgage Collateral Seller, as
applicable, to allow such refinancing. Any such
refinancing will have the same effect on the
Certificateholders as a prepayment in full of the
refinanced Mortgage Loan or Contract, thereby affecting
the yield to Certificateholders.
There are no uniform statistics compiled for
prepayments of contracts relating to Manufactured Homes.
Prepayments on manufactured housing contracts may be
influenced by a variety of economic, geographic, social
and other facts, including repossessions, aging,
seasonality and interest rate fluctuations. Other
factors affecting prepayment of manufactured housing
contracts include changes in housing needs, job
transfers, unemployment and servicing decisions. An
investment in Certificates evidencing interests in
Contracts may be affected by, among other things, a
downturn in regional or local economic conditions. These
regional or local economic conditions are often volatile,
and historically have affected the delinquency, loan loss
and repossession experience of the Contracts. To the
extent that losses on the Contracts are not covered by
any credit enhancement, holders of the Certificates of a
series evidencing interests in such Contracts will bear
all risk of loss resulting from default by Mortgagors and
will have to look primarily to the value of the
Manufactured Homes, which generally depreciate in value,
for recovery of the outstanding principal and unpaid
interest of the defaulted Contracts. See "The Trust
Funds-The Contracts."
While most manufactured housing contracts will
contain "due-on-sale" provisions permitting the holder of
the contract to accelerate the maturity of the contract
upon conveyance by the Mortgagor, the Master Servicer,
Servicer or Sub-Servicer, as applicable, may permit
proposed assumptions of contracts where the proposed
buyer of the Manufactured Home meets the underwriting
standards described above. Such assumption would have
the effect of extending the average life of the contract.
FHA Loans, FHA Contracts, VA Loans and VA Contracts are
not permitted to contain "due on sale" clauses, and are
freely assumable.
Although the Mortgage Rates on ARM Loans will be
subject to periodic adjustments, such adjustments
generally will (i) not increase or decrease such Mortgage
Rates by more than a fixed percentage amount on each
adjustment date, (ii) not increase such Mortgage Rates
over a fixed percentage amount during the life of any ARM
Loan and (iii) be based on an index (which may not rise
and fall consistently with mortgage interest rates) plus
the related Gross Margin (which may be different from
margins being used at the time for newly originated
adjustable rate mortgage loans). As a result, the
Mortgage Rates on the ARM Loans in a Trust Fund at any
time may not equal the prevailing rates for similar,
newly originated adjustable rate mortgage loans. In
certain rate environments, the prevailing rates on
fixed-rate mortgage loans may be sufficiently low in
relation to the then-current Mortgage Rates on ARM Loans
that the rate of prepayment may increase as a result of
refinancings. There can be no certainty as to the rate
of prepayments on the Mortgage Collateral during any
period or over the life of any series of Certificates.
With respect to Balloon Loans, payment of the
Balloon Amount (which, based on the amortization schedule
of such Mortgage Loans, is expected to be a substantial
amount) will generally depend on the Mortgagor's ability
to obtain refinancing of such a Mortgage Loan or to sell
the Mortgaged Property prior to the maturity of the
Balloon Loan. The ability to obtain refinancing will
depend on a number of factors prevailing at the time
refinancing or sale is required, including, without
limitation, real estate values, the Mortgagor's financial
situation, prevailing mortgage loan interest rates, the
Mortgagor's equity in the related Mortgaged Property, tax
laws and prevailing general economic conditions. Unless
otherwise specified in the related Prospectus Supplement,
none of the Company, the Master Servicer, a Servicer, a
Sub-Servicer, a Mortgage Collateral Seller nor any of
their affiliates will be obligated to refinance or
repurchase any Mortgage Loan or to sell the Mortgaged
Property.
An ARM Loan is assumable under certain conditions
if the proposed transferee of the related Mortgaged
Property establishes its ability to repay the Mortgage
Loan and, in the reasonable judgment of the Master
Servicer or the related Sub-Servicer, the security for
the ARM Loan would not be impaired by the assumption.
The extent to which ARM Loans are assumed by purchasers
of the Mortgaged Properties rather than prepaid by the
related Mortgagors in connection with the sales of the
Mortgaged Properties will affect the weighted average
life of the related series of Certificates. See
"Description of the Certificates" and "Certain Legal
Aspects of Mortgage Loans and Contracts."
No assurance can be given that the value of the
Mortgaged Property securing a Mortgage Loan or Contract
has remained or will remain at the level existing on the
date of origination. If the residential real estate
market should experience an overall decline in property
values such that the outstanding balances of the Mortgage
Loans or Contracts and any secondary financing on the
Mortgaged Properties in a particular Mortgage Pool or
Contract Pool become equal to or greater than the value
of the Mortgaged Properties, the actual rates of
delinquencies, foreclosures and losses could be higher
than those now generally experienced in the mortgage
lending industry. In addition, the value of property
securing Cooperative Loans and the delinquency rates with
respect to Cooperative Loans could be adversely affected
if the current favorable tax treatment of cooperative
tenant stockholders were to become less favorable. See
"Certain Legal Aspects of Mortgage Loans and Contracts."
To the extent that losses resulting from
delinquencies, losses and foreclosures or repossession of
Mortgaged Property with respect to Mortgage Loans or
Contracts included in a Trust Fund for a series of
Certificates are not covered by the methods of credit
enhancement described herein under "Description of Credit
Enhancement" or in the related Prospectus Supplement,
such losses will be borne by holders of the Certificates
of such series. Even where credit enhancement covers all
Realized Losses resulting from delinquency and
foreclosure or repossession, the effect of foreclosures
and repossessions may be to increase prepayment
experience on the Mortgage Collateral, thus reducing
average weighted life and affecting yield to maturity.
See "Yield Considerations."
Under certain circumstances, the Master Servicer, a
Servicer, the Company or, if specified in the related
Prospectus Supplement, the holders of the REMIC Residual
Certificates may have the option to purchase the Mortgage
Loans in a Trust Fund. See "The Pooling and Servicing
Agreement-Termination; Retirement of Certificates." Any
such repurchase will shorten the weighted average lives
of the related Certificates.
CERTAIN LEGAL ASPECTS OF MORTGAGE LOANS AND CONTRACTS
The following discussion contains summaries of
certain legal aspects of mortgage loans and manufactured
housing contracts that are general in nature. Because
such legal aspects are governed in part by state law
(which laws may differ substantially from state to
state), the summaries do not purport to be complete, to
reflect the laws of any particular state or to encompass
the laws of all states in which the Mortgaged Properties
may be situated. The summaries are qualified in their
entirety by reference to the applicable federal and state
laws governing the Mortgage Loans or Contracts.
The Mortgage Loans
General
The Mortgage Loans (other than Cooperative Loans)
will be secured by either deeds of trust or mortgages,
depending upon the prevailing practice in the state in
which the related Mortgaged Property is located. In some
states, a mortgage or deed of trust creates a lien upon
the real property encumbered by the mortgage. In other
states, the mortgage or deed of trust conveys legal title
to the property to the mortgagee subject to a condition
subsequent (i.e., the payment of the indebtedness secured
thereby). It is not prior to the lien for real estate
taxes and assessments and other charges imposed under
governmental police powers. Priority with respect to
such instruments depends on their terms and in some cases
on the terms of separate subordination or inter-creditor
agreements, and generally on the order of recordation of
the mortgage in the appropriate recording office. There
are two parties to a mortgage, the mortgagor, who is the
borrower and homeowner, and the mortgagee, who is the
lender. Under the mortgage instrument, the mortgagor
delivers to the mortgagee a note or bond and the
mortgage. In the case of a land trust, there are three
parties because title to the property is held by a land
trustee under a land trust agreement of which the
borrower is the beneficiary; at origination of a mortgage
loan, the borrower executes a separate undertaking to
make payments on the mortgage note. Although a deed of
trust is similar to a mortgage, a deed of trust has three
parties: the trustor, who is the borrower/homeowner; the
beneficiary, who is the lender; and a third-party grantee
called the trustee. Under a deed of trust, the borrower
grants the property, irrevocably until the debt is paid,
in trust, generally with a power of sale, to the trustee
to secure payment of the obligation. The trustee's
authority under a deed of trust and the mortgagee's
authority under a mortgage are governed by the law of the
state in which the real property is located, the express
provisions of the deed of trust or mortgage and, in
certain deed of trust transactions, the directions of the
beneficiary.
Cooperative Loans
If specified in the Prospectus Supplement relating
to a series of Certificates, the Mortgage Loans may
include Cooperative Loans. Each debt instrument (a
"Cooperative Note") evidencing a Cooperative Loan will be
secured by a security interest in shares issued by a
related cooperative housing corporation, which is a
private corporation entitled to be treated as a housing
cooperative under federal tax law, and in the related
proprietary lease or occupancy agreement granting
exclusive rights to occupy a specific dwelling unit in
the cooperative's building. The security agreement will
create a lien upon, or grant a title interest in, the
shares in the cooperative's building, the priority of
which will depend on the terms of the particular security
agreement as well as the order of recordation of the
agreement (or financing statements related thereto) in
the appropriate recording office.
Unless otherwise specified in the related Prospectus
Supplement, all cooperative apartments relating to the
Cooperative Loans are located in the State of New York.
Each cooperative owns in fee or has a leasehold interest
in all the real property and owns in fee or leases the
building and all separate dwelling units therein. The
cooperative is directly responsible for property
management and, in most cases, payment of real estate
taxes, other governmental impositions and hazard and
liability insurance. If there is a blanket mortgage (or
mortgages) on the cooperative apartment building or
underlying land, as is generally the case, or an
underlying lease of the land, as is the case in some
instances, the cooperative housing corporation, as
property mortgagor or lessee, as the case may be, is also
responsible for fulfilling such mortgage or rental
obligations. A blanket mortgage is ordinarily incurred
by the cooperative in connection with either the
construction or purchase of the cooperative's apartment
building or the obtaining of capital by the cooperative.
The interest of the occupant under proprietary leases or
occupancy agreements as to which that cooperative is the
landlord is generally subordinate to the interest of the
holder of a blanket mortgage and to the interest of the
holder of a land lease. If the cooperative is unable to
meet the payment obligations (i) arising under a blanket
mortgage, the mortgagee holding a blanket mortgage could
foreclose on that mortgage and terminate all subordinate
proprietary leases and occupancy agreements or (ii)
arising under its land lease, the holder of the
landlord's interest under the land lease could terminate
it and all subordinate proprietary leases and occupancy
agreements. In addition, a blanket mortgage on a
cooperative may provide financing in the form of a
mortgage that does not fully amortize, with a significant
portion of principal being due in one final payment at
maturity. The inability of the cooperative to refinance
a mortgage and its consequent inability to make such
final payment could lead to foreclosure by the mortgagee.
Similarly, a land lease has an expiration date and the
inability of the cooperative to extend its term or, in
the alternative, to purchase the land, could lead to
termination of the cooperative's interest in the property
and termination of all proprietary leases and occupancy
agreements. In either event, a foreclosure by the holder
of a blanket mortgage or the termination of the
underlying lease could eliminate or significantly
diminish the value of any collateral held by the lender
who financed the purchase by an individual
tenant-stockholder of cooperative shares or, in the case
of the Mortgage Loans, the collateral securing the
Cooperative Loans.
Each cooperative is owned by tenant-stockholders
who, through ownership of stock or shares in the
corporation, receive proprietary leases or occupancy
agreements which confer exclusive rights to occupy
specific units. Generally, a tenant-stockholder of a
cooperative must make a monthly payment to the
cooperative representing such tenant-stockholder's pro
rata share of the cooperative's payments for its blanket
mortgage, real property taxes, maintenance expenses and
other capital or ordinary expenses. An ownership
interest in a cooperative (which is accompanied by
occupancy rights to the related dwelling unit) may be
financed through a Cooperative Loan evidenced by a
Cooperative Note and secured by an assignment of and a
security interest in the occupancy agreement or
proprietary lease and a security interest in the related
cooperative shares. The lender generally takes
possession of the share certificate and a counterpart of
the proprietary lease or occupancy agreement and a
financing statement covering the proprietary lease or
occupancy agreement and the cooperative shares is filed
in the appropriate state and local offices to perfect the
lender's interest in its collateral. Subject to the
limitations discussed below, upon default of the
tenant-stockholder, the lender may sue for judgment on
the Cooperative Note, dispose of the collateral at a
public or private sale or otherwise proceed against the
collateral or tenant-stockholder as an individual as
provided in the security agreement covering the
assignment of the proprietary lease or occupancy
agreement and the pledge of cooperative shares. See "-
Foreclosure on Shares of Cooperatives" below.
Foreclosure on Mortgage Loans
Although a deed of trust may also be foreclosed by
judicial action, foreclosure of a deed of trust is
generally accomplished by a non-judicial trustee's sale
under a specific provision in the deed of trust which
authorizes the trustee to sell the property upon any
default by the borrower under the terms of the note or
deed of trust. In addition to any notice requirements
contained in a deed of trust, in some states, the trustee
must record a notice of default and send a copy to the
borrower/trustor and to any person who has recorded a
request for a copy of notice of default and notice of
sale. In addition, in some states, the trustee must
provide notice to any other individual having an interest
of record in the real property, including any junior
lienholders. If the deed of trust is not reinstated
within a specified period, a notice of sale must be
posted in a public place and, in most states, published
for a specific period of time in one or more newspapers.
In addition, some states' laws require that a copy of the
notice of sale be posted on the property and sent to all
parties having an interest of record in the real
property.
Foreclosure of a mortgage generally is accomplished
by judicial action. Generally, the action is initiated
by the service of legal pleadings upon all parties having
an interest of record in the real property. Delays in
completion of the foreclosure may occasionally result
from difficulties in locating necessary parties. If the
mortgagee's right to foreclose is contested, the legal
proceedings necessary to resolve the issue can be
time-consuming.
In some states, the borrower-trustor has the right
to reinstate the loan at any time following default until
shortly before the trustee's sale. In general, in such
states, the borrower, or any other person having a junior
encumbrance on the real estate, may, during a
reinstatement period, cure the default by paying the
entire amount in arrears plus the costs and expenses
incurred in enforcing the obligation.
In the case of foreclosure under either a mortgage
or a deed of trust, the sale by the referee or other
designated officer or by the trustee is a public sale.
However, because of the difficulty a potential buyer at
the sale would have in determining the exact status of
title and because the physical condition of the property
may have deteriorated during the foreclosure proceedings,
it is uncommon for a third party to purchase the property
at a foreclosure sale. Rather, it is common for the
lender to purchase the property from the trustee or
referee for a credit bid less than or equal to the unpaid
principal amount of the mortgage or deed of trust,
accrued and unpaid interest and the expense of
foreclosure. Generally, state law controls the amount of
foreclosure costs and expenses, including attorneys'
fees, which may be recovered by a lender. Thereafter,
subject to the right of the borrower in some states to
remain in possession during the redemption period, the
lender will assume the burdens of ownership, including
obtaining hazard insurance and making such repairs at its
own expense as are necessary to render the property
suitable for sale. Generally, the lender will obtain the
services of a real estate broker and pay the broker's
commission in connection with the sale of the property.
Depending upon market conditions, the ultimate proceeds
of the sale of the property may not equal the lender's
investment in the property and, in some states, the
lender may be entitled to a deficiency judgment. Any
loss may be reduced by the receipt of any mortgage
insurance proceeds or other forms of credit enhancement
for a series of Certificates. See "Description of Credit
Enhancement."
Foreclosure on Shares of Cooperatives
The cooperative shares owned by the tenant-
stockholder, together with the rights of the tenant-
stockholder under the proprietary lease or occupancy
agreement, are pledged to the lender and are, in almost
all cases, subject to restrictions on transfer as set
forth in the cooperative's certificate of incorporation
and by-laws, as well as in the proprietary lease or
occupancy agreement. The proprietary lease or occupancy
agreement, even while pledged, may be cancelled by the
cooperative for failure by the tenant stockholder to pay
rent or other obligations or charges owed by such tenant-
stockholder, including mechanics' liens against the
cooperative apartment building incurred by such
tenant-stockholder. Generally, rent and other
obligations and charges arising under a proprietary lease
or occupancy agreement which are owed to the cooperative
are made liens upon the shares to which the proprietary
lease or occupancy agreement relates. In addition, the
proprietary lease or occupancy agreement generally
permits the cooperative to terminate such lease or
agreement in the event the borrower defaults in the
performance of covenants thereunder. Typically, the
lender and the cooperative enter into a recognition
agreement which, together with any lender protection
provisions contained in the proprietary lease,
establishes the rights and obligations of both parties in
the event of a default by the tenant-stockholder on its
obligations under the proprietary lease or occupancy
agreement. A default by the tenant-stockholder under the
proprietary lease or occupancy agreement will usually
constitute a default under the security agreement between
the lender and the tenant-stockholder.
The recognition agreement generally provides that,
in the event that the tenant-stockholder has defaulted
under the proprietary lease or occupancy agreement, the
cooperative will take no action to terminate such lease
or agreement until the lender has been provided with
notice of and an opportunity to cure the default. The
recognition agreement typically provides that if the
proprietary lease or occupancy agreement is terminated,
the cooperative will recognize the lender's lien against
proceeds from a sale of the cooperative apartment,
subject, however, to the cooperative's right to sums due
under such proprietary lease or occupancy agreement or
which have become liens on the shares relating to the
proprietary lease or occupancy agreement. The total
amount owed to the cooperative by the tenant-stockholder,
which the lender generally cannot restrict and does not
monitor, could reduce the amount realized upon a sale of
the collateral below the outstanding principal balance of
the Cooperative Loan and accrued and unpaid interest
thereon.
Recognition agreements also generally provide that
in the event the lender succeeds to the tenant-
shareholder's shares and proprietary lease or occupancy
agreement as the result of realizing upon its collateral
for a Cooperative Loan, the lender must obtain the
approval or consent of the cooperative as required by the
proprietary lease before transferring the cooperative
shares or assigning the proprietary lease. Such approval
or consent is usually based on the prospective
purchaser's income and net worth, among other factors,
and may significantly reduce the number of potential
purchasers, which could limit the ability of the lender
to sell and realize upon the value of the collateral.
Generally, the lender is not limited in any rights it may
have to dispossess the tenant-stockholder.
The terms of the Cooperative Loans do not require
either the tenant-stockholder or the cooperative to
obtain title insurance of any type. Consequently, the
existence of any prior liens or other imperfections of
title to the building also may adversely affect the
marketability of the cooperative dwelling unit in the
event of foreclosure.
In New York, foreclosure on the cooperative shares
is accomplished by public sale in accordance with the
provisions of Article 9 of the New York Uniform
Commercial Code (the "UCC") and the security agreement
relating to those shares. Article 9 of the UCC requires
that a sale be conducted in a "commercially reasonable"
manner. Whether a sale has been conducted in a
"commercially reasonable" manner will depend on the facts
in each case. In determining commercial reasonableness,
a court will look to the notice given the debtor and the
method, manner, time, place and terms of the sale and the
sale price. Generally, a sale conducted according to the
usual practice of banks selling similar collateral in the
same area will be considered reasonably conducted.
Article 9 of the UCC provides that the proceeds of
the sale will be applied first to pay the costs and
expenses of the sale and then to satisfy the indebtedness
secured by the lender's security interest. The
recognition agreement, however, generally provides that
the lender's right to reimbursement is subject to the
right of the cooperative corporation to receive sums due
under the proprietary lease or occupancy agreement. If
there are proceeds remaining, the lender must account to
the tenant-stockholder for the surplus. Conversely, if
a portion of the indebtedness remains unpaid, the
tenant-stockholder is generally responsible for the
deficiency. See "-Anti-Deficiency Legislation and Other
Limitations on Lenders" below.
Rights of Redemption
In some states, after sale pursuant to a deed of
trust or foreclosure of a mortgage, the borrower and
foreclosed junior lienors or other parties are given a
statutory period (generally ranging from six months to
two years) in which to redeem the property from the
foreclosure sale. In some states, redemption may occur
only upon payment of the entire principal balance of the
loan, accrued interest and expenses of foreclosure. In
other states, redemption may be authorized if the former
borrower pays only a portion of the sums due. The effect
of a statutory right of redemption is to diminish the
ability of the lender to sell the foreclosed property.
The rights of redemption would defeat the title of any
purchaser subsequent to foreclosure or sale under a deed
of trust. Consequently, the practical effect of the
redemption right is to force the lender to maintain the
property and pay the expenses of ownership until the
redemption period has expired.
Anti-Deficiency Legislation and Other Limitations on
Lenders
Certain states have imposed statutory prohibitions
which limit the remedies of a beneficiary under a deed of
trust or a mortgagee under a mortgage. In some states
(including California), statutes limit the right of the
beneficiary or mortgagee to obtain a deficiency judgment
against the borrower following foreclosure. A deficiency
judgment is a personal judgment against the former
borrower equal in most cases to the difference between
the net amount realized upon the public sale of the real
property and the amount due to the lender. In the case
of a Mortgage Loan secured by a property owned by a trust
where the Mortgage Note is executed on behalf of the
trust, a deficiency judgment against the trust following
foreclosure or sale under a deed of trust, even if
obtainable under applicable law, may be of little value
to the mortgagee or beneficiary if there are no trust
assets against which such deficiency judgment may be
executed. Other statutes require the beneficiary or
mortgagee to exhaust the security afforded under a deed
of trust or mortgage by foreclosure in an attempt to
satisfy the full debt before bringing a personal action
against the borrower. In certain other states, the
lender has the option of bringing a personal action
against the borrower on the debt without first exhausting
such security; however, in some of these states, the
lender, following judgment on such personal action, may
be deemed to have elected a remedy and may be precluded
from exercising remedies with respect to the security.
Consequently, the practical effect of the election
requirement, in those states permitting such election, is
that lenders will usually proceed against the security
first rather than bringing a personal action against the
borrower. Finally, in certain other states, statutory
provisions limit any deficiency judgment against the
former borrower following a foreclosure to the excess of
the outstanding debt over the fair value of the property
at the time of the public sale. The purpose of these
statutes is generally to prevent a beneficiary or
mortgagee from obtaining a large deficiency judgment
against the former borrower as a result of low or no bids
at the judicial sale.
In the case of cooperative loans, lenders generally
realize on cooperative shares and the accompanying
proprietary lease or occupancy agreement given to secure
a cooperative loan under Article 9 of the UCC. Some
courts have interpreted Article 9 to prohibit or limit a
deficiency award in certain circumstances, including
circumstances where the disposition of the collateral was
not conducted in a commercially reasonable manner.
In addition to laws limiting or prohibiting
deficiency judgments, numerous other federal and state
statutory provisions, including the federal bankruptcy
laws and state laws affording relief to debtors, may
interfere with or affect the ability of the secured
mortgage lender to realize upon collateral or enforce a
deficiency judgment. For example, with respect to
federal bankruptcy law, a court having federal bankruptcy
jurisdiction may permit a debtor through its Chapter 11
or Chapter 13 rehabilitative plan to cure a monetary
default in respect of a mortgage loan on such debtor's
residence by paying arrearages within a reasonable time
period and reinstating the original mortgage loan payment
schedule, even though the lender accelerated the mortgage
loan and final judgment of foreclosure had been entered
in state court (provided no sale of the residence had yet
occurred) prior to the filing of the debtor's petition.
Some courts with federal bankruptcy jurisdiction have
approved plans, based on the particular facts of the
reorganization case, that effected the curing of a
mortgage loan default by paying arrearages over a number
of years.
Courts with federal bankruptcy jurisdiction have
also indicated that the terms of a mortgage loan secured
by property of the debtor may be modified. These courts
have allowed modifications that include reducing the
amount of each monthly payment, changing the rate of
interest, altering the repayment schedule, forgiving all
or a portion of the debt and reducing the lender's
security interest to the value of the residence, thus
leaving the lender a general unsecured creditor for the
difference between the value of the residence and the
outstanding balance of the loan. Generally, however, the
terms of a mortgage loan secured only by a mortgage on
real property that is the debtor's principal residence
may not be modified pursuant to a plan confirmed pursuant
to Chapter 13 except with respect to mortgage payment
arrearages, which may be cured within a reasonable time
period.
Certain tax liens arising under the Code may, in
certain circumstances, have priority over the lien of a
mortgage or deed of trust. In addition, substantive
requirements are imposed upon mortgage lenders in
connection with the origination and the servicing of
mortgage loans by numerous federal and some state
consumer protection laws. These laws include the federal
Truth-in-Lending Act, Real Estate Settlement Procedures
Act, Equal Credit Opportunity Act, Fair Credit Billing
Act, Fair Credit Reporting Act and related statutes.
These federal laws impose specific statutory liabilities
upon lenders who originate mortgage loans and who fail to
comply with the provisions of the law. In some cases,
this liability may affect assignees of the mortgage
loans.
Enforceability of Certain Provisions
Unless the Prospectus Supplement indicates
otherwise, the Mortgage Loans generally contain
due-on-sale clauses. These clauses permit the lender to
accelerate the maturity of the loan if the borrower
sells, transfers or conveys the property. The
enforceability of these clauses has been the subject of
legislation or litigation in many states, and in some
cases the enforceability of these clauses has been
limited or denied. However, the Garn-St Germain
Depository Institutions Act of 1982 (the "Garn-St Germain
Act"), preempts state constitutional, statutory and case
law that prohibit the enforcement of due-on-sale clauses
and permits lenders to enforce these clauses in
accordance with their terms, subject to certain limited
exceptions. The Garn-St Germain Act does "encourage"
lenders to permit assumption of loans at the original
rate of interest or at some other rate less than the
average of the original rate and the market rate.
The Garn-St Germain Act also sets forth nine
specific instances in which a mortgage lender covered by
the Garn-St Germain Act may not exercise a due-on-sale
clause, notwithstanding the fact that a transfer of the
property may have occurred. These include intra-family
transfers, certain transfers by operation of law, leases
of fewer than three years and the creation of a junior
encumbrance. Regulations promulgated under the Garn-St
Germain Act also prohibit the imposition of a prepayment
penalty upon the acceleration of a loan pursuant to a
due-on-sale clause.
The inability to enforce a due-on-sale clause may
result in a mortgage loan bearing an interest rate below
the current market rate being assumed by a new home buyer
rather than being paid off, which may have an impact upon
the average life of the Mortgage Loans and the number of
Mortgage Loans which may be outstanding until maturity.
Upon foreclosure, courts have imposed general
equitable principles. These equitable principles are
generally designed to relieve the borrower from the legal
effect of its defaults under the loan documents.
Examples of judicial remedies that have been fashioned
include judicial requirements that the lender undertake
affirmative and expensive actions to determine the causes
for the borrower's default and the likelihood that the
borrower will be able to reinstate the loan. In some
cases, courts have required that lenders reinstate loans
or recast payment schedules in order to accommodate
borrowers who are suffering from temporary financial
disability. In other cases, courts have limited the
right of the lender to foreclose if the default under the
mortgage instrument is not monetary, such as the borrower
failing to adequately maintain the property or the
borrower executing a second mortgage or deed of trust
affecting the property. Finally, some courts have been
faced with the issue of whether or not federal or state
constitutional provisions reflecting due process concerns
for adequate notice require that borrowers under deeds of
trust or mortgages receive notices in addition to the
statutorily prescribed minimum. For the most part, these
cases have upheld the notice provisions as being
reasonable or have found that the sale by a trustee under
a deed of trust, or under a mortgage having a power of
sale, does not involve sufficient state action to afford
constitutional protections to the borrower.
Applicability of Usury Laws
Title V of the Depository Institutions Deregulation
and Monetary Control Act of 1980 ("Title V"), provides
that state usury limitations shall not apply to certain
types of residential first mortgage loans originated by
certain lenders after March 31, 1980. A similar federal
statute was in effect with respect to mortgage loans made
during the first three months of 1980. The Office of
Thrift Supervision is authorized to issue rules and
regulations and to publish interpretations governing
implementation of Title V. The statute authorized any
state to impose interest rate limits by adopting, before
April 1, 1983, a law or constitutional provision which
expressly rejects application of the federal law. In
addition, even where Title V is not so rejected, any
state is authorized by the law to adopt a provision
limiting discount points or other charges on mortgage
loans covered by Title V. Certain states have taken
action to reimpose interest rate limits or to limit
discount points or other charges.
Unless otherwise set forth in the related Prospectus
Supplement, each Mortgage Collateral Seller, or another
specified party, will have represented that each Mortgage
Loan was originated in compliance with then applicable
state laws, including usury laws, in all material
respects. However, the Mortgage Rates on the Mortgage
Loans will be subject to applicable usury laws as in
effect from time to time.
Alternative Mortgage Instruments
Alternative mortgage instruments, including
adjustable rate mortgage loans and early ownership
mortgage loans, originated by non-federally chartered
lenders, have historically been subjected to a variety of
restrictions. Such restrictions differed from state to
state, resulting in difficulties in determining whether
a particular alternative mortgage instrument originated
by a state-chartered lender was in compliance with
applicable law. These difficulties were alleviated
substantially as a result of the enactment of Title VIII
of the Garn-St Germain Act ("Title VIII"). Title VIII
provides that, notwithstanding any state law to the
contrary, (i) state-chartered banks may originate
alternative mortgage instruments in accordance with
regulations promulgated by the Comptroller of the
Currency with respect to the origination of alternative
mortgage instruments by national banks, (ii)
state-chartered credit unions may originate alternative
mortgage instruments in accordance with regulations
promulgated by the National Credit Union Administration
with respect to origination of alternative mortgage
instruments by federal credit unions and (iii) all other
non-federally chartered housing creditors, including
state-chartered savings and loan associations,
state-chartered savings banks and mutual savings banks
and mortgage banking companies, may originate alternative
mortgage instruments in accordance with the regulations
promulgated by the Federal Home Loan Bank Board,
predecessor to the Office of Thrift Supervision, with
respect to origination of alternative mortgage
instruments by federal savings and loan associations.
Title VIII also provides that any state may reject
applicability of the provisions of Title VIII by
adopting, prior to October 15, 1985, a law or
constitutional provision expressly rejecting the
applicability of such provisions. Certain states have
taken such action.
The Contracts
General
A Contract evidences both (a) the obligation of the
Mortgagor to repay the loan evidenced thereby and (b) the
grant of a security interest in the Manufactured Home to
secure repayment of such loan. Certain aspects of both
features of the Contracts are described below.
Security Interests in Manufactured Homes
The law governing perfection of a security interest
in a Manufactured Homes varies from state to state.
Security interests in manufactured homes may be perfected
either by notation of the secured party's lien on the
certificate of title or by delivery of the required
documents and payments of a fee to the state motor
vehicle authority, depending on state law. In some non-
title states, perfection pursuant to the provisions of
the UCC is required. The lender, the Servicer or the
Master Servicer may effect such notation or delivery of
the required documents and fees, and obtain possession of
the certificate of title, as appropriate under the laws
of the state in which any Manufactured Home securing a
Contract is registered. In the event the Master
Servicer, the Servicer or the lender fails to effect such
notation or delivery, or files the security interest
under the wrong law (for example, under a motor vehicle
title statute rather than under the UCC, in a few
states), the Certificateholders may not have a first
priority security interest in the Manufactured Home
securing a Contract. As manufactured homes have become
larger and often have been attached to their sites
without any apparent intention to move them, courts in
many states have held that manufactured homes, under
certain circumstances, may become subject to real estate
title and recording laws. As a result, a security
interest in a manufactured home could be rendered
subordinate to the interests of other parties claiming an
interest in the home under applicable state real estate
law. In order to perfect a security interest in a
manufactured home under real estate laws, the holder of
the security interest must make a filing under the real
estate laws of the state where the manufactured home is
located. These filings must be made in the real estate
records office of the county where the manufactured home
is located. Unless otherwise provided in the related
Prospectus Supplement, substantially all of the Contracts
will contain provisions prohibiting the Mortgagor from
permanently attaching the Manufactured Home to its site.
So long as the Mortgagor does not violate this agreement
and a court does not hold that the Manufactured Home is
real property, a security interest in the Manufactured
Home will be governed by the certificate of title laws or
the UCC, and the notation of the security interest on the
certificate of title or the filing of a UCC financing
statement will be effective to maintain the priority of
the seller's security interest in the Manufactured Home.
If, however, a Manufactured Home is permanently attached
to its site or if a court determines that a Manufactured
Home is real property, other parties could obtain an
interest in the Manufactured Home which is prior to the
security interest originally retained by the Mortgage
Collateral Seller and transferred to the Company. In
certain cases, the Master Servicer or the Servicer, as
applicable, may be required to perfect a security
interest in the Manufactured Home under applicable real
estate laws. If such real estate filings are not
required and if any of the foregoing events were to
occur, the only recourse of the Certificateholders would
be against the Mortgage Collateral Seller pursuant to its
repurchase obligation for breach of representations or
warranties.
The Company will assign its security interests in
the Manufactured Homes to the Trustee on behalf of the
Certificateholders. See "Description of the
Certificates-Assignment of Contracts." Unless otherwise
specified in the related Prospectus Supplement, if a
Manufactured Home is governed by the applicable motor
vehicle laws of the relevant state neither the Company
nor the Trustee will amend the certificates of title to
identify the Trustee as the new secured party.
Accordingly, the Company or such other entity as may be
specified in the Prospectus Supplement will continue to
be named as the secured party on the certificates of
title relating to the Manufactured Homes. However, there
exists a risk that, in the absence of an amendment to the
certificate of title, such assignment of the security
interest may not be held effective against subsequent
purchasers of a Manufactured Home or subsequent lenders
who take a security interest in the Manufactured Home or
creditors of the assignor.
If the owner of a Manufactured Home moves it to a
state other than the state in which such Manufactured
Home initially is registered and if steps are not taken
to re-perfect the Trustee's security interest in such
state, the security interest in the Manufactured Home
will cease to be perfected. While in many circumstances
the Trustee would have the opportunity to re-perfect its
security interest in the Manufactured Home in the state
of relocation, there can be no assurance that the Trustee
will be able to do so.
When a Mortgagor under a Contract sells a
Manufactured Home, the Trustee, or the Servicer or the
Master Servicer on behalf of the Trustee, must surrender
possession of the certificate of title or will receive
notice as a result of its lien noted thereon and
accordingly will have an opportunity to require
satisfaction of the related before release of the lien.
Under the laws of most states, liens for repairs
performed on a Manufactured Home take priority over a
perfected security interest. The applicable Mortgage
Collateral Seller generally will represent that it has no
knowledge of any such liens with respect to any
Manufactured Home securing payment on any Contract.
However, such liens could arise at any time during the
term of a Contract. No notice will be given to the
Trustee or Certificateholders in the event such a lien
arises and such lien would not give rise to a repurchase
obligation on the part of the party specified in the
Pooling and Servicing Agreement.
To the extent that Manufactured Homes are not
treated as real property under applicable state law,
contracts generally are "chattel paper" as defined in the
UCC in effect in the states in which the Manufactured
Homes initially were registered. Pursuant to the UCC,
the sale of chattel paper is treated in a manner similar
to perfection of a security interest in chattel paper.
Under the Pooling and Servicing Agreement, the Master
Servicer or the Company, as the case may be, will
transfer physical possession of the Contracts to the
Trustee or its Custodian. In addition, the Master
Servicer will make an appropriate filing of a UCC-1
financing statement in the appropriate states to give
notice of the Trustee's ownership of the Contracts.
Unless otherwise specified in the related Prospectus
Supplement, the Contracts will not be stamped or marked
otherwise to reflect their assignment from the Company to
the Trustee. Therefore, if a subsequent purchaser were
able to take physical possession of the Contracts without
notice of such assignment, the Trustee's interest in the
Contracts could be defeated. To the extent that
Manufactured Homes are treated as real property under
applicable state law, Contracts will be treated in a
manner similar to that described above with regard to
Mortgage Loans. See "-The Mortgage Loans" above.
Enforcement of Security Interests in Manufactured
Homes
The Servicer or the Master Servicer on behalf of the
Trustee, to the extent required by the related Pooling
and Servicing Agreement, may take action to enforce the
Trustee's security interest with respect to Contracts in
default by repossession and sale of the Manufactured
Homes securing such defaulted Contracts. So long as the
Manufactured Home has not become subject to real estate
law, a creditor generally can repossess a Manufactured
Home securing a Contract by voluntary surrender, by
"self-help" repossession that is "peaceful" or, in the
absence of voluntary surrender and the ability to
repossess without breach of the peace, by judicial
process. The UCC and consumer protection laws in most
states place restrictions on repossession sales,
including requiring prior notice to the debtor and
commercial reasonableness in effecting such a sale. The
debtor may also have a right to redeem the Manufactured
Home at or before resale.
Certain statutory provisions, including federal and
state bankruptcy and insolvency laws and general
equitable principles, may limit or delay the ability of
a lender to repossess and resell collateral or enforce a
deficiency judgment. For a discussion of deficiency
judgments, see "-The Mortgage Loans-Anti-Deficiency
Legislation and Other Limitations on Lenders" above.
Consumer Protection Laws
If the transferor of a consumer credit contract is
also the seller of goods that give rise to the
transaction (and, in certain cases, related lenders and
assignees), the "Holder-in-Due-Course" rule of the
Federal Trade Commission is intended to defeat the
ability of such transferor to transfer such contract free
of notice of claims by the debtor thereunder. The effect
of this rule is to subject the assignee of such a
contract to all claims and defenses that the debtor could
assert against the seller of goods. Liability under this
rule is limited to amounts paid under a Contract;
however, the Mortgagor also may be able to assert the
rule to set off remaining amounts due as a defense
against a claim brought against such Mortgagor. Numerous
other federal and state consumer protection laws impose
requirements applicable to the origination and lending
pursuant to the Contracts, including the Truth in Lending
Act, the Federal Trade Commission Act, the Fair Credit
Billing Act, the Fair Credit Reporting Act, the Equal
Credit Opportunity Act, the Fair Debt Collection
Practices Act and the Uniform Consumer Credit Code. In
the case of some of these laws, the failure to comply
with their provisions may affect the enforceability of
the related Contract.
"Due-on-Sale" Clauses
The Contracts, in general, prohibit the sale or
transfer of the related Manufactured Homes without the
consent of the Company, the Master Servicer or the
Servicer and permit the acceleration of the maturity of
the Contracts by the Company, the Master Servicer or the
Servicer upon any such sale or transfer that is not
consented to. Unless otherwise specified in the related
Prospectus Supplement, the Company, the Master Servicer
or the Servicer generally will permit most transfers of
Manufactured Homes and not accelerate the maturity of the
related Contracts. In certain cases, the transfer may be
made by a delinquent Mortgagor in order to avoid a
repossession proceeding with respect to a Manufactured
Home.
In the case of a transfer of a Manufactured Home
after which the Company desires to accelerate the
maturity of the related Contract, the Company's ability
to do so will depend on the enforceability under state
law of the "due-on-sale" clause. The Garn-St Germain Act
preempts, subject to certain exceptions and conditions,
state laws prohibiting enforcement of "due-on-sale"
clauses applicable to the Manufactured Homes. In some
states the Company or the Master Servicer may be
prohibited from enforcing a "due-on-sale" clause in
respect of certain Manufactured Homes.
Applicability of Usury Laws
Title V provides that, subject to certain
conditions, state usury limitations shall not apply to
any loan that is secured by a first lien on certain kinds
of manufactured housing. For a discussion of Title V,
see "-The Mortgage Loans-Applicability of Usury Laws"
above. Unless otherwise specified in the related Pooling
and Servicing Agreement, each Mortgage Collateral Seller,
or another specified party, will represent that all of
the Contracts comply with applicable usury laws.
Environmental Legislation
Real property pledged as security to a lender may be
subject to unforeseen environmental risks. Most
environmental statutes create obligations for any party
that can be classified as the "owner" or "operator" of a
"facility" (referring to both operating facilities and to
real property). Under the laws of some states and under
the federal Comprehensive Environmental Response,
Compensation and Liability Act of 1980, a lender may be
liable, as an "owner" or "operator," for costs arising
out of releases or threatened releases of hazardous
substances that require remedy at a mortgaged property,
if agents or employees of the lender have become
sufficiently involved in the operations of the borrower
or, subsequent to a foreclosure, in the management of the
property. Such liability may arise regardless of whether
the environmental damage or threat was caused by a prior
owner.
Under federal and certain state laws, contamination
of a property may give rise to a lien on the property to
assure the payment of costs of clean-up. Under federal
law and in several states, such a lien has priority over
the lien of an existing mortgage against such property.
If a lender is or becomes directly liable following a
foreclosure, it may be precluded from bringing an action
for contribution against the owner or operator who
created the environmental hazard. Such clean-up costs
may be substantial. It is possible that such costs could
become a liability of the related Trust Fund and occasion
a loss to Certificateholders in certain circumstances
described above if such remedial costs were incurred.
Except as otherwise specified in the applicable
Prospectus Supplement, at the time the Mortgage Loans or
Contracts were originated, no environmental assessment or
a very limited environment assessment of the Mortgaged
Properties will have been conducted.
Soldiers' and Sailors' Civil Relief Act of 1940
Under the terms of the Relief Act, a borrower who
enters military service after the origination of such
borrower's mortgage loan or contract (including a
borrower who was in reserve status and is called to
active duty after origination of the mortgage loan or
contract), may not be charged interest (including fees
and charges) above an annual rate of 6% during the period
of such borrower's active duty status, unless a court
orders otherwise upon application of the lender. The
Relief Act applies to borrowers who are members of the
Air Force, Army, Marines, Navy, National Guard, Reserves
or Coast Guard, and officers of the U.S. Public Health
Service assigned to duty with the military. Because the
Relief Act applies to borrowers who enter military
service (including reservists who are called to active
duty) after origination of the related mortgage loan or
contract, no information can be provided as to the number
of Mortgage Loans or Contracts that may be affected by
the Relief Act. With respect to Mortgage Loans or
Contracts included in a Trust Fund, application of the
Relief Act would adversely affect, for an indeterminate
period of time, the ability of the Servicer or the Master
Servicer, as applicable, to collect full amounts of
interest on such Mortgage Collateral. Any shortfall in
interest collections resulting from the application of
the Relief Act or similar legislation or regulations,
which would not be recoverable from the related Mortgage
Loans or Contracts, would result in a reduction of the
amounts distributable to the holders of the related
Certificates, and would not be covered by Advances or any
form of credit enhancement provided in connection with
the related series of Certificates. In addition, the
Relief Act imposes limitations that would impair the
ability of the Servicer or the Master Servicer, as
applicable, to foreclose on an affected Mortgage Loan or
Contract during the Mortgagor's period of active duty
status, and, under certain circumstances, during an
additional three month period thereafter. Thus, in the
event that the Relief Act or similar legislation or
regulations applies to any Mortgage Loan or Contract
which goes into default, there may be delays in payment
and losses on the related Certificates in connection
therewith. Any other interest shortfalls, deferrals or
forgiveness of payments on the Mortgage Loans or
Contracts resulting from similar legislation or
regulations may result in delays in payments or losses to
Certificateholders of the related series.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
General
The following is a general discussion of certain
anticipated material federal income tax consequences of
the purchase, ownership and disposition of the
Certificates offered hereunder. This discussion has been
prepared with the advice of Orrick, Herrington &
Sutcliffe and Thacher Proffitt & Wood, counsel to the
Company. This discussion is directed solely to
Certificateholders that hold the Certificates as capital
assets within the meaning of Section 1221 of the Code and
does not purport to discuss all federal income tax
consequences that may be applicable to particular
categories of investors, some of which (such as banks,
insurance companies and foreign investors) may be subject
to special rules. In addition, the authorities on which
this discussion, and the opinion referred to below, are
based are subject to change or differing interpretations,
which could apply retroactively. Taxpayers and preparers
of tax returns (including those filed by any REMIC or
other issuer) should be aware that under applicable
Treasury regulations a provider of advice on specific
issues of law is not considered an income tax return
preparer unless the advice (i) is given with respect to
events that have occurred at the time the advice is
rendered and is not given with respect to the
consequences of contemplated actions, and (ii) is
directly relevant to the determination of an entry on a
tax return. Accordingly, taxpayers should consult their
tax advisors and tax return preparers regarding the
preparation of any item on a tax return, even where the
anticipated tax treatment has been discussed herein or in
a Prospectus Supplement. In addition to the federal
income tax consequences described herein, potential
investors should consider the state and local tax
consequences, if any, of the purchase, ownership and
disposition of the Certificates. See "State and Other
Tax Consequences." Certificateholders are advised to
consult their tax advisors concerning the federal, state,
local or other tax consequences to them of the purchase,
ownership and disposition of the Certificates offered
hereunder.
The following discussion addresses certificates (the
"REMIC Certificates") representing interests in a Trust
Fund, or a portion thereof, which the Master Servicer or
Certificate Administrator, as applicable, will covenant
to elect to have treated as a "real estate mortgage
investment conduit" (a "REMIC") under Sections 860A
through 860G (the "REMIC Provisions") of the Code. The
Prospectus Supplement for each series of Certificates
will indicate whether a REMIC election (or elections)
will be made for the related Trust Fund and, if such an
election is to be made, will identify all "regular
interests" and "residual interests" in the REMIC. If a
REMIC election will not be made for a Trust Fund, the
federal income consequences of the purchase, ownership
and disposition of the related Certificates will be set
forth in the related Prospectus Supplement. For purposes
of this tax discussion, references to a
"Certificateholder" or a "holder" are to the beneficial
owner of a Certificate.
The following discussion is based in part upon the
rules governing original issue discount that are set
forth in Sections 1271 through 1273 and Section 1275 of
the Code and in the Treasury regulations issued
thereunder (the "OID Regulations"), and in part upon the
REMIC Provisions and the Treasury regulations issued
thereunder (the "REMIC Regulations"). The OID Regulations
do not adequately address certain issues relevant to, and
in some instances provide that they are not applicable
to, securities such as the Certificates.
REMICs
Classification of REMICs
Upon the issuance of each series of REMIC
Certificates, Orrick, Herrington & Sutcliffe or Thacher
Proffitt & Wood, counsel to the Company, will deliver
their opinion generally to the effect that, assuming
compliance with all provisions of the related Pooling and
Servicing Agreement or Trust Agreement, the related Trust
Fund (or each applicable portion thereof) will qualify as
a REMIC and the REMIC Certificates offered with respect
thereto will be considered to evidence ownership of
"regular interests" ("REMIC Regular Certificates") or
"residual interests" ("REMIC Residual Certificates") in
that REMIC within the meaning of the REMIC Provisions.
If an entity electing to be treated as a REMIC fails
to comply with one or more of the ongoing requirements of
the Code for such status during any taxable year, the
Code provides that the entity will not be treated as a
REMIC for such year and thereafter. In that event, such
entity may be taxable as a separate corporation under
Treasury regulations, and the related REMIC Certificates
may not be accorded the status or given the tax treatment
described below. Although the Code authorizes the
Treasury Department to issue regulations providing relief
in the event of an inadvertent termination of REMIC
status, no such regulations have been issued. Any such
relief, moreover, may be accompanied by sanctions, such
as the imposition of a corporate tax on all or a portion
of the Trust Fund's income for the period in which the
requirements for such status are not satisfied. The
Pooling and Servicing Agreement or Trust Agreement, with
respect to each REMIC will include provisions designed to
maintain the Trust Fund's status as a REMIC under the
REMIC Provisions. It is not anticipated that the status
of any Trust Fund as a REMIC will be terminated.
Characterization of Investments in REMIC
Certificates
In general, the REMIC Certificates will be
"qualifying real property loans" within the meaning of
Section 593(d) of the Code, "real estate assets" within
the meaning of Section 856(c)(5)(A) of the Code and
assets described in Section 7701(a)(19)(C) of the Code in
the same proportion that the assets of the REMIC
underlying such Certificates would be so treated.
Moreover, if 95% or more of the assets of the REMIC
qualify for any of the foregoing treatments at all times
during a calendar year, the REMIC Certificates will
qualify for the corresponding status in their entirety
for that calendar year. Interest (including original
issue discount) on the REMIC Regular Certificates and
income allocated to the class of REMIC Residual
Certificates will be interest described in Section
856(c)(3)(B) of the Code to the extent that such
Certificates are treated as "real estate assets" within
the meaning of Section 856(c)(5)(A) of the Code. In
addition, the REMIC Regular Certificates will be
"qualified mortgages" within the meaning of Section
860G(a)(3)(C) of the Code if transferred to another REMIC
on its startup day in exchange for regular or residual
interests therein. The determination as to the
percentage of the REMIC's assets that constitute assets
described in the foregoing sections of the Code will be
made with respect to each calendar quarter based on the
average adjusted basis of each category of the assets
held by the REMIC during such calendar quarter. The
Master Servicer or the Certificate Administrator, as
applicable, will report those determinations to
Certificateholders in the manner and at the times
required by applicable Treasury regulations.
The assets of the REMIC will include, in addition to
Mortgage Collateral, payments on Mortgage Collateral held
pending distribution on the REMIC Certificates and
property acquired by foreclosure held pending sale, and
may include amounts in reserve accounts. It is unclear
whether property acquired by foreclosure held pending
sale and amounts in reserve accounts would be considered
to be part of the Mortgage Collateral, or whether such
assets (to the extent not invested in assets described in
the foregoing sections) otherwise would receive the same
treatment as the Mortgage Collateral for purposes of all
of the foregoing sections. In addition, in some
instances Mortgage Collateral may not be treated entirely
as assets described in the foregoing sections. If so,
the related Prospectus Supplement will describe the
Mortgage Collateral that may not be so treated. The
REMIC Regulations do provide, however, that payments on
Mortgage Collateral held pending distribution are
considered part of the Mortgage Collateral for purposes
of Sections 593(d) and 856(c)(5)(A) of the Code.
Tiered REMIC Structures
For certain series of REMIC Certificates, two or
more separate elections may be made to treat designated
portions of the related Trust Fund as REMICs ("Tiered
REMICs") for federal income tax purposes. Upon the
issuance of any such series of REMIC Certificates,
Orrick, Herrington & Sutcliffe or Thacher Proffitt &
Wood, counsel to the Company, will deliver their opinion
generally to the effect that, assuming compliance with
all provisions of the related Pooling and Servicing
Agreement or Trust Agreement, the Tiered REMICs will each
qualify as a REMIC and the REMIC Certificates issued by
the Tiered REMICs, respectively, will be considered to
evidence ownership of REMIC Regular Certificates or REMIC
Residual Certificates in the related REMIC within the
meaning of the REMIC Provisions.
Solely for purposes of determining whether the REMIC
Certificates will be "qualifying real property loans"
under Section 593(d) of the Code, "real estate assets"
within the meaning of Section 856(c)(5)(A) of the Code,
and "loans secured by an interest in real property" under
Section 7701(a)(19)(C) of the Code, and whether the
income on such Certificates is interest described in
Section 856(c)(3)(B) of the Code, the Tiered REMICs will
be treated as one REMIC.
Taxation of Owners of REMIC Regular Certificates
General. Except as otherwise stated in this
discussion, REMIC Regular Certificates will be treated
for federal income tax purposes as debt instruments
issued by the REMIC and not as ownership interests in the
REMIC or its assets. Moreover, holders of REMIC Regular
Certificates that otherwise report income under a cash
method of accounting will be required to report income
with respect to REMIC Regular Certificates under an
accrual method.
Original Issue Discount. Certain REMIC Regular
Certificates may be issued with "original issue discount"
within the meaning of Section 1273(a) of the Code. Any
holders of REMIC Regular Certificates issued with
original issue discount generally will be required to
include original issue discount in income as it accrues,
in accordance with the method described below, in advance
of the receipt of the cash attributable to such income.
In addition, Section 1272(a)(6) of the Code provides
special rules applicable to REMIC Regular Certificates
and certain other debt instruments issued with original
issue discount. Regulations have not been issued under
that section.
The Code requires that a prepayment assumption be
used with respect to Mortgage Collateral held by a REMIC
in computing the accrual of original issue discount on
REMIC Regular Certificates issued by that REMIC, and that
adjustments be made in the amount and rate of accrual of
such discount to reflect differences between the actual
prepayment rate and the prepayment assumption. The
prepayment assumption is to be determined in a manner
prescribed in Treasury regulations; as noted above, those
regulations have not been issued. The Committee Report
indicates that the regulations will provide that the
prepayment assumption used with respect to a REMIC
Regular Certificate must be the same as that used in
pricing the initial offering of such REMIC Regular
Certificate. The Prepayment Assumption used by the Master
Servicer or the Certificate Administrator, as applicable,
in reporting original issue discount for each series of
REMIC Regular Certificates will be consistent with this
standard and will be disclosed in the related Prospectus
Supplement. However, neither the Company, the Master
Servicer nor the Certificate Administrator will make any
representation that the Mortgage Collateral will in fact
prepay at a rate conforming to the Prepayment Assumption
or at any other rate.
The original issue discount, if any, on a REMIC
Regular Certificate will be the excess of its stated
redemption price at maturity over its issue price. The
issue price of a particular class of REMIC Regular
Certificates will be the first cash price at which a
substantial amount of REMIC Regular Certificates of that
class is sold (excluding sales to bond houses, brokers
and underwriters). If less than a substantial amount of
a particular class of REMIC Regular Certificates is sold
for cash on or prior to the date of their initial
issuance (the "Closing Date"), the issue price for such
class will be treated as the fair market value of such
class on the Closing Date. Under the OID Regulations, the
stated redemption price of a REMIC Regular Certificate is
equal to the total of all payments to be made on such
Certificate other than "qualified stated interest."
"Qualified stated interest" includes interest that is
unconditionally payable at least annually at a single
fixed rate, or in the case of a variable rate debt
instrument, at a "qualified floating rate," an "objective
rate," a combination of a single fixed rate and one or
more "qualified floating rates" or one "qualified inverse
floating rate," or a combination of "qualified floating
rates" that generally does not operate in a manner that
accelerates or defers interest payments on such REMIC
Regular Certificate.
In the case of REMIC Regular Certificates bearing
adjustable interest rates, the determination of the total
amount of original issue discount and the timing of the
inclusion thereof will vary according to the
characteristics of such REMIC Regular Certificates. If
the original issue discount rules apply to such
Certificates, the related Prospectus Supplement will
describe the manner in which such rules will be applied
by the Master Servicer or the Certificate Administrator,
as applicable, with respect to those Certificates in
preparing information returns to the Certificateholders
and the IRS.
Certain classes of the REMIC Regular Certificates
may provide for the first interest payment with respect
to such Certificates to be made more than one month after
the date of issuance, a period which is longer than the
subsequent monthly intervals between interest payments.
Assuming the "accrual period" (as defined herein) for
original issue discount is each monthly period that
begins or ends on a Distribution Date, in some cases, as
a consequence of this "long first accrual period," some
or all interest payments may be required to be included
in the stated redemption price of the REMIC Regular
Certificate and accounted for as original issue discount.
Because interest on REMIC Regular Certificates must in
any event be accounted for under an accrual method,
applying this analysis would result in only a slight
difference in the timing of the inclusion in income of
the yield on the REMIC Regular Certificates.
In addition, if the accrued interest to be paid on
the first Distribution Date is computed with respect to
a period that begins prior to the Closing Date, a portion
of the purchase price paid for a REMIC Regular
Certificate will reflect such accrued interest. In such
cases, information returns to the Certificateholders and
the IRS will be based on the position that the portion of
the purchase price paid for the interest accrued with
respect to periods prior to the Closing Date is treated
as part of the overall cost of such REMIC Regular
Certificate (and not as a separate asset the cost of
which is recovered entirely out of interest received on
the next Distribution Date) and that portion of the
interest paid on the first Distribution Date in excess of
interest accrued for a number of days corresponding to
the number of days from the Closing Date to the first
Distribution Date should be included in the stated
redemption price of such REMIC Regular Certificate.
However, the OID Regulations state that all or some
portion of such accrued interest may be treated as a
separate asset the cost of which is recovered entirely
out of interest paid on the first Distribution Date. It
is unclear how an election to do so would be made under
the OID Regulations and whether such an election could be
made unilaterally by a Certificateholder.
Notwithstanding the general definition of original
issue discount, original issue discount on a REMIC
Regular Certificate will be considered to be de minimis
if it is less than 0.25% of the stated redemption price
of the REMIC Regular Certificate multiplied by its
weighted average life. For this purpose, the weighted
average life of the REMIC Regular Certificate is computed
as the sum of the amounts determined, as to each payment
included in the stated redemption price of such REMIC
Regular Certificate, by multiplying (i) the number of
complete years (rounding down for partial years) from the
issue date until such payment is expected to be made
(presumably taking into account the Prepayment
Assumption) by (ii) a fraction, the numerator of which is
the amount of the payment, and the denominator of which
is the stated redemption price at maturity of such REMIC
Regular Certificate. Under the OID Regulations, original
issue discount of only a de minimis amount (other than de
minimis original issue discount attributable to a so-
called "teaser" interest rate or an initial interest
holiday) will be included in income as each payment of
stated principal is made, based on the product of the
total amount of such de minimis original issue discount
and a fraction, the numerator of which is the amount of
such principal payment and the denominator of which is
the outstanding stated principal amount of the REMIC
Regular Certificate. The OID Regulations also would
permit a Certificateholder to elect to accrue de minimis
original issue discount into income currently based on a
constant yield method. See "-Market Discount" for a
description of such election under the OID Regulations.
If original issue discount on a REMIC Regular
Certificate is in excess of a de minimis amount, the
holder of such Certificate must include in ordinary gross
income the sum of the "daily portions" of original issue
discount for each day during its taxable year on which it
held such REMIC Regular Certificate, including the
purchase date but excluding the disposition date. In the
case of an original holder of a REMIC Regular
Certificate, the daily portions of original issue
discount will be determined as follows.
As to each "accrual period," that is, unless
otherwise stated in the related Prospectus Supplement,
each period that begins or ends on a date that
corresponds to a Distribution Date and begins on the
first day following the immediately preceding accrual
period (or in the case of the first such period, begins
on the Closing Date), a calculation will be made of the
portion of the original issue discount that accrued
during such accrual period. The portion of original
issue discount that accrues in any accrual period will
equal the excess, if any, of (i) the sum of (A) the
present value, as of the end of the accrual period, of
all of the distributions remaining to be made on the
REMIC Regular Certificate, if any, in future periods and
(B) the distributions made on such REMIC Regular
Certificate during the accrual period of amounts included
in the stated redemption price, over (ii) the adjusted
issue price of such REMIC Regular Certificate at the
beginning of the accrual period. The present value of
the remaining distributions referred to in the preceding
sentence will be calculated (1) assuming that
distributions on the REMIC Regular Certificate will be
received in future periods based on the Mortgage
Collateral being prepaid at a rate equal to the
Prepayment Assumption and (2) using a discount rate equal
to the original yield to maturity of the Certificate. For
these purposes, the original yield to maturity of the
Certificate will be calculated based on its issue price
and assuming that distributions on the Certificate will
be made in all accrual periods based on the Mortgage
Collateral being prepaid at a rate equal to the
Prepayment Assumption. The adjusted issue price of a
REMIC Regular Certificate at the beginning of any accrual
period will equal the issue price of such Certificate,
increased by the aggregate amount of original issue
discount that accrued with respect to such Certificate in
prior accrual periods, and reduced by the amount of any
distributions made on such REMIC Regular Certificate in
prior accrual periods of amounts included in its stated
redemption price. The original issue discount accruing
during any accrual period, computed as described above,
will be allocated ratably to each day during the accrual
period to determine the daily portion of original issue
discount for such day.
A subsequent purchaser of a REMIC Regular
Certificate that purchases such Certificate at a cost
(excluding any portion of such cost attributable to
accrued qualified stated interest) less than its
remaining stated redemption price will also be required
to include in gross income the daily portions of any
original issue discount with respect to such Certificate.
However, each such daily portion will be reduced, if such
cost is in excess of its "adjusted issue price," in
proportion to the ratio such excess bears to the
aggregate original issue discount remaining to be accrued
on such REMIC Regular Certificate. The adjusted issue
price of a REMIC Regular Certificate on any given day
equals the sum of (i) the adjusted issue price (or, in
the case of the first accrual period, the issue price) of
such Certificate at the beginning of the accrual period
which includes such day and (ii) the daily portions of
original issue discount for all days during such accrual
period prior to such day.
Market Discount. A Certificateholder that purchases
a REMIC Regular Certificate at a market discount, that
is, in the case of a REMIC Regular Certificate issued
without original issue discount, at a purchase price less
than its remaining stated principal amount, or in the
case of a REMIC Regular Certificate issued with original
issue discount, at a purchase price less than its
adjusted issue price will recognize income upon receipt
of each distribution representing stated redemption
price. In particular, under Section 1276 of the Code
such a Certificateholder generally will be required to
allocate the portion of each such distribution
representing stated redemption price first to accrued
market discount not previously included in income, and to
recognize ordinary income to that extent. A
Certificateholder may elect to include market discount in
income currently as it accrues rather than including it
on a deferred basis in accordance with the foregoing. If
made, such election will apply to all market discount
bonds acquired by such Certificateholder on or after the
first day of the first taxable year to which such
election applies. In addition, the OID Regulations permit
a Certificateholder to elect to accrue all interest,
discount (including de minimis market or original issue
discount) and premium in income as interest, based on a
constant yield method. If such an election were made
with respect to a REMIC Regular Certificate with market
discount, the Certificateholder would be deemed to have
made an election to include currently market discount in
income with respect to all other debt instruments having
market discount that such Certificateholder acquires
during the taxable year of the election or thereafter,
and possibly previously acquired instruments. Similarly,
a Certificateholder that made this election for a
Certificate that is acquired at a premium would be deemed
to have made an election to amortize bond premium with
respect to all debt instruments having amortizable bond
premium that such Certificateholder owns or acquires.
See "-Premium." Each of these elections to accrue
interest, discount and premium with respect to a
Certificate on a constant yield method or as interest
would be irrevocable.
However, market discount with respect to a REMIC
Regular Certificate will be considered to be de minimis
for purposes of Section 1276 of the Code if such market
discount is less than 0.25% of the remaining stated
redemption price of such REMIC Regular Certificate
multiplied by the number of complete years to maturity
remaining after the date of its purchase. In
interpreting a similar rule with respect to original
issue discount on obligations payable in installments,
the OID Regulations refer to the weighted average
maturity of obligations, and it is likely that the same
rule will be applied with respect to market discount,
presumably taking into account the Prepayment Assumption.
If market discount is treated as de minimis under this
rule, it appears that the actual discount would be
treated in a manner similar to original issue discount of
a de minimis amount. See "-Original Issue Discount."
Such treatment would result in discount being included in
income at a slower rate than discount would be required
to be included in income using the method described
above.
Section 1276(b)(3) of the Code specifically
authorizes the Treasury Department to issue regulations
providing for the method for accruing market discount on
debt instruments, the principal of which is payable in
more than one installment. Until regulations are issued
by the Treasury Department, certain rules described in
the Committee Report apply. The Committee Report
indicates that in each accrual period market discount on
REMIC Regular Certificates should accrue, at the
Certificateholder's option: (i) on the basis of a
constant yield method, (ii) in the case of a REMIC
Regular Certificate issued without original issue
discount, in an amount that bears the same ratio to the
total remaining market discount as the stated interest
paid in the accrual period bears to the total amount of
stated interest remaining to be paid on the REMIC Regular
Certificate as of the beginning of the accrual period, or
(iii) in the case of a REMIC Regular Certificate issued
with original issue discount, in an amount that bears the
same ratio to the total remaining market discount as the
original issue discount accrued in the accrual period
bears to the total original issue discount remaining on
the REMIC Regular Certificate at the beginning of the
accrual period. Moreover, the Prepayment Assumption used
in calculating the accrual of original issue discount is
to be used in calculating the accrual of market discount.
Because the regulations referred to in this paragraph
have not been issued, it is not possible to predict what
effect such regulations might have on the tax treatment
of a REMIC Regular Certificate purchased at a discount in
the secondary market.
To the extent that REMIC Regular Certificates
provide for monthly or other periodic distributions
throughout their term, the effect of these rules may be
to require market discount to be includible in income at
a rate that is not significantly slower than the rate at
which such discount would accrue if it were original
issue discount. Moreover, in any event a holder of a
REMIC Regular Certificate generally will be required to
treat a portion of any gain on the sale or exchange of
such Certificate as ordinary income to the extent of the
market discount accrued to the date of disposition under
one of the foregoing methods, less any accrued market
discount previously reported as ordinary income.
In addition, under Section 1277 of the Code, a
holder of a REMIC Regular Certificate may be required to
defer a portion of its interest deductions for the
taxable year attributable to any indebtedness incurred or
continued to purchase or carry a REMIC Regular
Certificate purchased with market discount. For these
purposes, the de minimis rule referred to above applies.
Any such deferred interest expense would not exceed the
market discount that accrues during such taxable year and
is, in general, allowed as a deduction not later than the
year in which such market discount is includible in
income. If such holder elects to include market discount
in income currently as it accrues on all market discount
instruments acquired by such holder in that taxable year
or thereafter, the interest deferral rule described above
will not apply.
Premium. A REMIC Regular Certificate purchased at
a cost (excluding any portion of such cost attributable
to accrued qualified stated interest) greater than its
remaining stated redemption price will be considered to
be purchased at a premium. The holder of such a REMIC
Regular Certificate may elect under Section 171 of the
Code to amortize such premium under the constant yield
method over the life of the Certificate. If made, such
an election will apply to all debt instruments having
amortizable bond premium that the holder owns or
subsequently acquires. Amortizable premium will be
treated as an offset to interest income on the related
REMIC Regular Certificate, rather than as a separate
interest deduction. The OID Regulations also permit
Certificateholders to elect to include all interest,
discount and premium in income based on a constant yield
method, further treating the Certificateholder as having
made the election to amortize premium generally. See "-
Market Discount." The Committee Report states that the
same rules that apply to accrual of market discount
(which rules will require use of a Prepayment Assumption
in accruing market discount with respect to REMIC Regular
Certificates without regard to whether such Certificates
have original issue discount) will also apply in
amortizing bond premium under Section 171 of the Code.
Realized Losses. Under Section 166 of the Code,
both corporate holders of the REMIC Regular Certificates
and noncorporate holders of the REMIC Regular
Certificates that acquire such Certificates in connection
with a trade or business should be allowed to deduct, as
ordinary losses, any losses sustained during a taxable
year in which their Certificates become wholly or
partially worthless as the result of one or more Realized
Losses on the Mortgage Collateral. However, it appears
that a noncorporate holder that does not acquire a REMIC
Regular Certificate in connection with a trade or
business will not be entitled to deduct a loss under
Section 166 of the Code until such holder's Certificate
becomes wholly worthless (i.e., until its outstanding
principal balance has been reduced to zero) and that the
loss will be characterized as a short-term capital loss.
Each holder of a REMIC Regular Certificate will be
required to accrue interest and original issue discount
with respect to such Certificate, without giving effect
to any reductions in distributions attributable to
defaults or delinquencies on the Mortgage Collateral
until it can be established that any such reduction
ultimately will not be recoverable. As a result, the
amount of taxable income reported in any period by the
holder of a REMIC Regular Certificate could exceed the
amount of economic income actually realized by the holder
in such period. Although the holder of a REMIC Regular
Certificate eventually will recognize a loss or reduction
in income attributable to previously accrued and included
income that, as the result of a realized loss, ultimately
will not be realized, the law is unclear with respect to
the timing and character of such loss or reduction in
income.
Taxation of Owners of REMIC Residual Certificates
General. As residual interests, the REMIC Residual
Certificates will be subject to tax rules that differ
significantly from those that would apply if the REMIC
Residual Certificates were treated for federal income tax
purposes as direct ownership interests in the Mortgage
Collateral or as debt instruments issued by the REMIC.
A holder of a REMIC Residual Certificate generally
will be required to report its daily portion of the
taxable income or, subject to the limitations noted in
this discussion, the net loss of the REMIC for each day
during a calendar quarter that such holder owned such
REMIC Residual Certificate. For this purpose, the
taxable income or net loss of the REMIC will be allocated
to each day in the calendar quarter ratably using a "30
days per month/90 days per quarter/360 days per year"
convention unless otherwise disclosed in the related
Prospectus Supplement. The daily amounts will then be
allocated among the REMIC Residual Certificateholders in
proportion to their respective ownership interests on
such day. Any amount included in the gross income or
allowed as a loss of any REMIC Residual Certificateholder
by virtue of this allocation will be treated as ordinary
income or loss. The taxable income of the REMIC will be
determined under the rules described below in "-Taxable
Income of the REMIC" and will be taxable to the REMIC
Residual Certificateholders without regard to the timing
or amount of cash distributions by the REMIC. Ordinary
income derived from REMIC Residual Certificates will be
"portfolio income" for purposes of the taxation of
taxpayers subject to limitations under Section 469 of the
Code on the deductibility of "passive losses."
A holder of a REMIC Residual Certificate that
purchased such Certificate from a prior holder of such
Certificate also will be required to report on its
federal income tax return amounts representing its daily
portion of the taxable income (or net loss) of the REMIC
for each day that it holds such REMIC Residual
Certificate. These daily portions generally will equal
the amounts of taxable income or net loss determined as
described above. The Committee Report indicates that
certain modifications of the general rules may be made,
by regulations, legislation or otherwise, to reduce (or
increase) the income or loss of a holder of a REMIC
Residual Certificateholder that purchased such REMIC
Residual Certificate from a prior holder of such
Certificate at a price greater than (or less than) the
adjusted basis (as defined herein) such REMIC Residual
Certificate would have had in the hands of an original
holder of such Certificate. The REMIC Regulations,
however, do not provide for any such modifications.
Any payments received by a holder of a REMIC
Residual Certificate in connection with the acquisition
of such REMIC Residual Certificate will be taken into
account in determining the income of such holder for
federal income tax purposes. Although it appears likely
that any such payment would be includible in income
immediately upon its receipt, the IRS might assert that
such payment should be included in income over time
according to an amortization schedule or according to
some other method. Because of the uncertainty concerning
the treatment of such payments, holders of REMIC Residual
Certificates should consult their tax advisors concerning
the treatment of such payments for income tax purposes.
The amount of income REMIC Residual
Certificateholders will be required to report (or the tax
liability associated with such income) may exceed the
amount of cash distributions received from the REMIC for
the corresponding period. Consequently, REMIC Residual
Certificateholders should have other sources of funds
sufficient to pay any federal income taxes due as a
result of their ownership of REMIC Residual Certificates
or unrelated deductions against which income may be
offset, subject to the rules relating to "excess
inclusions," residual interests without "significant
value" and "noneconomic" residual interests discussed
below. The fact that the tax liability associated with
the income allocated to REMIC Residual Certificateholders
may exceed the cash distributions received by such REMIC
Residual Certificateholders for the corresponding period
may significantly adversely affect such REMIC Residual
Certificateholders' after-tax rate of return.
Taxable Income of the REMIC. The taxable income of
the REMIC will equal the income from the Mortgage
Collateral and other assets of the REMIC plus any
cancellation of indebtedness income due to the allocation
of realized losses to REMIC Regular Certificates, less
the deductions allowed to the REMIC for interest
(including original issue discount and reduced by the
amortization of any premium received on issuance) on the
REMIC Regular Certificates (and any other class of REMIC
Certificates constituting "regular interests" in the
REMIC not offered hereby), amortization of any premium on
the Mortgage Collateral, bad debt deductions with respect
to the Mortgage Collateral and, except as described
below, for servicing, administrative and other expenses.
For purposes of determining its taxable income, the
REMIC will have an initial aggregate basis in its assets
equal to their fair market value immediately after their
transfer to the REMIC. For this purpose, the Master
Servicer or the Certificate Administrator, as applicable,
intends to treat the fair market value of the Mortgage
Collateral as being equal to the aggregate issue prices
of the REMIC Regular Certificates and REMIC Residual
Certificates. Such aggregate basis will be allocated
among the Mortgage Collateral collectively and the other
assets of the REMIC in proportion to their respective
fair market values. The issue price of any REMIC
Certificates offered hereby will be determined in the
manner described above under "-Taxation of Owners of
REMIC Regular Certificates-Original Issue Discount."
Accordingly, if one or more classes of REMIC Certificates
are retained initially rather than sold, the Master
Servicer or the Certificate Administrator, as applicable,
may be required to estimate the fair market value of such
interests in order to determine the basis of the REMIC in
the Mortgage Collateral and other property held by the
REMIC.
Subject to the possible application of the de
minimis rules, the method of accrual by the REMIC of
original issue discount income and market discount income
with respect to Mortgage Collateral that it holds will be
equivalent to the method of accruing original issue
discount income for REMIC Regular Certificateholders
(that is, under the constant yield method taking into
account the Prepayment Assumption). However, a REMIC
that acquires Mortgage Collateral at a market discount
must include such discount in income currently, as it
accrues, on a constant interest basis. See "-Taxation of
Owners of REMIC Regular Certificates" above, which
describes a method of accruing discount income that is
analogous to that required to be used by a REMIC as to
Mortgage Collateral with market discount that it holds.
An item of Mortgage Collateral will be deemed to
have been acquired with discount (or premium) to the
extent that the REMIC's basis therein, determined as
described in the preceding paragraph, is less than (or
greater than) its stated redemption price. Any such
discount will be includible in the income of the REMIC as
it accrues, in advance of receipt of the cash
attributable to such income, under a method similar to
the method described above for accruing original issue
discount on the REMIC Regular Certificates. It is
anticipated that each REMIC will elect under Section 171
of the Code to amortize any premium on the Mortgage
Collateral. Premium on any item of Mortgage Collateral
to which such election applies may be amortized under a
constant yield method, presumably taking into account a
Prepayment Assumption.
The REMIC will be allowed deductions for interest
(including original issue discount) on the REMIC Regular
Certificates (including any other class of REMIC
Certificates constituting "regular interests" in the
REMIC not offered hereby) equal to the deductions that
would be allowed if the REMIC Regular Certificates
(including any other class of REMIC Certificates
constituting "regular interests" in the REMIC not offered
hereby) were indebtedness of the REMIC. Original issue
discount will be considered to accrue for this purpose as
described above under "-Taxation of Owners of REMIC
Regular Certificates-Original Issue Discount," except
that the de minimis rule and the adjustments for
subsequent holders of REMIC Regular Certificates
(including any other class of Certificates constituting
"regular interests" in the REMIC not offered hereby)
described therein will not apply.
If a class of REMIC Regular Certificates is issued
at a price in excess of the stated redemption price of
such class (such excess, "Issue Premium"), the net amount
of interest deductions that are allowed the REMIC in each
taxable year with respect to the REMIC Regular
Certificates of such class will be reduced by an amount
equal to the portion of the Issue Premium that is
considered to be amortized or repaid in that year.
Although the matter is not entirely certain, it is likely
that Issue Premium would be amortized under a constant
yield method in a manner analogous to the method of
accruing original issue discount described above under "-
Taxation of Owners of REMIC Regular Certificates-Original
Issue Discount."
As a general rule, the taxable income of the REMIC
will be determined in the same manner as if the REMIC
were an individual having the calendar year as its
taxable year and using the accrual method of accounting.
However, no item of income, gain, loss or deduction
allocable to a prohibited transaction will be taken into
account. See "-Prohibited Transactions and Other
Possible REMIC Taxes" below. Further, the limitation on
miscellaneous itemized deductions imposed on individuals
by Section 67 of the Code (which allows such deductions
only to the extent they exceed in the aggregate two
percent of the taxpayer's adjusted gross income) will not
be applied at the REMIC level so that the REMIC will be
allowed deductions for servicing, administrative and
other non-interest expenses in determining its taxable
income. All such expenses will be allocated as a
separate item to the holders of REMIC Certificates,
subject to the limitation of Section 67 of the Code. See
"-Possible Pass-Through of Miscellaneous Itemized
Deductions" below. If the deductions allowed to the
REMIC exceed its gross income for a calendar quarter,
such excess will be the net loss for the REMIC for that
calendar quarter.
Basis Rules, Net Losses and Distributions. The
adjusted basis of a REMIC Residual Certificate will be
equal to the amount paid for such REMIC Residual
Certificate, increased by amounts included in the income
of the related Certificateholder and decreased (but not
below zero) by distributions made, and by net losses
allocated, to such Certificateholder.
A REMIC Residual Certificateholder is not allowed to
take into account any net loss for any calendar quarter
to the extent such net loss exceeds such REMIC Residual
Certificateholder's adjusted basis in its REMIC Residual
Certificate as of the close of such calendar quarter
(determined without regard to such net loss). Any loss
that is not currently deductible by reason of this
limitation may be carried forward indefinitely to future
calendar quarters and, subject to the same limitation,
may be used only to offset income from the REMIC Residual
Certificate. The ability of holders of REMIC Residual
Certificates to deduct net losses may be subject to
additional limitations under the Code, as to which such
Certificateholders should consult their tax advisors.
Any distribution on a REMIC Residual Certificate
will be treated as a non-taxable return of capital to the
extent it does not exceed the holder's adjusted basis in
such REMIC Residual Certificate. To the extent a
distribution on a REMIC Residual Certificate exceeds such
adjusted basis, it will be treated as gain from the sale
of such REMIC Residual Certificate. Holders of certain
REMIC Residual Certificates may be entitled to
distributions early in the term of the related REMIC
under circumstances in which their bases in such REMIC
Residual Certificates will not be sufficiently large that
such distributions will be treated as nontaxable returns
of capital. Their bases in such REMIC Residual
Certificates will initially equal the amount paid for
such REMIC Residual Certificates and will be increased by
their allocable shares of taxable income of the Trust
Fund. However, such basis increases may not occur until
the end of the calendar quarter, or perhaps the end of
the calendar year, with respect to which such REMIC
taxable income is allocated to the holders of REMIC
Residual Certificates. To the extent such
Certificateholders' initial bases are less than the
distributions to such REMIC Residual Certificateholders,
and increases in such initial bases either occur after
such distributions or (together with their initial bases)
are less than the amount of such distributions, gain will
be recognized to such Certificateholders on such
distributions and will be treated as gain from the sale
of their REMIC Residual Certificates.
The effect of these rules is that a
Certificateholder may not amortize its basis in a REMIC
Residual Certificate, but may only recover its basis
through distributions, through the deduction of its share
of any net losses of the REMIC or upon the sale of its
REMIC Residual Certificate. See "-Sales of REMIC
Certificates" below. For a discussion of possible
modifications of these rules that may require adjustments
to income of a holder of a REMIC Residual Certificate
other than an original holder in order to reflect any
difference between the cost of such REMIC Residual
Certificate to such holder and the adjusted basis such
REMIC Residual Certificate would have had in the hands of
the original holder, see "-General" above.
Excess Inclusions. Any "excess inclusions" with
respect to a REMIC Residual Certificate will, with an
exception discussed below for certain REMIC Residual
Certificates held by thrift institutions, be subject to
federal income tax in all events.
In general, the "excess inclusions" with respect to
a REMIC Residual Certificate for any calendar quarter
will be the excess, if any, of (i) the sum of the daily
portions of REMIC taxable income allocable to such REMIC
Residual Certificate over (ii) the sum of the "daily
accruals" (as defined herein) for each day during such
quarter that such REMIC Residual Certificate was held by
such REMIC Residual Certificateholder. The daily
accruals of a REMIC Residual Certificateholder will be
determined by allocating to each day during a calendar
quarter its ratable portion of the product of the
"adjusted issue price" of the REMIC Residual Certificate
at the beginning of the calendar quarter and 120% of the
"long-term federal rate" in effect on the Closing Date.
For this purpose, the adjusted issue price of a REMIC
Residual Certificate as of the beginning of any calendar
quarter will be equal to the issue price of the REMIC
Residual Certificate, increased by the sum of the daily
accruals for all prior quarters and decreased (but not
below zero) by any distributions made with respect to
such REMIC Residual Certificate before the beginning of
such quarter. The issue price of a REMIC Residual
Certificate is the initial offering price to the public
(excluding bond houses and brokers) at which a
substantial amount of the REMIC Residual Certificates
were sold. The "long-term federal rate" is an average of
current yields on Treasury securities with a remaining
term of greater than nine years, computed and published
monthly by the IRS.
For REMIC Residual Certificateholders, an excess
inclusion (i) will not be permitted to be offset by
deductions, losses or loss carryovers from other
activities, (ii) will be treated as "unrelated business
taxable income" to an otherwise tax-exempt organization
and (iii) will not be eligible for any rate reduction or
exemption under any applicable tax treaty with respect to
the 30% United States withholding tax imposed on
distributions to REMIC Residual Certificateholders that
are foreign investors. See, however, "-Foreign Investors
in REMIC Certificates" below.
As an exception to the general rules described
above, thrift institutions are allowed to offset their
excess inclusions with unrelated deductions, losses or
loss carryovers, but only if the REMIC Residual
Certificates are considered to have "significant value."
The REMIC Regulations provide that in order to be treated
as having significant value, the REMIC Residual
Certificates must have an aggregate issue price at least
equal to two percent of the aggregate issue prices of all
of the related REMIC's Regular and Residual Certificates.
In addition, based on the Prepayment Assumption, the
anticipated weighted average life of the REMIC Residual
Certificates must equal or exceed 20% of the anticipated
weighted average life of the REMIC and on any required or
permitted clean up calls or required qualified
liquidation provided for in the REMIC's organizational
documents. Although it has not done so, the Treasury
also has authority to issue regulations that would treat
the entire amount of income accruing on a REMIC Residual
Certificate as an excess inclusion if the REMIC Residual
Certificates are considered not to have "significant
value." The related Prospectus Supplement will disclose
whether offered REMIC Residual Certificates may be
considered to have "significant value" under the REMIC
Regulations; except that any disclosure that a REMIC
Residual Certificate will have "significant value" will
be based upon certain assumptions, and the Company will
make no representation that a REMIC Residual Certificate
will have "significant value" for purposes of the above-
described rules. The above-described exception for thrift
institutions applies only to those residual interests
held directly by, and deductions, losses and loss
carryovers incurred by, such institutions (and not by
other members of an affiliated group of corporations
filing a consolidated income tax return) or by certain
wholly-owned direct subsidiaries of such institutions
formed or operated exclusively in connection with the
organization and operation of one or more REMICs.
In the case of any REMIC Residual Certificates held
by a real estate investment trust, the aggregate excess
inclusions with respect to such REMIC Residual
Certificates, reduced (but not below zero) by the real
estate investment trust taxable income (within the
meaning of Section 857(b)(2) of the Code, excluding any
net capital gain), will be allocated among the
shareholders of such trust in proportion to the dividends
received by such shareholders from such trust, and any
amount so allocated will be treated as an excess
inclusion with respect to a REMIC Residual Certificate as
if held directly by such shareholder. Treasury
regulations yet to be issued could apply a similar rule
to regulated investment companies, common trust funds and
certain cooperatives; the REMIC Regulations currently do
not address this subject.
Noneconomic REMIC Residual Certificates. Under the
REMIC Regulations, transfers of "noneconomic" REMIC
Residual Certificates will be disregarded for all federal
income tax purposes if "a significant purpose of the
transfer was to enable the transferor to impede the
assessment or collection of tax." If such transfer is
disregarded, the purported transferor will continue to
remain liable for any taxes due with respect to the
income on such "noneconomic" REMIC Residual Certificate.
The REMIC Regulations provide that a REMIC Residual
Certificate is noneconomic unless, based on the
Prepayment Assumption and on any required or permitted
clean up calls, or required qualified liquidation
provided for in the REMIC's organizational documents, (1)
the present value of the expected future distributions
(discounted using the "applicable federal rate" for
obligations whose term ends on the close of the last
quarter in which excess inclusions are expected to accrue
with respect to the REMIC Residual Certificate, which
rate is computed and published monthly by the IRS) on the
REMIC Residual Certificate equals at least the present
value of the expected tax on the anticipated excess
inclusions, and (2) the transferor reasonably expects
that the transferee will receive distributions with
respect to the REMIC Residual Certificate at or after the
time the taxes accrue on the anticipated excess
inclusions in an amount sufficient to satisfy the accrued
taxes. Accordingly, all transfers of REMIC Residual
Certificates that may constitute noneconomic residual
interests will be subject to certain restrictions under
the terms of the related Pooling and Servicing Agreement
or Trust Agreement that are intended to reduce the
possibility of any such transfer being disregarded.
Such restrictions will require each party to a transfer
to provide an affidavit that no purpose of such transfer
is to impede the assessment or collection of tax,
including certain representations as to the financial
condition of the prospective transferee, as to which the
transferor also is required to make a reasonable
investigation to determine such transferee's historic
payment of its debts and ability to continue to pay its
debts as they come due in the future. Prior to
purchasing a REMIC Residual Certificate, prospective
purchasers should consider the possibility that a
purported transfer of such REMIC Residual Certificate by
such a purchaser to another purchaser at some future date
may be disregarded in accordance with the above-described
rules which would result in the retention of tax
liability by such purchaser.
The related Prospectus Supplement will disclose
whether offered REMIC Residual Certificates may be
considered "noneconomic" residual interests under the
REMIC Regulations. Any such disclosure that a REMIC
Residual Certificate will not be considered "noneconomic"
will be based upon certain assumptions, and the Company
will make no representation that a REMIC Residual
Certificate will not be considered "noneconomic" for
purposes of the above-described rules. See "-Foreign
Investors in REMIC Certificates" below for additional
restrictions applicable to transfers of certain REMIC
Residual Certificates to foreign persons.
Mark-to-Market Rules. On December 28, 1993, the IRS
released temporary regulations (the "Mark-to-Market
Regulations") relating to the requirement that a
securities dealer mark to market securities held for sale
to customers. This mark-to-market requirement applies to
all securities owned by a dealer, except to the extent
that the dealer has specifically identified a security as
held for investment. The Mark-to-Market Regulations
provide that for purposes of this mark-to-market
requirement, a "negative value" REMIC Residual
Certificate is not treated as a security and thus
generally may not be marked to market. This exclusion
from the mark-to-market requirement is expanded to
include all REMIC Residual Certificates under proposed
Treasury regulations published January 4, 1995 which
provide that any REMIC Residual Certificate issued after
January 4, 1995 will not be treated as a security and
therefore generally may not be marked to market.
Prospective purchasers of a REMIC Residual Certificate
should consult their tax advisors regarding the possible
application of the mark-to-market requirement to REMIC
Residual Certificates.
Possible Pass-Through of Miscellaneous Itemized
Deductions. Fees and expenses of a REMIC generally will
be allocated to the holders of the related REMIC Residual
Certificates. The applicable Treasury regulations
indicate, however, that in the case of a REMIC that is
similar to a single class grantor trust, all or a portion
of such fees and expenses should be allocated to the
holders of the related REMIC Regular Certificates.
Unless otherwise stated in the related Prospectus
Supplement, such fees and expenses will be allocated to
holders of the related REMIC Residual Certificates in
their entirety and not to the holders of the related
REMIC Regular Certificates.
With respect to REMIC Residual Certificates or REMIC
Regular Certificates the holders of which receive an
allocation of fees and expenses in accordance with the
preceding discussion, if any holder thereof is an
individual, estate or trust, or a "pass-through entity"
beneficially owned by one or more individuals, estates or
trusts, (i) an amount equal to such individual's,
estate's or trust's share of such fees and expenses will
be added to the gross income of such holder and (ii) such
individual's, estate's or trust's share of such fees and
expenses will be treated as a miscellaneous itemized
deduction allowable subject to the limitation of Section
67 of the Code, which permits such deductions only to the
extent they exceed in the aggregate two percent of a
taxpayer's adjusted gross income. In addition, Section
68 of the Code provides that the amount of itemized
deductions otherwise allowable for an individual whose
adjusted gross income exceeds a specified amount will be
reduced by the lesser of (i) 3% of the excess of the
individual's adjusted gross income over such amount or
(ii) 80% of the amount of itemized deductions otherwise
allowable for the taxable year. The amount of additional
taxable income reportable by REMIC Certificateholders
that are subject to the limitations of either Section 67
or Section 68 of the Code may be substantial.
Furthermore, in determining the alternative minimum
taxable income of such a holder of a REMIC Certificate
that is an individual, estate or trust, or a "pass-
through entity" beneficially owned by one or more
individuals, estates or trusts, no deduction will be
allowed for such holder's allocable portion of servicing
fees and other miscellaneous itemized deductions of the
REMIC, even though an amount equal to the amount of such
fees and other deductions will be included in such
holder's gross income. Accordingly, such REMIC
Certificates may not be appropriate investments for
individuals, estates, or trusts, or pass-through entities
beneficially owned by one or more individuals, estates or
trusts. Such prospective investors should consult with
their tax advisors prior to making an investment in such
Certificates.
Sales of REMIC Certificates
If a REMIC Certificate is sold, the selling
Certificateholder will recognize gain or loss equal to
the difference between the amount realized on the sale
and its adjusted basis in the REMIC Certificate. The
adjusted basis of a REMIC Regular Certificate generally
will equal the cost of such REMIC Regular Certificate to
such Certificateholder, increased by income reported by
such Certificateholder with respect to such REMIC Regular
Certificate (including original issue discount and market
discount income) and reduced (but not below zero) by
distributions on such REMIC Regular Certificate received
by such Certificateholder and by any amortized premium.
The adjusted basis of a REMIC Residual Certificate will
be determined as described under "-Taxation of Owners of
REMIC Residual Certificates-Basis Rules, Net Losses and
Distributions" above. Except as described below, any
such gain or loss generally will be capital gain or loss.
The Code as of the date of this Prospectus provides for
a top marginal tax rate of 39.6% for individuals and a
maximum marginal rate for long-term capital gains of
individuals of 28%. No such rate differential exists for
corporations. In addition, the distinction between a
capital gain or loss and ordinary income or loss remains
relevant for other purposes.
Gain from the sale of a REMIC Regular Certificate
that might otherwise be capital gain will be treated as
ordinary income to the extent such gain does not exceed
the excess, if any, of (i) the amount that would have
been includible in the seller's income with respect to
such REMIC Regular Certificate had income accrued thereon
at a rate equal to 110% of the "applicable federal rate"
(generally, a rate based on an average of current yields
on Treasury securities having a maturity comparable to
that of the Certificate, which rate is computed and
published monthly by the IRS), determined as of the date
of purchase of such REMIC Regular Certificate, over (ii)
the amount of ordinary income actually includible in the
seller's income prior to such sale. In addition, gain
recognized on the sale of a REMIC Regular Certificate by
a seller who purchased such REMIC Regular Certificate at
a market discount will be taxable as ordinary income to
the extent of any accrued and previously unrecognized
market discount that accrued during the period the
Certificate was held. See "-Taxation of Owners of REMIC
Regular Certificates-Market Discount" above.
REMIC Certificates will be "evidences of
indebtedness" within the meaning of Section 582(c)(1) of
the Code, so that gain or loss recognized from the sale
of a REMIC Certificate by a bank or thrift institution to
which such section applies will be ordinary income or
loss.
A portion of any gain from the sale of a REMIC
Regular Certificate that might otherwise be capital gain
may be treated as ordinary income to the extent that such
Certificate is held as part of a "conversion transaction"
within the meaning of Section 1258 of the Code. A
conversion transaction generally is one in which the
taxpayer has taken two or more positions in Certificates
or similar property that reduce or eliminate market risk,
if substantially all of the taxpayer's return is
attributable to the time value of the taxpayer's net
investment in such transaction. The amount of gain so
realized in a conversion transaction that is
recharacterized as ordinary income generally will not
exceed the amount of interest that would have accrued on
the taxpayer's net investment at 120% of the appropriate
"applicable federal rate" (which rate is computed and
published monthly by the IRS) at the time the taxpayer
enters into the conversion transaction, subject to
appropriate reduction for prior inclusion of interest and
other ordinary income items from the transaction.
Finally, a taxpayer may elect to have net capital
gain taxed at ordinary income rates rather than capital
gains rates in order to include such net capital gain in
total net investment income for the taxable year, for
purposes of the limitation on the deduction of interest
on indebtedness incurred to purchase or carry property
held for investment to a taxpayer's net investment
income.
Except as may be provided in Treasury regulations
yet to be issued, if the seller of a REMIC Residual
Certificate reacquires the Certificate, any other
residual interest in a REMIC or any similar interest in
a "taxable mortgage pool" (as defined in Section 7701(i)
of the Code) within six months of the date of such sale,
the sale will be subject to the "wash sale" rules of
Section 1091 of the Code. In that event, any loss
realized by the REMIC Residual Certificateholder on the
sale will not be deductible, but instead will be added to
such REMIC Residual Certificateholder's adjusted basis in
the newly-acquired asset.
Prohibited Transactions and Other Possible REMIC
Taxes
The Code imposes a tax on REMICs equal to 100% of
the net income derived from "prohibited transactions"
(the "Prohibited Transactions Tax"). In general, subject
to certain specified exceptions a prohibited transaction
means the disposition of an item of Mortgage Collateral,
the receipt of income from a source other than an item of
Mortgage Collateral or certain other permitted
investments, the receipt of compensation for services, or
gain from the disposition of an asset purchased with the
payments on the Mortgage Collateral for temporary
investment pending distribution on the REMIC
Certificates. It is not anticipated that any REMIC will
engage in any prohibited transactions in which it would
recognize a material amount of net income.
In addition, certain contributions to a REMIC made
after the day on which the REMIC issues all of its
interests could result in the imposition of a tax on the
REMIC equal to 100% of the value of the contributed
property (the "Contributions Tax"). Each Pooling and
Servicing Agreement or Trust Agreement will include
provisions designed to prevent the acceptance of any
contributions that would be subject to such tax.
REMICs also are subject to federal income tax at the
highest corporate rate on "net income from foreclosure
property," determined by reference to the rules
applicable to real estate investment trusts. "Net income
from foreclosure property" generally means gain from the
sale of a foreclosure property that is inventory property
and gross income from foreclosure property other than
qualifying rents and other qualifying income for a real
estate investment trust. Unless otherwise disclosed in
the related Prospectus Supplement, it is not anticipated
that any REMIC will recognize "net income from
foreclosure property" subject to federal income tax.
Unless otherwise disclosed in the related Prospectus
Supplement, it is not anticipated that any material state
or local income or franchise tax will be imposed on any
REMIC.
Unless otherwise stated in the related Prospectus
Supplement, and to the extent permitted by then
applicable laws, any Prohibited Transactions Tax,
Contributions Tax, tax on "net income from foreclosure
property" or state or local income or franchise tax that
may be imposed on the REMIC will be borne by the related
Master Servicer, the Certificate Administrator or the
Trustee in either case out of its own funds, provided
that the Master Servicer, the Certificate Administrator
or the Trustee, as the case may be, has sufficient assets
to do so, and provided further that such tax arises out
of a breach of the Master Servicer's, the Certificate
Administrator's or the Trustee's obligations, as the case
may be, under the related Pooling and Servicing Agreement
or Trust Agreement and in respect of compliance with
applicable laws and regulations. Any such tax not borne
by the Master Servicer, the Certificate Administrator or
the Trustee will be payable out of the related Trust Fund
resulting in a reduction in amounts payable to holders of
the related REMIC Certificates.
Tax and Restrictions on Transfers of REMIC Residual
Certificates to Certain Organizations
If a REMIC Residual Certificate is transferred to a
"disqualified organization" (as defined below), a tax
would be imposed in an amount (determined under the REMIC
Regulations) equal to the product of (i) the present
value (discounted using the "applicable federal rate" for
obligations whose term ends on the close of the last
quarter in which excess inclusions are expected to accrue
with respect to the Certificate, which rate is computed
and published monthly by the IRS) of the total
anticipated excess inclusions with respect to such REMIC
Residual Certificate for periods after the transfer and
(ii) the highest marginal federal income tax rate
applicable to corporations. The anticipated excess
inclusions must be determined as of the date that the
REMIC Residual Certificate is transferred and must be
based on events that have occurred up to the time of such
transfer, the Prepayment Assumption and any required or
permitted clean up calls or required liquidation provided
for in the REMIC's organizational documents. Such a tax
generally would be imposed on the transferor of the REMIC
Residual Certificate, except that where such transfer is
through an agent for a disqualified organization, the tax
would instead be imposed on such agent. However, a
transferor of a REMIC Residual Certificate would in no
event be liable for such tax with respect to a transfer
if the transferee furnishes to the transferor an
affidavit that the transferee is not a disqualified
organization and, as of the time of the transfer, the
transferor does not have actual knowledge that such
affidavit is false. Moreover, an entity will not qualify
as a REMIC unless there are reasonable arrangements
designed to ensure that (i) residual interests in such
entity are not held by disqualified organizations and
(ii) information necessary for the application of the tax
described herein will be made available. Restrictions on
the transfer of REMIC Residual Certificates and certain
other provisions that are intended to meet this
requirement will be included in the Pooling and Servicing
Agreement or Trust Agreement, and will be discussed more
fully in any Prospectus Supplement relating to the
offering of any REMIC Residual Certificate.
In addition, if a "pass-through entity" (as defined
below) includes in income excess inclusions with respect
to a REMIC Residual Certificate, and a disqualified
organization is the record holder of an interest in such
entity, then a tax will be imposed on such entity equal
to the product of (i) the amount of excess inclusions on
the REMIC Residual Certificate that are allocable to the
interest in the pass-through entity held by such
disqualified organization and (ii) the highest marginal
federal income tax rate imposed on corporations. A
pass-through entity will not be subject to this tax for
any period, however, if each record holder of an interest
in such pass-through entity furnishes to such pass-
through entity (i) such holder's social security number
and a statement under penalties of perjury that such
social security number is that of the record holder or
(ii) a statement under penalties of perjury that such
record holder is not a disqualified organization.
For these purposes, a "disqualified organization"
means (i) the United States, any State or political
subdivision thereof, any foreign government, any
international organization, or any agency or
instrumentality of the foregoing (but would not include
instrumentalities described in Section 168(h)(2)(D) of
the Code or Freddie Mac), (ii) any organization (other
than a cooperative described in Section 521 of the Code)
that is exempt from federal income tax, unless it is
subject to the tax imposed by Section 511 of the Code or
(iii) any organization described in Section 1381(a)(2)(C)
of the Code. For these purposes, a "pass-through entity"
means any regulated investment company, real estate
investment trust, trust, partnership or certain other
entities described in Section 860E(e)(6) of the Code. In
addition, a person holding an interest in a pass-through
entity as a nominee for another person will, with respect
to such interest, be treated as a pass-through entity.
Termination
A REMIC will terminate immediately after the
Distribution Date following receipt by the REMIC of the
final payment in respect of the Mortgage Collateral or
upon a sale of the REMIC's assets following the adoption
by the REMIC of a plan of complete liquidation. The last
distribution on a REMIC Regular Certificate will be
treated as a payment in retirement of a debt instrument.
In the case of a REMIC Residual Certificate, if the last
distribution on such REMIC Residual Certificate is less
than the Certificateholder's adjusted basis in such
Certificate, such Certificateholder should be treated as
realizing a loss equal to the amount of such difference,
and such loss may be treated as a capital loss.
Reporting and Other Administrative Matters
Solely for purposes of the administrative provisions
of the Code, the REMIC will be treated as a partnership
and holders of REMIC Residual Certificates will be
treated as partners. Unless otherwise stated in the
related Prospectus Supplement, the Master Servicer or the
Certificate Administrator, as applicable, will file REMIC
federal income tax returns on behalf of the related REMIC
and will be designated as and will act as the "tax
matters person" for the REMIC in all respects, and may
hold a nominal amount of REMIC Residual Certificates.
As the tax matters person, the Master Servicer or
the Certificate Administrator, as applicable, subject to
certain notice requirements and various restrictions and
limitations, generally will have the authority to act on
behalf of the REMIC and the holders of REMIC Residual
Certificates in connection with the administrative and
judicial review of items of income, deduction, gain or
loss of the REMIC, as well as the REMIC's classification.
Holders of REMIC Residual Certificates generally will be
required to report such REMIC items consistently with
their treatment on the related REMIC's tax return and may
in some circumstances be bound by a settlement agreement
between the Master Servicer or the Certificate
Administrator, as applicable, as tax matters person, and
the IRS concerning any such REMIC item. Adjustments made
to the REMIC tax return may require a holder of a REMIC
Residual Certificate to make corresponding adjustments on
its return, and an audit of the REMIC's tax return, or
the adjustments resulting from such an audit, could
result in an audit of such Certificateholder's return.
No REMIC will be registered as a tax shelter pursuant to
Section 6111 of the Code because it is not anticipated
that any REMIC will have a net loss for any of the first
five taxable years of its existence. Any person that
holds a REMIC Residual Certificate as a nominee for
another person may be required to furnish to the related
REMIC, in a manner to be provided in Treasury
regulations, the name and address of such person and
other information.
Reporting of interest income, including any original
issue discount, with respect to REMIC Regular
Certificates is required annually, and may be required
more frequently under Treasury regulations. These
information reports generally are required to be sent to
individual holders of REMIC Regular Interests and the
IRS; holders of REMIC Regular Certificates that are
corporations, trusts, securities dealers and certain
other non-individuals will be provided interest and
original issue discount income information and the
information set forth in the following paragraph upon
request in accordance with the requirements of the
applicable regulations. The information must be provided
by the later of 30 days after the end of the quarter for
which the information was requested, or two weeks after
the receipt of the request. The REMIC must also comply
with rules requiring a REMIC Regular Certificate issued
with original issue discount to disclose on its face
certain information including the amount of original
issue discount and the issue date, and requiring such
information to be reported to the IRS. Reporting with
respect to the REMIC Residual Certificates, including
income, excess inclusions, investment expenses and
relevant information regarding qualification of the
REMIC's assets will be made as required under the
Treasury regulations, generally on a quarterly basis.
As applicable, the REMIC Regular Certificate
information reports will include a statement of the
adjusted issue price of the REMIC Regular Certificate at
the beginning of each accrual period. In addition, the
reports will include information required by regulations
with respect to computing the accrual of any market
discount. Because exact computation of the accrual of
market discount on a constant yield method requires
information relating to the holder's purchase price that
the Master Servicer or the Certificate Administrator will
not have, such regulations only require that information
pertaining to the appropriate proportionate method of
accruing market discount be provided. See "-Taxation of
Owners of REMIC Regular Certificates-Market Discount."
The responsibility for complying with the foregoing
reporting rules will be borne by the Master Servicer or
the Certificate Administrator. Certificateholders may
request any information with respect to the returns
described in Section 1.6049-7(e)(2) of the Treasury
regulations. Such request should be directed to the
Master Servicer or the Certificate Administrator, as
applicable, at Residential Funding Corporation, 8400
Normandale Lake Boulevard, Suite 600, Minneapolis,
Minnesota 55437.
Backup Withholding with Respect to REMIC
Certificates
Payments of interest and principal, as well as
payments of proceeds from the sale of REMIC Certificates,
may be subject to the "backup withholding tax" under
Section 3406 of the Code at a rate of 31% if recipients
of such payments fail to furnish to the payor certain
information, including their taxpayer identification
numbers, or otherwise fail to establish an exemption from
such tax. Any amounts deducted and withheld from a
distribution to a recipient would be allowed as a credit
against such recipient's federal income tax.
Furthermore, certain penalties may be imposed by the IRS
on a recipient of payments that is required to supply
information but that does not do so in the proper manner.
Foreign Investors in REMIC Certificates
A REMIC Regular Certificateholder that is not a
"United States person" and is not subject to federal
income tax as a result of any direct or indirect
connection to the United States in addition to its
ownership of a REMIC Regular Certificate will not be
subject to United States federal income or withholding
tax in respect of a distribution on a REMIC Regular
Certificate, provided that the holder complies to the
extent necessary with certain identification requirements
(including delivery of a statement, signed by the
Certificateholder under penalties of perjury, certifying
that such Certificateholder is not a United States person
and providing the name and address of such
Certificateholder). For these purposes, "United States
person" means a citizen or resident of the United States,
a corporation, partnership or other entity created or
organized in, or under the laws of, the United States or
any political subdivision thereof, or an estate or trust
whose income from sources without the United States is
includible in gross income for United States federal
income tax purposes regardless of its connection with the
conduct of a trade or business within the United States.
It is possible that the IRS may assert that the foregoing
tax exemption should not apply with respect to a REMIC
Regular Certificate held by a Certificateholder that owns
directly or indirectly a 10% or greater interest in the
REMIC Residual Certificates. If the holder does not
qualify for exemption, distributions of interest,
including distributions in respect of accrued original
issue discount, to such holder may be subject to a tax
rate of 30%, subject to reduction under any applicable
tax treaty.
In addition, the foregoing rules will not apply to
exempt a United States shareholder of a controlled
foreign corporation from taxation on such United States
shareholder's allocable portion of the interest income
received by such controlled foreign corporation.
Further, it appears that a REMIC Regular Certificate
would not be included in the estate of a non-resident
alien individual and would not be subject to United
States estate taxes. However, Certificateholders who are
non-resident alien individuals should consult their tax
advisors concerning this question.
Unless otherwise stated in the related Prospectus
Supplement, transfers of REMIC Residual Certificates to
investors that are not United States persons will be
prohibited under the related Pooling and Servicing
Agreement or Trust Agreement.
STATE AND OTHER TAX CONSEQUENCES
In addition to the federal income tax consequences
described in "Certain Federal Income Tax Consequences,"
potential investors should consider the state and local
tax consequences of the acquisition, ownership, and
disposition of the Certificates offered. State tax law
may differ substantially from the corresponding federal
tax law, and the discussion above does not purport to
describe any aspect of the tax laws of any state or other
jurisdiction. Therefore, prospective investors should
consult their tax advisors with respect to the various
tax consequences of investments in the Certificates
offered hereby.
ERISA CONSIDERATIONS
ERISA imposes certain fiduciary and prohibited
transaction restrictions on employee pension and welfare
benefit plans subject to ERISA ("ERISA Plans"). Section
4975 of the Code imposes similar prohibited transaction
restrictions on tax-qualified retirement plans described
in Section 401(a) of the Code ("Qualified Retirement
Plans") and on individual retirement accounts and
annuities ("IRAs") described in Section 408 of the Code
(collectively, "Tax-Favored Plans").
Certain employee benefit plans, such as governmental
plans (as defined in Section 3(32) of ERISA), are not
subject to the ERISA requirements discussed herein.
Accordingly, assets of such plans may be invested in
Certificates without regard to the ERISA considerations
described below, subject to the provisions of applicable
federal and state law. Any such plan that is a Qualified
Retirement Plan and exempt from taxation under Sections
401(a) and 501(a) of the Code, however, is subject to the
prohibited transaction rules set forth in Section 503 of
the Code.
In addition to imposing general fiduciary
requirements, including those of investment prudence and
diversification and the requirement that a Plan's
investment be made in accordance with the documents
governing the Plan, Section 406 of ERISA and Section 4975
of the Code prohibit a broad range of transactions
involving "plan assets" of ERISA Plans and Tax-Favored
Plans (collectively, "Plans") and persons ("Parties in
Interest" under ERISA or "Disqualified Persons" under the
Code) who have certain specified relationships to the
Plans, unless a statutory or administrative exemption is
available. Certain Parties in Interest (or Disqualified
Persons) that participate in a prohibited transaction may
be subject to a penalty (or an excise tax) imposed
pursuant to Section 502(i) of ERISA or Section 4975 of
the Code, unless a statutory or administrative exemption
is available.
Plan Asset Regulations
An investment of Plan Assets in Certificates may
cause the underlying Mortgage Loans, Contracts or Agency
Securities included in a Trust Fund to be deemed "plan
assets" of such Plan. The U.S. Department of Labor (the
"DOL") has promulgated regulations at 29 C.F.R. Section 2510.3-
101 (the "DOL Regulations") concerning whether or not a
Plan's assets would be deemed to include an interest in
the underlying assets of an entity (such as a Trust Fund)
for purposes of applying the general fiduciary
responsibility provisions of ERISA and the prohibited
transaction provisions of ERISA and the Code, when a Plan
acquires an "equity interest" (such as a Certificate) in
such entity. Because of the factual nature of certain of
the rules set forth in the DOL Regulations, Plan Assets
either may be deemed to include an interest in the assets
of an entity (such as a Trust Fund) or may be deemed
merely to include its interest in the instrument
evidencing such equity interest (such as a Certificate).
Therefore, neither Plans nor such entities should acquire
or hold Certificates in reliance upon the availability of
any exception under the DOL Regulations. For purposes of
this section, the term "plan assets" ("Plan Assets") or
"assets of a Plan" has the meaning specified in the DOL
Regulations and includes an undivided interest in the
underlying assets of certain entities in which a Plan
invests.
The prohibited transaction provisions of Section 406
of ERISA and Section 4975 of the Code may apply to a
Trust Fund and cause the Company, the Master Servicer,
the Certificate Administrator, any Servicer, any Sub-
Servicer, the Trustee, the obligor under any credit
enhancement mechanism or certain affiliates thereof to be
considered or become Parties in Interest or Disqualified
Persons with respect to an investing Plan (or of a Plan
holding an interest in such an entity). If so, the
acquisition or holding of Certificates by or on behalf of
the investing Plan could also give rise to a prohibited
transaction under ERISA and the Code, unless some
statutory or administrative exemption is available.
Certificates acquired by a Plan would be assets of that
Plan. Under the DOL Regulations, the Trust Fund,
including the Mortgage Loans, Contracts or Agency
Securities and the other assets held in the Trust Fund,
may also be deemed to be assets of each Plan that
acquires Certificates. Special caution should be
exercised before Plan Assets are used to acquire a
Certificate in such circumstances, especially if, with
respect to such assets, the Company, the Master Servicer,
the Certificate Administrator, any Servicer, any Sub-
Servicer, the Trustee, the obligor under any credit
enhancement mechanism or an affiliate thereof either (i)
has investment discretion with respect to the investment
of Plan Assets; or (ii) has authority or responsibility
to give (or regularly gives) investment advice with
respect to Plan Assets for a fee pursuant to an agreement
or understanding that such advice will serve as a primary
basis for investment decisions with respect to such Plan
Assets.
Any person who has discretionary authority or
control respecting the management or disposition of Plan
Assets, and any person who provides investment advice
with respect to such Plan Assets for a fee (in the manner
described above), is a fiduciary of the investing Plan.
If the Mortgage Loans, Contracts or Agency Securities
were to constitute Plan Assets, then any party exercising
management or discretionary control regarding those Plan
Assets may be deemed to be a Plan "fiduciary," and thus
subject to the fiduciary requirements of ERISA and the
prohibited transaction provisions of ERISA and Section
4975 of the Code with respect to any investing Plan. In
addition, if the Mortgage Loans, Contracts or Agency
Securities were to constitute Plan Assets, then the
acquisition or holding of Certificates by, on behalf of
or with Plan Assets, as well as the operation of the
Trust Fund, may constitute or involve a prohibited
transaction under ERISA and the Code.
Prohibited Transaction Exemption
On March 29, 1994, the DOL issued (with an effective
date of June 9, 1992) an individual exemption (the
"Exemption"), to Residential Funding and certain of its
affiliates, which generally exempts from the application
of the prohibited transaction provisions of Section 406
of ERISA, and the excise taxes imposed on such prohibited
transactions pursuant to Section 4975(a) and (b) of the
Code, certain transactions, among others, relating to the
servicing and operation of pools of certain secured
obligations such as Mortgage Loans, Cooperative Loans,
Contracts or Agency Securities which are held in a trust
and the purchase, sale and holding of pass-through
certificates issued by such a trust as to which (i) the
Company or any of its affiliates is the sponsor if any
entity which has received from the DOL an individual
prohibited transaction exemption which is similar to the
Exemption is the sole underwriter, or manager or co-
manager of the underwriting syndicate or a seller or
placement agent, or (ii) the Company or an affiliate is
the underwriter, provided that certain conditions set
forth in the Exemption are satisfied. For purposes of
this section, the term "Underwriter" shall include (a)
the Company and certain of its affiliates, (b) any person
directly or indirectly, through one or more
intermediaries, controlling, controlled by or under
common control with the Company and certain of its
affiliates, (c) any member of the underwriting syndicate
or selling group of which a person described in (a) or
(b) is a manager or co-manager with respect to a class of
Certificates, or (d) any entity which has received an
exemption from the DOL relating to Certificates which is
similar to the Exemption.
The Exemption sets forth six general conditions
which must be satisfied for a transaction involving the
purchase, sale and holding of Certificates to be eligible
for exemptive relief thereunder. First, the acquisition
of Certificates by a Plan or with Plan Assets must be on
terms that are at least as favorable to the Plan as they
would be in an arm's-length transaction with an unrelated
party. Second, the Exemption only applies to
Certificates evidencing rights and interests that are not
subordinated to the rights and interests evidenced by the
other Certificates of the same trust. Third, the
Certificates at the time of acquisition by a Plan or with
Plan Assets must be rated in one of the three highest
generic rating categories by Standard & Poor's Ratings
Group, Moody's Investors Service, Inc., Duff & Phelps,
Inc. or Fitch Investors Service, Inc. Fourth, the
Trustee cannot be an affiliate of any member of the
"Restricted Group" which consists of any underwriter, the
Company, the Master Servicer, the Certificate
Administrator, any Servicer, any Sub-Servicer and any
mortgagor with respect to assets of a Trust Fund
constituting more than 5% of the aggregate unamortized
principal balance of the assets in the related Trust Fund
as of the date of initial issuance of the Certificates.
Fifth, the sum of all payments made to and retained by
the underwriters must represent not more than reasonable
compensation for underwriting the Certificates; the sum
of all payments made to and retained by the Company
pursuant to the assignment of the assets to the related
Trust Fund must represent not more than the fair market
value of such obligations; and the sum of all payments
made to and retained by the Master Servicer, the
Certificate Administrator, any Servicer or any Sub-
Servicer must represent not more than reasonable
compensation for such person's services under the related
Pooling and Servicing Agreement or Trust Agreement and
reimbursement of such person's reasonable expenses in
connection therewith. Sixth, the Exemption states that
the investing Plan or Plan Asset investor must be an
accredited investor as defined in Rule 501(a)(1) of
Regulation D of the Commission under the Securities Act
of 1933, as amended.
A fiduciary of or other investor of Plan Assets
contemplating purchasing a Certificate must make its own
determination that the general conditions set forth above
will be satisfied with respect to such Certificate.
If the general conditions of the Exemption are
satisfied, the Exemption may provide an exemption from
the restrictions imposed by Sections 406(a) and 407 of
ERISA (as well as the excise taxes imposed by Sections
4975(a) and (b) of the Code by reason of Sections
4975(c)(1)(A) through (D) of the Code) in connection with
the direct or indirect sale, exchange, transfer, holding
or the direct or indirect acquisition or disposition in
the secondary market of Certificates by a Plan or with
Plan Assets. However, no exemption is provided from the
restrictions of Sections 406(a)(1)(E) and 406(a)(2) of
ERISA for the acquisition or holding of a Certificate by
a Plan or with Plan Assets of an Excluded Plan by any
person who has discretionary authority or renders
investment advice with respect to Plan Assets of such
Excluded Plan. For purposes of the Certificates, an
"Excluded Plan" is a Plan sponsored by any member of the
Restricted Group.
If certain specific conditions of the Exemption are
also satisfied, the Exemption may provide an exemption
from the restrictions imposed by Sections 406(b)(1) and
(b)(2) of ERISA and the taxes imposed by Section
4975(c)(1)(E) of the Code in connection with (1) the
direct or indirect sale, exchange or transfer of
Certificates in the initial issuance of Certificates
between the Company or an Underwriter and a Plan when the
person who has discretionary authority or renders
investment advice with respect to the investment of the
relevant Plan Assets in the Certificates is (a) a
mortgagor with respect to 5% or less of the fair market
value of the assets of a Trust Fund or (b) an affiliate
of such a person, (2) the direct or indirect acquisition
or disposition in the secondary market of Certificates by
a Plan or with Plan Assets and (3) the holding of
Certificates by a Plan or with Plan Assets.
Additionally, if certain specific conditions of the
Exemption are satisfied, the Exemption may provide an
exemption from the restrictions imposed by Sections
406(a), 406(b) and 407 of ERISA, and the taxes imposed by
Sections 4975(a) and (b) of the Code by reason of Section
4975(c) of the Code, for transactions in connection with
the servicing, management and operation of the Mortgage
Pools and Contract Pools. The Company expects that the
specific conditions of the Exemption required for this
purpose will be satisfied with respect to the
Certificates so that the Exemption would provide an
exemption from the restrictions imposed by Sections
406(a) and (b) of ERISA (as well as the excise taxes
imposed by Sections 4975(a) and (b) of the Code by reason
of Section 4975(c) of the Code) for transactions in
connection with the servicing, management and operation
of the Mortgage Pools and Contract Pools, provided that
the general conditions of the Exemption are satisfied.
The Exemption also may provide an exemption from the
restrictions imposed by Sections 406(a) and 407(a) of
ERISA, and the taxes imposed by Section 4975(a) and (b)
of the Code by reason of Sections 4975(c)(1)(A) through
(D) of the Code if such restrictions are deemed to
otherwise apply merely because a person is deemed to be
a "party in interest" (within the meaning of Section
3(14) of ERISA) or a "disqualified person" (within the
meaning of Section 4975(e)(2) of the Code) with respect
to an investing Plan (or the investing entity holding
Plan Assets) by virtue of providing services to the Plan
or such Plan Assets (or by virtue of having certain
specified relationships to such a person) solely as a
result of the ownership of Certificates by a Plan or such
Plan Asset investor.
Before purchasing a Certificate, a fiduciary or
other investor of Plan Assets should itself confirm (a)
that the Certificates constitute "certificates" for
purposes of the Exemption and (b) that the specific and
general conditions set forth in the Exemption and the
other requirements set forth in the Exemption would be
satisfied. In addition to making its own determination
as to the availability of the exemptive relief provided
in the Exemption, the fiduciary or other investor of Plan
Assets should consider its general fiduciary obligations
under ERISA in determining whether to purchase any
Certificates with Plan Assets.
Any fiduciary or other investor of Plan Assets that
proposes to purchase Certificates on behalf of or with
Plan Assets should consult with its counsel with respect
to the potential applicability of ERISA and the Code to
such investment and the availability of the Exemption or
any other prohibited transaction exemption in connection
therewith. In particular, in connection with a
contemplated purchase of Certificates representing a
beneficial ownership interest in a pool of single-family
residential first Mortgage Loans or Agency Certificates,
such fiduciary or other Plan investor should consider the
availability of the Exemption or Prohibited Transaction
Class Exemption 83-1 ("PTCE 83-1") for certain
transactions involving mortgage pool investment trusts.
The Prospectus Supplement with respect to a series of
Certificates may contain additional information regarding
the application of the Exemption, PTCE 83-1, or any other
exemption, with respect to the Certificates offered
thereby. However, PTCE 83-1 does not provide exemptive
relief with respect to Certificates evidencing interests
in Trust Funds which include Contracts or Cooperative
Loans.
Tax-Exempt Investors
A Plan that is exempt from federal income taxation
pursuant to Section 501 of the Code (a "Tax-Exempt
Investor") nonetheless will be subject to federal income
taxation to the extent that its income is "unrelated
business taxable income" ("UBTI") within the meaning of
Section 512 of the Code. All "excess inclusions" of a
REMIC allocated to a REMIC Residual Certificate held by
a Tax-Exempt Investor will be considered UBTI and thus
will be subject to federal income tax. See "Certain
Federal Income Tax Consequences-Taxation of Owners of
REMIC Residual Certificates-Excess Inclusions."
Consultation with Counsel
Any fiduciary or other investor of Plan Assets that
proposes to acquire or hold Certificates on behalf of or
with Plan Assets of any Plan should consult with its
counsel with respect to the potential applicability of
the fiduciary responsibility provisions of ERISA and the
prohibited transaction provisions of ERISA and the Code
to the proposed investment and the Exemption, the
availability of PTCE 83-1 or any other prohibited
transaction exemption.
LEGAL INVESTMENT MATTERS
Each class of Certificates offered hereby and by the
related Prospectus Supplement will be rated at the date
of issuance in one of the four highest rating categories
by at least one Rating Agency. Unless otherwise
specified in the related Prospectus Supplement, each such
class that is, and continues to be, rated in one of the
two highest rating categories by at least one nationally
recognized statistical rating organization will
constitute "mortgage related securities" for purposes of
the Secondary Mortgage Market Enhancement Act of 1984, as
amended ("SMMEA"), and, as such, will be legal
investments for persons, trusts, corporations,
partnerships, associations, business trusts and business
entities (including depository institutions, life
insurance companies and pension funds) created pursuant
to or existing under the laws of the United States or of
any State whose authorized investments are subject to
state regulation to the same extent that, under
applicable law, obligations issued by or guaranteed as to
principal and interest by the United States or any agency
or instrumentality thereof constitute legal investments
for such entities. Under SMMEA, if a State enacted
legislation on or prior to October 3, 1991 specifically
limiting the legal investment authority of any such
entities with respect to "mortgage related securities,"
such securities will constitute legal investments for
entities subject to such legislation only to the extent
provided therein. Certain States enacted legislation
which overrides the preemption provisions of SMMEA.
SMMEA provides, however, that in no event will the
enactment of any such legislation affect the validity of
any contractual commitment to purchase, hold or invest in
"mortgage related securities," or require the sale or
other disposition of such securities, so long as such
contractual commitment was made or such securities
acquired prior to the enactment of such legislation.
SMMEA also amended the legal investment authority of
federally-chartered depository institutions as follows:
federal savings and loan associations and federal savings
banks may invest in, sell or otherwise deal with
"mortgage related securities" without limitation as to
the percentage of their assets represented thereby,
federal credit unions may invest in such securities, and
national banks may purchase such securities for their own
account without regard to the limitations generally
applicable to investment securities set forth in 12
U.S.C. Section 24 (Seventh), subject in each case to such
regulations as the applicable federal regulatory
authority may prescribe.
The Federal Financial Institutions Examination
Council has issued a supervisory policy statement (the
"Policy Statement") applicable to all depository
institutions, setting forth guidelines for and
significant restrictions on investments in "high-risk
mortgage securities." The Policy Statement has been
adopted by the Federal Reserve Board, the Office of the
Comptroller of the Currency, the FDIC and the Office of
Thrift Supervision (the "OTS") with an effective date of
February 10, 1992. The Policy Statement generally
indicates that a mortgage derivative product will be
deemed to be high risk if it exhibits greater price
volatility than a standard fixed-rate thirty-year
mortgage security. According to the Policy Statement,
prior to purchase, a depository institution will be
required to determine whether a mortgage derivative
product that it is considering acquiring is high-risk
and, if so, that the proposed acquisition would reduce
the institution's overall interest rate risk. Reliance
on analysis and documentation obtained from a securities
dealer or other outside party without internal analysis
by the institution would be unacceptable. There can be
no assurance as to which classes of Certificates will be
treated as high-risk under the Policy Statement.
The predecessor to the OTS issued a bulletin,
entitled "Mortgage Derivative Products and Mortgage
Swaps," which is applicable to thrift institutions
regulated by the OTS. The bulletin established
guidelines for the investment by savings institutions in
certain "high-risk" mortgage derivative securities and
limitations on the use of such securities by insolvent,
undercapitalized or otherwise "troubled" institutions.
According to the bulletin, such "high-risk" mortgage
derivative securities include securities having certain
specified characteristics, which may include certain
classes of Certificates. In addition, the National
Credit Union Administration has issued regulations
governing federal credit union investments which prohibit
investment in certain specified types of securities,
which may include certain classes of Certificates.
Similar policy statements have been issued by regulators
having jurisdiction over other types of depository
institutions.
Certain classes of Certificates offered hereby,
including any class that is not rated in one of the two
highest rating categories by at least one nationally
recognized statistical rating organization, will not
constitute "mortgage related securities" for purposes of
SMMEA. Any such class of Certificates will be identified
in the related Prospectus Supplement. Prospective
investors in such classes of Certificates, in particular,
should consider the matters discussed in the following
paragraph.
There may be other restrictions on the ability of
certain investors either to purchase certain classes of
Certificates or to purchase any class of Certificates
representing more than a specified percentage of the
investors' assets. The Company will make no
representations as to the proper characterization of any
class of Certificates for legal investment or other
purposes, or as to the ability of particular investors to
purchase any class of Certificates under applicable legal
investment restrictions. These uncertainties may
adversely affect the liquidity of any class of
Certificates. Accordingly, all investors whose
investment activities are subject to legal investment
laws and regulations, regulatory capital requirements or
review by regulatory authorities should consult with
their own legal advisors in determining whether and to
what extent the Certificates of any class constitute
legal investments or are subject to investment, capital
or other restrictions, and, if applicable, whether SMMEA
has been overridden in any jurisdiction relevant to such
investor.
USE OF PROCEEDS
Unless otherwise specified in the related Prospectus
Supplement, substantially all of the net proceeds to be
received from the sale of Certificates will be applied by
the Company to finance the purchase of, or to repay
short-term loans incurred to finance the purchase of, the
Mortgage Collateral underlying the Certificates or will
be used by the Company for general corporate purposes.
The Company expects that it will make additional sales of
securities similar to the Certificates from time to time,
but the timing and amount of any such additional
offerings will be dependent upon a number of factors,
including the volume of mortgage loans, contracts or
mortgage securities purchased by the Company, prevailing
interest rates, availability of funds and general market
conditions.
METHODS OF DISTRIBUTION
The Certificates offered hereby and by the related
Prospectus Supplements will be offered in series through
one or more of the methods described below. The
Prospectus Supplement prepared for each series will
describe the method of offering being utilized for that
series and will state the net proceeds to the Company
from such sale.
The Company intends that Certificates will be
offered through the following methods from time to time
and that offerings may be made concurrently through more
than one of these methods or that an offering of a
particular series of Certificates may be made through a
combination of two or more of these methods. Such
methods are as follows:
1. by negotiated firm commitment or best
efforts underwriting and public
re-offering by underwriters;
2. by placements by the Company with
institutional investors through dealers; and
3. by direct placements by the Company with
institutional investors.
In addition, if specified in the related Prospectus
Supplement, a series of Certificates may be offered in
whole or in part in exchange for the Mortgage Collateral
(and other assets, if applicable) that would comprise the
Trust Fund for such Certificates.
If underwriters are used in a sale of any
Certificates (other than in connection with an
underwriting on a best efforts basis), such Certificates
will be acquired by the underwriters for their own
account and may be resold from time to time in one or
more transactions, including negotiated transactions, at
fixed public offering prices or at varying prices to be
determined at the time of sale or at the time of
commitment therefor. Such underwriters may be
broker-dealers affiliated with the Company whose
identities and relationships to the Company will be as
set forth in the related Prospectus Supplement. The
managing underwriter or underwriters with respect to the
offer and sale of a particular series of Certificates
will be set forth on the cover of the Prospectus
Supplement relating to such series and the members of the
underwriting syndicate, if any, will be named in such
Prospectus Supplement.
In connection with the sale of the Certificates,
underwriters may receive compensation from the Company or
from purchasers of the Certificates in the form of
discounts, concessions or commissions. Underwriters and
dealers participating in the distribution of the
Certificates may be deemed to be underwriters in
connection with such Certificates, and any discounts or
commissions received by them from the Company and any
profit on the resale of Certificates by them may be
deemed to be underwriting discounts and commissions under
the Securities Act of 1933, as amended.
It is anticipated that the underwriting agreement
pertaining to the sale of any series of Certificates will
provide that the obligations of the underwriters will be
subject to certain conditions precedent, that the
underwriters will be obligated to purchase all such
Certificates if any are purchased (other than in
connection with an underwriting on a best efforts basis)
and that, in limited circumstances, the Company will
indemnify the several underwriters and the underwriters
will indemnify the Company against certain civil
liabilities, including liabilities under the Securities
Act of 1933, as amended, or will contribute to payments
required to be made in respect thereof.
The Prospectus Supplement with respect to any series
offered by placements through dealers will contain
information regarding the nature of such offering and any
agreements to be entered into between the Company and
purchasers of Certificates of such series.
The Company anticipates that the Certificates
offered hereby will be sold primarily to institutional
investors or sophisticated non-institutional investors.
Purchasers of Certificates, including dealers, may,
depending on the facts and circumstances of such
purchases, be deemed to be "underwriters" within the
meaning of the Securities Act of 1933, as amended, in
connection with reoffers and sales by them of
Certificates. Holders of Certificates should consult
with their legal advisors in this regard prior to any
such reoffer or sale.
LEGAL MATTERS
Certain legal matters, including certain federal
income tax matters, will be passed upon for the Company
by Orrick, Herrington & Sutcliffe, New York, New York, or
by Thacher Proffitt & Wood, New York, New York, as
specified in the Prospectus Supplement.
FINANCIAL INFORMATION
The Company has determined that its financial
statements are not material to the offering made hereby.
The Certificates do not represent an interest in or an
obligation of the Company. The Company's only
obligations with respect to a series of Certificates will
be to repurchase certain items of Mortgage Collateral
upon any breach of certain limited representations and
warranties made by the Company, or as otherwise provided
in the applicable Prospectus Supplement.
INDEX OF PRINCIPAL DEFINITIONS
Accrual Certificates. . . . . . . . . . . . . . . . . . . . . . 5
Advance . . . . . . . . . . . . . . . . . . . . . . . . . . . .35
Affiliated Seller . . . . . . . . . . . . . . . . . . . . . . .22
Agency Securities . . . . . . . . . . . . . . . . . . . . . . . 8
Agency Securities Pool. . . . . . . . . . . . . . . . . . . . .14
AlterNet Loans. . . . . . . . . . . . . . . . . . . . . . . . .15
AlterNet Mortgage Program . . . . . . . . . . . . . . . . . . .15
AlterNet Program Seller . . . . . . . . . . . . . . . . . . . .22
AlterNet Seller Guide . . . . . . . . . . . . . . . . . . . . .19
Appraised Value . . . . . . . . . . . . . . . . . . . . . .16, 20
ARM Loans . . . . . . . . . . . . . . . . . . . . . . . . . . .16
Balloon Amount. . . . . . . . . . . . . . . . . . . . . . . . .15
Balloon Loans . . . . . . . . . . . . . . . . . . . . . . . . .15
Bankruptcy Amount . . . . . . . . . . . . . . . . . . . . . . .43
Bankruptcy Loss . . . . . . . . . . . . . . . . . . . . . . . .44
Beneficial Owner. . . . . . . . . . . . . . . . . . . . . . . .26
Bi-Weekly Loans . . . . . . . . . . . . . . . . . . . . . . . .15
Buy-Down Funds. . . . . . . . . . . . . . . . . . . . . . . . .17
Buy-Down Loans. . . . . . . . . . . . . . . . . . . . . . . . .15
Buy-Down Period . . . . . . . . . . . . . . . . . . . . . . . .17
Certificate Account . . . . . . . . . . . . . . . . . . . . . .14
Certificate Administrator . . . . . . . . . . . . . . . . . . . 1
Certificate Insurance Policy. . . . . . . . . . . . . . . . . .48
Certificate Registrar . . . . . . . . . . . . . . . . . . . . .26
Certificateholders. . . . . . . . . . . . . . . . . . . . .14, 26
Certificates. . . . . . . . . . . . . . . . . . . . . . . . . . 1
Closing Date. . . . . . . . . . . . . . . . . . . . . . . . . .74
Code. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .10
Commission. . . . . . . . . . . . . . . . . . . . . . . . . . .14
Company . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Compensating Interest . . . . . . . . . . . . . . . . . . . . .36
Contract Pool . . . . . . . . . . . . . . . . . . . . . . . . . 8
Contract Pool Insurance Policy. . . . . . . . . . . . . . . . .46
Contracts . . . . . . . . . . . . . . . . . . . . . . . . . .1, 4
Contributions Tax . . . . . . . . . . . . . . . . . . . . . . .84
Conventional Loans. . . . . . . . . . . . . . . . . . . . . . .15
Convertible Mortgage Loan . . . . . . . . . . . . . . . . . . .17
Cooperative Dwellings . . . . . . . . . . . . . . . . . . . . .15
Cooperative Loans . . . . . . . . . . . . . . . . . . . . . . . 8
Cooperative Note. . . . . . . . . . . . . . . . . . . . . . . .63
Cooperatives. . . . . . . . . . . . . . . . . . . . . . . . . .15
Custodial Account . . . . . . . . . . . . . . . . . . . . . . .14
Custodian . . . . . . . . . . . . . . . . . . . . . . . . . . .14
Cut-off Date. . . . . . . . . . . . . . . . . . . . . . . . . .14
Debt Service Reduction. . . . . . . . . . . . . . . . . . . . .47
Defaulted Mortgage Loss . . . . . . . . . . . . . . . . . . . .44
Deferred Interest . . . . . . . . . . . . . . . . . . . . . . .17
Deficient Valuation . . . . . . . . . . . . . . . . . . . . . .47
Determination Date. . . . . . . . . . . . . . . . . . . . . . .33
Disqualified Persons. . . . . . . . . . . . . . . . . . . . . .87
Distribution Amount . . . . . . . . . . . . . . . . . . . . . .33
Distribution Date . . . . . . . . . . . . . . . . . . . . . . . 6
DOL . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .88
DOL Regulations . . . . . . . . . . . . . . . . . . . . . . . .88
DTC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .26
DTC Registered Certificates . . . . . . . . . . . . . . . . . .26
Due Date. . . . . . . . . . . . . . . . . . . . . . . . . . . .33
Eligible Account. . . . . . . . . . . . . . . . . . . . . . . .30
ERISA . . . . . . . . . . . . . . . . . . . . . . . . . . . . .10
ERISA Plans . . . . . . . . . . . . . . . . . . . . . . . . . .87
Escrow Account. . . . . . . . . . . . . . . . . . . . . . . . .38
Exchange Act. . . . . . . . . . . . . . . . . . . . . . . . . . 2
Excluded Plan . . . . . . . . . . . . . . . . . . . . . . . . .89
Exemption . . . . . . . . . . . . . . . . . . . . . . . . . . .88
Extraordinary Losses. . . . . . . . . . . . . . . . . . . . . .44
Fannie Mae. . . . . . . . . . . . . . . . . . . . . . . . . . .14
Fannie Mae Securities . . . . . . . . . . . . . . . . . . . . .14
FDIC. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .22
FHA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .15
FHA Contracts . . . . . . . . . . . . . . . . . . . . . . . . .20
FHA Loans . . . . . . . . . . . . . . . . . . . . . . . . . . .15
Form 8-K. . . . . . . . . . . . . . . . . . . . . . . . . . . .14
Fraud Loss. . . . . . . . . . . . . . . . . . . . . . . . . . .44
Fraud Loss Amount . . . . . . . . . . . . . . . . . . . . . . .43
Freddie Mac . . . . . . . . . . . . . . . . . . . . . . . . . .13
Freddie Mac Act . . . . . . . . . . . . . . . . . . . . . . . .21
Freddie Mac Securities. . . . . . . . . . . . . . . . . . . . .13
Garn-St Germain Act . . . . . . . . . . . . . . . . . . . . . .67
Ginnie Mae. . . . . . . . . . . . . . . . . . . . . . . . . . .13
Ginnie Mae Securities . . . . . . . . . . . . . . . . . . . . .13
GMAC Mortgage . . . . . . . . . . . . . . . . . . . . . . . . . 1
GPM Loans . . . . . . . . . . . . . . . . . . . . . . . . . . .15
Gross Margin. . . . . . . . . . . . . . . . . . . . . . . . . .16
Housing Act . . . . . . . . . . . . . . . . . . . . . . . . . .21
HUD . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .15
Index . . . . . . . . . . . . . . . . . . . . . . . . . . . . .16
Indirect Participants . . . . . . . . . . . . . . . . . . . . .26
Insurance Proceeds. . . . . . . . . . . . . . . . . . . . . . .30
IRAs. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .87
Issue Premium . . . . . . . . . . . . . . . . . . . . . . . . .79
Letter of Credit. . . . . . . . . . . . . . . . . . . . . . . .45
Letter of Credit Bank . . . . . . . . . . . . . . . . . . . . .45
Liquidated Contract . . . . . . . . . . . . . . . . . . . . . .41
Liquidated Mortgage Loan. . . . . . . . . . . . . . . . . . . .41
Liquidation Proceeds. . . . . . . . . . . . . . . . . . . . . .30
Loan-to-Value Ratio . . . . . . . . . . . . . . . . . . . . . .16
Manufactured Home . . . . . . . . . . . . . . . . . . . . . . . 8
Mark-to-Market Regulations. . . . . . . . . . . . . . . . . . .82
Master Commitments. . . . . . . . . . . . . . . . . . . . . . .19
Master Servicer . . . . . . . . . . . . . . . . . . . . . . . . 1
Maximum Mortgage Rate . . . . . . . . . . . . . . . . . . . . .16
Mezzanine Certificates. . . . . . . . . . . . . . . . . . . . . 5
Minimum Mortgage Rate . . . . . . . . . . . . . . . . . . . . .16
Modified Mortgage Loan. . . . . . . . . . . . . . . . . . . . .15
Mortgage Collateral . . . . . . . . . . . . . . . . . . . . .1, 4
Mortgage Collateral Seller. . . . . . . . . . . . . . . . . . . 7
Mortgage Loans. . . . . . . . . . . . . . . . . . . . . . . .1, 4
Mortgage Note . . . . . . . . . . . . . . . . . . . . . . . . .27
Mortgage Pool . . . . . . . . . . . . . . . . . . . . . . . . . 7
Mortgage Pool Insurance Policy. . . . . . . . . . . . . . . . .45
Mortgage Rates. . . . . . . . . . . . . . . . . . . . . . . . .15
Mortgaged Properties. . . . . . . . . . . . . . . . . . . . . . 7
Mortgages . . . . . . . . . . . . . . . . . . . . . . . . . . .15
Mortgagor . . . . . . . . . . . . . . . . . . . . . . . . . . .11
Neg-Am ARM Loans. . . . . . . . . . . . . . . . . . . . . . . .16
Net Mortgage Rate . . . . . . . . . . . . . . . . . . . . . . .57
Nonrecoverable Advance. . . . . . . . . . . . . . . . . . . . .32
OID Regulations . . . . . . . . . . . . . . . . . . . . . . . .72
OTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .91
Participants. . . . . . . . . . . . . . . . . . . . . . . . . .26
Parties in Interest . . . . . . . . . . . . . . . . . . . . . .87
Pass-Through Rate . . . . . . . . . . . . . . . . . . . . . . . 5
Paying Agent. . . . . . . . . . . . . . . . . . . . . . . . . .32
Percentage Interest . . . . . . . . . . . . . . . . . . . . . .32
Periodic Cap. . . . . . . . . . . . . . . . . . . . . . . . . .16
Permitted Investments . . . . . . . . . . . . . . . . . . . . .30
Plan Assets . . . . . . . . . . . . . . . . . . . . . . . . . .88
Plans . . . . . . . . . . . . . . . . . . . . . . . . . . . . .87
Policy Statement. . . . . . . . . . . . . . . . . . . . . . . .91
Pool Insurer. . . . . . . . . . . . . . . . . . . . . . . . . .45
Pooling and Servicing Agreement . . . . . . . . . . . . . . .1, 4
Prepayment Interest Shortfall . . . . . . . . . . . . . . . . .35
Primary Insurance Policy. . . . . . . . . . . . . . . . . . . .50
Primary Insurer . . . . . . . . . . . . . . . . . . . . . . . .50
Principal Prepayments . . . . . . . . . . . . . . . . . . . . .34
Prohibited Transactions Tax . . . . . . . . . . . . . . . . . .84
PTCE 83-1 . . . . . . . . . . . . . . . . . . . . . . . . . . .90
Purchase Price. . . . . . . . . . . . . . . . . . . . . . . . .24
Qualified Insurer . . . . . . . . . . . . . . . . . . . . . . .49
Qualified Retirement Plans. . . . . . . . . . . . . . . . . . .87
Qualified Substitute Contract . . . . . . . . . . . . . . . . .25
Qualified Substitute Mortgage Loan. . . . . . . . . . . . . . .25
Rating Agency . . . . . . . . . . . . . . . . . . . . . . . . .10
Realized Loss . . . . . . . . . . . . . . . . . . . . . . . . .42
Record Date . . . . . . . . . . . . . . . . . . . . . . . . . .32
Registration Statement. . . . . . . . . . . . . . . . . . . . . 2
REMIC . . . . . . . . . . . . . . . . . . . . . . . . . . . 1, 72
REMIC Certificates. . . . . . . . . . . . . . . . . . . . . . .72
REMIC Provisions. . . . . . . . . . . . . . . . . . . . . . . .72
REMIC Regular Certificates. . . . . . . . . . . . . . . . . . .72
REMIC Regulations . . . . . . . . . . . . . . . . . . . . . . .72
REMIC Residual Certificates . . . . . . . . . . . . . . . . . .72
REO Contract. . . . . . . . . . . . . . . . . . . . . . . . . .41
REO Mortgage Loan . . . . . . . . . . . . . . . . . . . . . . .41
Repurchased Contract. . . . . . . . . . . . . . . . . . . . . .25
Repurchased Mortgage Loan . . . . . . . . . . . . . . . . . . .25
Reserve Fund. . . . . . . . . . . . . . . . . . . . . . . . . .47
Residential Funding . . . . . . . . . . . . . . . . . . . . . . 4
Restricted Group. . . . . . . . . . . . . . . . . . . . . . . .89
RTC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .22
Senior Certificates . . . . . . . . . . . . . . . . . . . . . . 5
Senior Percentage . . . . . . . . . . . . . . . . . . . . . . .43
Senior/Subordinate Series . . . . . . . . . . . . . . . . . . .26
Servicer. . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Servicing Advances. . . . . . . . . . . . . . . . . . . . . . .31
Servicing Fee . . . . . . . . . . . . . . . . . . . . . . . . .38
Single Certificate. . . . . . . . . . . . . . . . . . . . . . .37
SMMEA . . . . . . . . . . . . . . . . . . . . . . . . . . .10, 91
Special Hazard Amount . . . . . . . . . . . . . . . . . . . . .43
Special Hazard Insurance Policy . . . . . . . . . . . . . . . .46
Special Hazard Insurer. . . . . . . . . . . . . . . . . . . . .46
Special Hazard Loss . . . . . . . . . . . . . . . . . . . . . .44
Special Servicer. . . . . . . . . . . . . . . . . . . . . . . .40
Spread. . . . . . . . . . . . . . . . . . . . . . . . . . . . .29
Stated Principal Balance. . . . . . . . . . . . . . . . . . . .43
Strip Certificate . . . . . . . . . . . . . . . . . . . . . . . 5
Sub-Servicing Agreement . . . . . . . . . . . . . . . . . . . .37
Subordinate Certificates. . . . . . . . . . . . . . . . . . . . 5
Surety Bond . . . . . . . . . . . . . . . . . . . . . . . . . .48
Tax-Exempt Investor . . . . . . . . . . . . . . . . . . . . . .90
Tax-Favored Plans . . . . . . . . . . . . . . . . . . . . . . .87
Tiered REMICs . . . . . . . . . . . . . . . . . . . . . . . . .73
Title V . . . . . . . . . . . . . . . . . . . . . . . . . . . .67
Title VIII. . . . . . . . . . . . . . . . . . . . . . . . . . .68
Trust Agreement . . . . . . . . . . . . . . . . . . . . . . .1, 4
Trust Fund. . . . . . . . . . . . . . . . . . . . . . . . . .1, 4
Trustee . . . . . . . . . . . . . . . . . . . . . . . . . . . .14
UBTI. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .90
UCC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .65
Unaffiliated Seller . . . . . . . . . . . . . . . . . . . . . .22
VA. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .15
VA Contracts. . . . . . . . . . . . . . . . . . . . . . . . . .20
VA Loans. . . . . . . . . . . . . . . . . . . . . . . . . . . .15
SUBJECT TO COMPLETION, DATED ^ MAY __, 1995
Version I-A
Prospectus Supplement
(to Prospectus dated _______ __, 199_)
RESIDENTIAL ASSET SECURITIES CORPORATION
Depositor
[Name of [Master] Servicer[s]]
[Master] Servicer
[Mortgage][Manufactured Housing Contract] Pass-Through
Certificates, Series [199_-_]
$__________ ____% Class A-1 Certificates $
0 Variable Rate (2) Class A-5 Certificates
$__________ ____% Class A-2 Certificates $__________
____% Class R Certificates
$__________ 0% (1) Class A-4 Certificates
$__________ ____% Class M Certificates
______________________
(1) The Class A-4 Certificates will be Principal Only Certificates
and will not
be entitled to received distributions of interest.
(2) Based on the Notional Amount (as described herein under
"Description of the
Offered Certificates Interest Distributions"). The Class A-5
Certificates will be
Stripped Interests Certificates and will not be entitled to receive
distributions of
principal.
______________________
The Series [199_-_] [Mortgage] [Manufactured Housing Contract]
Pass-Through Certificates (the "Certificates") will include (i) six
classes of senior certificates (collectively, the "Senior
Certificates"): Class A-1, Class A-2, Class A-3 (the "Accrual
Certificates"), Class A-4 (the "Principal Only Certificates"), Class
A-5 (the "Stripped Interests Certificates") and Class R (the
"Residual Certificates"); and (ii) two classes of subordinate
certificates: the Class M Certificates and the Class B Certificates
(collectively, the " Subordinate Certificates"). Only the Senior
Certificates (other than the Accrual Certificates) and the Class M
Certificates (collectively, the "Offered Certificates") are being
offered hereby. See "Index of Principal Definitions" in the
Prospectus for meanings of capitalized terms and acronyms not
otherwise defined herein.
(continued on following page)
______________________
PROCEEDS OF THE ASSETS IN THE TRUST FUND ARE THE SOLE SOURCE OF
PAYMENTS ON THE OFFERED CERTIFICATES. THE OFFERED CERTIFICATES DO
NOT REPRESENT AN INTEREST IN OR OBLIGATION OF THE COMPANY, THE
[MASTER] SERVICER[S], GMAC MORTGAGE CORPORATION ("GMAC MORTGAGE") OR
ANY OF THEIR AFFILIATES. NEITHER THE OFFERED CERTIFICATES NOR THE
UNDERLYING [MORTGAGE LOANS] [CONTRACTS] ARE INSURED OR GUARANTEED BY
ANY GOVERNMENTAL AGENCY OR INSTRUMENTALITY [(EXCEPT IN THE CASE OF
FHA [LOANS] [CONTRACTS], AND VA [LOANS] [CONTRACTS])] OR BY THE
COMPANY, THE [MASTER] SERVICER[S], GMAC MORTGAGE OR ANY OF THEIR
AFFILIATES.
______________________
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION (THE "COMMISSION") OR ANY STATE
SECURITIES COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION
OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS SUPPLEMENT OR THE PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
______________________
THE ATTORNEY GENERAL OF THE STATE OF NEW YORK HAS NOT PASSED ON OR
ENDORSED THE MERITS OF THIS OFFERING. ANY REPRESENTATION TO THE
CONTRARY IS UNLAWFUL.
______________________
___________________________ (the "Underwriter") intends to make a
secondary market in the Offered Certificates (other than the
Residual Certificates and Class M Certificates), but has no
obligation to do so. There can be no assurance that a secondary
market for the Offered Certificates will develop or, if it does
develop, that it will continue. The Offered Certificates will not
be listed on any securities exchange.
The Offered Certificates will be purchased from the Company by the
Underwriter and will be offered by the Underwriter from time to time
to the public, directly or through dealers, in negotiated
transactions or otherwise at varying prices to be determined at the
time of sale. The proceeds to the Company from the sale of the
Offered Certificates will be equal to ____% of the initial aggregate
principal balance of the Offered Certificates, plus accrued interest
thereon from __________ 1, 19__ (the "Cut-off Date"), net of any
expenses payable by the Company to the Underwriter and any dealer.
The Offered Certificates are offered by the Underwriter subject to
prior sale, when, as and if delivered to and accepted by the
Underwriter and subject to certain other conditions. The
Underwriter reserves the right to withdraw, cancel or modify such
offer and to reject any order in whole or in part. It is expected
that delivery of the Offered Certificates will be made on or about
__________, 199_ [at the office of
________________________________________] [through the facilities of
The Depository Trust Company] against payment therefor in
immediately available funds.
[The Principal Only Certificates, Stripped Interests Certificates,
Residual Certificates and Class M Certificates may be offered by the
Company from time to time to the public, either directly or through
an underwriter or agent, in negotiated transactions or otherwise at
varying prices to be determined at the time of sale[, except that a
de minimis portion of the Residual Certificate will be held by
Residential Funding and such portion is not offered hereby].
[Proceeds to the Company from the sale of the Principal Only
Certificates, Stripped Interest Certificates, Residual Certificates
or Class M Certificates will be equal to the purchase price paid by
the purchaser thereof, net of any expenses payable by the Company
and any compensation payable to any underwriter or agent.]
[Name of Underwriter]
The date of this Prospectus Supplement is _________ __, 199_.
(continued from previous page)
It is a condition to the issuance of the Offered Certificates that
the Senior Certificates and the Class M Certificates be rated "___"
and "___", respectively, by ____________ and "___" and "___",
respectively, by ____________.
The Senior Certificates in the aggregate and the Class M
Certificates will evidence initial undivided interests of
approximately ____% and ____%, respectively, in a trust fund (the
"Trust Fund") consisting primarily of a pool of [[fixed]
[adjustable] rate [conventional] [FHA-insured] [VA-guaranteed] one-
to four-family, first lien mortgage loans (the "Mortgage
Loans")][manufactured housing conditional sales contracts and
installment loan agreements (the "Contracts")] to be deposited by
Residential Asset Securities Corporation (the "Company") into the
Trust Fund. See "Description of the Trust Fund" herein. As
described herein and in the Prospectus, the rights of the holders of
the Class M Certificates and the Class B Certificates to receive
distributions with respect to the [Mortgage Loans] [Contracts] will
be subordinate to the rights of the holders of the Senior
Certificates; in addition, the rights of the holders of the Class B
Certificates to receive distributions with respect to the [Mortgage
Loans] [Contracts] will be subordinate to the rights of the holders
of the Class M Certificates. See "Description of the Offered
Certificates Allocation of Losses; Subordination" herein.
As described herein, a "real estate mortgage investment conduit" (a
"REMIC") election will be made in connection with the Trust Fund for
federal income tax purposes. Each class of Offered Certificates
(other than the Residual Certificates) will constitute "regular
interests" and the Residual Certificates will constitute "residual
interests" in the REMIC. See "Certain Federal Income Tax
Consequences" herein and in the Prospectus.
Distributions on the Offered Certificates will be made on the 25th
day of each month (or, if such day is not a business day, the next
business day), commencing on __________, 199_. As described herein
under "Description of the Offered Certificates Interest
Distributions," interest distributions on the Offered Certificates
will be based on the Certificate Principal Balance or the Notional
Amount thereof and the then-applicable Pass-Through Rate thereof,
which will be variable for the Stripped Interests Certificates and
fixed for all other classes of Certificates. Distributions in
respect of principal will be allocated among the various classes of
the Offered Certificates as described herein under "Description of
the Offered Certificates Principal Distributions on the Senior
Certificates" and " Principal Distributions on the Class M
Certificates."
The yield to maturity on the Offered Certificates will depend on the
rate of payment of principal (including prepayments, defaults and
liquidations) on the [Mortgage Loans] [Contracts]. The yield to
maturity on the Class M Certificates will be extremely sensitive to
losses due to defaults on the [Mortgage Loans] [Contracts] (and the
timing thereof), to the extent losses are not covered by the Class
B Certificates. The yield to investors on the Offered Certificates
will be adversely affected by any shortfalls in interest collected
on the [Mortgage Loans] [Contracts] due to prepayments, liquidations
or otherwise. Shortfalls in interest collected on the [Mortgage
Loans] [Contracts] due to prepayments in full will be offset by the
[Master] Servicer[s] to the extent described herein under
"Description of the Offered Certificates Interest Distributions."
The yield to investors on the Stripped Interests Certificates will
be [extremely] sensitive to the rate and timing of principal
payments (including prepayments, defaults and liquidations) on the
[Mortgage Loans] [Contracts], which rate may fluctuate significantly
over time. A rapid rate of principal payments on the [Mortgage
Loans] [Contracts] could result in the failure of investors in the
Stripped Interests Certificates to recover their initial
investments. Because amounts payable with respect to the Principal
Only Certificates are derived only from principal payments on the
[Mortgage Loans] [Contracts] with Net Mortgage Rates that are lower
than ____%, the yield on the Principal Only Certificates will be
adversely affected by slower than expected payments of principal on
such [Mortgage Loans] [Contracts]. See "Summary Special Prepayment
Considerations" and " Special Yield Considerations," and "Certain
Yield and Prepayment Considerations" herein and "Yield
Considerations" in the Prospectus.
______________________
THE CERTIFICATES OFFERED BY THIS PROSPECTUS SUPPLEMENT CONSTITUTE
PART OF A SEPARATE SERIES OF CERTIFICATES BEING OFFERED BY THE
COMPANY PURSUANT TO ITS PROSPECTUS DATED __________ __, 199_, OF
WHICH THIS PROSPECTUS SUPPLEMENT IS A PART AND WHICH ACCOMPANIES
THIS PROSPECTUS SUPPLEMENT. THE PROSPECTUS CONTAINS IMPORTANT
INFORMATION REGARDING THIS OFFERING NOT CONTAINED HEREIN AND
PROSPECTIVE INVESTORS ARE URGED TO READ THE PROSPECTUS AND THIS
PROSPECTUS SUPPLEMENT IN FULL. SALES OF THE OFFERED CERTIFICATES
MAY NOT BE CONSUMMATED UNLESS THE PURCHASER HAS RECEIVED BOTH THIS
PROSPECTUS SUPPLEMENT AND THE PROSPECTUS.
______________________
UNTIL [_____ __, 199_ (90 DAYS AFTER THE DATE OF THIS PROSPECTUS
SUPPLEMENT)], ALL DEALERS EFFECTING TRANSACTIONS IN THE OFFERED
CERTIFICATES, WHETHER OR NOT PARTICIPATING IN THIS DISTRIBUTION, MAY
BE REQUIRED TO DELIVER A PROSPECTUS SUPPLEMENT AND THE PROSPECTUS TO
WHICH IT RELATES. THIS DELIVERY REQUIREMENT IS IN ADDITION TO THE
OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS SUPPLEMENT AND
PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR
UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
______________________
[IN CONNECTION WITH THIS OFFERING, THE UNDERWRITER MAY OVER-ALLOT OR
EFFECT TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF
THE OFFERED CERTIFICATES AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE
PREVAIL IN THE OPEN MARKET, SUCH STABILIZATION, IF COMMENCED, MAY BE
DISCONTINUED AT ANY TIME.] SUMMARY
The following summary is qualified in its entirety by
reference to the detailed information appearing elsewhere herein and
in the Prospectus. Capitalized terms used herein and not otherwise
defined herein have the meanings assigned in the Prospectus. See
"Index of Principal Definitions" in the Prospectus.
Title of Securities. . . . [Mortgage] [Manufactured Housing
Contract] Pass-Through
Certificates, Series [199_-_]
(the "Certificates").
Company. . . . . . . . . . Residential Asset Securities
Corporation, a corporation
organized under the laws of the
State of Delaware, an affiliate
of Residential Funding
Corporation ("Residential
Funding"), which is an indirect
wholly-owned subsidiary of GMAC
Mortgage. See "The Company" in
the Prospectus.
[Master] Servicer[s] . . . [Residential Funding (the
"Master Servicer")] [__________,
a __________, organized under
the laws of __________ (the
"Servicer[s])]. See "Pooling
and Servicing Agreement The
[Master] Servicer[s]" herein
[and "Residential Funding
Corporation" in the Prospectus.]
Trustee. . . . . . . . . . , a [national
bank] [[state bank] [trust
company] organized under the
laws of __________] (the
"Trustee"). See "The Pooling
and Servicing Agreement The
Trustee" in the Prospectus.
Cut-off Date . . . . . . . ____________ 1, 199_ (the
"Cut-off Date").
Delivery Date. . . . . . . On or about ____________, 19__
(the "Delivery Date").
Distribution Date. . . . . The 25th day of each month (or,
if such day is not a business
day, the next business day),
beginning on ________ __, 199_,
(each, a "Distribution Date").
The [Mortgage] [Contract] Pool . The Certificates, in the
aggregate, will evidence the
entire beneficial interest in
the Trust Fund which consists of
a pool of [Mortgage Loans
secured by first liens on one-
to four-family residential
properties] [Contracts secured
by manufactured homes] (the
"Mortgaged Properties") and
related property (collectively,
the "Mortgage Collateral") with
an aggregate principal balance
of $__________. The Mortgage
Collateral will be conveyed to
the Trust Fund by the Company
pursuant to the Pooling and
Servicing Agreement (as defined
herein). The [Mortgage Loans]
[Contracts] are [fixed]
[adjustable] rate [conventional]
[FHA-insured] [VA-guaranteed]
[fully amortizing] [balloon]
loans. [The Mortgage Loans are
ARM Loans (as described in the
Prospectus under "The Trust
Fund The Mortgage Loans") with
Mortgage Rates based on
__________ (the "Index").]
The Mortgage Properties have
individual principal balances at
origination of at least
$__________, but not more than
$__________, with an average
principal balance at origination
of approximately $__________.
The [Mortgage Loans] [Contracts]
have terms to maturity from the
date of origination or
modification of not more than
____ years, and a weighted
average remaining term to
maturity of approximately ____
months as of the Cut-off Date.
The [Mortgage Loans] [Contracts]
will bear interest at Mortgage
Rates that ranged of from ____%
to ____% per annum as of the
Cut-off Date, with a weighted
average Mortgage Rate of
approximately ____% per annum as
of the Cut-off Date.
[Approximately ____% of the
[Mortgage Loans] [Contracts]
will be refinance [Mortgage
Loans] [Contracts].] The
[Mortgage Loans] [Contracts]
were purchased by the Company[,
through [Residential Funding]
[affiliates,]] from [____
sellers unaffiliated with the
Company] [GMAC Mortgage, an
indirect parent of the Company,
and its affiliates].
[[All][____%] of the [Mortgage
Loans] were purchased by the
Company indirectly through
[Residential
Funding][affiliates], from [___
sellers] [_______] ([each, a]
[the] "Mortgage Collateral
Seller") under the AlterNet
Mortgage Program (such Mortgage
Loans, the " AlterNet Program
Loans"). [INSERT OTHER
CHARACTERISTICS AS APPROPRIATE]
See "Description of the
[Mortgage] [Contract] Pool"
herein and "The Trust Funds" in
the Prospectus.
The Offered Certificates . The Senior Certificates in the
aggregate and the Class M
Certificates will evidence
initial undivided interests of
approximately ____% and ____%,
respectively, in the Trust Fund.
The Offered Certificates will
have the following Pass-Through
Rates and Certificate Principal
Balances as of the Cut-off Date:
Class A-1 Certificates ____%
$_______ Senior
Class A-2 Certificates ____%
$_______ Senior
Class A-4 Certificates 0%
$_______ Principal Only
Class A-5 Certificates Variable
Rate $ 0 Stripped Interests
Class R Certificates ____%
$_______ Residual
Class M Certificates ____%
$_______ Mezzanine
[Certificate Registration. The Senior Certificates, (other
than the [Principal Only,
Stripped Interests and Residual
Certificates]) will be
represented by one or more
certificates registered in the
name of Cede & Co., as nominee
of The Depository Trust Company
("DTC"). No person acquiring an
interest in the Senior
Certificates, (other than the
[Principal Only, Stripped
Interests and Residual
Certificates]) will be entitled
to receive a Certificate of such
class in fully registered,
certificated form except under
the limited circumstances
described in the Prospectus
under "Description of the
Certificates Form of
Certificates." The [Principal
Only, Stripped Interests,
Residual and Class M
Certificates] will be offered in
fully registered, certificated
form. See "Description of the
Certificates Form of
Certificates" in the
Prospectus.]
Pass-Through Rates on
the Offered Certificates . The Pass-Through Rates on all
classes of the Offered
Certificates (other than the
Principal Only Certificates,
which are not entitled to
distributions of interest, and
the Stripped Interests
Certificates) are the fixed
rates set forth above.
On each Distribution Date, the
Pass-Through Rate on the
Stripped Interests Certificates
will equal the weighted average
of the Pool Strip Rates on each
[Mortgage Loan] [Contract] with
a Net Mortgage Rate in excess of
____% per annum. The " Pool
Strip Rate" on each [Mortgage
Loan] [Contract] is equal to the
Net Mortgage Rate thereon minus
____%. The "Net Mortgage Rate"
on each [Mortgage Loan]
[Contract] is equal to the
Mortgage Rate thereon minus the
rate per annum at which the
related servicing fee accrues
(the "Servicing Fee Rate").
The Pool Strip Rates on the
[Mortgage Loans] [Contracts]
range from ____% to ____% per
annum. The initial Pass-Through
Rate on the Stripped Interests
Certificates is approximately
____% per annum. The Stripped
Interests Certificates have no
Certificate Principal Balance
and will accrue interest at the
then-applicable Pass-Through
Rate on the Notional Amount.
The "Notional Amount" of the
Stripped Interests Certificates
as of any date of determination
will be equal to the aggregate
Certificate Principal Balance of
the Certificates of all classes
as of such date.
[The Pass-Through Rate
applicable to the Offered
Certificates for any
Distribution Date will equal the
weighted average of the Net
Mortgage Rates on the [Mortgage
Loans] [Contracts] as of the Due
Date in the month preceding the
month in which such Distribution
Date occurs. The Net Mortgage
Rate with respect to each
[Mortgage Loan] [Contract] as of
the Cut-off Date will be set
forth in the [Mortgage Loan]
[Contract] Schedule attached to
the Pooling and Servicing
Agreement. As of the Cut-off
Date, the weighted average Net
Mortgage Rate is [______]% per
annum. The Net Mortgage Rate on
each [Mortgage Loan] [Contract]
will be adjusted on each
Adjustment Date to equal the
Index (rounded to the nearest
multiple of [_____]%) plus a
fixed percentage per annum for
each [Mortgage Loan] [Contract]
as set forth in the [Mortgage
Loan] [Contracts] Schedule
attached to the Pooling and
Servicing Agreement (the "Gross
Margin"), subject to the
Periodic Rate Cap, Maximum Net
Mortgage Rate and Minimum Net
Mortgage Rate (each as defined
herein) for such [Mortgage Loan]
[Contract]. The Gross Margins
for the [Mortgage Loans]
[Contracts] will be at least
[____]% per annum but not more
than [____]% per annum as of the
Cut-off Date, with an initial
weighted average Gross Margin of
[______]% per annum. The Net
Mortgage Rate on each Converted
[Mortgage Loan] [Contract]
remaining in the [Mortgage]
[Contract] Pool will equal the
Mortgage Rate thereon less
[____]% per annum.]
[The Pass-Through Rate on the
Offered Certificates on the
first Distribution Date will be
[______]% per annum, and is
expected to change thereafter
because the weighted average of
the Net Mortgage Rates is
expected to change for
succeeding Distribution Dates.]
See "Description of the Offered
Certificates Interest
Distributions" herein.
The Class B Certificates . The Class B Certificates have an
aggregate initial Certificate
Principal Balance of
approximately $__________,
evidencing an initial undivided
interest of approximately ____%
in the Trust Fund, and a
Pass-Through Rate of ____% per
annum. The Class B Certificates
are not being offered hereby.
[The Company expects that the
Class B Certificates will be
privately placed directly or
indirectly with one or more
institutional investors.]
Accrual Certificates . . . The Accrual Certificates have an
initial Certificate Principal
Balance of $___________ and a
Pass-Through Rate equal to ____%
per annum. The Accrual
Certificates are not being
offered hereby.
Interest Distributions . . Holders of each class of Offered
Certificates (the
"Certificateholders") (other
than the holders of the
Principal Only Certificates)
will be entitled to receive
distributions in an amount equal
to the Accrued Certificate
Interest on such class on each
Distribution Date (i) in the
case of each class of Senior
Certificates, to the extent of
the Available Distribution
Amount (as defined herein) for
such Distribution Date except as
otherwise set forth herein (in
the aggregate, the "Senior
Interest Distribution Amount")
and (ii) in the case of the
Class M Certificates, to the
extent of the Available
Distribution Amount for such
Distribution Date after (a)
distributions of interest and
principal to the holders of the
Senior Certificates and (b)
reimbursement of certain
Advances (as defined herein) to
the [Master] Servicer[s].
With respect to any Distribution
Date, "Accrued Certificate
Interest" will be equal to (a)
in the case of each class of
Offered Certificates (other than
the Principal Only Certificates
and the Stripped Interests
Certificates), one month's
interest accrued on the
Certificate Principal Balance of
such class, at the Pass-Through
Rate on such class, and (b) in
the case of the Stripped
Interests Certificates, one
month's interest accrued on the
Notional Amount thereof at the
Pass-Through Rate on such class
for such Distribution Date; in
each case less any interest
shortfalls not covered with
respect to such class by
Subordination (as defined
herein) or by the [Master]
Servicer[s] (as described
below), including any Prepayment
Interest Shortfall (as defined
herein), to the extent allocated
thereto for such Distribution
Date. The Principal Only
Certificates are not entitled to
receive any distribution of
interest.
See "Description of the Offered
Certificates Interest
Distributions" herein.
Principal Distributions. . On each Distribution Date, to
the extent of the portion of the
Available Distribution Amount
remaining after the Senior
Interest Distribution Amount is
distributed, holders of the
Principal Only Certificates will
be entitled to receive a
distribution allocable to
principal (the "Class A-4
Principal Distribution Amount")
that will include (i) the
applicable Discount Fraction (as
defined below) of scheduled
principal payments due on or,
after the Credit Support
Depletion Date, received with
respect to each item of Discount
Mortgage Collateral (as defined
below), (ii) the applicable
Discount Fraction of the
principal portion of any
unscheduled collections (other
than those received in
connection with a Final
Disposition described in clause
(iii) below) on each item of
Discount Mortgage Collateral,
including prepayments,
repurchases, Liquidation
Proceeds and Insurance Proceeds,
to the extent applied as
recoveries of principal, and
(iii) in connection with the
Final Disposition (as defined
herein) of an item of Mortgage
Collateral that occurs prior to
the Credit Support Depletion
Date and that did not result in
any Excess Special Hazard
Losses, Excess Bankruptcy
Losses, Excess Fraud Losses or
Extraordinary Losses (each as
defined herein), an amount equal
to the applicable Discount
Fraction of the Stated Principal
Balance of such item of Discount
Mortgage Collateral, subject to
the limitations set forth
herein. See "Description of the
Offered Certificates Principal
Distributions on the Senior
Certificates" herein.
"Discount Mortgage Collateral"
is any [Mortgage Loan][Contract]
with a Net Mortgage Rate less
than [____]%. With respect to
each item of Discount Mortgage
Collateral, the "Discount
Fraction" thereof is equal to a
fraction the numerator of which
is [____]% minus the Net
Mortgage Rate for such [Mortgage
Loan][Contract] and the
denominator of which is [____]%.
The [Mortgage Loans] [Contracts]
that do not constitute Discount
Mortgage Collateral are referred
to herein as the " Non-Discount
Mortgage Collateral." See
"Description of the Offered
Certificates General" herein.
On each Distribution Date, to
the extent of the portion of the
Available Distribution Amount
remaining after the Senior
Interest Distribution Amount and
Class A-4 Principal Distribution
Amount are distributed, holders
of the Senior Certificates
(other than Principal Only
Certificates and the Stripped
Interests Certificates) will be
entitled to receive a
distribution allocable to
principal in the manner and
priority set forth herein. See
"Description of the Offered
Certificates Principal
Distributions on the Senior
Certificates" herein.
Distributions in respect of
principal of the Senior
Certificates on any Distribution
Date will be allocated to the
classes then entitled to such
distributions, as described
herein. See " Special
Prepayment Considerations" and
" Special Yield Considerations"
and "Certain Yield and
Prepayment Considerations"
herein. The Stripped Interests
Certificates will not receive
any principal distributions.
On each Distribution Date,
holders of the Class M
Certificates will be entitled to
receive a distribution of
principal to the extent of the
portion of the Available
Distribution Amount remaining
after (i) distributions in
respect of interest and
principal to the holders of the
Senior Certificates, (ii)
reimbursements for certain
Advances to the [Master]
Servicer[s], and (iii)
distributions in respect of
interest to the holders of the
Class M Certificates. Such
principal distributions will be
made to the Class M Certificates
in the respective amounts
described herein. See
"Description of the Offered
Certificates Principal
Distributions on the Class M
Certificates" herein.
[Advances. . . . . . . . . The [Master] Servicer[s] [is]
[are] required to make advances
("Advances") in respect of
delinquent payments of principal
and interest on the [Mortgage
Loans] [Contracts] subject to
the limitations described
herein. See "Description of the
Offered Certificates Advances"
herein.]
Allocation of Losses; Subordination .
Subject to the limitations set
forth below, Realized Losses (as
defined herein) on the [Mortgage
Loans] [Contracts] will be
allocated as follows: first, to
the Class B Certificates; second,
to the Class M Certificates until,
in each case, the Certificate
Principal Balance of each such
class has been reduced to zero; and
thereafter, if any such Realized
Loss is on Discount Mortgage
Collateral, to the Principal Only
Certificates in an amount equal to
the related Discount Fraction of
the principal portion of such
Realized Loss, and the remainder of
such Realized Losses and the entire
amount of such Realized Losses on
Non-Discount Mortgage Collateral to
the remaining classes of Senior
Certificates on a pro rata basis,
as described herein under
"Description of the Offered
Certificates Allocation of Losses;
Subordination." The Subordination
provided to the Senior Certificates
by the Class B Certificates and
Class M Certificates and the
Subordination provided to the Class
M Certificates by the Class B
Certificates will cover Realized
Losses on the [Mortgage Loans]
[Contracts] that are Defaulted
Mortgage Losses, Fraud Losses,
Bankruptcy Losses and Special
Hazard Losses up to the limits set
forth below. The aggregate amounts
of Realized Losses which may be
allocated by means of Subordination
to cover Fraud Losses, Bankruptcy
Losses and Special Hazard Losses
Defaulted Mortgage Losses, are
initially limited to $[_________],
$[________] and $[_________],
respectively.] [All of the
foregoing amounts are subject to
periodic reduction as described
herein under "Description of the
Offered Certificates Allocation of
Losses; Subordination" and may be
further reduced.]
If the Certificate Principal
Balances of the Class B
Certificates and Class M
Certificates are reduced to
zero, all additional losses
(including, without limitation,
all Defaulted Mortgage Losses,
Special Hazard Losses, Fraud
Losses and Bankruptcy Losses)
will be allocated among the
Senior Certificates pro rata, as
more fully described herein.
See "Description of the Offered
Certificates Allocation of
Losses; Subordination."
In addition, any Special Hazard
Losses, Fraud Losses and
Bankruptcy Losses in excess of
the respective amounts of
coverage therefor and any
Extraordinary Losses on any
items of Non-Discount Mortgage
Collateral will be allocated on
a pro rata basis among the
Senior Certificates (other than
the Principal Only
Certificates), Class M
Certificates and Class B
Certificates. The principal
portion of such losses on items
of Discount Mortgage Collateral
will be allocated to the
Principal Only Certificates in
an amount equal to the related
Discount Fraction thereof, and
the remainder of such losses on
Discount Mortgage Collateral
will be allocated among the
remaining Certificates on a pro
rata basis as described above.
See "Description of the Offered
Certificates Allocation of
Losses; Subordination" herein.
Neither the Offered Certificates
nor the [Mortgage Loans]
[Contracts] are insured or
guaranteed by any governmental
agency or instrumentality
[(except in the case of [FHA]
[VA] [Loans [Contracts])] or by
the Company, the [Master]
Servicer[s], GMAC Mortgage or
any affiliate thereof. See
"Special Considerations Limited
Obligations" in the Prospectus.
[Optional Termination. . . At its option, on any
Distribution Date when the
aggregate principal balance of
the [Mortgage Loans] [Contracts]
is less than ___% of the
aggregate principal balance of
the [Mortgage Loans] [Contracts]
as of the Cut-off Date, the
[Master] Servicer[s] or the
Company may (i) purchase all
remaining Mortgage Collateral
from the Trust Fund and other
assets thereof, and thereby
effect early retirement of the
Certificates or (ii) purchase in
whole, but not in part, the
Certificates. See "The Pooling
and Servicing Agreement
Termination" herein and "The
Pooling and Servicing
Agreement Termination;
Retirement of Certificates" in
the Prospectus.]
Special Prepayment Considerations
The rate of principal payments on
the Offered Certificates,
collectively, will depend on the
rate and timing of principal
payments (including prepayments,
defaults and liquidations) on the
Mortgage Collateral. As is the
case with mortgage-backed
securities generally, the Offered
Certificates are subject to
substantial inherent cash-flow
uncertainties because any of the
[Mortgage Loans] [Contracts] may be
prepaid at any time. Generally,
when prevailing mortgage interest
rates are increasing, prepayment
rates on [mortgage loans]
[manufactured housing contracts]
tend to decrease, resulting in a
reduced return of principal to
investors at a time when
reinvestment at such higher
prevailing rates would be
desirable. Conversely, when
prevailing mortgage interest rates
are declining, prepayment rates on
[mortgage loans] [manufactured
housing contracts] tend to
increase, resulting in a greater
return of principal to investors at
a time when reinvestment at
comparable yields may not be
possible. See "Certain Yield and
Prepayment Considerations General"
herein.
[Certain types of [Mortgage
Loans] [Contracts] included in
the [Trust Fund] have
characteristics that may make
them more likely to default than
other [mortgage loans]
[manufactured housing
contracts]. [CHARACTERISTICS OF
MORTGAGE COLLATERAL THAT MAY
POSE INCREASED RISKS OF DEFAULT
TO BE INSERTED AS NECESSARY.]
[Such [Mortgage Loans]
[Contracts] pose a greater risk
of default and liquidation than
might otherwise be expected by
investors in the Certificates.
See "Special Considerations"
herein.]
The multiple class structure of
the Offered Certificates results
in the allocation of prepayments
among certain classes as follows
[TO BE INCLUDED AS APPROPRIATE]:
[Sequentially paying classes:
[All] classes of the Senior
Certificates are subject to
various priorities for payment
of principal as described herein
under "Description of the
Offered Certificates Principal
Distributions on the Senior
Certificates. Distributions on
classes having an earlier
priority of payment will be
immediately affected by the rate
of prepayment of the [Mortgage
Loans] [Contracts] early in the
life of the [Mortgage]
[Contract] Pool. Distributions
on classes with a later priority
of payment will not be directly
affected by the rate of
prepayment until such time as
principal is distributable on
such classes; however, the
timing of commencement of
principal distributions and the
weighted average lives of such
classes will be affected by the
rate of prepayment experienced
both before and after the
commencement of principal
distributions on such classes.]
[Planned Amortization Class
Certificates ("PAC
Certificates"): Principal
distributions on the PAC
Certificates will be payable in
amounts determined based on
schedules as described herein
under "Description of the
Offered Certificates Principal
Distributions on the Senior
Certificates," provided that the
rate of prepayment of the
[Mortgage Loans] [Contracts]
each month remains between
approximately ____% SPA (as
defined herein) and ____% SPA.
However, as discussed herein,
actual principal distributions
may be greater or less than the
described amounts. If the rate
of prepayment of the [Mortgage
Loans] [Contracts] is
consistently higher than ____%
SPA, then the Companion
Certificates will be retired
before all of the PAC
Certificates are retired, and
the rate of principal
distributions and the weighted
average lives of the remaining
PAC Certificates will become
significantly more sensitive to
changes in the rate of
prepayment of the [Mortgage
Loans] [Contracts] and principal
distributions thereon will be
more likely to deviate from the
described amounts.]
[Targeted Amortization Certif-
icates ("TAC Certificates"):
Principal distributions on the
TAC Certificates would be
payable in amounts determined
based on schedules as described
herein under "Description of the
Offered Certificates Principal
Distributions on the Senior
Certificates," if the rate of
prepayment of the [Mortgage
Loans] [Contracts] were to
remain at a constant level of
approximately ____% SPA.
However, as discussed herein,
actual principal distributions
are likely to deviate from the
described amounts, because it is
unlikely that the actual rate of
prepayment of the [Mortgage
Loans] [Contracts] each month
will remain at or near ____%
SPA. If the Companion
Certificates are retired before
all of the TAC Certificates are
retired, the rate of principal
distributions and the weighted
average lives of the remaining
TAC Certificates will become
significantly more sensitive to
changes in the rate of
prepayment of the [Mortgage
Loans] [Contracts], and
principal distributions thereon
will be more likely to deviate
from the described amounts.]
[Companion Certificates:
Because of the application of
amounts available for principal
distributions among the Senior
Certificates in any given month,
first to the [PAC] [TAC]
Certificates up to the described
amounts and then to the
Companion Certificates, the rate
of principal distributions and
the weighted average lives of
the Companion Certificates will
be extremely sensitive to
changes in the rate of
prepayment of the [Mortgage
Loans] [Contracts]. The
weighted average lives of the
Companion Certificates will be
significantly more sensitive to
changes in the rate of
prepayment than that of either
the [PAC] [TAC] Certificates or
a fractional undivided interest
in the [Mortgage Loans]
[Contracts].]
[Accrual Certificates: A high
rate of prepayments on the
[Mortgage Loans] [Contracts]
could result in the reduction of
the Certificate Principal
Balances of the Senior
Certificates (other than the
Accrual Certificates and
Principal Only Certificates) to
zero (and the occurrence of the
Accretion Termination Date)
earlier than anticipated. The
accrual of interest on the
Accrual Certificates may end and
the reduction of the Certificate
Principal Balance of the Accrual
Certificates may commence
earlier than anticipated.]
[Subordination features: As
described herein under
"Description of the Offered
Certificates Principal
Distributions on the Senior
Certificates" and " Principal
Distributions on the Class M
Certificates," during certain
periods all or a
disproportionately large
percentage of principal
prepayments on the [Mortgage
Loans] [Contracts] will be
allocated among the Senior
Certificates, and during certain
periods no such prepayments or,
relative to the related Class M
Percentage, a disproportionately
small or large percentage of
such prepayments will be
distributed to the Class M
Certificates. To the extent
that no such prepayments are
distributed on the Class M
Certificates, the Subordination
afforded to the Senior
Certificates by the Class M
Certificates (together with the
Class B Certificates), in the
absence of offsetting Realized
Losses allocated thereto, will
be increased.]
See "Description of the Offered
Certificates Principal
Distributions on the Senior
Certificates," " Principal
Distributions on the Class M
Certificates" and "Certain Yield
and Prepayment Considerations"
herein, and "Maturity and
Prepayment Considerations" in
the Prospectus. For further
information regarding the effect
of principal prepayments on the
weighted average lives of the
Offered Certificates (other than
the Stripped Interests
Certificates), see the table
entitled "Percentage of Initial
Certificate Balance Outstanding
at the Following Percentages of
SPA" herein.
Special Yield Considerations . . The yield to maturity on each
respective class of the Offered
Certificates will depend on the
rate and timing of principal
payments (including payments due
to prepayments, defaults and
liquidations) on the [Mortgage
Loans] [Contracts] and the
allocation thereof (and of any
losses on the [Mortgage Loans]
[Contracts]) to reduce the
Certificate Principal Balance or
Notional Amount of such class,
as well as other factors such as
the Pass-Through Rate (and, in
the case of the Stripped
Interests Certificates, any
adjustments thereto) and the
purchase price for such
Certificates. The yield to
investors on any class of
Offered Certificates may be
adversely affected by any
allocation thereto of Prepayment
Interest Shortfalls on the
[Mortgage Loans] [Contracts],
which shortfalls are expected to
result from distribution of
interest to the date of
prepayment only (rather than a
full month's interest) in
connection with prepayments in
full and the lack of any
distribution of interest on the
amount of any partial
prepayments. Prepayment
Interest Shortfalls resulting
from principal prepayments in
full in a calendar month will
not adversely affect the yield
to investors in the Offered
Certificates to the extent such
Prepayment Interest Shortfalls
do not exceed the Servicing Fee
for such month.
In general, if a class of
Offered Certificates is
purchased at a premium and
principal distributions thereon
occur at a rate faster than
anticipated at the time of
purchase, the investor's actual
yield to maturity will be lower
than that assumed at the time of
purchase. Conversely, if a
class of Offered Certificates is
purchased at a discount and
principal distributions thereon
occur at a rate slower than that
assumed at the time of purchase,
the investor's actual yield to
maturity will be lower than that
originally anticipated.
The Senior Certificates were
structured based on a number of
assumptions, including a
prepayment assumption of ____%
SPA and weighted average lives
corresponding thereto as set
forth herein under " Special
Prepayment Considerations." The
yield assumptions for the
respective classes that are to
be offered hereunder will vary
as determined at the time of
sale.
The multiple class structure of
the Offered Certificates causes
the yield of certain classes to
be particularly sensitive to
changes in the rate of
prepayment of the [Mortgage
Loans] [Contracts] and other
factors, as follows [TO BE
INCLUDED AS APPROPRIATE]:
[Principal Only Certificates:
Generally, the amounts payable
with respect to the Principal
Only Certificates are derived
only from principal payments on
the Discount Mortgage
Collateral. As a result, the
yield on the Principal Only
Certificates will be adversely
affected by slower than expected
payments of principal (including
prepayments, defaults and
liquidations) on the Discount
Mortgage Collateral. Because
the Discount Mortgage Collateral
have lower Net Mortgage Rates
than the Non-Discount Mortgage
Collateral, and because the
Mortgage Collateral with lower
Net Mortgage Rates are likely to
have lower Mortgage Rates, the
Discount Mortgage Collateral are
generally likely to prepay at a
slower rate than the
Non-Discount Mortgage
Collateral. See "Certain Yield
and Prepayment Considerations,"
especially " Principal Only
Certificate and Stripped
Interests Certificate Yield
Considerations" herein.]
[Interest strip and inverse
floater classes: The yield to
investors on the Class [_]
Certificates will be extremely
sensitive to the rate and timing
of principal payments on the
Mortgage Collateral (including
prepayments, defaults and
liquidations), which may
fluctuate significantly over
time. A rapid rate of principal
payments on the [Mortgage Loans]
[Contracts] could result in the
failure of investors in the
Class [_] Certificates to
recover their initial
investments, and a slower than
anticipated rate of principal
payments on the [Mortgage Loans]
[Contracts] could adversely
affect the yield to investors on
the Class [_] Certificates.]
[Stripped Interests
Certificates: In addition to
the foregoing, the yield on the
Stripped Interests Certificates
will be materially adversely
affected to a greater extent
than the yields on the other
Senior Certificates if the
[Mortgage Loans] [Contracts]
with higher Mortgage Rates
prepay faster than the [Mortgage
Loans] [Contracts] with lower
Mortgage Rates, because holders
of the Stripped Interests
Certificates generally have
rights to relatively larger
portions of interest payments on
the [Mortgage Loans] [Contracts]
with higher Mortgage Rates than
on [Mortgage Loans] [Contracts]
with lower Mortgage Rates.]
[Adjustable rate (including
inverse floater) classes: The
yield on the Class [_]
Certificates will be sensitive,
and the yield on the Class [_]
Certificates will be extremely
sensitive, to fluctuations in
the level of the Index. The
Pass-Through Rate on the Class
[_] Certificates will vary
inversely with, and at a
multiple of, the Index.]
[Inverse floater companion
classes: In addition to the
foregoing, in the event of
relatively low prevailing
interest rates (including the
Index) and relatively high rates
of principal prepayments over an
extended period, while investors
in the [identify inverse floater
companion classes] may then be
experiencing a high current
yield on such Certificates, such
yield may be realized only over
a relatively short period, and
it is unlikely that such
investors would be able to
reinvest such principal
prepayments on such Certificates
at a comparable yield.]
[Accrual Certificates: Interest
shortfalls allocated to the
Accrual Certificates will reduce
the amount of Accrued
Certificate Interest added to
the Certificate Principal
Balance thereof and, therefore,
will reduce the amount of
interest that will accrue in the
future on such Certificates than
would otherwise be the case
absent such shortfalls. Because
Accrual Certificates are not
entitled to receive any
distributions of interest until
the Accretion Termination Date,
the Accrual Certificates will
likely experience greater price
and yield volatility than would
pass-through certificates which
are otherwise similar but which
are entitled to current
distributions of interest.]
[Certificates with Subordination
features: The yield to maturity
on the Class M Certificates will
be extremely sensitive to losses
due to defaults on [Mortgage
Loans] [Contracts] (and the
timing thereof) after the
Certificate Principal Balance of
the Class B Certificates has
been reduced to zero, because
the entire amount of such losses
will be allocable to the Class M
Certificates, as described
herein under "Description of the
Offered Certificates Allocation
of Losses; Subordination."
Furthermore, as described herein
under "Certain Yield and
Prepayment Considerations," the
timing of the receipt of
principal and interest by the
Class M Certificates may be
adversely affected by losses on
the [Mortgage Loans] [Contracts]
even if such class does not
ultimately bear such loss.]
[Residual Certificates: Holders
of the Residual Certificates are
entitled to receive
distributions of principal and
interest as described herein
under "Description of the
Offered Certificates Interest
Distributions" and " Principal
Distributions on the Senior
Certificates," however, holders
of such Certificates may have
tax liabilities with respect to
their Certificates during the
early years of their term that
substantially exceed the
principal and interest payable
thereon during such periods. In
addition, such distributions
will be reduced to the extent
that they are subject to United
States federal income tax
withholding.]
See "Certain Yield and
Prepayment Considerations"
herein.
Certain Federal Income
Tax Consequences . . . . [An election will be made to
treat the Trust Fund as a "real
estate mortgage investment
conduit" (a "REMIC") for federal
income tax purposes. Upon the
issuance of the Offered
Certificates, [Orrick,
Herrington & Sutcliffe] [Thacher
Proffitt & Wood], New York, New
York, counsel to the Company,
will deliver its opinion
generally to the effect that,
assuming compliance with all
provisions of the Pooling and
Servicing Agreement, the Trust
Fund will qualify as a REMIC
under Sections 860A through 860G
of the Internal Revenue Code of
1986 (the "Code").]
[For federal income tax
purposes, the Residual
Certificates will be the sole
class of "residual interests" in
the Trust Fund and the Offered
Certificates (other than the
Residual Certificates) [and the
__________ Certificates] will
represent ownership of "regular
interests" in the Trust Fund and
will generally be treated as
representing ownership of debt
instruments issued by the Trust
Fund.]
[Under the REMIC Regulations (as
defined herein), the Residual
Certificates will not be
regarded as having "significant
value" for purposes of applying
the rules relating to "excess
inclusions." In addition, the
Residual Certificates may
constitute "noneconomic"
residual interests for purposes
of the REMIC Regulations.
Transfers of the Residual
Certificates will be restricted
under the Pooling and Servicing
Agreement to United States
persons (as defined in the
Prospectus under "Certain
Federal Income Tax
Consequences REMICs Foreign
Investors in REMIC
Certificates") in a manner
designed to prevent a transfer
of a noneconomic residual
interest from being disregarded
under the REMIC Regulations.
See "Certain Federal Income Tax
Consequences Special Tax
Considerations Applicable to
Residual Certificates" herein
and "Certain Federal Income Tax
Consequences REMICs Taxation of
Owners of REMIC Residual
Certificates Excess Inclusions"
and " Noneconomic REMIC
Residual Certificates" in the
Prospectus.]
[The Residual Certificateholders
may be required to report an
amount of taxable income with
respect to the early years of
the REMIC's term that
significantly exceeds
distributions on the Residual
Certificates during such years,
with corresponding tax
deductions or losses deferred
until the later years of the
REMIC's term. Accordingly, on a
present value basis, the tax
detriments occurring in the
earlier years may substantially
exceed the sum of any tax
benefits in the later years. As
a result, the Residual
Certificateholders' after-tax
rate of return may be zero or
negative, even if their pre-tax
rate of return is positive.]
[See "Certain Yield and
Prepayment Considerations,"
especially " Additional Yield
Considerations Applicable Solely
to the Residual Certificates"
and "Certain Federal Income Tax
Consequences Special Tax
Considerations Applicable to
Residual Certificates" herein.]
For further information
regarding the federal income tax
consequences of investing in the
Offered Certificates, see
"Certain Federal Income Tax
Consequences" herein and in the
Prospectus.
ERISA Considerations . . . [ERISA CONSIDERATIONS TO BE
INCLUDED AS NECESSARY] See
"ERISA Considerations" [herein
and] in the Prospectus.
Ratings. . . . . . . . . . It is a condition of the
issuance of the Senior
Certificates and the Class M
Certificates that they be rated
"___" and "___", respectively,
by ________________________ and
"___" and "___", respectively,
by _________________________. A
security rating is not a
recommendation to buy, sell or
hold securities and may be
subject to revision or
withdrawal at any time by the
assigning rating organization.
A security rating does not
address the frequency of
prepayments of the [Mortgage
Loans] [Contracts], or the
corresponding effect on yield to
investors. The rating of the
Stripped Interests Certificates
does not address the possibility
that the holders thereof may
fail to fully recover their
initial investment. See
"Certain Yield and Prepayment
Considerations" and "Ratings"
herein and "Yield
Considerations" in the
Prospectus.
Legal Investment Matters . The [Senior] Certificates will
constitute "mortgage related
securities" for purposes of the
Secondary Mortgage Market
Enhancement Act of 1984, as
amended ("SMMEA"), for so long
as they are rated in one of the
two highest rating categories by
at least one nationally
recognized statistical rating
organization, and, as such, will
be legal investments for certain
entities to the extent provided
in SMMEA. [The Class M
Certificates will not constitute
"mortgage related securities"
for purposes of SMMEA.]
Institutions whose investment
activities are subject to legal
investment laws and regulations
or to review by regulatory
authorities should consult with
their legal advisors in
determining whether and to what
extent the Offered Certificates
constitute legal investments
under SMMEA or are subject to
restrictions on investment,
capital requirements or
otherwise. See "Legal
Investment Matters" herein and
in the Prospectus.
[SPECIAL CONSIDERATIONS]
[Prospective Certificateholders should consider, among other
things, the items discussed under "Special Considerations" in the
Prospectus and the following factors in connection with the purchase
of the Certificates:]
[APPROPRIATE SPECIAL CONSIDERATIONS REGARDING MORTGAGE COLLATERAL TO
BE INSERTED AS NECESSARY]
DESCRIPTION OF THE [MORTGAGE] [CONTRACT] POOL
General
The Offered Certificates will evidence ownership interests in
the Trust Fund created by the Company, which will consist of a pool
of [fixed] [adjustable] rate [conventional] [FHA-insured]
[VA-guaranteed] [Mortgage Loans][Contracts] and certain other
property. The Mortgage Collateral will be conveyed by the Company
to the Trust Fund pursuant to a pooling and servicing agreement,
dated as of ______ __, 199_ (the "Pooling and Servicing Agreement"),
by and among the Company, the [Master] Servicer[s] and the Trustee.
A copy of the Pooling and Servicing Agreement will be filed with the
Securities and Exchange Commission as an exhibit to a Current Report
on Form 8-K to be filed within 15 days after the issuance of the
Certificate (the "Form 8-K").
The Mortgage Collateral will be assigned to the Trustee
pursuant to the Pooling and Servicing Agreement together with all
principal and interest due on or with respect to the [Mortgage
Loans] [Contracts] after the Cut-off Date. The Trustee will,
concurrently with such assignment, authenticate and deliver the
Certificates.
[Residential Funding] [__________] will act as [Master]
Servicer[s] for the Trust Fund (in such capacity, [each a] [the]
"[Master] Servicer"). The [Master] Servicer[s] will service the
[Mortgage Loans] [Contracts] [directly] [through one or more
Sub-Servicers] [who will provide customary servicing functions with
respect to the [Mortgage Loans] [Contracts] pursuant to the terms
set forth in the [Pooling and Servicing Agreement] [respective
Sub-Servicing Agreements].
The [Mortgage Loans] [Contracts] were acquired [directly]
[indirectly through Residential Funding] by the Company [on
_________ __, 199_] [from time to time] from [NAME OF SELLER]
[ ^ unaffiliated Mortgage Collateral Sellers] [ ^ pursuant
to the AlterNet Mortgage Program]. [See " The AlterNet Mortgage
Program" below.] [__]% of the Mortgage Loans were purchased from
[_____] and [____%] of the Mortgage Loans were purchased from
[________], both [affiliates of the Company] [Unaffiliated Sellers].
Except as set forth above, no Mortgage Collateral Seller sold more
than 10.0% of the Mortgage Loans to Residential Funding.
None of the [Mortgage Loans] [Contracts] were originated prior
to _______ __, 19__ or will have a maturity date later than _______
__, ____. No [Mortgage Loan] [Contract] will have a remaining term
to maturity as of the Cut-off Date of less than ____ months. The
weighted average remaining term to maturity of the [Mortgage Loans]
[Contracts] as of the Cut-off Date will be approximately ____
months. The weighted average original term to maturity of the
[Mortgage Loans] [Contracts] as of the Cut-off Date will be
approximately ____ months. All of the [Mortgage Loans] [Contracts]
have principal and interest payable monthly [on the ______ day of
each month] (the "Due Date") [on a level debt service basis]
[subject to change due to adjustment in the Mortgage Rate]. [As of
the Cut-off Date, no [Mortgage Loan] [Contract] will be one month or
more delinquent in payment of principal and interest.]
[In connection with each Mortgage Loan that is secured by a
leasehold interest, the related Mortgage Collateral Seller will
have represented to the Company that, among other things: (i) the
use of leasehold estates for residential properties is an accepted
practice in the area where the related Mortgaged Property is
located; (ii) residential property in such area consisting of
leasehold estates is readily marketable; (iii) the lease is recorded
and no party is in any way in breach of any provision of such lease;
(iv) the leasehold is in full force and effect and is not subject to
any prior lien or encumbrance by which the leasehold could be
terminated or subject to any charge or penalty; and (v) the
remaining term of the lease does not terminate less than ten years
after the maturity date of each such Mortgage Loans.]
[Mortgage Rate Adjustment]
[The Mortgage Rate on each Mortgage Loan will adjust
semi-annually on the Adjustment Date specified in the related
Mortgage Note to a rate equal to the sum (rounded to the nearest
multiple of ___%) of the Index described below and a fixed
percentage set forth in the related Mortgage Note (the "Gross
Margin"), subject to certain limitations described herein. The
amount of the monthly payment on each Mortgage Loan will be adjusted
semi-annually on the first day of the month following the month in
which the Adjustment Date occurs to equal the amount necessary to
pay interest at the then-applicable Mortgage Rate and fully amortize
the outstanding principal balance of the Mortgage Loan over its
remaining term to stated maturity. As of the Cut-off Date, ___% of
the Mortgage Loans will have reached their first Adjustment Date.
The Mortgage Loans will have different Adjustment Dates, Gross
Margins and limitations on the Mortgage Rate adjustments, as
described below.]
[Each Mortgage Note contains an interest rate adjustment cap
(the "Periodic Rate Cap") which limits the adjustment of the
Mortgage Rate to not more than ___% above or below the previous
Mortgage Rate. The Mortgage Rate on a Mortgage Loan may not exceed
the maximum Mortgage Rate (the "Maximum Mortgage Rate") or be less
than the minimum Mortgage Rate (the "Minimum Mortgage Rate")
specified for such Mortgage Loan in the related Mortgage Note. The
Minimum Mortgage Rate for each Mortgage Loan will be equal to the
Gross Margin. The Minimum Mortgage Rates will range from ___% to
___%, with a weighted average Minimum Mortgage Rate as of the
Cut-off Date of ___%. The Maximum Mortgage Rates will range from
___% to ___%, with a weighted average Maximum Mortgage Rate as of
the Cut-off Date of ___%. No Mortgage Loan provides for payment
caps on any Adjustment Date which would result in deferred interest
or negative amortization.]
[The Index applicable to the Mortgage Loans will be a per
annum rate equal to the average of interbank offered rates for
six-month U.S. dollar-denominated deposits in the London market
based on quotations of major banks ("LIBOR") as published by Fannie
Mae and as most recently available as of the date forty-five days
prior to the Adjustment Date, or, with respect to _____ Mortgage
Loans, representing approximately ___% of the Mortgage Loans, the
Index shall be LIBOR as published in The Wall Street Journal and as
most recently available as of the first business day of the month
immediately preceding the month in which the Adjustment Date occurs.
In the event that the Index is no longer available, an index
reasonably acceptable to the Trustee that is based on comparable
information will be selected by the Master Servicer.]
[Listed below are levels of LIBOR as published by Fannie Mae
that are or would have been applicable to mortgage loans having the
following adjustment dates for the indicated years. Such average
yields may fluctuate significantly from month to month as well as
over longer periods and may not increase or decrease in a constant
pattern from period to period. There can be no assurance that
levels of LIBOR published in The Wall Street Journal for the
corresponding periods would have been at the same levels as those
set forth below. The following does not purport to be
representative of future levels of LIBOR (as published by Fannie Mae
or The Wall Street Journal). No assurance can be given as to the
level of LIBOR on any Adjustment Date or during the life of any
Mortgage Loan.]
<TABLE>
<CAPTION>
LIBOR
Adjustment Date 1990 1991 1992 1993 1994
<C> <C> <C> <C> <C> <C>
January 1. . . . . 8.438% 8.063% 5.359% 3.641% 3.500%
February 1 . . . . 8.313% 8.375 4.938 3.891 3.516
March 1. . . . . 8.313 7.563 4.250 3.641 3.500
April 1. . . . . 8.438 7.125 4.250 3.438 3.391
May 1. . . . . . . 8.438 6.891 4.375 3.328 4.000
June 1 . . . . . . 8.688 6.531 4.547 3.375 4.250
July 1 . . . . . . 9 .000 6.313 4.266 3.313 4.625
August 1 . . . . .8.500 6.188 4.250 3.438 5.000
September 1. . . . 8.438 6.563 4.125 3.563 5.250
October 1. . . . . .8.047 6.313 3.625 3.563 5.328
November 1 . . . . .8.188 5.875 3.625 3.438 5.328
December 1 . . . . 8.422 5.688 3.313 3.375 5.688
</TABLE>
[The initial Mortgage Rate in effect on a Mortgage Loan
generally will be lower, and may be significantly lower, than the
sum of the Index that would have been applicable at origination and
the Gross Margin. Therefore, unless the Index declines after
origination of a Mortgage Loan, the related Mortgage Rate will
generally increase on the first Adjustment Date following
origination of such Mortgage Loan subject to the Periodic Rate Cap.
The repayment of the Mortgage Loans will be dependent on the ability
of the Mortgagors to make larger monthly payments following
adjustments of the Mortgage Rate. Mortgage Loans that have the same
initial Mortgage Rate may not always bear interest at the same
Mortgage Rate because such Mortgage Loans may have different
Adjustment Dates (and the Mortgage Rates therefore may reflect
different Index values), Gross Margins, Maximum Mortgage Rates and
Minimum Mortgage Rates. The Net Mortgage Rate with respect to each
Mortgage Loan as of the Cut-off Date will be set forth in the
Mortgage Loan Schedule attached to the Pooling and Servicing
Agreement. The Net Mortgage Rate on each Mortgage Loan will be
adjusted on each Adjustment Date to equal the sum of the Index as
specified in the related Mortgage Note (rounded to the nearest
multiple of ___%) and a fixed percentage per annum for each Mortgage
Loan as set forth in the Mortgage Loan Schedule attached to the
Pooling and Servicing Agreement (the "Gross Margin"), provided that
the Net Mortgage Rate on any Mortgage Loan on any Adjustment Date
may not increase or decrease by more than the Periodic Rate Cap.
The Gross Margins for the Mortgage Loans will be at least ___% per
annum but not more than ___% per annum as of the Cut-off Date. The
Net Mortgage Rate on any Mortgage Loan may not exceed the maximum
Net Mortgage Rate (the "Maximum Net Mortgage Rate") or be less than
the minimum Net Mortgage Rate (the "Minimum Net Mortgage Rate") for
such Mortgage Loan.]
Mortgage Pool Characteristics
[The Mortgage Pool will have the following characteristics as
of the Cut-off Date:]
[Number of Mortgage Loans ____
Initial Pass-Through Rate on the Certificates (1) ____%
Range of Net Mortgage Rates (2) ____% - ____%
Mortgage Rates:
Weighted Average ____%
Range ____% - ____%
Gross Margins:
Weighted Average ____%
Range ____% - ____%
Minimum Mortgage Rates:
Weighted Average ____%
Range ____% - ____%
Minimum Net Mortgage Rates:
Weighted Average ____%
Range ____% - ____%
Maximum Mortgage Rates:
Weighted Average ____%
Range ____% - ____%
Maximum Net Mortgage Rates:
Weighted Average ____%
Range ____ - ____%
Weighted Average Months to next Adjustment Date
after October 1, 1994 (3) 3]
____________________
(1) The Pass-Through Rate on the Certificates will be equal to the
weighted average of the Net Mortgage Rates on the Mortgage
Loans.
(2) The Net Mortgage Rates are calculated as described under
"Description of the Certificates Interest Distributions"
herein, and the Net Mortgage Rate as to each Mortgage Loan on
and after its initial Adjustment Date will be generally equal
to the Index plus the Gross Margin, rounded as described
herein, subject to the Periodic Rate Cap, Maximum Net Mortgage
Rate and Minimum Net Mortgage Rate. The Net Mortgage Rates
may be less than or greater than the sum of the Index and the
Gross Margin during certain periods as a result of the
Periodic Rate Caps and Maximum Net Mortgage Rates and Minimum
Net Mortgage Rates.
(3) The Weighted Average Months to next Adjustment Date will be
equal to the weighted average of the number of months until
the Adjustment Date next following __________, 199__.
[The following table sets forth the number, aggregate
principal balance and percentage of Mortgage Loans as of the Cut-off
Date having their next Adjustment Dates in the months and years set
forth below.]
<TABLE>
<CAPTION>
Month and year Number of Aggregate Percentage of
of Mortgage Pricipal Mortgage Loans
Next Adjustment Dates Loans Balance
<C> <C> <C> <C>
January 199__ . $ ________________%
February 199_
March 199_ ___ _______ ________________
April 199_ ___ _______ ________________
________________ ___ _______ ________________
________________
Total ___ $__________ ________________%
<table/>
[All percentages of the Mortgage Loans described herein are
approximate percentages (except as otherwise indicated) by aggregate
principal balance as of the Cut-off Date.]
[None of the Mortgage Loans will have been originated prior to
__________, 199_ or will have a maturity date later than
___________, ____. No Mortgage Loan will have a remaining term to
stated maturity as of the Cut-off Date of less than ___ months. The
weighted average remaining term to stated maturity of the Mortgage
Loans as of the Cut-off Date will be ___ months. The weighted
average original term to maturity of the Mortgage Loans as of the
Cut-off Date will be ___ months.]
[As of the Cut-off Date, no Mortgage Loan will be ___ month
[s] or more delinquent in payment of principal and interest.]
[The Mortgage Loans are generally assumable pursuant to the
terms of the related Mortgage Note. See "Maturity and Prepayment
Considerations" in the Prospectus.]
[No Mortgage Loan provides for deferred interest or negative
amortization.]
[None of the Mortgage Loans will be Buydown Mortgage Loans.]
[Set forth below is a description of certain additional
characteristics of the Mortgage Loans as of the Cut-off Date (except
as otherwise indicated). All percentages of the Mortgage Loans are
approximate percentages by aggregate principal balance as of the
Cut-off Date (except as otherwise indicated). Unless otherwise
specified, all principal balances of the Mortgage Loans are as of
the Cut-off Date and are rounded to the nearest dollar.]
[Set forth below is a description of certain additional
characteristics of the [Mortgage Loans] [Contracts] as of the
Cut-off Date (expressed as a percentage of the outstanding aggregate
principal balance of the [Mortgage Loans] [Contracts] having such
characteristics relative to the outstanding aggregate principal
balance of all [Mortgage Loans] [Contracts]). Unless otherwise
specified, all principal balances of the [Mortgage Loans]
[Contracts] are as of the Cut-off Date and are rounded to the
nearest dollar.]
</TABLE>
<TABLE>
<CAPTION>
Mortgage Rates
Percentage of
[Mortgage]
Mortgage Rates Number Pricipal Balance [Contract] Pool
$ . . %
<C> <C>
_______ ________________._____________._______
Total..............____-_____$______-_______.__ %
= =
</TABLE>
As of the Cut-off Date, the weighted average Mortgage Rate of
the [Mortgage Loans] [Contracts] was approximately _________% per
annum.
[Net Mortgage Rates
Percentage of
[Mortgage]
Net Mortgage Rates Number Principal Balance [Contract] Pool
$ . . %
__________________________.____________.___
Total. . . . . .__________$_______-_______.____________.___%
As of the Cut-off Date, the weighted average Net Mortgage Rate
of the [Mortgage Loans] [Contracts] was approximately ____% per
annum.]
[Gross Margins
Percentage of
Principal [Mortgage]
Gross Margins Number Balance [Contract] Pool
$ . %
_______________________________________.____
Total. . . ______-______$_________________________.____%
As of the Cut-off Date, the weighted average Gross
Margin on the [Mortgage Loans] [Contracts] was
approximately ____%.]
[[Minimum] [Maximum] Mortgage Rates
Percentage of
[Minimum] [Maximum] [Mortgage]
Mortgage Rates Number Principal Balance [Contract] Pool
________________________________________________
$ . . %
Total. . . . . . . . ________________________________________________
As of the Cut-off Date, the weighted average [minimum]
[maximum] Mortgage Rate of the [Mortgage Loans] [Contracts] was
approximately _________% per annum.]
Original [Mortgage Loan] [Contract] Principal Balances
Percentage of
[Mortgage]
Principal Balance Number Principal Balance [Contract] Pool
$ . $ . . %
_____________________________.______________.____
Total. . . . . ._______________$_____-_______.______________.____%
=
As of the Cut-off Date, the average unpaid principal balance
of the [Mortgage Loans] [Contracts] will be approximately $_______.
[Remaining Months to Maturity
Percentage of
Remaining Months [Mortgage]
to Maturity Number Principal Balance [Contract] Pool
$ . . %
____________________________.______________.____
Total . . . . . ____________$________-______.______________.____%
As of the Cut-off Date, the weighted average remaining months
to maturity of the [Mortgage Loans] [Contracts] was approximately
____ months.]
[Months Since Origination
Percentage of
Months [Mortgage]
Since Origination Number Principal Balance [Contract] Pool
$ . . %
____________________________._____________.____
Total . . . . .____________$_______-_______._____________.____%
=
As of the Cut-off Date, the weighted average months since
origination of the [Mortgage Loans] [Contracts] was approximately
____ months.]
Original Loan-To-Value Ratios
Percentage of
[Mortgage]
Loan-to-Value Ratio Number Principal Balance [Contract] Pool
$ . . %
___________________________.______________.____
Total. . . . . . ___________$______-________.______________.____%
=
The weighted average Loan-to-Value Ratio at origination of the
[Mortgage Loans] [Contracts] will have been approximately __.__%.
Geographic Distributions of Mortgaged Properties
Percentage of
[Mortgage]
State Number Principal Balance [Contract] Pool
$ . . %
________________________________._____________.______
Total. ._______________$________-_______._____________.______%
=
[(1) "Other" includes states that contain less than [__]% of the
[Mortgage] [Contract] Pool.]
[No more than _____% of the [Mortgage Loans] [Contracts] will
be secured by Mortgaged Properties located in any one zip code
area.]
Mortgaged Property Types
Percentage
Property Number Principal Balance Mortgage Pool
$ . . %
Single-family
detached . . .
Planned Unit
Developments
(detached) .
Two- to four-family
units. . .
Condo Low-Rise (less
than 5 stories).
Condo Mid-Rise (5 to
8 stories) .
Condo High-Rise (9
stories or more.
Townhouse . . .
Planned Unit
Developments _________________ _______________ ______________
(attached) . . .---- .----
Total . . . ____________________$_____________._____________.__%
=
[[Mortgage Loan] [Contracts] Purposes
Percentage of
[Mortgage]
Loan Purpose Number Principal Balance [Contract] Pool
Purchase . . $ . . %
Rate/Term
Refinance.
Equity Refinance ________ $ . . %
Total . . . $ . . %
[The weighted average Loan-to-Value Ratio at origination of
[Mortgage Loans] [Contracts] made to finance the purchase of the
related Mortgaged Properties will have been approximately _____%.
The weighted average Loan-to-Value Ratio at origination of equity
refinance [Mortgage Loans] [Contracts] will have been approximately
_____%. The weighted average Loan-to-Value Ratio at origination of
rate and term refinance [Mortgage Loans] [Contracts] will have been
approximately _____%.]
[Mortgage Loan] Documentation
Percentage of
[Mortgage]
Type of Program Number Principal Balance [Contract] Pool
$ . . %
Full
Documentation. .
Limited
Documentation.
No Documentation ________ _________________ ________________
Total
Occupancy Types
Percentage of
[Mortgage]
Occupancy Number Principal Balance [Contract] Pool
$ . . %
Primary Residence
Second/Vacation.
Non
Owner-occupied . . .
Total . . . $ - . . %
=
[Specific information with respect to the [Mortgage Loans]
[Contracts] will be available to purchasers of the Certificates on
or before the time of issuance of such Certificates (the " Closing
Date"). If not included in the Prospectus Supplement, such
information will be included in the Form 8-K.]
Representations and Warranties
[Pursuant to the terms of the Pooling and Servicing Agreement,
the Company will assign the representations and warranties made by
the Mortgage Collateral Seller[s] to the Trustee for the benefit of
the Certificateholders. These representatives and warranties
include: [LIST OF SPECIFIC REPRESENTATIONS AND WARRANTIES].
[In addition, [the Company] [Residential Funding] will make
certain limited representations and warranties regarding the
[Mortgage Loans] [Contracts], as of the date of issuance of the
Certificates. [DISCLOSE DEVIATIONS FROM LIST OF SPECIFIC
REPRESENTATIONS AND WARRANTIES IN "THE TRUST FUNDS - REPRESENTATIONS
WITH RESPECT TO MORTGAGE COLLATERAL"].
[To the extent that the related Mortgage Collateral Seller[s]
does not repurchase a [Mortgage Loan][Contract] in the event of a
breach of its representations and warranties with respect to such
[Mortgage Loan][Contract], neither the Company nor Residential
Funding will be required to repurchase such [Mortgage
Loan][Contract] unless such breach also constitutes a breach of one
of the Company's or Residential Funding's representations and
warranties with respect to such [Mortgage Loan][Contract] and such
breach materially and adversely affects the interests of the
Certificateholders in any such [Mortgage Loan][Contract]. See "The
Trust Funds Repurchases of Mortgage Collateral" and " Limited Right
of Substitution" in the Prospectus. In addition, neither the
Company nor Residential Funding will be required to repurchase any
[Mortgage Loan][Contract] in the event of a breach of its
representations and warranties with respect to such [Mortgage
Loan][Contract] if the substance of any such breach also constitutes
fraud in the origination of such affected [Mortgage Loan][Contract].
A limited amount of losses on [Mortgage Loans][Contracts] as to
which there was fraud in the origination of such [Mortgage
Loans][Contracts] will be covered by the Subordination (as defined
herein) provided by the Class M Certificates and Class B
Certificates as described herein under "Description of the Offered
Certificates Allocation of Losses; Subordination."]
[The AlterNet Mortgage Program
^ General. In June, 1994 Residential Funding commenced a
program (the "AlterNet Mortgage Program") primarily for the purchase
of mortgage loans that would not qualify for other first mortgage
purchase programs such as those run by Fannie Mae or ^ Freddie
Mac or by Residential Funding ^ in connection with
securities issued by the Company's affiliate, Residential Funding
Mortgage Securities I, Inc. ^ For example, borrowers of AlterNet
Loans may have imperfect credit histories or higher debt to income
ratios than mortgagors in such other programs and the AlterNet Loans
may have characteristics that present certain other risks to
investors that are not generally present in those other programs.
[All][____%] of the Mortgage Loans are AlterNet Loans originated
under the AlterNet Mortgage Program. The AlterNet Loans were
underwritten in conformity with or in a manner generally
consistent with the standards described below. The AlterNet
Mortgage Program is administered by Residential Funding on behalf of
the Company.
Qualifications of AlterNet Program Sellers. The Mortgage
Collateral Sellers that participate in the AlterNet Mortgage Program
(each, an "AlterNet Program Seller") have been selected by
Residential Funding on the basis of criteria set forth in
Residential Funding's AlterNet Seller Guide (the "AlterNet Seller
Guide"). Each AlterNet Program Seller is required to be a
HUD-approved mortgagee or a financial institution supervised by a
federal or state authority with a minimum net worth of $[500,000]
^ and a minimum of [two] years' experience originating mortgage
loans [similar to the Mortgage Loans]. [OTHER QUALIFICATIONS TO
BE LISTED AS APPLICABLE.]
AlterNet Underwriting Standards. ^ In accordance with the
AlterNet Seller Guide, the AlterNet Program Seller is required to
review an application designed to provide to the original lender
pertinent credit information concerning the mortgagor. As part of
the description of the mortgagor's financial condition, each
mortgagor is required to furnish information (which may have been
supplied solely in such application) with respect to its assets,
liabilities, income, credit history and employment history, and to
furnish an authorization to apply for a credit report which
summarizes the borrower's credit history with local merchants and
lenders and any record of bankruptcy. The mortgagor may also be
required to authorize verifications of deposits at financial
institutions where the mortgagor had demand or savings accounts. In
the case of investment properties, income derived from the mortgaged
property may be considered for underwriting purposes. With respect
to mortgaged property consisting of a vacation or second home,
generally no income derived from the property is considered for
underwriting purposes.
Based on the data provided in the application and certain
verifications (if required by the originator of the mortgage loan),
a determination is made by the original lender that the mortgagor's
monthly income will be sufficient to enable the mortgagor to meet
its monthly obligations on the mortgage loan and other expenses
related to the property (such as property taxes, utility costs,
standard hazard insurance) and other fixed obligations other than
housing expenses. Generally, scheduled payments on a mortgage loan
during the first year of its term plus taxes and insurance and all
scheduled payments on obligations that extend beyond ten months
(including those mentioned above and other fixed obligations) equal
no more than specified percentages of the prospective mortgagor's
gross income. The originator may also consider the amount of liquid
assets available to the mortgagor after origination.
[Certain of the Mortgage Loans have been originated under
"limited documentation" programs which require less documentation
and verification than do traditional "full documentation" programs.
Generally, under such a program, minimal investigation into a
mortgagor's credit history and income is undertaken by the
originator and the underwriting for such mortgage loans places a
greater emphasis on the value of the mortgaged property.]
The adequacy of the mortgaged property as security for
repayment of the related mortgage loan generally is determined by an
appraisal in accordance with appraisal procedure guidelines set
forth in the AlterNet Seller Guide. [Appraisers may be staff
appraisers employed by the originator.] The appraisal procedure
guidelines generally require the appraiser or an agent on its behalf
to personally inspect the property and to verify whether the
property is in good condition and that construction, if new, has
been substantially completed. The appraiser is required to consider
a market data analysis of recent sales of comparable properties and,
when deemed applicable, an analysis based on income generated from
the property, or replacement cost analysis based on the current cost
of constructing or purchasing a similar property. In certain
instances, the Loan-to-Value Ratio is based on the appraised value
as indicated on a review appraisal conducted by the Mortgage
Collateral Seller or originator. As used in this section,
"Loan-to-Value Ratio" shall generally mean the ratio, expressed as
a percentage, of (a) the principal amount of the Mortgage Loan at
origination, over (b) the lesser of the sales price or the appraised
value of the related Mortgaged Property at origination, or in the
case of a refinanced or modified Mortgage Loan, the lesser of the
appraised value determined at origination or at the time of the
refinancing or modification.
Prior to assigning the Mortgage Loans to the Depositor,
Residential Funding reviews the underwriting documentation for
[each] Mortgage Loan[s] [purchased from AlterNet Program Sellers]
and determines that [each] [the] Mortgage Loan[s] [was] [were]
originated in accordance with or in a manner generally consistent
with the underwriting standards set forth in the AlterNet Seller
Guide.
All of the Mortgage Loans have risk features that generally
distinguish such loans from the more stringent underwriting
requirements of Fannie Mae and Freddie Mac, and from the more
stringent underwriting standards set forth in Residential Funding's
Seller Guide for mortgage loan collateral that does not present
special risk features (which generally provides the basis for
underwriting Mortgage Loans that serve as the assets for securities
issued by Residential Funding's affiliate, Residential Funding
Mortgage Securities I, Inc.). For purposes of the AlterNet Program,
Residential Funding has established risk categories by which it
could aggregate acceptable loans into groupings considered to have
progressively greater risk characteristics. The risk categories
established by Residential Funding and applicable to all of the
AlterNet Loans are expressed herein as Risk Categories 1A, 2 and 3.
Risk Category 1A: Under Risk Category 1A, the prospective
mortgagor must have repaid installment or revolving debt according
to its terms. Outstanding debts which are in a collection status
and are not in excess of $500 are permitted on non-mortgage
obligations provided they are paid down to zero by the closing. As
to each mortgagor in this Risk Category, any bankruptcies must have
been discharged at least two years prior to the closing and there
must be evidence that the mortgagor re-established its credit to an
acceptable level. The mortgaged property must be in average to good
condition. A maximum Loan-to-Value Ratio of 80% is permitted for a
mortgage loan on a single family owner-occupied property. A maximum
Loan-to-Value Ratio of 70% is permitted for a mortgage loan on a
non-owner occupied property. The mortgagor's debt service-to-income
ratio generally is 45% or less [based on the initial rate on the
mortgage loan plus 2% per annum]. At the time of purchase by
Residential Funding, the mortgagor may have made two 30-day late
payments but no 60-day or 90-day late payments within the last 12
months.
Risk Category 2: Under Risk Category 2, the prospective
mortgagor is required to have generally repaid all previous or
existing installment or revolving debt according to its terms.
Outstanding debts which are in a collection status and are not in
excess of $1,500 are permitted on non-mortgage obligations provided
they are paid down to zero by the closing. Any prior bankruptcies
must have been discharged at least two years prior to the closing
and there must be evidence that the mortgagor re-established its
credit to an acceptable level. The mortgaged property must be in
average to good condition. A maximum Loan-to-Value Ratio of 70% is
permitted for a mortgage loan on an owner-occupied property. A
maximum Loan-to-Value Ratio of 65% is permitted for a mortgage loan
on a non-owner occupied property. The debt service-to-income ratio
generally is 50% or less [based on an initial rate on the mortgage
loan plus 2% per annum]. At the time of purchase by Residential
Funding, the mortgagor may have made a maximum of four 30-day late
payments or one 60-day but no 90-day late payments within the last
12 months.
Risk Category 3: Under Risk Category 3, the prospective
mortgagor may not have paid all previous or existing installment or
revolving debt according to its terms. Outstanding debts which are
in a collection status and are not in excess of $1,500 are permitted
on non-mortgage obligations provided they are paid down to zero by
the closing. Any prior bankruptcies must have been discharged at
least two years prior to closing and the applicant must have also
established some good credit since any bankruptcy proceedings. The
mortgaged property must be in average to good condition. A maximum
Loan-to-Value Ratio of 70% is permitted for a mortgage loan on an
owner-occupied property. A maximum Loan-to-Value Ratio of 60% is
permitted for a mortgage loan on a non-owner-occupied property. The
debt service-to-income ratio generally is 55% or less [based on the
initial rate on the mortgage loan plus 2% per annum]. At the time
of purchase by Residential Funding, the mortgagor may have made a
maximum of six 30-day, two 60-day or one 90-day late payment within
the last 12 months.
[Add Additional Risk Categories, if appropriate]
Because of the underwriting standards described above,
AlterNet Loans are likely to experience greater rates of
delinquency, foreclosure and loss, and may experience substantially
greater rates of delinquency, foreclosure and loss, than mortgage
loans underwritten under more stringent underwriting standards.]
[Underwriting Standards]
[DESCRIBE ^ UNDERWRITING STANDARDS FOR [MORTGAGE LOANS] [
CONTRACTS] NOT PURCHASED THROUGH ALTERNET PROGRAM IF
APPROPRIATE ]
[Delinquency and Foreclosure Experience ^]
[INSERT MORTGAGE COLLATERAL SELLER'S PORTFOLIO DELINQUENCY AND LOSS
EXPERIENCE IF APPROPRIATE.]
[[Mortgage Collateral Seller], which originated __% of the
Mortgage Loans, has sold the servicing rights to substantially all
of the mortgage loans that it has originated using the underwriting
standards described above to various servicers. Accordingly, the
delinquency and loss experience for those mortgage loans is not
available.]
DESCRIPTION OF THE OFFERED CERTIFICATES
General
[The Offered Certificates, together with the Accrual
Certificates and the Class B Certificates] will evidence the entire
beneficial ownership interest in the Trust Fund. The Trust Fund
will consist of (1) the [Mortgage Loans] [Contracts]; (2) such
assets as from time to time are identified as deposited in respect
of the [Mortgage Loans] [Contracts] in the Custodial Account and in
the Certificate Account and belonging to the Trust Fund; (3)
property acquired by foreclosure of such [Mortgage Loans]
[Contracts] [or by a deed in lieu of foreclosure]; and (4) any
applicable Primary Insurance Policies and all proceeds thereof
(collectively, the "Mortgage Collateral").
The Principal Only Certificates will be entitled to payments
based on the Discount Fraction of the Discount Mortgage Collateral.
"Discount Mortgage Collateral" is any [Mortgage Loan] [Contract]
with a Net Mortgage Rate less than [___]%. With respect to each
item of Discount Mortgage Collateral, the "Discount Fraction" is
equal to a fraction, expressed as a percentage, the numerator of
which is [___]% minus the Net Mortgage Rate for such Discount
Mortgage Collateral and the denominator of which is [___]%. The
Mortgage Collateral other than the Discount Mortgage Collateral are
referred to herein as the "Non-Discount Mortgage Collateral."
Available Distribution Amount
The "Available Distribution Amount" for any Distribution Date
is equal to (i) the aggregate amount of scheduled payments on the
[Mortgage Loans][Contracts] due on the related Due Date and
received on or prior to the related Determination Date, after
deduction of the related servicing fees and any subservicing fees
(collectively, the "Servicing Fees"), (ii) certain unscheduled
payments, including Mortgagor prepayments on the [Mortgage
Loans][Contracts], Insurance Proceeds, Liquidation Proceeds and
proceeds from repurchases of and substitutions for the [Mortgage
Loans][Contracts] occurring during the preceding calendar month and
(iii) all Advances made for such Distribution Date, in each case net
of amounts reimbursable therefrom to the [Master] Servicer[s] [and
any Subservicer]. In addition to the foregoing amounts, with respect
to unscheduled collections, not including Mortgagor prepayments, the
[Master] Servicer[s] may elect to treat such amounts as included in
the Available Distribution Amount for the Distribution Date in the
month of receipt, but is not obligated to do so. With respect to any
Distribution Date, (a) the Due Date is the first day of the month in
which such Distribution Date occurs and (b) the Determination Date
is the 20th day of the month in which such Distribution Date occurs
(or, if such day is not a business day, the next business day).
Interest Distributions
Holders of each class of Offered Certificates (other than
Principal Only Certificates) will be entitled to receive interest
distributions in an amount equal to the Accrued Certificate Interest
on such class on each Distribution Date, to the extent of the
Available Distribution Amount (as defined below) for such
Distribution Date, commencing on the first Distribution Date in the
case of all classes of Senior Certificates [other than the Accrual
Certificates and commencing on the Accretion Termination Date (as
defined below) in the case of the Accrual Certificates]. Holders of
the Class M Certificates will be entitled to receive interest
distributions in an amount equal to the Accrued Certificate Interest
on each Distribution Date, to the extent of the Available
Distribution Amount for such Distribution Date after distributions
of interest and principal to the Senior Certificates [and
reimbursements for certain Advances to the [Master] Servicer[s]].
With respect to any Distribution Date, "Accrued Certificate
Interest" will be equal to (a) in the case of each class of Offered
Certificates (other than the Principal Only Certificates and the
Stripped Interests Certificates), one month's interest accrued on
the Certificate Principal Balance of the Certificates of such class
at the Pass-Through Rate on such class and (b) in the case of the
Stripped Interests Certificates, one month's interest accrued on the
Notional Amount of the Certificates of such class at the
then-applicable Pass-Through Rate on such class. In each case less
interest shortfalls, if any, for such Distribution Date not covered
by the Subordination, including in each case (i) any Prepayment
Interest Shortfall (as defined below) to the extent not covered by
the [Master] Servicer[s], as described below, (ii) the interest
portions of Realized Losses including Special Hazard Losses in
excess of the Special Hazard Amount ("Excess Special Hazard
Losses"), Fraud Losses in excess of the Fraud Amount ("Excess Fraud
Losses"), Bankruptcy Losses in excess of the Bankruptcy Amount
("Excess Bankruptcy Losses") and losses occasioned by war, civil
insurrection, certain governmental actions, nuclear reaction and
certain other risks ( "Extraordinary Losses") not covered by the
Subordination, (iii) the interest portion of any Advances that were
made with respect to delinquencies that were ultimately determined
to be Excess Special Hazard Losses, Excess Fraud Losses, Excess
Bankruptcy Losses or Extraordinary Losses and (iv) any interest
shortfalls not covered by Subordination, including interest
shortfalls relating to the Relief Act or similar legislation or
regulations, all allocated among all the Certificates in proportion
to the respective amounts of Accrued Certificate Interest for such
Distribution Date on each such class. In the case the Class M
Certificates, Accrued Certificate Interest will be further reduced
by the allocation of the interest portion of certain losses thereto,
if any, as described below under " Allocation of Losses;
Subordination." Accrued Certificate Interest is calculated on the
basis of a 360-day year consisting of twelve 30-day months. The
distributions of interest on any Distribution Date for all classes
of Certificates will reflect interest accrued, and receipts with
respect thereto, on the [Mortgage Loans][Contracts] for the
preceding calendar month, as may be reduced by any Prepayment
Interest Shortfall and other shortfalls in the collections of
interest as described below.
[The Accretion Termination Date for the Accrual Certificates
is the earlier to occur of (i) the Distribution Date on which the
Certificate Principal Balances of the Class A-1 and Class A-2 have
been reduced to zero and (ii) the Credit Support Depletion Date (as
defined herein). On each Distribution Date preceding the Accretion
Termination Date, an amount equal to the amount of Accrued
Certificate Interest on the Accrual Certificates for such date will
be added to the Certificate Principal Balance thereof, and such
amount will be distributed to the holders of the then outstanding
Senior Certificates (other than the Principal Only Certificates) in
reduction of the Certificate Principal Balances thereof, as
described herein. On each Distribution Date on or after the
Accretion Termination Date, the entire amount of Accrued Certificate
Interest on the Accrual Certificates for such date will be payable
to the holders of the Accrual Certificates, to the extent not
required to fully retire the remaining Senior Certificates on the
Accretion Termination Date; provided, however, that if the Accretion
Termination Date is the Credit Support Depletion Date, the entire
amount of Accrued Certificate Interest on the Accrual Certificates
for such Distribution Date will be payable to the holders of the
Accrual Certificates.]
The "Prepayment Interest Shortfall" for any Distribution Date
is equal to the aggregate shortfall, if any, in collections of
interest (adjusted to the related Net Mortgage Rates), resulting
from Mortgagor prepayments on the [Mortgage Loans] [Contracts]
during the preceding calendar month. Such shortfalls will result
because interest on prepayments in full is distributed only to the
date of prepayment, and because no interest is distributed on
prepayments in part, as such prepayments are applied to reduce the
outstanding principal balance of the related [Mortgage Loans]
[Contracts] as of the Due Date in the month of prepayment. [With
respect to any Distribution Date, any Prepayment Interest Shortfalls
resulting from prepayments in full for such Distribution Date will
be offset by the [Master] Servicer[s], but only to the extent such
Prepayment Interest Shortfalls do not exceed an amount equal to
[one-twelfth of 0.___% of the Stated Principal Balance of the
[Mortgage Loans][Contracts] immediately preceding such Distribution
Date]. Prepayment Interest Shortfalls will be offset by the Master
Servicer first, by a reduction in the Servicing Fee and second, by
a reduction in other servicing compensation of the [Master]
Servicer[s].
If on any Distribution Date the Available Distribution Amount
is less than Accrued Certificate Interest on the Senior Certificates
for such Distribution Date, the shortfall will be allocated among
the holders of all classes of Senior Certificates (other than the
Principal Only Certificates) in proportion to the respective amounts
of Accrued Certificate Interest for such Distribution Date on each
such class. In addition, the amount of any interest shortfalls that
are covered by Subordination (specifically, interest shortfalls not
described in clauses (i) through (iv) in the third preceding
paragraph) will be unpaid Accrued Certificate Interest and will be
distributable to holders of the Certificates of such classes
entitled to such amounts on subsequent Distribution Dates, to the
extent of available funds after interest distributions as required
herein. Such shortfalls could occur, for example, if delinquencies
on the [Mortgage Loans][Contracts] were exceptionally high and were
concentrated in a particular month and Advances by the [Master]
Servicer[s] did not cover the shortfall. Any such amounts so
carried forward will not bear interest.
[Prior to the Accretion Termination Date, interest shortfalls
to be allocated to the Accrual Certificates will be so allocated by
reducing the amount that is added to the Certificate Principal
Balance of the Accrual Certificates in respect of Accrued
Certificate Interest on such Distribution Date. This reduction will
correspondingly reduce the amount distributed in respect of
principal on the applicable Distribution Date to the holders of the
Senior Certificates (other than the Principal Only Certificates) and
will cause the Certificate Principal Balances of the outstanding
Senior Certificates (other than the Principal Only Certificates) to
be reduced to zero later than would otherwise be the case.]
The Pass-Through Rates on each class of Offered Certificates,
other than the Principal Only Certificates (which are not entitled
to distributions of interest) and the Stripped Interests
Certificates, are fixed and are set forth on the cover hereof. The
Pass-Through Rate on the Stripped Interests Certificates on each
Distribution Date will equal the weighted average, as of the Due
Date in the month preceding the month in which such Distribution
Date occurs, of the Pool Strip Rates on each [Mortgage
Loan][Contract] with a Net Mortgage Rate in excess of [___]% per
annum. The "Pool Strip Rate" on each [Mortgage Loan][Contract] is
equal to the Net Mortgage Rate thereon minus [___]%. The "Net
Mortgage Rate" on each [Mortgage Loan][Contract] is equal to the
Mortgage Rate thereon minus the Servicing Fee Rate. The Pool Strip
Rates on the [Mortgage Loans][Contracts] range from [___]% to [___]%
per annum. The initial Pass-Through Rate on the Stripped Interests
Certificates is approximately [___]% per annum.
[The Pass-Through Rate on each class of the Offered
Certificates for any Distribution Date will equal the weighted
average of the Net Mortgage Rates on the outstanding [Mortgage
Loans] [Contracts] for the month preceding such Distribution Date,
determined as of the close of business on the Due Date occurring in
such month (or, with respect to the first Distribution Date, as of
the Cut-off Date). The Net Mortgage Rate with respect to each
[Mortgage Loan] [Contract] as of the Cut-off Date will be set forth
in the [Mortgage Loan] [Contract] Schedule attached to the Pooling
and Servicing Agreement. As of the Cut-off Date, the weighted
average Net Mortgage Rate will be [______]% per annum. Accordingly,
the initial Pass-Through Rate on the Offered Certificates will be
[______]% per annum.]
[On each Adjustment Date applicable to each [Mortgage Loan]
[Contract], the Net Mortgage Rate on such [Mortgage Loan] [Contract]
will be adjusted to a rate equal to the sum of the Index (rounded to
the nearest multiple of [_____]%) and a fixed percentage per annum
for each [Mortgage Loan] [Contract] as set forth in the [Mortgage
Loan] [Contract] Schedule attached to the Pooling and Servicing
Agreement; provided that the Net Mortgage Rate on any [Mortgage
Loan] [Contract] on any Adjustment Date may not increase or decrease
by more than [____]% (the "Periodic Rate Cap"), except with respect
to one [Mortgage Loan] [Contract], constituting [___]% of the
[Mortgage Loans] [Contracts], on the first Adjustment Date thereof
the Net Mortgage Rate thereon may not adjust to a rate lower than
the related Gross Margin. The Net Mortgage Rate on any [Mortgage
Loan] [Contract] may not exceed the Maximum Net Mortgage Rate or
decrease below the Minimum Net Mortgage Rate applicable to such
[Mortgage Loan] [Contract] as specified in the Pooling and Servicing
Agreement. The Gross Margins for the [Mortgage Loans] [Contracts]
will be at least [_____]% per annum but not more than [_____]% per
annum as of the Cut-off Date, with an initial weighted average Gross
Margin of [______]% per annum. The Net Mortgage Rate on each
Converted [Mortgage Loan] [Contract] remaining in the [Mortgage]
[Contract] Pool will be equal to the Mortgage Rate thereon less
[_____]% per annum.]
As described herein, the Accrued Certificate Interest
allocable to each class of Offered Certificates is based on the
Certificate Principal Balance thereof or, in the case of the
Stripped Interests Certificates, on the Notional Amount. The
Certificate Principal Balance of any Offered Certificate, as of any
date of determination is equal to the initial Certificate Principal
Balance thereof, reduced by the aggregate of (a) all amounts
allocable to principal previously distributed with respect to such
Certificate and (b) any reductions in the Certificate Principal
Balance thereof deemed to have occurred in connection with
allocations of Realized Losses in the manner described herein under
" Allocation of Losses; Subordination"; provided that, after the
Certificate Principal Balance of the Class B Certificates has been
reduced to zero, the Certificate Principal Balance of the Class M
Certificates shall equal the excess, if any, of (a) the then
aggregate Stated Principal Balance (as defined herein) of all of the
[Mortgage Loans][Contracts] over (b) the then aggregate Certificate
Principal Balance of all classes of Senior Certificates then
outstanding. The "Notional Amount" of the Stripped Interests
Certificates as of any date of determination is equal to the
aggregate Certificate Principal Balance of the Certificates of all
classes as of such date. Reference to the Notional Amount of a
Stripped Interests Certificate is solely for convenience in certain
calculations and does not represent the right to receive any
distributions allocable to principal.
Principal Distributions on the Senior Certificates
Except as otherwise provided below, holders of the Senior
Certificates (other than the Stripped Interests, which are not
entitled to receive any principal distributions, and the Principal
Only Certificates) will be entitled to receive on each Distribution
Date, to the extent of the portion of the Available Distribution
Amount remaining after the Senior Interest Distribution Amount is
distributed to such holders and the Class A-4 Principal Distribution
Amount (as described below) is so distributed, a distribution
allocable to principal in the following amount:
(i) the product of (a) the then-applicable Senior
Percentage and (b) the aggregate of the following amounts:
(1) the principal portion of all scheduled monthly
payments on the [Mortgage Loans] [Contracts] (other than
the related Discount Fraction of the principal portion of
such payments, with respect to each item of Discount
Mortgage Collateral due on the related Due Date, whether
or not received on or prior to the related Determination
Date, less the principal portion of Debt Service
Reductions (as defined below) which, together with other
Bankruptcy Losses, are in excess of the Bankruptcy
Amount;
(2) the principal portion of all proceeds of the
repurchase of a [Mortgage Loan] [Contract] (or, in the
case of a substitution, certain amounts representing a
principal adjustment) (other than the related Discount
Fraction of the principal portion of such proceeds, with
respect to each item of Discount Mortgage Collateral) as
required by the Pooling and Servicing Agreement during
the preceding calendar month;
(3) the principal portion of all other unscheduled
collections received during the preceding calendar month
(other than full and partial Principal Prepayments made
by the respective Mortgagors and any amounts received in
connection with a Final Disposition (as defined below) of
a [Mortgage Loan] [Contract] described in clause (ii)
below), to the extent applied as recoveries of principal
(other than the related Discount Fraction of the
principal portion of such proceeds, with respect to each
item of Discount Mortgage Collateral);
(ii) in connection with the Final Disposition of a
[Mortgage Loan] [Contract] (a) that occurred in the preceding
calendar month and (b) that did not result in any Excess
Special Hazard Losses, Excess Fraud Losses, Excess Bankruptcy
Losses or Extraordinary Losses, an amount equal to the lesser
of (1) the then-applicable Senior Percentage of the Stated
Principal Balance of such [Mortgage Loan] [Contract] (other
than the related Discount Fraction of the principal portion of
such proceeds, with respect to each item of Discount Mortgage
Collateral) and (2) the then-applicable Senior Accelerated
Distribution Percentage (as defined below) of the related
collections, including Insurance Proceeds and Liquidation
Proceeds, to the extent applied as recoveries of principal
(other than the related Discount Fraction of the principal
portion of such proceeds, with respect to each item of
Discount Mortgage Collateral);
(iii) the then-applicable Senior Accelerated
Distribution Percentage of the aggregate of all full and
partial Principal Prepayments made by the respective
Mortgagors (other than the related Discount Fraction of the
principal portion of such proceeds, with respect to each item
of Discount Mortgage Collateral) during the preceding calendar
month;
(iv) any Excess Subordinate Principal Amount (as defined
below) for such Distribution Date;
(v) if such Distribution Date is on or prior to the
Accretion Termination Date, the Accrued Certificate Interest
on the Accrual Certificates for such Distribution Date, to the
extent added to the Certificate Principal Balance thereof; and
(vi) any amounts allocable to principal for any previous
Distribution Date (calculated pursuant to clauses (i) through
(iii) and (v) above) that remain undistributed to the extent
that any such amounts are not attributable to Realized Losses
which are allocated to the Subordinate Certificates.
With respect to any Distribution Date, "Senior Principal
Distribution Amount" is equal to the lesser of (a) the Available
Distribution Amount remaining after the Senior Interest Distribution
Amount and the Class A-4 Principal Distribution Amount are
distributed and (b) the sum of the amounts described in clauses (i)
through (vi) of the immediately preceding paragraph. With respect
to any Distribution Date on which the Certificate Principal Balance
of the most subordinate class or classes of Certificates then
outstanding is to be reduced to zero and on which Realized Losses
are to be allocated to such class or classes, the "Excess
Subordinate Principal Amount" is equal to the amount, if any, by
which (1) the amount that would otherwise be distributable in
respect of principal on such class or classes of Certificates on
such Distribution Date is greater than (2) the excess, if any, of
the aggregate of the Certificate Principal Balance of such class or
classes of Certificates immediately prior to such Distribution Date
over the aggregate amount of Realized Losses to be allocated to such
class or classes of Certificates on such Distribution Date.
Holders of the Principal Only Certificates will be entitled to
receive on each Distribution Date, to the extent of the portion of
the Available Distribution Amount remaining after the Senior
Interest Distribution Amount is distributed, a distribution
allocable to principal equal to the Class A-4 Principal Distribution
Amount. The Class A-4 Principal Distribution Amount is equal to the
aggregate of:
(i) the related Discount Fraction of the principal portion
of the scheduled monthly payment on each item of Discount
Mortgage Collateral due on the related Due Date, whether or
not received on or prior to the related Determination Date,
less the Discount Fraction of the principal portion of any
related Debt Service Reductions (as defined below) which
together with other Bankruptcy Losses are in excess of the
Bankruptcy Amount;
(ii) the related Discount Fraction of the principal portion
of all unscheduled collections on each item of Discount
Mortgage Collateral received during the preceding calendar
month (other than amounts received in connection with a Final
Disposition of an item of Discount Mortgage Collateral
described in clause (iii) below), including full and partial
Principal Prepayments, repurchases of Discount Mortgage
Collateral (or, in the case of a substitution, certain amounts
representing a principal adjustment) as required by the
Pooling and Servicing Agreement, Liquidation Proceeds and
Insurance Proceeds, to the extent applied as recoveries of
principal;
(iii) in connection with the Final Disposition of an item of
Discount Mortgage Collateral that did not result in any Excess
Special Hazard Losses, Excess Fraud Losses, Excess Bankruptcy
Losses or Extraordinary Losses, an amount equal to the
applicable Discount Fraction of the Stated Principal Balance
of such Discount Mortgage Collateral immediately prior to such
Distribution Date net of the principal portion of any related
Realized Loss allocated to the Principal Only Certificates on
such Distribution Date; and
(iv) any amounts, allocable to principal for any previous
Distribution Date (calculated pursuant to clauses (i) through
(iii) above), that remain undistributed.
A "Final Disposition" of a defaulted [Mortgage Loan]
[Contract] is deemed to have occurred upon a determination by the
[Master] Servicer[s] that it has received all Insurance Proceeds,
Liquidation Proceeds and other payments or cash recoveries which the
[Master] Servicer[s] reasonably and in good faith expects to be
finally recoverable with respect to such [Mortgage Loan] [Contract].
The "Stated Principal Balance" of a [Mortgage Loan] [Contract]
as of any date of determination is equal to the principal balance
thereof as of the Cut-off Date, after application of all scheduled
principal payments due on or before the Cut-off Date, whether or not
received, reduced by all amounts allocable to principal that have
been distributed to Certificateholders with respect to such
[Mortgage Loan] [Contract] on or before such date, and as further
reduced to the extent that any Realized Loss thereon has been
allocated to one or more classes of Certificates on or before the
date of determination.
The "Senior Percentage," which initially will equal
approximately [____]% and will in no event exceed 100%, will be
adjusted for each Distribution Date to be the percentage equal to
the aggregate Certificate Principal Balance of the Senior
Certificates (other than the Principal Only Certificates)
immediately prior to such Distribution Date divided by the aggregate
Stated Principal Balance of the aggregate amount of all the
[Mortgage Loans] [Contracts] (other than the Discount Fraction of
the Discount Mortgage Collateral) immediately prior to such
Distribution Date. The "Subordinate Percentage" as of any date of
determination is equal to 100% minus the Senior Percentage as of
such date. The initial Senior Percentage is less than the initial
percentage interest in the Trust Fund evidenced by the Senior
Certificates (including the Principal Only Certificates) in the
aggregate, because the Senior Percentage is calculated without
regard to either the Certificate Principal Balance of the Principal
Only Certificates or the Discount Fraction of the Stated Principal
Balance of each item of Discount Mortgage Collateral.
The Senior Accelerated Distribution Percentage for any
Distribution Date occurring prior to [__________ __, ____]
Distribution Date will equal 100%. Thereafter, the Senior
Accelerated Distribution Percentage will be subject to gradual
reduction as described in the following paragraph. This
disproportionate allocation of certain unscheduled payments in
respect of principal will have the effect of accelerating the
amortization of the Senior Certificates while, in the absence of
Realized Losses allocated to the Subordinate Certificates,
increasing the proportionate interest in the Trust Fund evidenced by
the Subordinate Certificates. Increasing the proportionate interest
of the Subordinate Certificates relative to that of the Senior
Certificates is intended to preserve the availability of the
Subordination provided by the Subordinate Certificates.
The "Senior Accelerated Distribution Percentage" for any
Distribution Date occurring after the [__________ __, ____]
Distribution Date will be as follows: for any Distribution Date
falling in the [__________] year after the Delivery Date, the Senior
Percentage for such Distribution Date plus [__]% of the Subordinate
Percentage (as defined below) for such Distribution Date; for any
Distribution Date falling in the [__________] year after the
Delivery Date, the Senior Percentage for such Distribution Date plus
__% of the Subordinate Percentage for such Distribution Date; for
any Distribution Date falling in the [__________] year after the
Delivery Date, the Senior Percentage for such Distribution Date plus
__% of the Subordinate Percentage for such Distribution Date; for
any Distribution Date falling in the [__________] year after the
Delivery Date, the Senior Percentage for such Distribution Date plus
__% of the Subordinate Percentage for such Distribution Date; and
for any Distribution Date after the [__________] year after the
Delivery Date, the Senior Percentage for such Distribution Date
(unless on any such Distribution Date the Senior Percentage exceeds
the initial Senior Percentage, in which case the Senior Accelerated
Distribution Percentage for such Distribution Date will once again
equal 100%). Any scheduled reduction to the Senior Accelerated
Distribution Percentage described above shall not be made as of any
Distribution Date unless either (a)(i) the outstanding principal
balance of [Mortgage Loans][Contracts] delinquent [____] days or
more averaged over the last [____] months, as a percentage of the
aggregate outstanding principal balance of all [Mortgage
Loans][Contracts] averaged over the last [____] months, does not
exceed [____]% and (ii) Realized Losses on the [Mortgage
Loans][Contracts] to date for such Distribution Date if occurring
during the [____], [____], [____], [____] or [____] year (or any
year thereafter) after the Delivery Date are less than [___]%,
[___]%, [___]%, [___]% or [___]%, respectively, of the sum of the
initial Certificate Principal Balances of the Subordinate
Certificates or (b)(i) the outstanding principal balance of
[Mortgage Loans][Contracts] delinquent [___] days or more averaged
over the last [___] months, as a percentage of the aggregate
outstanding principal balance of all [Mortgage Loans][Contracts]
averaged over the last [___] months, does not exceed [___]% and (ii)
Realized Losses on the [Mortgage Loans][Contracts] to date are less
than [___]% of the sum of the initial Certificate Principal Balances
of the Subordinate Certificates. Notwithstanding the foregoing, upon
reduction of the Certificate Principal Balances of the Senior
Certificates (other than the Principal Only Certificates) to zero,
the Senior Accelerated Distribution Percentage will equal 0%.
Distributions of principal on the Senior Certificates (other
than the Stripped Interests Certificates) on each Distribution Date
will be made (after distribution of the Senior Interest Distribution
Amount as described herein under " Interest Distributions"), as
follows:
(i) Prior to the occurrence of the Credit Support
Depletion Date (as defined below):
(a) the Class A-4 Principal Distribution Amount
shall be distributed to the Principal Only Certificates,
in reduction of the Certificate Principal Balance
thereof, until such Certificate Principal Balance is
reduced to zero;
(b) the Senior Principal Distribution Amount
shall be distributed to the Residual Certificates, in
reduction of the Certificate Principal Balance thereof,
until such Certificate Principal Balance is reduced to
zero; and
(c) the balance of the Senior Principal
Distribution Amount remaining after the distributions
described in clauses (i) and (ii) above shall be
distributed in reduction of the Certificate Principal
Balances of the classes set forth below as follows:
(1) first, [____.___]% and [___.______]%
of such amount, concurrently, to the Class A-1
Certificates and Class A-2 Certificates,
respectively, until the Certificate Principal
Balances thereof are reduced to zero; and
(2) second, to the Class A-3 Certificates
until the Certificate Principal Balance thereof
is reduced to zero.
(ii) On or after the occurrence of the Credit Support
Depletion Date, all priorities relating to distributions as
described above in respect of principal among the various
classes of Senior Certificates (other than the Principal Only
Certificates) will be disregarded, an amount equal to the
Discount Fraction of the principal portion of scheduled
payments and unscheduled collections received or advanced in
respect of Discount Mortgage Collateral will be distributed to
the Principal Only Certificates, and the Senior Principal
Distribution Amount will be distributed to all classes of
Senior Certificates (other than the Principal Only
Certificates) pro rata in accordance with their respective
outstanding Certificate Principal Balances and the Senior
Interest Distribution Amount will be distributed as described
under " Interest Distributions."
(iii) If the Certificate Principal Balances of the
Senior Certificates (other than the Principal Only
Certificates) have been reduced to zero prior to the
occurrence of the Credit Support Depletion Date, the Senior
Certificates (other than the Principal Only Certificates) will
be entitled to no further distributions of principal thereon
and the Available Distribution Amount will be paid solely to
the holders of the Principal Only Certificates, the Stripped
Interests Certificates and the Subordinate Certificates, in
each case as described herein.
The "Credit Support Depletion Date" is the first Distribution
Date on which the Senior Percentage equals 100%.
[The following table sets forth for each Distribution Date the
applicable Planned Principal Balances and Targeted Principal
Balances for each class of PAC and TAC Certificates and for the PAC
and TAC Principal Components.
There is no assurance that sufficient funds will be available
on any Distribution Date to reduce the Certificate Principal
Balances of the PAC and TAC Certificates and the amounts of the PAC
and TAC Principal Components to their corresponding Planned
Principal Balances or Targeted Principal Balances, as applicable,
for such Distribution Date, or that distributions on such PAC and
TAC Certificates and PAC and TAC Principal Components will not be
made in excess of such amounts for such Distribution Date.
Planned Principal Balances and Targeted Principal Balances
Planned Principal Balances Targeted Principal Balances
Class[ ] Class[ ]
PAC Principal TAC Principal
Distribution Date Class [ ] Component Class[ ] Component
Initial Balance
[___ 25, 199_]
[___ 25, 199_]
[___ 25, 199_]
[___ 25, 199_]
[___ 25, 199_]
[___ 25, 199_]
[___ 25, 199_]
[___ 25, 199_]
[___ 25, 199_]
[___ 25, 199_]
[___ 25, 199_]
[___ 25, 199_]
[___ 25, 199_]
[___ 25, 199_]
[___ 25, 199_]
[___ 25, 199_]
[___ 25, 199_]
[___ 25, 199_]
[___ 25, 199_]
[___ 25, 199_]
[___ 25, 199_]
[___ 25, 199_]
[___ 25, 199_]
[___ 25, 199_]
[___ 25, 199_]
[___ 25, 199_]
[___ 25, 199_]
[___ 25, 199_]
[___ 25, 199_]
[___ 25, 199_]
[___ 25, 199_]
[___ 25, 199_]
[___ 25, 199_]
[___ 25, 199_]
[___ 25, 199_]
[___ 25, 199_]
[___ 25, 199_]
[___ 25, 199_]
[___ 25, 199_]
[___ 25, 199_]
[___ 25, 199_]
[___ 25, 199_]
[___ 25, 199_]
[___ 25, 199_]
[___ 25, 199_]
[___ 25, 199_]
[___ 25, 199_]
[___ 25, 199_]
[___ 25, 199_]
[___ 25, 199_]
[___ 25, 199_]
[___ 25, 199_]
[___ 25, 199_]
[___ 25, 20__]
[___ 25, 20__]
[___ 25, 20__]
[___ 25, 20__]
[___ 25, 20__]
[___ 25, 20__]
[___ 25, 20__]
[___ 25, 20__]
[___ 25, 20__]
[___ 25, 20__]
[___ 25, 20__]
[___ 25, 20__]
[___ 25, 20__]
[___ 25, 20__]
[___ 25, 20__]
[___ 25, 20__]
[___ 25, 20__]
[___ 25, 20__]
[___ 25, 20__]
[___ 25, 20__]
[___ 25, 20__]
[___ 25, 20__]
[___ 25, 20__]
[___ 25, 20__]
[___ 25, 20__]
[___ 25, 20__]
[___ 25, 20__]
[___ 25, 20__]
[___ 25, 20__ and thereafter]
The Planned Principal Balances and Targeted Principal Balances
for each Distribution Date set forth in the table above were
calculated based on certain assumptions, including the assumption
that prepayments on the [Mortgage Loans] [Contracts] occur each
month at a constant level between approximately [__]% SPA and
approximately [___]% SPA, in the case of the Planned Principal
Balances and that prepayments on the [Mortgage Loans] [Contracts]
occur at a constant level of approximately [___]% SPA in the case of
the Targeted Principal Balances. The actual characteristics and
performance of the [Mortgage Loans] [Contracts] will differ from the
assumptions used in determining the Planned Principal Balances and
Targeted Principal Balances. The Planned Principal Balances and
Targeted Principal Balances set forth in the table above are final
and binding regardless of any error or alleged error in making such
calculations.
There can be no assurance that funds available for
distributions of principal on the PAC and TAC Certificates and the
PAC and TAC Principal Components will be sufficient to cover, or
will not be in excess of, the related PAC Principal Amount and TAC
Principal Amount for any Distribution Date. Distributions in
reduction of the Certificate Principal Balance of any class of PAC
or TAC Certificates or in reduction of the amount of the PAC or TAC
Principal Components may commence significantly earlier (other than
as to any class or Component for which the above table reflects a
distribution on the first Distribution Date) or later than the first
Distribution Date for such class or Component shown in the above
table. Distributions on any of the PAC and TAC Certificates and the
PAC and TAC Principal Components may end significantly earlier or
later than the last Distribution Date for such class or Component
shown in the above table. See "Prepayment and Yield Considerations"
herein for a further discussion of the assumptions used to produce
the above table and the effect of prepayments on the [Mortgage
Loans] [Contracts] on the rate of payments of principal and on the
weighted average lives of such Certificates.]
The [Master] Servicer[s] may elect to treat Insurance
Proceeds, Liquidation Proceeds and other unscheduled collections
(not including prepayments by the Mortgagors) received in any
calendar month as included in the Available Distribution Amount and
the Senior Principal Distribution Amount for the Distribution Date
in the month of receipt, but is not obligated to do so. If the
[Master] Servicer[s] so elects, such amounts will be deemed to have
been received (and any related Realized Loss shall be deemed to have
occurred) on the last day of the month prior to the receipt thereof.
Principal Distributions on the Class M Certificates
Holders of each class of the Class M Certificates will be
entitled to receive on each Distribution Date, to the extent of the
portion of the Available Distribution Amount remaining after (A) the
sum of the Senior Interest Distribution Amount and the Senior
Principal Distribution Amount is distributed to holders of the
Senior Certificates, (B) reimbursement is made to the [Master]
Servicer[s] for certain Advances remaining unreimbursed following
the final liquidation of the related [Mortgage Loan] [Contract] to
the extent described below under " Advances," (C) the aggregate
amount of Accrued Certificate Interest and principal required to be
distributed to holders of Class M Certificates and (D) the aggregate
amount of Accrued Certificate Interest required to be distributed on
such class of Class M Certificates on such Distribution Date is
distributed to such Class M Certificates, a distribution allocable
to principal in the following amounts:
(i) the product of (a) the then-applicable Class M
Percentage and (b) the aggregate of the following amounts:
(1) the principal portion of all scheduled monthly
payments on the [Mortgage Loans] [Contracts] due on the
related Due Date, whether or not received on or prior to
the related Determination Date, less the principal
portion of Debt Service Reductions together with other
Excess Bankruptcy Losses;
(2) the principal portion of all proceeds of the
repurchase of a [Mortgage Loan] [Contract] (or, in the
case of a substitution, certain amounts representing a
principal adjustment) as required by the Pooling and
Servicing Agreement during the preceding calendar month;
and
(3) the principal portion of all other unscheduled
collections received during the preceding calendar month
(other than full and partial Principal Prepayments made
by the respective Mortgagors and any amounts received in
connection with a Final Disposition of a [Mortgage Loan]
[Contract] described in clause (ii) below), to the
extent applied as recoveries of principal;
(ii) such Class M Certificate's pro rata share, based
on the Certificate Principal Balance of the Class M
Certificate relative to the aggregate Certificate Principal
Balance of the Class M and Class B Certificates then
outstanding, of all amounts received in connection with the
Final Disposition of a [Mortgage Loan][Contracts] (other than
the related Discount Fraction of such amounts with respect to
any item of Discount Mortgage Collateral) (1) that occurred
during the preceding calendar month and (2) that did not
result in any Excess Special Hazard Losses, Excess Fraud
Losses, Excess Bankruptcy Losses or Extraordinary Losses, to
the extent applied as recoveries of principal and to the
extent not otherwise payable to the Senior Certificates;
(iii) the portion of full and partial Principal
Prepayments (other than the Discount Fraction of such
Principal Prepayments with respect to any item of Discount
Mortgage Collateral) made by the respective Mortgagors during
the preceding calendar month allocable to the Class M
Certificates, as described below;
(iv) an amount equal to the Excess Subordinate
Principal Amount; and
(v) any amounts allocable to principal for any previous
Distribution Date (calculated pursuant to clauses (i), (ii)
and (iii) above) that remain undistributed to the extent that
any such amounts are not attributable to Realized Losses which
were allocated to the Class B Certificates.
As to the Class M Certificates, on any Distribution Date, any
Accrued Certificate Interest thereon remaining unpaid from any
previous Distribution Date will be distributable to the extent of
available funds. Notwithstanding the foregoing, if the Certificate
Principal Balances of the Class B Certificates have been reduced to
zero, on any Distribution Date, with respect to the Class M
Certificates outstanding on such Distribution Date, Accrued
Certificate Interest thereon remaining unpaid from any previous
Distribution Date (except in the limited circumstances provided in
the Pooling and Servicing Agreement) will not be distributable.
As to the Class M Certificates, on any Distribution Date, any
Accrued Certificate Interest thereon remaining unpaid from any
previous Distribution Date will be distributable to the extent of
available funds. Notwithstanding the foregoing, if the Certificate
Principal Balances of the Class B Certificates have been reduced to
zero, on any Distribution Date, with respect to the Class M
Certificates outstanding on such Distribution Date, Accrued
Certificate Interest thereon remaining unpaid from any previous
Distribution Date (except as in the limited circumstances provided
in the Pooling and Servicing Agreement) will not be distributable.
From the Distribution Date occurring in [__________ ____] (or
if the Certificate Principal Balances of the Senior Certificates
(other than the Principal Only Certificates) have been reduced to
zero prior to such Distribution Date, the Distribution Date on which
such reduction occurred) to, but not including the later to occur of
the Distribution Date occurring in [__________ ____] and the
Distribution Date on which the Class B Percentage first equals or
exceeds [____]% (approximately twice the sum of the initial Class B
Percentages) before giving effect to distributions on such
Distribution Date, the Class M Certificates (if outstanding) will be
entitled to receive 100% of any Principal Prepayments not otherwise
distributable to the Senior Certificates. Thereafter, all Principal
Prepayments not otherwise distributable to the Senior Certificates
will be allocated to the Class M Certificates and Class B
Certificates for which certain loss levels established for such
Subordinate Certificates in the Pooling and Servicing Agreement have
not been exceeded. The related loss level on any Distribution Date
would be satisfied as to the Class B Certificates, only if the sum
of the current percentage interests in the Trust Fund evidenced by
such class and each class, if any, subordinate thereto were at least
equal to the sum of the initial percentage interests evidenced by
such class and each class, if any, subordinate thereto.
As stated above under " Principal Distributions on the Senior
Certificates," the Senior Accelerated Distribution Percentage will
be 100% during the first [___] years after the Delivery Date (unless
the Certificate Principal Balances of the Senior Certificates (other
than the Principal Only Certificates) are reduced to zero before the
end of such period), and will thereafter equal 100% whenever the
Senior Percentage exceeds the initial Senior Percentage.
Furthermore, as set forth herein, the Senior Accelerated
Distribution Percentage will exceed the Senior Percentage during the
[___] through [___] years following the Delivery Date, and scheduled
reductions to the Senior Accelerated Distribution Percentage are
subject to postponement based on the loss and delinquency experience
of the [Mortgage Loans] [Contracts]. Accordingly, the Class M
Certificates will not be entitled to any prepayments for at least
the first [___] years after the Delivery Date (unless the
Certificate Principal Balances of the Senior Certificates (other
than the Principal Only Certificates) are reduced to zero before the
end of such period), and may receive no prepayments or a
disproportionately large or small portion of prepayments (relative
to the Class M Percentage) during certain periods thereafter. See
" Principal Distributions on the Senior Certificates" herein.
Allocation of Losses; Subordination
The Subordination provided to the Senior Certificates by the
Class B Certificates and Class M Certificates and the Subordination
provided to the Class M Certificates by the Class B Certificates
will cover Realized Losses on the [Mortgage Loans] [Contracts] that
are Defaulted [Mortgage] [Contract] Losses, Fraud Losses, Bankruptcy
Losses (each as defined in the Prospectus) and Special Hazard Losses
(as defined herein), to the extent described herein. Any Realized
Losses which do not constitute Excess Special Hazard Losses, Excess
Fraud Losses, Excess Bankruptcy Losses or Extraordinary Losses will
be allocated first, to the Class B Certificates; second, to the
Class M Certificates, in each case until the Certificate Principal
Balance of the Class M Certificates have been reduced to zero; and
third, if any such Realized Losses are on any item of Discount
Mortgage Collateral, to the Principal Only Certificates in an amount
equal to the related Discount Fraction of the principal portion of
such Realized Losses, and the remainder of such Realized Losses and
the entire amount of such Realized Losses on Non-Discount Mortgage
Collateral will be allocated to the remaining classes of Senior
Certificates on a pro rata basis. Any allocation of a Realized
Loss (other than a Debt Service Reduction) to a Certificate will be
made by reducing the Certificate Principal Balance thereof, in the
case of the principal portion of such Realized Loss, and the Accrued
Certificate Interest thereon, in the case of the interest portion of
such Realized Loss, by the amount so allocated as of the
Distribution Date occurring in the month following the calendar
month in which such Realized Loss was incurred. In addition, any
such allocation of a Realized Loss to a Class M Certificate may also
be made by operation of the payment priority to the Senior
Certificates set forth under " Principal Distributions on the Senior
Certificates" and the Class M Certificates. As used herein, "Debt
Service Reduction" means a reduction in the amount of the monthly
payment due to certain bankruptcy proceedings, but does not include
any permanent forgiveness of principal. As used herein,
"Subordination" refers to the provisions discussed above for the
sequential allocation of Realized Losses among the various classes,
as well as all provisions effecting such allocations including the
priorities for distribution of cash flows in the amounts described
herein.
Allocations of the principal portion of Debt Service
Reductions to the Class M Certificates and the Class B Certificates
will result from the priority of distributions of the Available
Distribution Amount as described herein under " Principal
Distributions on the Senior Certificates" and " Principal
Distributions on the Class M Certificates," which distributions
shall be made first to the Senior Certificates and then to the Class
M Certificates. An allocation of the interest portion of a Realized
Loss as well as the principal portion of Debt Service Reductions
will not reduce the level of Subordination, as such term is defined
herein, until an amount in respect thereof has been actually
disbursed to the Senior Certificateholders or the Class M
Certificateholders, as applicable. The holders of the Offered
Certificates will not be entitled to any additional payments with
respect to Realized Losses from amounts otherwise distributable on
any classes of Certificates subordinate thereto (except in limited
circumstances in respect of any Excess Subordinate Principal Amount
and, in the case of the Principal Only Certificates, because an
amount equal to the Discount Fraction of the Stated Principal
Balance of an item of Discount Mortgage Collateral will be paid to
the Principal Only Certificates as described in clause (3) of the
definition of "Class A-4 Principal Distribution Amount").
Accordingly, the Subordination provided to the Senior Certificates
(other than the Principal Only Certificates) and to the Class M
Certificates by the Class B Certificates with respect to Realized
Losses allocated on any Distribution Date will be effected primarily
by increasing the Senior Percentage or the Class M Percentage of
future distributions of principal of the remaining [Mortgage Loans]
[Contracts]. Because the Discount Fraction of the Discount Mortgage
Collateral will not change over time, the protection from losses
provided to the Principal Only Certificates by the Subordinate
Certificates is limited to the prior right of the Principal Only
Certificates to receive distributions in respect of principal as
described herein under " Principal Distributions on the Senior
Certificates". Furthermore, principal losses on the [Mortgage
Loans] [Contracts] that are not covered by Subordination will be
allocated to the Principal Only Certificates only to the extent they
occur on any item of Discount Mortgage Collateral and only to the
extent of the related Discount Fraction of such losses. Such
allocation of principal losses on the Discount Mortgage Collateral
may result in such losses being allocated in an amount that is
greater or less than would have been the case had such losses been
allocated in proportion to the Certificate Principal Balance of the
Principal Only Certificates. Thus, the Senior Certificates (other
than the Principal Only Certificates) will bear the entire amount of
losses that are not covered by Subordination other than the amount
allocable to the Principal Only Certificates, which losses will be
allocated among all classes of Senior Certificates other than the
Principal Only Certificates on a pro rata basis in proportion to
their respective Certificate Principal Balances.
Any Excess Special Hazard Losses, Excess Fraud Losses, Excess
Bankruptcy Losses, Extraordinary Losses or other losses of a type
not covered by the Subordination on Non-Discount Mortgage Collateral
will be allocated on a pro rata basis among the Senior Certificates
(other than the Principal Only Certificates), Class M Certificates
and Class B Certificates (any such Realized Losses so allocated to
the Senior Certificates (other than the Principal Only Certificates)
or Class M Certificates will be allocated without priority among the
various classes of Senior Certificates (other than the Principal
Only Certificates) or Class M Certificates). The principal portion
of such losses on Discount Mortgage Collateral will be allocated to
the Principal Only Certificates in an amount equal to the related
Discount Fraction thereof, and the remainder of such losses on
Discount Mortgage Collateral will be allocated among the remaining
Certificates on a pro rata basis. An allocation of a Realized Loss
on a "pro rata basis" among two or more classes of Certificates
means an allocation to each such class of Certificates on the basis
of its then outstanding Certificate Principal Balance prior to
giving effect to distributions to be made on such Distribution Date
in the case of an allocation of the principal portion of a Realized
Loss or based on the Accrued Certificate Interest thereon in the
case of an allocation of the interest portion of a Realized Loss.
With respect to any defaulted [Mortgage Loan] [Contract] that
is finally liquidated, through foreclosure sale, disposition of the
related Mortgaged Property if acquired on behalf of the
Certificateholders by deed in lieu of foreclosure, or otherwise, the
amount of loss realized, if any, will equal the portion of the
Stated Principal Balance remaining, if any, plus interest thereon
through the last day of the month in which such [Mortgage Loan]
[Contract] was finally liquidated, after application of all amounts
recovered (net of amounts reimbursable to the [Master] Servicer[s]
[or the Subservicer] for Advances and expenses, including attorneys'
fees) towards interest and principal owing on the [Mortgage Loan]
[Contract]. Such amount of loss realized and any Special Hazard
Losses, Fraud Losses and Bankruptcy Losses are referred to herein as
"Realized Losses."
In order to maximize the likelihood of distribution in full of
the Senior Interest Distribution Amount, the Class A-4 Principal
Distribution Amount and the Senior Principal Distribution Amount, on
each Distribution Date, holders of Senior Certificates have a right
to distributions of the Available Distribution Amount that is prior
to the rights of the holders of the Subordinate Certificates, to the
extent necessary to satisfy the Senior Interest Distribution Amount,
the Class A-4 Principal Amount and the Senior Principal Distribution
Amount. Similarly, holders of the Class M Certificates have a right
to distributions of the Available Distribution Amount prior to the
rights of holders of the Class B Certificates.
The application of the Senior Accelerated Distribution
Percentage (when it exceeds the Senior Percentage) to determine the
Senior Principal Distribution Amount will accelerate the
amortization of the Senior Certificates (other than the Principal
Only Certificates) relative to the actual amortization of the
[Mortgage Loans] [Contracts]. The Principal Only Certificates will
not receive more than the Discount Fraction of any unscheduled
payment relating to any item of Discount Mortgage Collateral. To
the extent that the Senior Certificates (other than the Principal
Only Certificates) are amortized faster than the [Mortgage Loans]
[Contracts], in the absence of offsetting Realized Losses allocated
to the Certificates, the percentage interest evidenced by the Senior
Certificates (other than the Principal Only Certificates) in the
Trust Fund will be decreased (with a corresponding increase in the
interest in the Trust Fund evidenced by the Subordinate
Certificates), thereby increasing, relative to their respective
Certificate Principal Balances, the Subordination afforded to the
Senior Certificates by the Subordinate Certificates collectively.
The aggregate amount of Realized Losses which may be allocated
in connection with Special Hazard Losses (the "Special Hazard
Amount") through Subordination shall initially be equal to
$[__________]. As of any date of determination following the
Cut-off Date, the Special Hazard Amount shall equal $[__________]
less the sum of (i) any amounts allocated through Subordination in
respect of Special Hazard Losses and (ii) the Adjustment Amount. The
"Adjustment Amount" will be equal to an amount calculated pursuant
to the terms of the Pooling and Servicing Agreement. As used in
this Prospectus Supplement, "Special Hazard Losses" has the same
meaning set forth in the Prospectus, except that Special Hazard
Losses will not include and the Subordination will not cover
Extraordinary Losses, and Special Hazard Losses will not exceed the
lesser of the cost of repair or replacement of the related Mortgaged
Properties.
The aggregate amount of Realized Losses which may be allocated
in connection with Fraud Losses (the "Fraud Loss Amount") through
Subordination shall initially be equal to $[__________]. As of any
date of determination after the Cut-off Date, the Fraud Loss Amount
shall equal (i) prior to the first anniversary of the Cut-off Date
an amount equal to [____]% of the aggregate principal balance of all
of the [Mortgage Loans] [Contracts] as of the Cut-off Date minus the
aggregate amounts allocated through Subordination with respect to
Fraud Losses up to such date of determination and (ii) from the
[__________] to the [__________] anniversary of the Cut-off Date, an
amount equal to (a) the lesser of (1) the Fraud Loss Amount as of
the most recent anniversary of the Cut-off Date and (2) [____]% of
the aggregate principal balance of all of the [Mortgage Loans]
[Contracts] as of the most recent anniversary of the Cut-off Date
minus (b) the aggregate amounts allocated through Subordination with
respect to Fraud Losses since the most recent anniversary of the
Cut-off Date up to such date of determination. On and after the
[__________] anniversary of the Cut-off Date the Fraud Loss Amount
shall be zero and Fraud Losses shall not be allocated through
Subordination.
The aggregate amount of Realized Losses which may be allocated
in connection with Bankruptcy Losses (the "Bankruptcy Amount")
through Subordination will initially be equal to $[__________]. As
of any date of determination on or after the [__________]
anniversary of the Cut-off Date, the Bankruptcy Amount will equal
the excess, if any, of (i) the lesser of (a) the Bankruptcy Amount
as of the business day next preceding the most recent anniversary of
the Cut-off Date (the "Relevant Anniversary") and (b) an amount
calculated pursuant to the terms of the Pooling and Servicing
Agreement, which amount as calculated will provide for a reduction
in the Bankruptcy Amount, over (ii) the aggregate amount of
Bankruptcy Losses allocated solely to the Subordinate Certificates
through Subordination since the Relevant Anniversary.
Notwithstanding the foregoing, the provisions relating to
Subordination will not be applicable in connection with a Bankruptcy
Loss so long as the [Master] Servicer[s] [has] [have] notified the
Trustee in writing that the [Master] Servicer[s] [is] [are]
diligently pursuing any remedies that may exist in connection with
the representations and warranties made regarding the related
[Mortgage Loan] [Contract] and either (i) the related [Mortgage
Loan] [Contract] is not in default with regard to payments due
thereunder or (ii) delinquent payments of principal and interest
under the related [Mortgage Loan] [Contract] and any premiums on any
applicable Primary Hazard Insurance Policy and any related escrow
payments in respect of such [Mortgage Loan] [Contract] are being
advanced on a current basis by the [Master] Servicer[s] or a
Subservicer.
[The Special Hazard Amount, Fraud Amount and Bankruptcy Amount
are subject to further reduction with consent of the Rating
Agencies.]
[Advances]
[Prior to each Distribution Date, the [Master] Servicer[s]
[is] [are] required to make Advances (out of its own funds[,
advances made by a Subservicer] or funds held in the Custodial
Account (as described in the Prospectus) for future distribution or
withdrawal) with respect to any payments of principal and interest
(net of the related Servicing Fees) which were due on the [Mortgage
Loans] [Contracts] on the immediately preceding Due Date and
delinquent on the business day next preceding the related
Determination Date.]
[Such Advances are required to be made only to the extent they
are deemed by the [Master][Servicer[s] to be recoverable from
related late collections, Insurance Proceeds, Liquidation Proceeds
or amounts otherwise payable to the holders of the Subordinate
Certificates. The purpose of making such Advances is to maintain a
regular cash flow to the Certificateholders, rather than to
guarantee or insure against losses. The [Master] Servicer[s] will
not be required to make any Advances with respect to reductions in
the amount of the monthly payments on the [Mortgage Loans]
[Contracts] due to Debt Service Reductions or the application of the
Relief Act or similar legislation or regulation. Any failure by the
[Master] Servicer[s] to make an Advance as required under the
Pooling and Servicing Agreement will constitute an Event of Default
thereunder, in which case the Trustee, as successor [Master]
Servicer[s], will be obligated to make any such Advance, in
accordance with the terms of the Pooling and Servicing Agreement.]
[All Advances will be reimbursable to the [Master] Servicer[s]
on a first priority basis from either (a) late collections,
Insurance Proceeds and Liquidation Proceeds from the [Mortgage
Loans] [Contracts] as to which such unreimbursed Advance was made or
(b) as to any Advance that remains unreimbursed following the final
liquidation of the related item of [Mortgage Loans] [Contracts],
from amounts otherwise distributable on the Subordinate
Certificates; provided, however, that only the Subordinate
Percentage of such Advances are reimbursable from amounts otherwise
distributable on the Subordinate Certificates in the event that such
Advances were made with respect to delinquencies which ultimately
were determined to be Excess Special Hazard Losses, Excess Fraud
Losses, Excess Bankruptcy Losses or Extraordinary Losses and the
Senior Percentage of such Advances which may not be so reimbursed
from amounts otherwise distributable on the Subordinate Certificates
may be reimbursed to the [Master] Servicer[s] out of any funds in
the Custodial Account or Certificate Account prior to distributions
on the Senior Certificates. In the latter event, the aggregate
amount otherwise distributable on the Senior Certificates will be
reduced by an amount equal to the Senior Percentage of such
Advances. In addition, if the Certificate Principal Balance of the
Subordinate Certificates has been reduced to zero, any Advances
previously made which are deemed by the [Master] Servicer[s] to be
nonrecoverable from related late collections, Insurance Proceeds and
Liquidation Proceeds may be reimbursed to the [Master] Servicer[s]
out of any funds in the Custodial Account or Certificate Account
prior to distributions on the Senior Certificates.]
CERTAIN YIELD AND PREPAYMENT CONSIDERATIONS
General
The yields to maturity and the aggregate amount of
distributions on the Offered Certificates will be affected by the
rate and timing of principal payments on the [Mortgage Loans]
[Contracts] and the amount and timing of Mortgagor defaults
resulting in Realized Losses. Such yields may be adversely affected
by a higher or lower than anticipated rate of principal payments on
the [Mortgage Loans] [Contracts] in the Trust Fund. The rate of
principal payments on such [Mortgage Loans] [Contracts] will in turn
be affected by the amortization schedules of the [Mortgage Loans]
[Contracts], the rate and timing of principal prepayments thereon by
the Mortgagors, liquidations of defaulted [Mortgage Loans]
[Contracts] and repurchases of [Mortgage Loans] [Contracts] due to
certain breaches of representations. The timing of changes in the
rate of prepayments, liquidations and repurchases of the [Mortgage
Loans] [Contracts] may, and the timing of Realized Losses will,
significantly affect the yield to an investor, even if the average
rate of principal payments experienced over time is consistent with
an investor's expectation. Since the rate and timing of principal
payments on the [Mortgage Loans] [Contracts] will depend on future
events and on a variety of factors (as described more fully herein
and in the Prospectus under "Yield Considerations" and "Maturity and
Prepayment Considerations"), no assurance can be given as to such
rate or the timing of principal payments on the Offered
Certificates.
The [Mortgage Loans] [Contracts] may be prepaid by the
Mortgagors at any time without payment of any prepayment fee or
penalty. The [Mortgage Loans] [Contracts] contain due-on-sale
clauses. As described under "Description of the Certificates
Principal Distributions on the Senior Certificates" and " Principal
Distributions on the Class M Certificates" herein, during certain
periods all or a disproportionately large percentage of principal
prepayments on the [Mortgage Loans] [Contracts] will be allocated
among the Senior Certificates (other than the Principal Only
Certificates) and, during certain periods, no principal prepayments
or a disproportionately small or large portion of principal
prepayments on the [Mortgage Loans] [Contracts] relative to the
Class M Percentage will be distributed on the Class M Certificates.
Prepayments, liquidations and purchases of the [Mortgage Loans]
[Contracts] will result in distributions to holders of the Offered
Certificates of principal amounts that would otherwise be
distributed over the remaining terms of the [Mortgage Loans]
[Contracts]. Factors affecting prepayment (including defaults and
liquidations) of [mortgage loans] [manufactured housing contracts]
include changes in borrowers' housing needs, job transfers,
unemployment, borrowers' net equity in the mortgaged properties,
changes in the value of the mortgaged properties, mortgage market
interest rates, solicitations and servicing decisions. In addition,
if prevailing mortgage interest rates fell significantly below the
Mortgage Rates on the [Mortgage Loans] [Contracts], the rate of
prepayments (including refinancings) would be expected to increase.
Conversely, if prevailing mortgage interest rates rose significantly
above the Mortgage Rates on the [Mortgage Loans] [Contracts], the
rate of prepayments on the [Mortgage Loans] [Contracts] would be
expected to decrease.
The rate of defaults on the [Mortgage Loans] [Contracts] will
also affect the rate and timing of principal payments on the
[Mortgage Loans] [Contracts]. In general, defaults on [mortgage
loans] [manufactured housing contracts] are expected to occur with
greater frequency in their early years. The rate of default on
[Mortgage Loans] [Contracts] which are refinance or limited
documentation mortgage loans, and on [Mortgage Loans] [Contracts]
with high Loan-to-Value Ratios, may be higher than for other types
of [Mortgage Loans] [Contracts]. Furthermore, the rate and timing of
prepayments, defaults and liquidations on the [Mortgage Loans]
[Contracts] will be affected by the general economic condition of
the region of the country in which the related Mortgaged Properties
are located. The risk of delinquencies and loss is greater and
prepayments are less likely in regions where a weak or deteriorating
economy exists, as may be evidenced by, among other factors,
increasing unemployment or falling property values. See "Maturity
and Prepayment Considerations" in the Prospectus.
After the Certificate Principal Balances of the Class B
Certificates have been reduced to zero, the yield to maturity on the
class of Class M Certificates will be extremely sensitive to losses
on the [Mortgage Loans] [Contracts] (and the timing thereof) because
the entire amount of losses that are covered by Subordination will
be allocated to such Class M Certificates. Furthermore, because
principal distributions are paid to certain classes of Senior
Certificates before other classes, holders of classes having a later
priority of payment bear a greater risk of losses than holders of
classes having earlier priorities for distribution of principal.
Because the Mortgage Rates on the [Mortgage Loans] [Contracts]
and the Pass-Through Rates on the Offered Certificates (other than
the Stripped Interests Certificates) are fixed, such rates will not
change in response to changes in market interest rates. The
Pass-Through Rate on the Stripped Interests Certificates is based on
the weighted average of the Pool Strip Rates on the [Mortgage Loans]
[Contracts] and such Pool Strip Rates will not change in response to
changes in market interest rates. Accordingly, if market interest
rates or market yields for securities similar to the Offered
Certificates were to rise, the market value of the Offered
Certificates may decline.
[Although the Mortgage Rates on the [Mortgage Loans]
[Contracts] will adjust annually, such increases and decreases will
be limited by the Periodic Rate Cap, the Maximum Mortgage Rate and
the Minimum Mortgage Rate, if applicable, on each [Mortgage Loan]
[Contract], and will be based on the Index (which may not rise and
fall consistently with prevailing mortgage rates) plus the related
Gross Margin (which may be different from the prevailing margins on
other mortgage loans). As a result, the Mortgage Rates on the
[Mortgage Loans] [Contracts] at any time may not equal the
prevailing rates for other adjustable-rate loans and accordingly,
the rate of prepayment may be lower or higher than would otherwise
be anticipated. In addition, because all of the [Mortgage Loans]
[Contracts] have Maximum Mortgage Rates, if prevailing mortgage
rates were to increase above the Maximum Mortgage Rates, the rate of
prepayment on the [Mortgage Loans] [Contracts] may be expected to
decrease, and the yield to investors may be less than prevailing
mortgage rates. In general, if prevailing mortgage rates fall
significantly below the Mortgage Rates on the [Mortgage Loans]
[Contracts], the rate of prepayments (including refinancings) will
be expected to increase. Conversely, if prevailing mortgage rates
rise significantly above the Mortgage Rates on the [Mortgage Loans]
[Contracts], the rate of prepayment on the [Mortgage Loans]
[Contracts] will be expected to decrease.]
As described above under "Description of the Offered
Certificates Allocation of Losses; Subordination" and " Advances,"
amounts otherwise distributable to the Class M Certificates may be
made available to protect the holders of the Senior Certificates
against interruptions in distributions due to certain Mortgagor
delinquencies, to the extent not covered by Advances. Such
delinquencies may affect the yields to investors in the Class M
Certificates, and, even if subsequently cured, may affect the timing
of the receipt of distributions by the holders of the Class M
Certificates. Furthermore, the Principal Only Certificates will
share in the principal portion of Realized Losses on the [Mortgage
Loans] [Contracts] only to the extent that they are incurred with
respect to Discount Mortgage Collateral and only to the extent of
the related Discount Fraction; thus, after the Class B Certificates
and the Class M Certificates are retired or in the case of Excess
Special Hazard Losses, Excess Fraud Losses, Excess Bankruptcy Losses
and Extraordinary Losses, the Senior Certificates (other than the
Principal Only Certificates) may be affected to a greater extent by
losses on Non-Discount Mortgage Collateral than losses on Discount
Mortgage Collateral. In addition, a higher than expected rate of
delinquencies or losses will also affect the rate of principal
payments on the Class M Certificates if such delinquencies or losses
cause the scheduled reduction of the Senior Accelerated Distribution
Percentage to be delayed.
The amount of interest otherwise payable to holders of the
Offered Certificates will be reduced by any interest shortfalls to
the extent not covered by Subordination or by the [Master]
Servicer[s] as described below, including Prepayment Interest
Shortfalls and, in the case of each class of the Class M
Certificates, the interest portions of Realized Losses allocated
solely to such class of Certificates. See "Yield Considerations" in
the Prospectus and "Description of the Offered Certificates
Interest Distributions" herein for a discussion of the effect of
principal prepayments on the [Mortgage Loans] [Contracts] on the
yields to maturity of the Offered Certificates and certain possible
shortfalls in the collection of interest. [Prior to the Accretion
Termination Date, interest shortfalls allocated to the Accrual
Certificates will reduce the amount added to the Certificate
Principal Balance thereof in respect of Accrued Certificate Interest
and will result in a corresponding reduction of the amount available
for distributions in respect of principal on the Senior
Certificates. Furthermore, because such interest shortfalls will
result in the Certificate Principal Balance of the Accrual
Certificates being less than it would be in the absence of such
interest shortfalls, the amount of interest that will accrue in the
future on the Accrual Certificates and be available for
distributions in respect of principal on the Senior Certificates
will be reduced. Accordingly, the weighted average lives and
assumed final Distribution Dates of the Senior Certificates will be
extended.]
With respect to any Distribution Date, Prepayment Interest
Shortfalls resulting from prepayments in full for such Distribution
Date will be offset by the [Master] Servicer[s] to the extent such
Prepayment Interest Shortfalls do not exceed [one-twelfth of _____%
of the Stated Principal Balance of the [Mortgage Loans] [Contracts]
immediately preceding such Distribution Date]. Thus, the yield to
investors in the Offered Certificates generally will not be affected
by Prepayment Interest Shortfalls allocable thereto resulting from
prepayments in full in the month preceding any Distribution Date to
the extent that such shortfalls do not exceed the amount offset by
the [Master] Servicer[s].
The yield to maturity on each class of the Offered
Certificates will depend on the prices paid by the holders of the
Offered Certificates and the related Pass-Through Rate. The extent
to which the yield to maturity of an Offered Certificate is
sensitive to prepayments will depend, in part, upon the degree to
which it is purchased at a discount or premium. In general, if a
class of Offered Certificates is purchased at a premium and
principal distributions thereon occur at a rate faster than
anticipated at the time of purchase, the investor's actual yield to
maturity will be lower than that assumed at the time of purchase.
Conversely, if a class of Offered Certificates is purchased at a
discount and principal distributions thereon occur at a rate slower
than that assumed at the time of purchase, the investor's actual
yield to maturity will be lower than that assumed at the time of
purchase. For additional considerations relating to the yield on
the Certificates, see "Yield Considerations" and "Maturity and
Prepayment Considerations" in the Prospectus.
[A number of factors affect the performance of the Index and
may cause the Index to move in a manner different from other
indices. To the extent that the Index may reflect changes in the
general level of interest rates less quickly than other indices, in
a period of rising interest rates, increases in the yield to Offered
Certificateholders due to such rising interest rates may occur later
than that which would be produced by other indices, and in a period
of declining rates, the Index may remain higher than other market
interest rates which may result in a higher level of prepayments of
the [Mortgage Loans] [Contracts], which adjust in accordance with
the Index, than of [mortgage loans] [contracts] which adjust in
accordance with other indices.]
The assumed final Distribution Date with respect to each class
of the Offered Certificates is [_____ __, ____] which is the
Distribution Date [immediately] [___ months] following the latest
scheduled maturity date for any [Mortgage Loan] [Contract]. No
event of default, change in the priorities for distribution among
the various classes or other provisions under the Pooling and
Servicing Agreement will arise or become applicable solely by reason
of the failure to retire the entire Certificate Principal Balance of
any class of Certificates on or before its assumed final
Distribution Date.
"Weighted Average Life" refers to the average amount of time
that will elapse from the date of issuance of a security to the date
of distribution to the investor of each dollar distributed in
reduction of principal of such security (assuming no losses). The
Weighted Average Life of the Offered Certificates will be influenced
by, among other things, the rate at which principal of the [Mortgage
Loans] [Contracts] is paid, which may be in the form of scheduled
amortization, prepayments or liquidations.
[Prepayments on [mortgage loans] [manufactured housing
contracts] are commonly measured relative to a prepayment standard
or model. The model used in this Prospectus Supplement, the standard
prepayment assumption ("SPA"), represents an assumed rate of
prepayment each month relative to the then outstanding principal
balance of a pool of new [mortgage loans] [manufactured housing
contracts]. A prepayment assumption of 100% SPA assumes constant
prepayment rates of [___]% per annum of the then outstanding
principal balance of such mortgage loans in the first month of the
life of the mortgage loans and an additional [___]% per annum in
each month thereafter until the thirtieth month. Beginning in the
thirtieth month and in each month thereafter during the life of the
[mortgage loans] [manufactured housing contracts], 100% SPA assumes
a constant prepayment rate of [___]% per annum each month. As used
in the table below, "0% SPA" assumes prepayment rates equal to 0% of
SPA (no prepayments). Correspondingly, "[___]% SPA" assumes
prepayment rates equal to [___]% of SPA, and so forth. SPA does not
purport to be a historical description of prepayment experience or
a prediction of the anticipated rate of prepayment of any pool of
[mortgage loans] [manufactured housing contracts], including the
[Mortgage Loans] [Contracts].]
Modeling Assumptions
The table set forth below has been prepared on the basis of
certain assumptions (the "Modeling Assumptions") as described below
regarding the weighted average characteristics of the [Mortgage
Loans] [Contracts] that are expected to be included in the Trust
Fund as described under "Description of the [Mortgage] [Contract]
Pool" herein and the performance thereof. The table assumes, among
other things, that: (i) as of the date of issuance of the Offered
Certificates, the aggregate principal balance of the Discount
Mortgage Collateral is $[__________] and each item of Discount
Mortgage Collateral has a Mortgage Rate of [___]% per annum, an
original term to maturity of [___] months, a remaining term to
maturity of [___] months and a related Servicing Fee Rate of
approximately [___]% per annum, and the aggregate principal balance
of the Non-Discount Mortgage Collateral is $[___________] and each
item of Non-Discount Mortgage Collateral has a Mortgage Rate of
[___]% per annum, an original term to maturity of [___] months, a
remaining term to maturity of [___] months and a related Servicing
Fee Rate of approximately [___]% per annum; (ii) the scheduled
monthly payment for each [Mortgage Loan] [Contract] has been based
on its outstanding balance, interest rate and remaining term to
maturity, such that the [Mortgage Loan] [Contract] will amortize in
amounts sufficient for repayment thereof over its remaining term to
maturity; (iii) none of the Mortgage Collateral Sellers, the
[Master] Servicer[s] or the Company will repurchase any [Mortgage
Loan] [Contract] and neither the [Master] Servicer[s] nor the
Company exercises any option to purchase the [Mortgage Loans]
[Contracts] and thereby cause a termination of the Trust Fund; (iv)
there are no delinquencies or Realized Losses on the [Mortgage
Loans] [Contracts], and principal payments on the [Mortgage Loans]
[Contracts] will be timely received together with prepayments, if
any, at the respective constant percentages of SPA set forth in the
table; (v) there is no Prepayment Interest Shortfall or any other
interest shortfall in any month; (vi) payments on the Certificates
will be received on the 25th day of each month, commencing [________
25, 199_]; (vii) payments on the [Mortgage Loans] [Contracts] earn
no reinvestment return; (viii) there are no additional ongoing Trust
Fund expenses payable out of the Trust Fund; and (ix) the
Certificates will be purchased on [_____ __, 199_].
SOME OF THE FOREGOING MODELING ASSUMPTIONS REGARDING THE
CHARACTERISTICS OF THE [MORTGAGE LOANS] [CONTRACTS] AND THE
CERTIFICATES DIFFER FROM ACTUAL CHARACTERISTICS THEREOF.
The actual characteristics and performance of the [Mortgage
Loans] [Contracts] will differ from the Modeling Assumptions used in
constructing the table set forth below, which is hypothetical in
nature and is provided only to give a general sense of how the
principal cash flows might behave under varying prepayment
scenarios. For example, it is unlikely that the [Mortgage Loans]
[Contracts] will prepay at a constant level of SPA until maturity or
that all of the [Mortgage Loans] [Contracts] will prepay at the same
level of SPA. Moreover, the diverse remaining terms to maturity of
the [Mortgage Loans] [Contracts] could produce slower or faster
principal distributions than indicated in the table at the various
constant percentages of SPA specified, even if the weighted average
remaining term to maturity of the [Mortgage Loans] [Contracts] is as
assumed. Any difference between such Modeling Assumptions and the
actual characteristics and performance of the [Mortgage Loans]
[Contracts], or actual prepayment or loss experience, will affect
the percentages of initial Certificate Principal Balances
outstanding over time and the weighted average lives of the classes
of Offered Certificates.
Subject to the foregoing discussion and assumptions, the
following table indicates the Weighted Average Life of each class of
Offered Certificates (other than the Stripped Interests Certificates
[and Residual Certificates]) and sets forth the percentages of the
initial Certificate Principal Balance of each such class of Offered
Certificates that would be outstanding after each of the dates shown
at various percentages of SPA.
Percent of Initial Certificate Principal Balance Outstanding
at the Following Percentages of SPA
Distribut
ion Date Class A-1 Class A-2
_________ _________
0 [ [ [ [ 0 [ [ [ [
%]%[%]%]% %]%]%]%]%
Initial
Percentage
Weighted Average
Life Years**
Class A-4 Class M
0 [ [ [ [ 0 [ [ [ [
%]%]%]%]% %]%]%]%]%
* Indicates a number that is greater than zero but less than 0.5%.
** [The Weighted Average Life of a Certificate of any class
is determined by (i) multiplying the amount of each
distribution in reduction of Certificate Principal Balance by
the number of years from the date of issuance of the Certificate
to the related Distribution Date, (ii) adding the results,
and (iii) dividing the sum by the initial Certificate Principal Balance
of the Certificate.]
This table has been prepared based on the Modeling Assumptions
(including the assumptions regarding the characteristics and
performance of the [Mortgage Loans] [Contracts], which differ
from the actual characteristics and performance thereof)
and should be read in conjunction therewith.
Principal Only Certificate and Stripped Interests Certificate Yield
Considerations
The amounts payable with respect to the Principal Only
Certificates derive only from principal payments on the Discount
Mortgage Collateral. As a result, the yield on the Principal Only
Certificates will be adversely affected by slower than expected
payments of principal (including prepayments, defaults and
liquidations) on the Discount Mortgage Collateral.
The yield to maturity on the Stripped Interests Certificates
will be extremely sensitive to both the timing of receipt of
principal prepayments and the overall rate of principal prepayments
and defaults on the [Mortgage Loans] [Contracts], which rate may
fluctuate significantly over time. Investors in the Stripped
Interests Certificates should fully consider the risk that a rapid
rate of principal prepayments on the [Mortgage Loans] [Contracts]
could result in the failure of such investors to fully recover their
investments.
The following tables indicate the sensitivity of the pre-tax
yield to maturity on the Principal Only Certificates and Stripped
Interests Certificates to various constant rates of prepayment on
the [Mortgage Loans] [Contracts] by projecting the monthly aggregate
payments on the Principal Only Certificates and Stripped Interests
Certificates and computing the corresponding pre-tax yields to
maturity on a corporate bond equivalent basis, based on the
assumptions described in clauses (i) through (ix) of the Modeling
Assumptions, including the assumptions regarding the characteristics
and performance of the [Mortgage Loans] [Contracts], which differ
from the actual characteristics and performance thereof and assuming
the aggregate purchase prices set forth below and assuming further
the Pass-Through Rate and Notional Amount of the Stripped Interests
Certificates are as set forth herein. Any differences between the
Modeling Assumptions and the actual characteristics and performance
of the [Mortgage Loans] [Contracts] and of the Certificates may
result in yields being different from those shown in such tables.
Discrepancies between assumed and actual characteristics and
performance underscore the hypothetical nature of the tables, which
are provided only to give a general sense of the sensitivity of
yields in varying prepayment scenarios.
Pre-Tax Yield to Maturity of the Principal Only
Certificates at the Following Percentages of SPA
<TABLE>
<CAPTION>
Assumed Purchase Price 0% [ ]% [ ]% [ ]% [ ]% [ ]%
<C>
$[____________] [____]%[____]% [____]% [____]% [____]% [____]%
Pre-Tax Yield to Maturity of the Stripped Interests
Certificates at the Following Percentages of SPA
Assumed Purchase Price 0% [ ]% [ ]% [ ]% [ ]% [ ]%
<C>
$[____________] [____]% [____]% [____]% [____]% [____]% [____]%
</TABLE>
Each pre-tax yield to maturity set forth in the preceding
tables was calculated by determining the monthly discount rate
which, when applied to the assumed stream of cash flows to be paid
on the Principal Only Certificates or Stripped Interests
Certificates, as applicable, would cause the discounted present
value of such assumed stream of cash flows to equal the assumed
purchase price listed in the related table. Accrued interest is
included in the assumed purchase price of the Stripped Interests
Certificates and is used in computing the corporate bond equivalent
yields shown in the table relating to the Stripped Interests
Certificates. These yields do not take into account the different
interest rates at which investors may be able to reinvest funds
received by them as distributions on the Principal Only Certificates
and Stripped Interests Certificates, and thus do not reflect the
return on any investment in such Certificates when any reinvestment
rates other than the discount rates are considered.
Notwithstanding the assumed prepayment rates reflected in the
preceding tables, it is highly unlikely that the [Mortgage Loans]
[Contracts] will be prepaid according to one particular pattern.
For this reason, and because the timing of cash flows is critical to
determining yields, the pre-tax yields to maturity on the Principal
Only Certificates and Stripped Interests Certificates are likely to
differ from those shown in the tables, even if all of the [Mortgage
Loans] [Contracts] prepay at the indicated constant percentages of
SPA over any given time period or over the entire life of the
Certificates. A lower than anticipated rate of principal
prepayments on the Discount Mortgage Collateral will have a material
adverse effect on the yield to maturity of the Principal Only
Certificates. The rate and timing of principal prepayments on the
Discount Mortgage Collateral may differ from the rate and timing of
principal prepayments on the [Mortgage] [Contract] Pool. In
addition, because the Discount Mortgage Collateral have Net Mortgage
Rates that are lower than the Net Mortgage Rates of the Non-Discount
Mortgage Collateral, and because [Mortgage Loans] [Contracts] with
lower Net Mortgage Rates are likely to have lower Mortgage Rates,
the Discount Mortgage Collateral is generally likely to prepay under
most circumstances at a lower rate than the Non-Discount Mortgage
Collateral. In addition, holders of the Stripped Interests
Certificates generally have rights to relatively larger portions of
interest payments on [Mortgage Loans] [Contracts] with higher
Mortgage Rates; thus, the yield on the Stripped Interests
Certificates will be materially adversely affected to a greater
extent than on the other Offered Certificates if the [Mortgage
Loans] [Contracts] with higher Mortgage Rates prepay faster than the
[Mortgage Loans] [Contracts] with lower Mortgage Rates. Because
[Mortgage Loans] [Contracts] having higher Pool Strip Rates
generally have higher Mortgage Rates, such [Mortgage Loans]
[Contracts] are generally more likely to be prepaid under most
circumstances than are [Mortgage Loans] [Contracts] having lower
Pool Strip Rates.
There can be no assurance that the [Mortgage Loans]
[Contracts] will prepay at any particular rate or that the yields on
the Principal Only Certificates and Stripped Interests Certificates
will conform to the yields described herein. Moreover, the various
remaining terms to maturity of the [Mortgage Loans] [Contracts]
could produce slower or faster principal distributions than
indicated in the preceding tables at the various constant
percentages of SPA specified, even if the weighted average remaining
term to maturity of the [Mortgage Loans] [Contracts] is as assumed.
Investors are urged to make their investment decisions based on
their determinations as to anticipated rates of prepayment under a
variety of scenarios. Investors in the Stripped Interests
Certificates should fully consider the risk that a rapid rate of
prepayments on the [Mortgage Loans] [Contracts] could result in the
failure of such investors to fully recover their investments.
For additional considerations relating to the yields on the
Certificates, see "Yield Considerations" and "Maturity and
Prepayment Considerations" in the Prospectus.
Additional Yield Considerations Applicable Solely to the Residual
Certificates
The Residual Certificateholders' after-tax rate of return on
their Residual Certificates will reflect their pre-tax rate of
return, reduced by the taxes required to be paid with respect to the
Residual Certificates. Holders of Residual Certificates may have tax
liabilities with respect to their Residual Certificates during the
early years of the REMIC's term that substantially exceed any
distributions payable thereon during any such period. In addition,
holders of Residual Certificates may have tax liabilities with
respect to their Residual Certificates the present value of which
substantially exceeds the present value of distributions payable
thereon and of any tax benefits that may arise with respect thereto.
Accordingly, the after-tax rate of return on the Residual
Certificates may be negative or may otherwise be significantly
adversely affected. The timing and amount of taxable income
attributable to the Residual Certificates will depend on, among
other things, the timing and amounts of prepayments and losses
experienced with respect to the [Mortgage] [Contract] Pool.
The Residual Certificateholders should consult their tax
advisors as to the effect of taxes and the receipt of any payments
made to such holders in connection with the purchase of the Residual
Certificates on after-tax rates of return on the Residual
Certificates. See "Certain Federal Income Tax Consequences" herein
and in the Prospectus.
POOLING AND SERVICING AGREEMENT
General
The Certificates will be issued pursuant to the Pooling and
Servicing Agreement. Reference is made to the Prospectus for
important information in addition to that set forth herein regarding
the terms and conditions of the Pooling and Servicing Agreement and
the Senior Certificates. [The Trustee will appoint
______________________ to serve as Custodian in connection with the
Certificates.] The Senior Certificates will be transferable and
exchangeable at the corporate trust office of the Trustee, which
will serve as Certificate Registrar and Paying Agent. The Company
will provide a prospective or actual Certificateholder without
charge, on written request, a copy (without exhibits) of the Pooling
and Servicing Agreement. Requests should be addressed to the
[__________] of Residential Assets Securities Corporation,
[____________________]. In addition to the circumstances described
in the Prospectus, the Company may terminate the Trustee for cause
under certain circumstances. See "The Pooling and Servicing
Agreement The Trustee" in the Prospectus.
[The Servicer[s]]
[_________] [Various Servicers approved by the Master
Servicer] will provide customary servicing functions with respect to
the [Mortgage Loans] [Contracts] pursuant to [a] [the Pooling and]
Servicing Agreement[s]. [Among other things, the Servicer[s] are
obligated, under certain circumstances, to advance delinquent
payments of principal and interest with respect to [Mortgage Loans]
[Contracts].]
[Approximately _______% of the [Mortgage Loans] [Contracts]
will be serviced by _________.] [The following information was
obtained from the Servicer[s].
[The following tables set forth certain information concerning
the delinquency experience (including pending foreclosures) on one-
to four-family residential mortgage loans that were being serviced
by [Servicer] on __________ __, 199_, __________ __, 199_ and
__________ __, 199_.
<TABLE>
<CAPTION>
Total Loan Portfolio Delinquency Experience
At , 199 At ,199 At 199
By No. By Dollar By No. By Dollar By No.By Dollar
of Amount of of Amount of of Amount of
Loans Loans Loans Loans Loans Loans
<C> <C> <C> <C> <C> <C>
(Dollar Amounts in Thousands)
<S>
Total Loan
Portfolio . . . . $ $ $
Period of Delinquency
31 to 59 days. . . .
60 to 89 days. . . .
90 days or more (1).
Foreclosures Pending . . .
REO Property. . . . . .
Total Delinquent Loans $ $ $
Percent of Loan Portfolio % % % % %
(1) Does not include foreclosures pending.
</TABLE>
The following tables set forth certain information concerning
foreclosed mortgage loans and loan loss experience of [Servicer] as
of ________ __, 199_, ________ __, 199_ and ________ __, 199_ with
respect to the mortgage loans referred to above.
Total Loan Portfolio Foreclosure Experience
At or for At or for At or for
the year ended the year ended the year ended
________ __,199_ ________ __,199_ ________ __,199_
(Dollar
Amounts in Thousands)
Total Loan Portfolio . . . . $ $
$
Average Portfolio Balance. . $ $
$
Gross Loss(1) . . . . . . $ $
$
Net Loss (2) . . . . . $ $
$
______________________
(1) Gross Loss is the sum of gross losses less net recoveries on all
mortgage loans liquidated during the period indicated.
(2) Net Loss is Gross Loss minus all proceeds received in connection
with liquidated mortgage loans from mortgage pool insurance, special
hazard insurance or other insurance and proceeds received from or
losses borne by other credit enhancement, including subordinated
certificates, but not including primary mortgage insurance, hazard
insurance or other insurance with respect to specific mortgaged
properties for the period indicated.
There can be no assurance that the delinquency and foreclosure
experience set forth above will be representative of the results
that may be experienced with respect to the Mortgage Loans.]
[The Master Servicer]
[Residential Funding, an indirect wholly-owned subsidiary of
GMAC Mortgage and an affiliate of the Company,] [___________] will
act as master servicer for the Certificates pursuant to the Pooling
and Servicing Agreement. For a general description of the Master
Servicer and its activities, see "The Pooling and Servicing
Agreement" in the Prospectus.]
Servicing and Other Compensation and Payment of Expenses
The Servicing Fees for each [Mortgage Loan] [Contract] are
payable out of the interest payments on such [Mortgage Loan]
[Contract]. The Servicing Fees in respect of each [Mortgage Loan]
[Contract] will be at least [____]% and not more than [____]% per
annum of the outstanding principal balance of each [Mortgage Loan]
[Contract]. The Servicing Fees consist of (a) servicing
compensation payable to the [Master] Servicer[s] in respect of [its
master] servicing activities, and (b) subservicing and other related
compensation payable to the subservicer (including such compensation
paid to the [Master] Servicer[s] as the direct servicer of a
[Mortgage Loan] [Contract] for which there is no subservicer]. The
primary compensation to be paid to the [Master] Servicer[s] in
respect of its servicing activities will be [____]% per annum (the
"Servicing Fee Rate") of the outstanding principal balance of each
item of Mortgage Collateral. As described more fully in the
Prospectus, a Subservicer is entitled to servicing compensation in
a minimum amount equal to [____]% per annum of the outstanding
principal balance of each item of Mortgage Collateral serviced by
it. The [Master] Servicer[s] is obligated to pay certain ongoing
expenses associated with the Trust Fund and incurred by the [Master]
Servicer[s] in connection with its responsibilities under the
Pooling and Servicing Agreement. See "Description of the
Certificates Servicing and Administration of Mortgage Collateral" in
the Prospectus for information regarding other possible compensation
to the [Master] Servicer[s] and subservicers and for information
regarding expenses payable by the [Master] Servicer[s].
Voting Rights
Certain actions specified in the Prospectus that may be taken
by the Certificateholders evidencing a specified percentage of all
undivided interests in the Trust Fund may be taken by holders of
Certificates entitled in the aggregate to such percentage of the
Voting Rights. [__]% of all Voting Rights will be allocated among
all holders of the Certificates (other than the Stripped Interests
Certificates and Residual Certificates) in proportion to their then
outstanding Certificate Principal Balances, and [_]% and [_]% of all
Voting Rights will be allocated among holders of the Stripped
Interests Certificates and the Residual Certificates, in proportion
to the percentage interests evidenced by their respective
Certificates.
[Termination]
[The circumstances under which the obligations created by the
Pooling and Servicing Agreement will terminate in respect of the
Offered Certificates are described in "Pooling and Servicing
Agreement Termination; Retirement of Certificates" in the
Prospectus. The [Master] Servicer[s] or the Company will have the
option on any Distribution Date on which the aggregate principal
balance of the [Mortgage Loans] [Contracts] is less than [__]% of
the aggregate principal balance of the [Mortgage Loans] [Contracts]
as of the Cut-off Date either (i) to purchase all remaining
[Mortgage Loans] [Contracts] and other assets in the Trust Fund,
thereby effecting early retirement of the Offered Certificates or
(ii) purchase in whole, but not in part, the Certificates. Any such
purchase of [Mortgage Loans] [Contracts] and other assets of the
Trust Fund shall be made at a price equal to the sum of (a) 100% of
the unpaid principal balance of each item of [Mortgage Loans]
[Contracts] (or, the fair market value of the related underlying
Mortgaged Properties with respect to defaulted [Mortgage Loans]
[Contracts] as to which title to such underlying Mortgaged
Properties has been acquired if such fair market value is less than
such unpaid principal balance) (net of any unreimbursed Advance
attributable to principal) as of the Distribution Date on which the
purchase proceeds are to be distributed plus (b) accrued interest
thereon at the Net Mortgage Rate to, but not including, the first
day of the month of repurchase. Distributions on the Certificates
in respect of any such optional termination will be paid, first, to
the Senior Certificates and the Class M Certificates, pro rata,
based on their respective Certificate Principal Balances, second, to
the Class B Certificates. The proceeds of any such distribution may
not be sufficient to distribute the full amount to each class of
Certificates if the purchase price is based in part on the fair
market appraised value of any underlying Mortgaged Property and such
appraised value is less than 100% of the unpaid principal balance of
the related [Mortgage Loan] [Contract]. Any such purchase of the
Certificates will be made at a price equal to 100% of the
Certificate Principal Balance thereof plus the sum of one month's
interest thereon at the applicable Pass-Through Rate and any
previously unpaid Accrued Certificate Interest. Upon the purchase
of the Certificates or at any time thereafter, at the option of the
[Master] Servicer[s] or the Company, the [Mortgage Loans] [Contract]
may be sold, thereby effecting a retirement of the Certificates and
the termination of the Trust Fund, or the Certificates so purchased
may be held or resold by the [Master] Servicer[s] or the Company.]
Upon presentation and surrender of the Offered Certificates in
connection with the termination of the Trust Fund or a purchase of
Certificates under the circumstances described above, the holders of
the Offered Certificates will be entitled to receive, subject to the
priorities set forth above, an amount equal to the Certificate
Principal Balance of such class plus one month's interest thereon
(or with respect to the Stripped Interests Certificates, one month's
interest on the Notional Amount) at the applicable Pass-Through Rate
plus any previously unpaid Accrued Certificate Interest.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
Upon the issuance of the Offered Certificates,
______________________, counsel to the Company, will deliver its
opinion generally to the effect that, assuming compliance with all
provisions of the Pooling and Servicing Agreement, for federal
income tax purposes, the Trust Fund will qualify as a REMIC under
the Code.
For federal income tax purposes, the Residual Certificates
will be the sole class of "residual interests" in the Trust Fund and
the Offered Certificates (other than the Residual Certificates) and
Class B Certificates will represent ownership of "regular interests"
in the Trust Fund and will generally be treated as representing
ownership of debt instruments of the Trust Fund. See "Certain
Federal Income Tax Consequences REMICs" in the Prospectus.
The
Certificates will not be treated as having
been issued with original issue discount for federal income tax
reporting purposes. The
Certificates will, be treated as having been issued with original
issue discount for federal income tax reporting purposes. The
prepayment assumption that will be used in determining the rate of
accrual of original issue discount, market discount and premium, if
any, for federal income tax purposes will be based on the assumption
that subsequent to the date of any determination the [Mortgage
Loans] [Contracts] will prepay at a rate equal to ___% SPA. No
representation is made that the [Mortgage Loans] [Contracts] will
prepay at that rate or at any other rate. See "Certain Federal
Income Tax Consequences REMICs Taxation of Owners of REMIC Regular
Certificates Original Issue Discount" in the Prospectus.
The OID Regulations suggest that original issue discount with
respect to securities such as the Stripped Interests Certificates
that represent multiple uncertificated REMIC regular interests, in
which ownership interests will be issued simultaneously to the same
buyer and which are required under the Pooling and Servicing
Agreement to be transferred together, should be computed on an
aggregate method. In the absence of further guidance from the IRS,
original issue discount with respect to the uncertificated regular
interests represented by the Stripped Interests Certificates will be
reported to the IRS and the Certificateholders on an aggregate
method based on a single overall constant yield and the prepayment
assumption stated above, treating all such uncertificated regular
interests as a single debt instrument as set forth in the OID
Regulations.
If the method for computing original issue discount described
in the Prospectus results in a negative amount for any period with
respect to a Certificateholder (in particular, the Stripped
Interests Certificateholders), the amount of original issue discount
allocable to such period would be zero and such Certificateholder
will be permitted to offset such negative amount only against future
original issue discount (if any) attributable to such Certificates.
Although the matter is not free from doubt, a Stripped Interests
Certificateholder may be permitted to deduct a loss to the extent
that his or her respective remaining basis in such Certificate
exceeds the maximum amount of future payments to which such
Certificateholder is entitled, assuming no further prepayments of
the [Mortgage Loans] [Contracts]. Any such loss might be treated as
a capital loss.
Although they are unclear on the issue, in certain
circumstances the OID Regulations appear to permit the holder of a
debt instrument to recognize original issue discount under a method
that differs from that used by the issuer. Accordingly, it is
possible that the holder of a Certificate may be able to select a
method for recognizing original issue discount that differs from
that used by the [Master] Servicer[s] in preparing reports to the
Certificateholders and the IRS.
Certain classes of the Offered Certificates may be treated for
federal income tax purposes as having been issued at a premium.
Whether any holder of such a class of Certificates will be treated
as holding a certificate with amortizable bond premium will depend
on such Certificateholder's purchase price and the distributions
remaining to be made on such Certificate at the time of its
acquisition by such Certificateholder. Holders of such classes of
Certificates should consult their own tax advisors regarding the
possibility of making an election to amortize such premium. See
"Certain Federal Income Tax Consequences REMICs Taxation of Owners
of REMIC Regular Certificates" and " Premium" in the Prospectus.
The Offered Certificates will be treated as "qualifying real
property loans" under Section 593(d) of the Code, assets described
in Section 7701(a)(19)(C) of the Code and "real estate assets" under
Section 856(c)(5)(A) of the Code generally in the same proportion
that the assets of the Trust Fund would be so treated. In addition,
interest on the Offered Certificates will be treated as "interest on
obligations secured by mortgages on real property" under Section
856(c)(3)(B) of the Code generally to the extent that such Offered
Certificates are treated as "real estate assets" under Section
856(c)(5)(A) of the Code. Moreover, the Offered Certificates (other
than the Residual Certificates) will be "qualified mortgages" within
the meaning of Section 860G(a)(3) of the Code. However, prospective
investors in Offered Certificates that will be generally treated as
assets described in Section 860G(a)(3) of the Code should note that,
notwithstanding such treatment, any repurchase of such a Certificate
pursuant to the right of the [Master] Servicer[s] or the Company to
repurchase such Offered Certificates may adversely affect any REMIC
that holds such Offered Certificates if such repurchase is made
under circumstances giving rise to a Prohibited Transaction Tax.
See "The Pooling and Servicing Agreement Termination" herein and
"Certain Federal Income Tax Consequences REMICs Characterization of
Investments in REMIC Certificates" in the Prospectus.
For further information regarding the federal income tax
consequences of investing in the Offered Certificates, see "Certain
Federal Income Tax Consequences REMICs" in the Prospectus.
Special Tax Considerations Applicable to Residual Certificates
The IRS has issued regulations under the provisions of the
Code related to REMICs (the "REMIC Regulations") that significantly
affect holders of Residual Certificates. The REMIC Regulations
impose restrictions on the transfer or acquisition of certain
residual interests, including the Residual Certificates. In
addition, the REMIC Regulations contain restrictions that apply to:
(i) thrift institutions holding residual interests lacking
"significant value" and (ii) the transfer of "noneconomic" residual
interests to United States persons. Pursuant to the Pooling and
Servicing Agreement, the Residual Certificates may not be
transferred to non-United States persons.
The REMIC Regulations provide for the determination of whether
a residual interest has "significant value" for purposes of applying
the rules relating to "excess inclusions" with respect to residual
interests. Based on the REMIC Regulations, the Residual
Certificates do not have significant value and, accordingly, thrift
institutions and their affiliates will be prevented from using their
unrelated losses or loss carryovers to offset any excess inclusions
with respect to the Residual Certificates, which will be in an
amount equal to all or virtually all of the taxable income
includible by holders of the Residual Certificates. See "Certain
Federal Income Tax Consequences REMICs Taxation of Owners of REMIC
Residual Certificates Excess Inclusions" in the Prospectus.
The REMIC Regulations also provide that a transfer to a United
States person of "noneconomic" residual interests will be
disregarded for all federal income tax purposes, and that the
purported transferor of "noneconomic" residual interests will
continue to remain liable for any taxes due with respect to the
income on such residual interests, unless "no significant purpose of
the transfer was to impede the assessment or collection of tax."
Based on the REMIC Regulations, the Residual Certificates may
constitute noneconomic residual interests during some or all of
their terms for purposes of the REMIC Regulations and, accordingly,
unless no significant purpose of a transfer is to impede the
assessment or collection of tax, transfers of the Residual
Certificates may be disregarded and purported transferors may remain
liable for any taxes due with respect to the income on the Residual
Certificates. All transfers of the Residual Certificates will be
subject to certain restrictions under the terms of the Pooling and
Servicing Agreement that are intended to reduce the possibility of
any such transfer being disregarded to the extent that the Residual
Certificates constitute noneconomic residual interests. See
"Certain Federal Income Tax Consequences REMICs Taxation of Owners
of REMIC Residual Certificates Noneconomic REMIC Residual
Certificates" in the Prospectus.
The Residual Certificateholders may be required to report an
amount of taxable income with respect to the earlier accrual periods
of the Trust Fund's term that significantly exceeds the amount of
cash distributions received by such Residual Certificateholders from
the Trust Fund with respect to such periods. Furthermore, the tax
on such income may exceed the cash distributions with respect to
such periods. Consequently, Residual Certificateholders should have
other sources of funds sufficient to pay any federal income taxes
due in the earlier years of the Trust Funds' term as a result of
their ownership of the Residual Certificates. In addition, the
required inclusion of this amount of taxable income during the Trust
Fund's earlier accrual periods and the deferral of corresponding tax
losses or deductions until later accrual periods or until the
ultimate sale or disposition of a Residual Certificate (or possibly
later under the "wash sale" rules of Section 1091 of the Code) may
cause the Residual Certificateholders' after-tax rate of return to
be zero or negative even if the Residual Certificateholders' pre-tax
rate of return is positive. That is, on a present value basis, the
Residual Certificateholders' resulting tax liabilities could
substantially exceed the sum of any tax benefits and the amount of
any cash distributions on such Residual Certificates over their
life.
[[Residential Funding[] will be designated as the "tax matters
person" with respect to the Trust Fund as defined in the REMIC
Provisions (as defined in the Prospectus), and in connection
therewith will be required to hold not less than 0.01% of the
Residual Certificates.]
Purchasers of the Residual Certificates are strongly advised
to consult their own tax advisors as to the economic and tax
consequences of investment in such Residual Certificates.
For further information regarding the federal income tax
consequences of investing in the Residual Certificates, see "Certain
Yield and Prepayment Considerations Additional Yield Considerations
Applicable Solely to the Residual Certificates" herein and "Certain
Federal Income Tax Consequences REMICs Taxation of Owners of REMIC
Residual Certificates" in the Prospectus.
[FOR TRUSTS TREATED AS GRANTOR TRUSTS]
[Upon the issuance of the Offered Certificates [Orrick,
Herrington & Sutcliffe] [Thacher Proffitt & Wood], counsel to the
Company will deliver its opinion generally to the effect that,
assuming compliance with all provisions of the Pooling and Servicing
Agreement, for federal income tax purposes the Trust Fund will be
classified as a grantor trust under subpart E, part I of subchapter
J of the Code and not as a partnership or as an association taxable
as a corporation. Accordingly, each holder of a Certificate
generally will be treated as the owner of an interest in the
Mortgage Collateral included in the Trust Fund.
For purposes of the following discussion, the [Class ____ and
Class ____] Certificates, a Grantor Trust, which represent an
undivided equitable ownership interest in the principal of the
Mortgage Collateral, together with interest thereon at the
Applicable Pass-Through Rate, will be referred to as a "Grantor
Trust Fractional Interest Certificate." The [Class ___ and Class
___] Certificates, which represent ownership of all or a portion of
the difference between interest paid on the Mortgage Collateral (net
of Servicing Fees and any Spread) and interest paid to the holders
of Grantor Trust Fractional Interest Certificates will be referred
to as a "Grantor Trust Strip Certificate." A Grantor Trust Strip
Certificate may also evidence a nominal ownership interest in the
principal of the Mortgage Collateral.
Characterization of Investments in Grantor Trust Certificates
Grantor Trust Fractional Interest Certificates. In the case
of Grantor Trust Fractional Interest Certificates[, subject to the
discussion below with respect to Buy-Down Loans], counsel to the
Company will deliver an opinion upon issuance of the offered
certificates that, in general, Grantor Trust Fractional Interest
Certificates will represent interests in (i) "qualifying real
property loans" within the meaning of Section 593(d) of the Code
[(except to the extent representing a Contract secured by a
Manufactured Home that is not permanently fixed to real property)];
(ii) "loans . . . secured by an interest in real property" within
the meaning of Section 7701(a)(19)(C)(v) of the Code [(except to the
extent representing a Contract secured by a Manufactured Home used
on a transient basis)]; (iii) "obligation[s] (including any
participation or certificate of beneficial ownership therein) which
. . . [are] principally secured by an interest in real property"
within the meaning of Section 860G(a)(3)(A) of the Code; and (iv)
"real estate assets" within the meaning of Section 856(c)(5)(A) of
the Code. In addition, counsel to the Company will deliver an
opinion that interest on Grantor Trust Fractional Interest
Certificates will be considered "interest on obligations secured by
mortgages on real property or on interests in real property" within
the meaning of Section 856(c)(3)(B) of the Code.
[The Mortgage Collateral includes Buy-Down Loans. The
characterization of an investment in Buy-Down Loans will depend upon
the precise terms of the related Buy-Down Agreement, but to the
extent that such Buy-Down Loans are secured by a bank account or
other personal property, they may not be treated in their entirety
as assets described in the foregoing sections of the Code. No
directly applicable precedents exist with respect to the federal
income tax treatment or the characterization of investments in
Buy-Down Loans. Accordingly, holders of Grantor Trust Fractional
Interest Certificates should consult their tax advisors with respect
to the characterization of investments in Grantor Trust Fractional
Interest Certificates.].
Grantor Trust Strip Certificates. Even if Grantor Trust Strip
Certificates evidence an interest in a Grantor Trust Fund consisting
of [Mortgage Loans] [Contracts] that are "loans . . . secured by an
interest in real property" within the meaning of Section
7701(a)(19)(C)(v) of the Code, "qualifying real property loans"
within the meaning of Section 593(d) of the Code, and "real estate
assets" within the meaning of Section 856(c)(5)(A) of the Code, and
the interest on which is "interest on obligations secured by
mortgages on real property" within the meaning of Section
856(c)(3)(B) of the Code, it is unclear whether the Grantor Trust
Strip Certificates, and the income therefrom, will be so
characterized. The policies underlying such sections (namely, to
encourage or require investments in mortgage loans by thrift
institutions and real estate investment trusts), however, may
suggest that such characterization is appropriate. Counsel to the
Company will not deliver any opinion on these questions.
Prospective purchasers to which such characterization of an
investment in Grantor Trust Strip Certificates is material should
consult their tax advisors regarding whether the Grantor Trust Strip
Certificates, and the income therefrom, will be so characterized.
The Grantor Trust Strip Certificates will be "obligation[s]
(including any participation or certificate of beneficial ownership
therein) which . . . [are] principally secured by an interest in
real property" within the meaning of Section 860G(a)(3)(A) of the
Code.
Taxation of Owners of Grantor Trust Fractional Interest
Certificates
Holders of a Grantor Trust Fractional Interest Certificates
generally will be required to report on their federal income tax
returns their shares of the entire income from the Mortgage
Collateral (including amounts used to pay reasonable servicing fees
and other expenses) and will be entitled to deduct their shares of
any such reasonable servicing fees and other expenses. Because of
stripped interests, market or original issue discount, or premium,
the amount includible in income on account of a Grantor Trust
Fractional Interest Certificate may differ significantly from the
amount distributable thereon representing interest on the Mortgage
Collateral. Under Section 67 of the Code, an individual, estate or
trust holding a Grantor Trust Fractional Interest Certificate
directly or through certain pass-through entities will be allowed a
deduction for such reasonable servicing fees and expenses only to
the extent that the aggregate of such holder's miscellaneous
itemized deductions exceeds two percent of such holder's adjusted
gross income. In addition, Section 68 of the Code provides that the
amount of itemized deductions otherwise allowable for an individual
whose adjusted gross income exceeds a specified amount will be
reduced by the lesser of (i) 3% of the excess of the individual's
adjusted gross income over such amount or (ii) 80% of the amount of
itemized deductions otherwise allowable for the taxable year. The
amount of additional taxable income reportable by holders of Grantor
Trust Fractional Interest Certificates who are subject to the
limitations of either Section 67 or Section 68 of the Code may be
substantial. In addition, Certificateholders (other than
corporations) subject to the alternative minimum tax may not deduct
miscellaneous itemized deductions in determining such holder's
alternative minimum taxable income. [If multiple classes of Grantor
Trust Certificates] [Although it is not entirely clear, it appears
that such fees and expenses should be allocated among the classes of
Grantor Trust Certificates using a method that recognizes that each
such class benefits from the related services. In the absence of
statutory or administrative clarification as to the method to be
used, it currently is intended to base information returns or
reports to the Internal Revenue Service (the "IRS") and
Certificateholders on a method that allocates such expenses among
classes of Grantor Trust Certificates with respect to each period
based on the distributions made to each such class during that
period.]
[The IRS has ruled that an unreasonably high servicing fee
retained by a seller or servicer will be treated as a retained
ownership interest in mortgages that constitutes a stripped coupon.
For purposes of determining what constitutes reasonable servicing
fees for various types of mortgages the IRS has established certain
"safe harbors." The servicing fees paid with respect to the
Mortgage Collateral are higher than the "safe harbors" and,
accordingly, may not constitute reasonable servicing compensation.
[Information regarding servicing fees paid to the Master Servicer,
the Certificate Administrator, any Servicer, any Sub-Servicer or
their respective affiliates necessary to determine whether the
preceding "safe harbor" rules apply].
[If Certificates subject to the "stripped bond" rules of
Section 1286 of the Code.] [Each Grantor Trust Fractional Interest
Certificate will be treated as having been issued with "original
issue discount" within the meaning of Section 1273(a) of the Code,
subject, however, to the discussion below regarding the treatment of
certain stripped bonds as market discount bonds and the discussion
regarding de minimis market discount. See "Market Discount" below.
Under the stripped bond rules, the holder of a Grantor Trust
Fractional Interest Certificate (whether a cash or accrual method
taxpayer) will be required to report interest income from its
Grantor Trust Fractional Interest Certificate for each month in an
amount equal to the income that accrues on such Certificate in that
month calculated under a constant yield method, in accordance with
the rules of the Code relating to original issue discount.
Application of Strip Bond Rules. The original issue discount
on a Grantor Trust Fractional Interest Certificate will be the
excess of such Certificate's stated redemption price over its issue
price. The issue price of a Grantor Trust Fractional Interest
Certificate as to any purchaser will be equal to the price paid by
such purchaser for the Grantor Trust Fractional Interest
Certificate. The stated redemption price of a Grantor Trust
Fractional Interest Certificate will be the sum of all payments to
be made on such Certificate, as well as such Certificate's share of
reasonable servicing fees and other expenses[, other than payments
of fixed interest payable periodically (not less than annually)].
In general, the amount of such income that accrues in any month
would equal the product of such holder's adjusted basis in such
Grantor Trust Fractional Interest Certificate at the beginning of
such month (see "Sales of Grantor Trust Certificates") and the yield
of such Grantor Trust Fractional Interest Certificate to such
holder. Such yield would be computed at the rate (assuming
compounding based on the regular interval between payment dates)
that, if used to discount the holder's share of future payments on
the Mortgage Collateral, would cause the present value of those
future payments to equal the price at which the holder purchased
such Certificate. In computing yield under the stripped bond rules,
a Certificateholder's share of future payments on the Mortgage
Collateral will not include any payments made in respect of any
ownership interest in the Mortgage Collateral retained by the
Company, the Master Servicer, the Certificate Administrator, any
Servicer, any Sub-Servicer or their respective affiliates, but will
include such Certificateholder's share of any reasonable servicing
fees and other expenses.
Section 1272(a)(6) of the Code requires (i) the use of a
reasonable prepayment assumption in accruing original issue discount
and (ii) adjustments in the accrual of original issue discount when
prepayments do not conform to the prepayment assumption with respect
to certain categories of debt instruments, and regulations could be
adopted applying those provisions to the Grantor Trust Fractional
Interest Certificates. It is unclear whether those provisions would
be applicable to the Grantor Trust Fractional Interest Certificates
or whether use of a prepayment assumption may be required or
permitted in the absence of such regulations. It is also uncertain,
if a prepayment assumption is used, whether the assumed prepayment
rate would be determined based on conditions at the time of the
first sale of the Grantor Trust Fractional Interest Certificate or,
with respect to any subsequent holder, at the time of purchase of
the Grantor Trust Fractional Interest Certificate by that holder.
Certificateholders are advised to consult their tax advisors
concerning reporting original issue discount in general and, in
particular, whether a prepayment assumption should be used in
reporting original issue discount with respect to Grantor Trust
Fractional Interest Certificates.
In the case of a Grantor Trust Fractional Interest Certificate
acquired at a price equal to the principal amount of the Mortgage
Collateral allocable to such Certificate, the use of a prepayment
assumption would not ordinarily have any significant effect on the
yield used in calculating accruals of interest income. In the case,
however, of a Grantor Trust Fractional Interest Certificate acquired
at a discount or premium (that is, at a price less than or greater
than such principal amount, respectively), the use of a prepayment
assumption would increase or decrease such yield, and thus
accelerate or decelerate, respectively, the reporting of income.
If a prepayment assumption is not used, then when an item of
Mortgage Collateral prepays in full, the holder of a Grantor Trust
Fractional Interest Certificate acquired at a discount or a premium
generally will recognize ordinary income or loss equal to the
difference between the portion of the prepaid principal amount of
the item of Mortgage Collateral that is allocable to such
Certificate and the portion of the adjusted basis of such
Certificate that is allocable to such Certificateholder's interest
in the Mortgage Collateral. If a prepayment assumption is used, it
appears that no separate item of income or loss should be recognized
upon a prepayment. Instead, a prepayment should be treated as a
partial payment of the stated redemption price of the Grantor Trust
Fractional Interest Certificate and accounted for under a method
similar to that described for taking account of original issue
discount on REMIC Regular Certificates. See "Certain Federal Income
Tax Consequences -- Taxation of Owners of REMIC Regular
Certificates Original Issue Discount" in the Prospectus. It is
unclear what other adjustments would be required to reflect
differences between an assumed prepayment rate and the actual rate
of prepayments.
In the absence of statutory or administrative clarification,
it is currently intended to base information reports or returns to
the IRS and Certificateholders in transactions subject to the
stripped bond rules on a prepayment assumption (the "Prepayment
Assumption") that will be disclosed in the related Prospectus
Supplement and on a constant yield computed using a representative
initial offering price for each class of Certificates. However,
neither the Company, the Master Servicer nor the Certificate
Administrator will make any representation that the Mortgage
Collateral will in fact prepay at a rate conforming to such
Prepayment Assumption or any other rate and Certificateholders
should bear in mind that the use of a representative initial
offering price will mean that such information returns or reports,
even if otherwise accepted as accurate by the IRS, will in any event
be accurate only as to the initial Certificateholders of each series
who bought at that price.
Under Treasury regulation Section 1.1286-1T, certain stripped
bonds are to be treated as market discount bonds and, accordingly,
any purchaser of such a bond is to account for any discount on the
bond as market discount rather than original issue discount. This
treatment only applies, however, if immediately after the most
recent disposition of the bond by a person stripping one or more
coupons from the bond and disposing of the bond or coupon (i) there
is no original issue discount (or only a de minimis amount of
original issue discount) or (ii) the annual stated rate of interest
payable on the original bond is no more than one percentage point
lower than the gross interest rate payable on the original mortgage
loan (before subtracting any servicing fee or any stripped coupon).
[Specify if interest payable on a Grantor Trust Fractional Interest
Certificate is more than one percentage point lower than the gross
interest rate payable on the Mortgage Collateral disclose that
fact.] If the original issue discount or market discount on a
Grantor Trust Fractional Interest Certificate determined under the
stripped bond rules is less than 0.25% of the stated redemption
price multiplied by the weighted average maturity of the Mortgage
Collateral, then such original issue discount or market discount
will be considered to be de minimis. Original issue discount or
market discount of only a de minimis amount will be included in
income in the same manner as de minimis original issue and market
discount described in "If Stripped Bond Rules Do Not Apply" and
"Market Discount."]
[If Stripped Bond Rules Do Not Apply. Subject to the
discussion below on original issue discount, [if the stripped bond
rules do not apply to a Grantor Trust Fractional Interest
Certificate,] the Certificateholder will be required to report its
share of the interest income on the Mortgage Collateral in
accordance with such Certificateholder's normal method of
accounting. The original issue discount rules will apply to a
Grantor Trust Fractional Interest Certificate to the extent it
evidences an interest in Mortgage Collateral issued with original
issue discount.
The original issue discount, if any, on the Mortgage
Collateral will equal the difference between the stated redemption
price of such Mortgage Collateral and its issue price. Under the
OID Regulations, the stated redemption price is equal to the total
of all payments to be made on such Mortgage Collateral other than
"qualified stated interest." "Qualified stated interest" includes
interest that is unconditionally payable at least annually at a
single fixed rate, or at a "qualified floating rate," an "objective
rate," a combination of a single fixed rate and one or more
"qualified floating rates" or one "qualified inverse floating rate,"
or a combination of "qualified floating rates" that generally does
not operate in a manner that accelerates or defers interest payments
on such Mortgage Collateral. In general, the issue price of a
Mortgage Loan or Contract will be the amount received by the
borrower from the lender under the terms of the Mortgage Loan or
Contract, less any "points" paid by the borrower, and the stated
redemption price of a Mortgage Loan will equal its principal amount,
unless the Mortgage Loan or Contract provides for an initial
below-market rate of interest or the acceleration or the deferral of
interest payments.
[Describe the manner in which such rules will be applied with
respect to those Mortgage Collateral by the Trustee in preparing
information returns to the Certificateholders and the IRS.]
Notwithstanding the general definition of original issue
discount, original issue discount will be considered to be de
minimis if such original issue discount is less than 0.25% of the
stated redemption price multiplied by the weighted average maturity
of the Mortgage Collateral. For this purpose, the weighted average
maturity of the Mortgage Collateral will be computed as the sum of
the amounts determined, as to each payment included in the stated
redemption price of such Mortgage Collateral, by multiplying (i) the
number of complete years (rounding down for partial years) from the
issue date until such payment is expected to be made by (ii) a
fraction, the numerator of which is the amount of the payment and
the denominator of which is the stated redemption price of the
Mortgage Collateral. Under the OID Regulations, original issue
discount of only a de minimis amount (other than de minimis original
issue discount attributable to a so-called "teaser" rate or initial
interest holiday) will be included in income as each payment of
stated principal is made, based on the product of the total amount
of such de minimis original issue discount and a fraction, the
numerator of which is the amount of each such payment and the
denominator of which is the outstanding stated principal amount of
the Mortgage Collateral. The OID Regulations also permit a
Certificateholder to elect to accrue de minimis original issue
discount into income currently based on a constant yield method.
See "Market Discount" below.
If original issue discount is in excess of a de minimis
amount, all original issue discount with respect to the Mortgage
Collateral will be required to be accrued and reported in income
each month, based on a constant yield. The OID Regulations suggest
that no prepayment assumption is appropriate in computing the yield
on prepayable obligations issued with original issue discount. In
the absence of statutory or administrative clarification, it
currently is not intended to base information reports or returns to
the IRS and Certificateholders on the use of a prepayment assumption
in transactions not subject to the stripped bond rules. Section
1272(a)(6) of the Code, however, may require that a prepayment
assumption be used in computing yield with respect to all
mortgage-backed securities. Certificateholders are advised to
consult their tax advisors concerning whether a prepayment
assumption should be used in reporting original issue discount with
respect to Grantor Trust Fractional Interest Certificates.
[Describe manner by which the original issue discount rules will
apply to Mortgage Collateral in such series.]
A purchaser of a Grantor Trust Fractional Interest Certificate
that purchases such Grantor Trust Fractional Interest Certificate at
a cost less than such Certificate's allocable portion of the
aggregate remaining stated redemption price of the Mortgage
Collateral will also be required to include in gross income such
Certificate's daily portions of any original issue discount with
respect to such Mortgage Collateral. However, each such daily
portion will be reduced, if the cost of such Grantor Trust
Fractional Interest Certificate to such purchaser is in excess of
such Certificate's allocable portion of the aggregate "adjusted
issue prices" of the Mortgage Collateral, approximately in
proportion to the ratio such excess bears to such Certificate's
allocable portion of the aggregate original issue discount remaining
to be accrued on the Mortgage Collateral. The adjusted issue price
of an item of Mortgage Collateral on any given day equals the sum of
(i) the adjusted issue price (or, in the case of the first accrual
period, the issue price) of such item of Mortgage Collateral at the
beginning of the accrual period that includes such day and (ii) the
daily portions of original issue discount for all days during such
accrual period prior to such day. The adjusted issue price of an
item of Mortgage Collateral at the beginning of any accrual period
will equal the issue price of such Mortgage Collateral, increased by
the aggregate amount of original issue discount with respect to such
Mortgage Collateral that accrued in prior accrual periods, and
reduced by the amount of any payments made on such Mortgage
Collateral in prior accrual periods of amounts included in its
stated redemption price.
The Master Servicer will provide to any holder of a Grantor
Trust Fractional Interest Certificate such information as such
holder may reasonably request from time to time with respect to
original issue discount accruing on Grantor Trust Fractional
Interest Certificates. Such requests may be directed to
[Residential Funding] [principal executive office]. [See
"Residential Funding Corporation" in the Prospectus.] See "Grantor
Trust Reporting" below.]
Market Discount. If the stripped bond rules do not apply to
the Grantor Trust Fractional Interest Certificate, a
Certificateholder may be subject to the market discount rules of
Sections 1276 through 1278 of the Code to the extent an interest in
Mortgage Collateral is considered to have been purchased at a
"market discount," that is, in the case of Mortgage Collateral
issued without original issue discount, at a purchase price less
than its remaining stated redemption price (as defined above), or in
the case of Mortgage Collateral issued with original issue discount,
at a purchase price less than its adjusted issue price (as defined
above). If market discount is in excess of a de minimis amount (as
described below), the holder generally will be required to include
in income in each month the amount of such discount that has accrued
(under the rules described in the next paragraph) through such month
that has not previously been included in income, but limited, in the
case of the portion of such discount that is allocable to any
Mortgage Collateral, to the payment of stated redemption price on
such Mortgage Collateral that is received by (or, in the case of
accrual basis Certificateholders, due to) the Trust Fund in that
month. A Certificateholder may elect to include market discount in
income currently as it accrues (under a constant yield method based
on the yield of the Certificate to such holder) rather than
including it on a deferred basis in accordance with the foregoing.
If made, such election will apply to all market discount bonds
acquired by such Certificateholder during or after the first taxable
year to which such election applies. In addition, the OID
Regulations would permit a Certificateholder to elect to accrue all
interest, discount (including de minimis market or original issue
discount) and premium in income as interest, based on a constant
yield method. If such an election were made with respect to
Mortgage Collateral with market discount, the Certificateholder
would be deemed to have made an election to include market discount
in income currently with respect to all other debt instruments
having market discount that such Certificateholder acquires during
the taxable year of the election and thereafter, and possibly
previously acquired instruments. Similarly, a Certificateholder
that made this election for a Certificate acquired at a premium
would be deemed to have made an election to amortize bond premium
with respect to all debt instruments having amortizable bond premium
that such Certificateholder owns or acquires. See "Certain Federal
Income Tax Consequences Taxation of Owners of REMIC Regular
Certificates Premium" in the Prospectus. Each of these elections to
accrue interest, discount and premium with respect to a Certificate
on a constant yield method or as interest is irrevocable.
Section 1276(b)(3) of the Code specifically authorizes the
Treasury Department to issue regulations providing for the method
for accruing market discount on debt instruments, the principal of
which is payable in more than one installment. Until such time as
regulations are issued by the Treasury Department, certain rules
described in the Conference Committee Report (the "Committee
Report") accompanying the Tax Reform Act of 1986 will apply. Under
those rules, in each accrual period market discount on the Mortgage
Collateral should accrue, at the Certificateholder's option: (i) on
the basis of a constant yield method, (ii) in the case of Mortgage
Collateral issued without original issue discount, in an amount that
bears the same ratio to the total remaining market discount as the
stated interest paid in the accrual period bears to the total stated
interest remaining to be paid on the Mortgage Collateral as of the
beginning of the accrual period, or (iii) in the case of Mortgage
Collateral issued with original issue discount, in an amount that
bears the same ratio to the total remaining market discount as the
original issue discount accrued in the accrual period bears to the
total original issue discount remaining at the beginning of the
accrual period. The prepayment assumption, if any, used in
calculating the accrual of original issue discount is to be used in
calculating the accrual of market discount. The effect of using a
prepayment assumption could be to accelerate the reporting of such
discount income. Because the regulations referred to in this
paragraph have not been issued, it is not possible to predict what
effect such regulations might have on the tax treatment of a
Mortgage Collateral purchased at a discount in the secondary market.
Since the Mortgage Collateral will provide for periodic
payments of stated redemption price, such discount may be required
to be included in income at a rate that is not significantly slower
than the rate at which such discount would be included in income if
it were original issue discount.
Market discount with respect to Mortgage Collateral generally
will be considered to be de minimis if it is not greater than or
equal to 0.25% of the stated redemption price of the Mortgage
Collateral multiplied by the number of complete years to maturity
remaining after the date of its purchase. In interpreting a similar
rule with respect to original issue discount on obligations payable
in installments, the OID Regulations refer to the weighted average
maturity of obligations, and it is likely that the same rule will be
applied with respect to market discount, presumably taking into
account the prepayment assumption used, if any. The effect of using
a prepayment assumption could be to accelerate the reporting of such
discount income. If market discount is treated as de minimis under
the foregoing rule, it appears that actual discount would be treated
[in a manner similar to original issue discount of a de minimis
amount. See "If Stripped Bond Rules Do Not Apply."]
Further, under the rules described in "Certain Federal Income
Tax Consequences -- Taxation of Owners of REMIC Regular
Certificates Market Discount" in the Prospectus, any discount that
is not original issue discount and exceeds a de minimis amount may
require the deferral of interest expense deductions attributable to
accrued market discount not yet includible in income, unless an
election has been made to report market discount currently as it
accrues.
Premium. If a Certificateholder is treated as acquiring the
underlying Mortgage Collateral at a premium, that is, at a price in
excess of their remaining stated redemption price, such
Certificateholder may elect under Section 171 of the Code to
amortize such premium using a constant yield method. Amortizable
premium is treated as an offset to interest income on the related
Mortgage Collateral rather than as a separate interest deduction.
Premium allocable to Mortgage Collateral for which an amortization
election is not made should be allocated among the payments on the
Mortgage Collateral representing stated redemption price and be
allowed as an ordinary deduction as such payments are made (or, for
a Certificateholder using the accrual method of accounting, when
such payments are due).
It is unclear whether a prepayment assumption should be used
in computing amortization of premium allowable under Section 171 of
the Code. If premium is not subject to amortization using a
prepayment assumption and an item of Mortgage Collateral prepays in
full, the holder of a Grantor Trust Fractional Interest Certificate
acquired at a premium should recognize a loss, equal to the
difference between the portion of the prepaid principal amount of
the Mortgage Collateral that is allocable to the Certificate and the
portion of the adjusted basis of the Certificate that is allocable
to the Mortgage Collateral. If a prepayment assumption is used to
amortize such premium, it appears that such a loss would be
unavailable. Instead, if a prepayment assumption is used, a
prepayment should be treated as a partial payment of the stated
redemption price of the Grantor Trust Fractional Interest
Certificate and accounted for under a method similar to that
described for taking account of original issue discount on REMIC
Regular Certificates. See "Certain Federal Income Tax Consequences
Taxation of Owners of REMIC Regular Certificates Original Issue
Discount" in the Prospectus. It is unclear what other adjustments
would be required to reflect differences between an assumed
prepayment rate and the actual rate of prepayments.
Taxation of Owners of Grantor Trust Strip Certificates
The "stripped coupon" rules of Section 1286 of the Code will
apply to the Grantor Trust Strip Certificates. Except as described
above in "Taxation of Owners of Grantor Trust Fractional Interest
Certificates If Stripped Bond Rules Apply," no regulations or
published rulings under Section 1286 of the Code have been issued
and some uncertainty exists as to how it will be applied to
securities such as the Grantor Trust Strip Certificates.
Accordingly, holders of Grantor Trust Strip Certificates should
consult their tax advisors concerning the method to be used in
reporting income or loss with respect to such Certificates.
The OID Regulations do not apply to "stripped coupons,"
although they provide general guidance as to how the original issue
discount sections of the Code will be applied. In addition, the
discussion below is subject to the discussion under "Possible
Application of Proposed Contingent Payment Rules" below, and assumes
that the holder of a Grantor Trust Strip Certificate will not own
any Grantor Trust Fractional Interest Certificates.
Under the stripped coupon rules, it appears that original
issue discount will be required to be accrued in each month on the
Grantor Trust Strip Certificates based on a constant yield method.
In effect, each holder of Grantor Trust Strip Certificates would
include as interest income in each month an amount equal to the
product of such holder's adjusted basis in such Grantor Trust Strip
Certificate at the beginning of such month and the yield of such
Grantor Trust Strip Certificate to such holder. Such yield would be
calculated based on the price paid for that Grantor Trust Strip
Certificate by its holder and the payments remaining to be made
thereon at the time of the purchase, plus an allocable portion of
the servicing fees and expenses to be paid with respect to the
Mortgage Collateral. See "Taxation of Owners of Grantor Trust
Fractional Interest Certificates If Stripped Bond Rules Apply"
above.
As noted above, Section 1272(a)(6) of the Code requires that
a prepayment assumption be used in computing the accrual of original
issue discount with respect to certain categories of debt
instruments, and that adjustments be made in the amount and rate of
accrual of such discount when prepayments do not conform to such
prepayment assumption. Regulations could be adopted applying those
provisions to the Grantor Trust Strip Certificates. It is unclear
whether those provisions would be applicable to the Grantor Trust
Strip Certificates or whether use of a prepayment assumption may be
required or permitted in the absence of such regulations. It is
also uncertain, if a prepayment assumption is used, whether the
assumed prepayment rate would be determined based on conditions at
the time of the first sale of the Grantor Trust Strip Certificate
or, with respect to any subsequent holder, at the time of purchase
of the Grantor Trust Strip Certificate by that holder.
The accrual of income on the Grantor Trust Strip Certificates
will be significantly slower if a prepayment assumption is permitted
to be made than if yield is computed assuming no prepayments. In
the absence of statutory or administrative clarification, it
currently is intended to base information returns or reports to the
IRS and Certificateholders on the Prepayment Assumption disclosed in
the related Prospectus Supplement and on a constant yield computed
using a representative initial offering price for each class of
Certificates. However, neither the Company, the Master Servicer nor
the Certificate Administrator will make any representation that the
Mortgage Collateral will in fact prepay at a rate conforming to the
Prepayment Assumption or at any other rate and Certificateholders
should bear in mind that the use of a representative initial
offering price will mean that such information returns or reports,
even if otherwise accepted as accurate by the IRS, will in any event
be accurate only as to the initial Certificateholders of each series
who bought at that price. Prospective purchasers of the Grantor
Trust Strip Certificates should consult their tax advisors regarding
the use of the Prepayment Assumption.
It is unclear under what circumstances, if any, the prepayment
of an item of Mortgage Collateral will give rise to a loss to the
holder of a Grantor Trust Strip Certificate. If a Grantor Trust
Strip Certificate is treated as a single instrument (rather than an
interest in discrete mortgage loans or contracts) and the effect of
prepayments is taken into account in computing yield with respect to
such Grantor Trust Strip Certificate, it appears that no loss may be
available as a result of any particular prepayment unless
prepayments occur at a rate faster than the Prepayment Assumption.
However, if a Grantor Trust Strip Certificate is treated as an
interest in discrete Mortgage Collateral, or if the Prepayment
Assumption is not used, then when an item of Mortgage Collateral is
prepaid, the holder of a Grantor Trust Strip Certificate should be
able to recognize a loss equal to the portion of the adjusted issue
price of the Grantor Trust Strip Certificate that is allocable to
such Mortgage Collateral.
Possible Application of Proposed Contingent Payment Rules
The coupon stripping rules' general treatment of stripped
coupons is to regard them as newly issued debt instruments in the
hands of each purchaser. To the extent that payments on the Grantor
Trust Strip Certificates would cease if the Mortgage Collateral were
prepaid in full, the Grantor Trust Strip Certificates could be
considered to be debt instruments providing for contingent payments.
Under the OID Regulations, debt instruments providing for contingent
payments are not subject to the same rules as debt instruments
providing for noncontingent payments, but no final regulations have
been promulgated with respect to contingent payment debt
instruments. Proposed regulations were promulgated in 1986 regarding
contingent payment debt instruments, but have not been made final
and are likely to be substantially revised before being made final.
Moreover, like the OID Regulations, such proposed regulations do not
specifically address securities, such as the Grantor Trust Strip
Certificates, that are subject to the stripped bond rules of Section
1286 of the Code.
If the contingent payment rules under the regulations proposed
in 1986 were to apply, the holder of a Grantor Trust Strip
Certificate would be required to include as interest income in each
month a portion of the periodic payment (the "Accrued Periodic
Payment") due on the Grantor Trust Strip Certificate. That portion
(the "Periodic Income Amount") would equal the product of (i) the
adjusted issue price of the Grantor Trust Strip Certificate at the
beginning of the period and (ii) a specified yield (as further
described below). The excess of the Accrued Periodic Payment over
the Periodic Income Amount first would reduce the adjusted issue
price of the Grantor Trust Strip Certificate and, to that extent,
would be treated as a return of capital and not as interest income;
after the adjusted issue price had been reduced to zero, the entire
Accrued Periodic Payment would be treated as interest income.
The specified yield referred to in clause (ii) above would
equal the "applicable federal rate" (expressed as a monthly rate) in
effect at the time of purchase of the Grantor Trust Strip
Certificate by that holder, which rate is computed monthly by the
IRS. It is unclear whether a prepayment assumption should be made in
determining which Treasury securities (short-term, mid-term or
long-term) should be used to determine the "applicable federal rate"
for this purpose.
Income accrual with respect to a Grantor Trust Strip
Certificate will generally be slower if the foregoing contingent
payment rules apply than if they do not. However, as noted above,
there is substantial doubt that the contingent payment rules of the
proposed regulations in their current form will be permitted to be
applied to instruments such as the Grantor Trust Strip Certificates
and revised contingent payment regulations are expected to be
proposed. Certificateholders should consult their tax advisors
concerning the possible application of the contingent payment rules
to the Grantor Trust Strip Certificates.]
Sales of Grantor Trust Certificates
Except as described below, any gain or loss recognized on the
sale of a Grantor Trust Certificate generally will be capital gain
or loss, and will be equal to the difference between the amount
realized on the sale of a Grantor Trust Certificate and its adjusted
basis. The adjusted basis of a Grantor Trust Certificate generally
will equal its cost, increased by any income (including original
issue discount and market discount income) recognized by the seller
and reduced (but not below zero) by any previously reported losses,
amortized premium and distributions with respect to such Grantor
Trust Certificate. The Code currently provides for a top marginal
tax rate applicable to ordinary income of individuals of 39.6% while
maintaining a maximum marginal rate for the long-term capital gains
of individuals of 28%. No such rate differential exists for
corporations. In addition, the distinction between a capital gain
or loss and ordinary income or loss remains relevant for other
purposes.
Gain or loss from the sale of a Grantor Trust Certificate may
be partially or wholly ordinary and not capital in certain
circumstances. Gain attributable to accrued and unrecognized market
discount will be treated as ordinary income, as will gain or loss
recognized by banks and other financial institutions subject to
Section 582(c) of the Code. Furthermore, a portion of any gain that
might otherwise be capital gain may be treated as ordinary income to
the extent that the Grantor Trust Certificate is held as part of a
"conversion transaction" within the meaning of Section 1258 of the
Code. A conversion transaction generally is one in which the
taxpayer has taken two or more positions in Certificates or similar
property that reduce or eliminate market risk, if substantially all
of the taxpayer's return is attributable to the time value of the
taxpayer's net investment in such transaction. The amount of gain
realized in a conversion transaction that is recharacterized as
ordinary income generally will not exceed the amount of interest
that would have accrued on the taxpayer's net investment at 120% of
the appropriate "applicable federal rate" (which rate is computed
and published monthly by the IRS) at the time the taxpayer enters
into the conversion transaction, subject to appropriate reduction
for prior inclusion of interest and other ordinary income items from
the transaction. Finally, a taxpayer may elect to have net capital
gain taxed at ordinary income rates rather than capital gains rates
in order to include such net capital gain in total net investment
income for that taxable year, for purposes of the limitation on the
deduction of interest on indebtedness incurred to purchase or carry
property held for investment to a taxpayer's net investment income.
Grantor Trust Reporting
The Trustee will furnish to each holder of a Grantor Trust
Certificate with each distribution a statement setting forth the
amount of such distribution allocable to principal on the underlying
[Mortgage Loans] [Contracts] and to interest thereon at the related
Pass-Through Rate. In addition, within a reasonable time after the
end of each calendar year, based on information provided by the
Master Servicer or the Certificate Administrator, as applicable, the
Trustee will furnish to each Certificateholder during such year such
customary factual information as the Trustee deems necessary or
desirable to enable holders of Grantor Trust Certificates to prepare
their tax returns and will furnish comparable information to the IRS
as and when required by law to do so. Because the rules for
accruing discount and amortizing premium with respect to the Grantor
Trust Certificates are uncertain in various respects, there is no
assurance the IRS will agree with the Trustee's information reports
of such items of income and expense. Moreover, such information
reports, even if otherwise accepted as accurate by the IRS, will in
any event be accurate only as to the initial Certificateholders who
bought their Certificates at the representative initial offering
price used in preparing such reports.
Backup Withholding
In general, the rules described in "Certain Federal Income Tax
Consequences Backup Withholding with Respect to REMIC
Certificates" in the Prospectus will also apply to Grantor Trust
Certificates.
Foreign Investors
In general, the discussion with respect to REMIC Regular
Certificates in "Certain Federal Income Tax Consequences Foreign
Investors in REMIC Certificates" in the Prospectus applies to
Grantor Trust Certificates.
To the extent that interest on a Grantor Trust Certificate
would be exempt under Sections 871(h)(1) and 881(c) of the Code from
United States withholding tax, and the Grantor Trust Certificate is
not held in connection with a Certificateholder's trade or business
in the United States, such Grantor Trust Certificate will not be
subject to United States estate taxes in the estate of a
non-resident alien individual.]
[ERISA CONSIDERATIONS]
[A description of whether there will be any exemption from
"plan asset" treatment will be available with respect to the Series
to be included as appropriate.]
[A statement of whether the Series will be an Exempt or a
Nonexempt Series to be included if appropriate]
[To qualify for exemption under PTCE 83-1 (see "ERISA
Considerations Prohibited Transaction Class Exemptions" in the
Prospectus), a Certificate of an Exempt Series must entitle its
holder to pass-through payments of both principal and interest on
the Mortgage Loans. Because the Subordinate Certificates are
subordinated to the Senior Certificates, PTCE 83-1 will not provide
an exemption from the prohibited transaction rules of ERISA for
Plans that acquire Subordinate Certificates. Any Plan fiduciary who
proposes to cause a Plan to purchase Certificates should consult
with its counsel with respect to the potential consequences under
ERISA and Section 4975 of the Code of the Plan's acquisition and
ownership of Certificates. However, the other PTCEs or the
Underwriter's PTE may be applicable. See "ERISA Considerations" in
the Prospectus.]
[A Description of PTE 90-23 to be included if appropriate.]
LEGAL INVESTMENT MATTERS
The [Senior] Certificates will constitute "mortgage related
securities" for purposes of SMMEA for so long as they are rated in
one of the two highest rating categories by at least one nationally
recognized statistical rating organization, and, as such, will be
legal investments for certain entities to the extent provided in the
SMMEA. [The Class M Certificates will not constitute "mortgage
related securities" for purposes of SMMEA.] Institutions whose
investment activities are subject to legal investment laws and
regulations or to review by regulatory authorities should consult
with their own legal advisors in determining whether and to what
extent the Offered Certificates constitute legal investments under
SMMEA or are subject to restrictions on investment, capital
requirements or otherwise. See "Legal Investment Matters" in the
Prospectus.
METHOD OF DISTRIBUTION
Subject to the terms and conditions set forth in the
underwriting agreement dated [_______ __, 199_], (the "Underwriting
Agreement") the Underwriter has agreed to purchase, and the Company
has agreed to sell to the Underwriter, each class of the Offered
Certificates [except that a de minimis portion of the Residual
Certificates will be retained by Residential Funding and such
portion is not offered hereby].
The Underwriting Agreement provides that the obligation of the
Underwriter to pay for and accept delivery of the Offered
Certificates is subject to, among other things, the receipt of
certain legal opinions and to the conditions, among others, that no
stop order suspending the effectiveness of the Company's
Registration Statement shall be in effect, and that no proceedings
for such purpose shall be pending before or threatened by the
Securities and Exchange Commission.
The distribution of the Offered Certificates by the
Underwriter may be effected, from time to time, in one or more
negotiated transactions, or otherwise, at varying prices to be
determined at the time of sale. Proceeds to the Company from the
sale of the Offered Certificates, before deducting expenses payable
by the Company, will be [______]% of the aggregate Certificate
Principal Balance of the Offered Certificates plus accrued interest
thereon from the Cut-off Date. The Underwriter may effect such
transactions by selling the Offered Certificates to or through
dealers, and such dealers may receive compensation in the form of
underwriting discounts, concessions or commissions from the
Underwriter for whom they act as agent. In connection with the sale
of the Offered Certificates, the Underwriter may be deemed to have
received compensation from the Company in the form of underwriting
compensation. The Underwriter and any dealers that participate with
the Underwriter in the distribution of the Offered Certificates may
be deemed to be underwriters and any profit on the resale of the
Offered Certificates positioned by them may be deemed to be
underwriting discounts and commissions under the Securities Act of
1933.
The Underwriting Agreement provides that the Company will
indemnify the Underwriter, and under limited circumstances the
Underwriter will indemnify the Company, against certain civil
liabilities under the Securities Act of 1933 or contribute to
payments required to be made in respect thereof.
There can be no assurance that a secondary market for the
Offered Certificates will develop or, if it does develop, that it
will continue. The primary source of information available to
investors concerning the Offered Certificates will be the monthly
statements discussed in the Prospectus under "Description of the
Certificates Reports to Certificateholders," which will include
information as to the outstanding principal balance of the Offered
Certificates and the status of the applicable form of credit
enhancement. There can be no assurance that any additional
information regarding the Offered Certificates will be available
through any other source. In addition, the Company is not aware of
any source through which price information about the Offered
Certificates will be generally available on an ongoing basis. The
limited nature of such information regarding the Offered
Certificates may adversely affect the liquidity of the Offered
Certificates, even if a secondary market for the Offered
Certificates becomes available.
LEGAL OPINIONS
Certain legal matters relating to the Offered Certificates
will be passed upon for the Company by [Orrick, Herrington &
Sutcliffe] [Thacher Proffitt & Wood], New York, New York and for the
Underwriter by [______________________________].
RATINGS
It is a condition to the issuance of the Senior Certificates
(other than the Accrual Certificates) and the Class M Certificates
that they be rated not lower than "[___]" and "[___]", respectively
by [____________________________ ("_______")] and "[___]" and
"[___]", respectively, by [________________________ ("_______")].
[[________________] ratings on pass-through certificates
address the likelihood of the receipt by Certificateholders of
payments required under the Pooling and Servicing Agreement.
[_______________] ratings take into consideration the credit quality
of the [Mortgage] [Contract] Pool, structural and legal aspects
associated with the Certificates, and the extent to which the
payment stream in the [Mortgage] [Contract] Pool is adequate to make
payments required under the Certificates. [_______________] rating
on the Certificates does not, however, constitute a statement
regarding frequency of prepayments on the [Mortgage Loans]
[Contracts]. See "Certain Yield and Prepayment Considerations"
herein.] [The "r" of the "AAAr" rating of the Class [__]
Certificates by [________________] is attached to highlight
derivative, hybrid, and certain other obligations that
[________________] believes may experience high volatility or high
variability in expected returns due to non-credit risks. Examples
of such obligations are: securities whose principal or interest
return is indexed to equities, commodities, or currencies; certain
swaps and options; and interest only and principal only mortgage
securities. The absence of an "r" symbol should not be taken as an
indication that an obligation will exhibit no volatility or
variability in total return.]
[The ratings of [____] on pass-through certificates [also]
address the likelihood of the receipt by Certificateholders of all
distributions on the underlying [mortgage loans] [manufactured
housing contracts] to which they are entitled. The rating process
addresses the structural and legal aspects associated with the
Certificates, including the nature of the underlying [mortgage
loans] [contracts]. The ratings assigned to pass-through
certificates do not represent any assessment of the likelihood or
rate of principal prepayments. The rating does not address the
possibility that Certificateholders might suffer a lower than
anticipated yield.]
[The ratings of [_____] assigned to pass-through certificates
[also] address the likelihood of the receipt by Certificateholders
of all distributions to which such Certificateholders are entitled.
[_____] ratings on pass-through certificates do not represent any
assessment of the likelihood that principal prepayments will be made
by the mortgagors or the degree to which such prepayments differ
from that originally anticipated. The ratings assigned to
pass-through certificates do not represent any assessment of the
likelihood or rate of principal prepayments. The rating does not
address the possibility that Certificateholders might suffer a lower
than anticipated yield or that rapid rates of principal prepayments
could result in a failure of the holders of the Stripped Interests
Certificates to fully recover their initial investment.]
The Company has not requested a rating on the Offered
Certificates by any rating agency other than [__________] and
[__________]. However, there can be no assurance as to whether any
other rating agency will rate the Offered Certificates, or, if it
does, what rating would be assigned by any such other rating agency.
A rating on the Certificates by another rating agency, if assigned
at all, may be lower than the ratings assigned to the Offered
Certificates by [_________] and [__________].
A security rating is not a recommendation to buy, sell or hold
securities and may be subject to revision or withdrawal at any time
by the assigning rating organization. Each security rating should
be evaluated independently of any other security rating. The rating
of the Principal Only Certificates, Stripped Interests Certificates
or the Class M Certificates does not address the possibility that
the holders of such Certificates may fail to fully recover their
initial investment. In the event that the rating initially assigned
to the Offered Certificates is subsequently lowered for any reason,
no person or entity is obligated to provide any additional support
or credit enhancement with respect to the Offered Certificates.
No dealer, salesman or other person
has been authorized to give any information
or to make any representations not
contained in this Prospectus Supplement and
the Prospectus and, if given or made, such
information or representations must not be
relied upon as having been authorized by
the Company or by the Underwriter. This
Prospectus Supplement and the Prospectus do
not constitute an offer to sell, or a
solicitation of an offer to buy, the
securities offered hereby to anyone in any
jurisdiction in which the person making
such offer or solicitation is not qualified
to do so or to anyone to whom it is
unlawful to make any such offer or
solicitation. Neither the delivery of this
Prospectus Supplement and the Prospectus
nor any sale made hereunder shall, under
any circumstances, create an implication
that information herein or therein is
correct as of any time since the date of
this Prospectus Supplement or the
Prospectus.
TABLE OF CONTENTS Prospectus Supplement Page
Summary . . . . . . . . . S-
Description of the [Mortgage] [Contract] Pool S-
Description of the Offered Certificates S-
Certain Yield and Prepayment Considerations S-
Pooling and Servicing Agreement. . . . . . S-
Certain Federal Income Tax Consequences
Method of Distribution. . S-
Legal Opinions. . . . . . S-
Ratings . . . . . . . . . S-
Legal Investment. . . . . S-
ERISA Considerations. . . S-
Prospectus
Summary of Prospectus . .
Special Considerations. .
The Trust Funds . . . . .
Description of the Certificates. . . . . .
Subordination . . . . . .
Description of Credit Enhancement. . . . .
Insurance Policies on Mortgage
Loans or Contracts . .
The Company . . . . . . .
Residential Funding Corporation. . . . . .
The Pooling and Servicing Agreement. . . .
Yield Considerations. . .
Maturity and Prepayment Considerations
Certain Legal Aspects of Mortgage
Loans and Contracts. .
Certain Federal Income Tax Consequences
State and Other Tax Consequences . . . . .
ERISA Considerations. . .
Legal Investment Matters.
Use of Proceeds
Methods of Distribution .
Legal Matters . . . . . .
Financial Information . .
Additional Information. .
Index of Principal Definitions . . . . . . . .
Residential Asset Securities
Corporation
[Mortgage] [Manufactured Housing Contract]
Pass-Through Certificates, Series [199_-___]
Class A-1 Certificates ____% $
Class A-2 Certificates ____% $
Class A-4 Certificates 0% $
Class A-5 Certificates Variable Rate $ 0
Class R Certificates ____% $
Class M Certificates ____% $
[Name of [Master] Servicer[s]]
[Name of [Master] Servicer[s]]
PROSPECTUS SUPPLEMENT
________________, 199_
SUBJECT TO COMPLETION, DATED May __, 1995
Version I-B
Prospectus Supplement
(To Prospectus dated [_______ __, 199_])
$[____________]
Residential Asset Securities Corporation
Depositor
[Name of Certificate Administrator]
Certificate Administrator
Mortgage Pass-Through Certificates, Series [199_-_]
$[__________] [____]% Class A-1 Certificates
$ 0 [____]%(1) Class S Certificates
$[__________] [____]% Class A-2 Certificates
$[________] [____]% Class R Certificates
$[__________] [____]% Class A-3 Certificates
______________________
(1) Based upon the related Notional Amount, (as described herein under
"Description of the Offered Certificates-Interest Distributions").
The Class S Certificates will be Fixed Strip Certificates and
will not be entitled to receive distributions of principal.
The Series [199_-_] Mortgage Pass-Through Certificates offered
hereby will include the following five classes (the "Offered
Certificates"): (i) Class A-1 Certificates, Class A-2 Certificates
and Class A-3 Certificates, (ii) Class S Certificates (the "Fixed
Strip Certificates") and (iii) Class R Certificates (the "Residual
Certificates"). The Offered Certificates in the aggregate will
represent the entire beneficial ownership interest in a trust fund
(the "Trust Fund") consisting primarily of Ginnie Mae Securities
(the "Underlying Agency Securities"). Each Underlying Agency
Security is a ["fully modified pass-through" mortgage-backed
certificate] [issued and serviced by a mortgage banking company or
other financial concern approved by Ginnie Mae (a "Ginnie Mae
Issuer")] based on and backed by a pool of mortgage loans (each, a
"Mortgage Pool") which may consist of FHA-insured or VA-guaranteed
mortgage loans secured by one- to four-family residential properties
and eligible for inclusion in mortgage pools underlying Ginnie Mae
Securities, which may be level payment or graduated payment first
lien mortgage loans with terms to maturity of not more than 30 years
(collectively, the "Mortgage Loans"). Certain characteristics of
the Underlying Agency Securities are described herein under
"Description of the Underlying Agency Securities." See "Index of
Principal Definitions" in the Prospectus for meanings of capitalized
terms and acronyms not otherwise defined herein.
(Continued on following page)
PROCEEDS OF THE ASSETS IN THE TRUST FUND ARE THE SOLE SOURCE OF
PAYMENTS ON THE OFFERED CERTIFICATES. THE OFFERED CERTIFICATES DO
NOT REPRESENT AN INTEREST IN OR OBLIGATION OF THE COMPANY, THE
CERTIFICATE ADMINISTRATOR, GMAC MORTGAGE CORPORATION ("GMAC
MORTGAGE") OR ANY OF THEIR AFFILIATES. ALTHOUGH PAYMENT OF
PRINCIPAL AND INTEREST ON THE UNDERLYING AGENCY SECURITIES IS
GUARANTEED BY GINNIE MAE, THE OFFERED CERTIFICATES ARE NOT INSURED
OR GUARANTEED BY ANY GOVERNMENTAL AGENCY OR INSTRUMENTALITY OR BY
THE COMPANY, THE CERTIFICATE ADMINISTRATOR, GMAC MORTGAGE OR ANY OF
THEIR AFFILIATES.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY
STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF
THIS PROSPECTUS SUPPLEMENT OR THE PROSPECTUS. ANY REPRESENTATION
TO THE CONTRARY IS A CRIMINAL OFFENSE. THE ATTORNEY GENERAL OF THE
STATE OF NEW YORK HAS NOT PASSED ON OR ENDORSED THE MERITS OF THIS
OFFERING. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
THE ATTORNEY GENERAL OF THE STATE OF NEW YORK HAS NOT PASSED ON OR
ENDORSED THE MERITS OF THIS OFFERING. ANY REPRESENTATION TO THE
CONTRARY IS UNLAWFUL.
[Name of Underwriter] (the "Underwriter") intends to make a
secondary market in the Offered Certificates, but has no obligation
to do so. There can be no assurance that a secondary market for the
Offered Certificates will develop or, if it does develop, that it
will continue. The Offered Certificates will not be listed on any
securities exchange.
The Offered Certificates will be purchased from the Company by the
Underwriter, and will be offered by the Underwriter from time to
time to the public, directly or through dealers, in negotiated
transactions or otherwise at varying prices to be determined at the
time of sale. The proceeds to the Company from the sale of the
Offered Certificates, before deducting expenses payable by the
Company, will be equal to approximately [____]% of the initial
aggregate principal balance of the Offered Certificates, plus
accrued interest thereon from [__________ __, 199_] (the "Reference
Date"). The Offered Certificates are offered by the Underwriter
subject to prior sale, when, as and if delivered to and accepted by
the Underwriter and subject to certain other conditions. The
Underwriter reserves the right to withdraw, cancel or modify such
offer and to reject any order in whole or in part. It is expected
that delivery of the Offered Certificates will be made on or about
[__________ __, 199_], [at the offices of [ ]],
[through the facilities of The Depository Trust Company], against
payment therefor in immediately available funds.
[Name of Underwriter]
[__________ __, 199_]
(Continued from previous page)
It is a condition to the issuance of the Offered Certificates
that the Class A-1, Class A-2, Class A-3, Fixed Strip and Residual
Certificates be rated "[__]" by [_______] and "[__]" by [________].
As described herein, a "real estate mortgage investment conduit"
(a "REMIC") election will be made in connection with the Trust Fund
for federal income tax purposes. Each class of the Offered
Certificates (other than the Residual Certificates) will represent
ownership of "regular interests" in the REMIC and the Residual
Certificates will be the sole class of "residual interests" in the
REMIC. See "Certain Federal Income Tax Consequences" herein and in
the Prospectus. [Transfers of the Residual Certificates may be made
only to "qualified institutional buyers" as defined in Rule 144A
under the Securities Act of 1933, as amended, and will be prohibited
to any non-United States person, and will be subject to certain
additional transfer restrictions described under "Certain Federal
Income Tax Consequences Special Tax Considerations Applicable to
Residual Certificates" herein and in the Prospectus under "Certain
Federal Income Tax Consequences REMICs Tax and Restrictions on
Transfers of REMIC Residual Certificates to Certain Organizations"
and " Taxation of Owners of REMIC Residual Certificates Noneconomic
REMIC Residual Certificates."]
Distributions on the Offered Certificates will be made on the
third business day following each distribution date for the
Underlying Agency Securities (each, a "Distribution Date"),
commencing on [__________ __, 199_] for the Offered Certificates
other than the Class A-3 Certificates, and commencing on the
Accretion Termination Date (as defined herein) for the Class A-3
Certificates. With respect to any of the Underlying Agency
Securities, the distribution date is the [15th day of each calendar
month in the case of a GNMA I Certificate] [the 20th day of each
calendar month in the case of a GNMA II Certificate] (or, if such
day is not a business day, the next business day) (each, an
"Underlying Security Distribution Date"). As described herein under
"Description of the Offered Certificates-Interest Distributions,"
interest distributions on the Offered Certificates will be based on
the Certificate Principal Balance thereof (or the Notional Amount
(as defined herein) in the case of the Fixed Strip Certificates) and
the applicable Pass-Through Rate thereof, which will be fixed for
all classes of Offered Certificates. Distributions in respect of
principal of the Offered Certificates will be allocated among the
various classes of the Offered Certificates (other than the Fixed
Strip Certificates), as described herein under "Description of the
Offered Certificates Principal Distributions."
The yield to maturity on the Offered Certificates will depend
on the rate and timing of principal payments on the Underlying
Agency Securities, which in turn will be affected by the rate and
timing of principal payments on the Mortgage Loans. The yield to
investors on the Fixed Strip Certificates will be extremely
sensitive to the rate and timing of principal payments on the
related Underlying Agency Securities, which in turn will be
affected by the rate and timing on the Mortgage Loans which may
fluctuate significantly over time. An extremely rapid rate of
principal payments on the Mortgage Loans could result in the
failure of investors in the Fixed Strip Certificates to recover
their initial investments. See "Summary Special Prepayment
Considerations," " Special Yield Considerations" and "Certain Yield
and Prepayment Considerations" herein and "Yield Considerations" in
the Prospectus.
THE CERTIFICATES OFFERED BY THIS PROSPECTUS SUPPLEMENT
CONSTITUTE PART OF A SEPARATE SERIES OF CERTIFICATES BEING OFFERED
BY THE COMPANY PURSUANT TO ITS PROSPECTUS DATED [__________ __,
199_], OF WHICH THIS PROSPECTUS SUPPLEMENT IS A PART AND WHICH
ACCOMPANIES THIS PROSPECTUS SUPPLEMENT. THE PROSPECTUS CONTAINS
IMPORTANT INFORMATION REGARDING THIS OFFERING NOT CONTAINED HEREIN
AND PROSPECTIVE INVESTORS ARE URGED TO READ THE PROSPECTUS AND THIS
PROSPECTUS SUPPLEMENT IN FULL. SALES OF THE OFFERED CERTIFICATES
MAY NOT BE CONSUMMATED UNLESS THE PURCHASER HAS RECEIVED BOTH THIS
PROSPECTUS SUPPLEMENT AND THE PROSPECTUS.
UNTIL [__________ __, 199_] (90 DAYS AFTER THE DATE OF THIS
PROSPECTUS SUPPLEMENT), ALL DEALERS EFFECTING TRANSACTIONS IN THE
OFFERED CERTIFICATES, WHETHER OR NOT PARTICIPATING IN THIS
DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS SUPPLEMENT
AND THE PROSPECTUS TO WHICH IT RELATES. THIS DELIVERY REQUIREMENT
IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS
SUPPLEMENT AND PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH
RESPECT TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
[IN CONNECTION WITH THIS OFFERING, THE UNDERWRITER MAY OVER-
ALLOT OR EFFECT TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET
PRICE OF THE OFFERED CERTIFICATES AT A LEVEL ABOVE THAT WHICH MIGHT
OTHERWISE PREVAIL IN THE OPEN MARKET, SUCH STABILIZATION, IF
COMMENCED, MAY BE DISCONTINUED AT ANY TIME.]
SUMMARY
The following summary is qualified in its entirety by
reference to the detailed information appearing elsewhere herein and
in the Prospectus. Capitalized terms used herein and not otherwise
defined herein have the meanings assigned in the Prospectus. See
"Index of Principal Definitions" in the Prospectus.
Title of Securities . Mortgage Pass-Through Certificates,
Series [199_-_] (the
"Certificates").
Company . . . . . . . Residential Asset Securities
Corporation (the "Company"), a
corporation organized under the
laws of the State of Delaware which
is an affiliate of Residential
Funding Corporation ("Residential
Funding"), and an indirect wholly-
owned subsidiary of GMAC Mortgage.
See "The Company" in the
Prospectus.
Certificate Administrator. [Residential Funding] [ ] in
its capacity as certificate
administrator (the "Certificate
Administrator"). See "Trust
Agreement The Certificate
Administrator" herein [and
"Residential Funding Corporation"
in the Prospectus.]
Trustee . . . . . . . [Name of Trustee], a [national
bank] [[state bank] [trust company]
organized under the laws of
__________] (the "Trustee"). See
"The Pooling and Servicing
Agreement The Trustee" in the
Prospectus.
Reference Date. . . . [__________ 1, 199_] (the
"Reference Date").
Delivery Date . . . . On or about [__________ __, 199_]
(the "Delivery Date").
Distribution Date . . The third business day following
each distribution date for the
Underlying Agency Securities
commencing on [__________ __, 199_]
(each, a "Distribution Date").
With respect to any of the
Underlying Agency Securities, the
distribution date is the [15th day
of each calendar month in the case
of a GNMA I Certificate] [the 20th
day of each calendar month in the
case of a GNMA II Certificate] (or,
if such day is not a business day,
the next business day) (each, an
"Underlying Security Distribution
Date").
The Trust Fund. . . . The Trust Fund, in which the
Offered Certificates in the
aggregate represent the entire
beneficial ownership interest,
consists primarily of the
Underlying Agency Securities. The
Offered Certificates will be issued
pursuant to a Trust Agreement (the
"Trust Agreement"), dated as of the
Reference Date, among the Company,
the Certificate Administrator and
the Trustee. See "Description of
the Offered Certificates General"
herein.
The Underlying Agency Securities. . . . The Underlying Agency
Securities are [GNMA]
[I] [II] Certificates.
Each Underlying Agency
Security is a ["fully
modified pass-through"
mortgage-backed
certificate] [issued and
serviced by a mortgage
banking company or other
financial concern
approved by Ginnie Mae
(a "Ginnie Mae Issuer")]
based on and backed by a
pool of FHA-insured or
VA-guaranteed mortgage
loans secured by one-
to four-family
residential properties
and eligible for
inclusion in mortgage
pools underlying Ginnie
Mae Securities, which
may be level payment or
graduated payment first
lien mortgage loans with
terms to maturity of not
more than 30 years (the
"Mortgage Loans").
Information relating to
the Underlying Agency
Securities is provided
as of the Reference
Date.
The Underlying Agency Securities
will have an aggregate outstanding
principal balance of approximately
$[ ], pass-through rates of [
]% and a weighted average remaining
term to stated maturity of
approximately [ ] months as of
the Reference Date.
The Underlying Agency Securities
are guaranteed as to full and
timely payment of principal and
interest by Ginnie Mae. The
guaranty of Ginnie Mae is backed by
the full faith and credit of the
United States. For a further
description of the underlying
Agency Securities, see "Description
of the Underlying Agency
Securities" herein.
The Offered Certificates . The Offered Certificates in the
aggregate will represent the entire
beneficial ownership interest in
the Trust Fund. The Offered
Certificates will have the
following Pass-Through Rates,
Certificate Principal Balances and
other features as of the Reference
Date:
Class A-1 Certificates [____]% $[_________] Fixed
Class A-2 Certificates [____]% $[_________] Fixed
Class A-3 Certificates [____]% $[_________] Fixed/Accrual
Class S Certificates [____]% $ 0 Fixed Strip
[Class R Certificates [____]% $[_________] Residual]
Residual Certificates. The Class R Certificates are
designated as the "Residual
Certificates." [The Residual
Certificates have no Certificate
Principal Balance and no
Pass-Through Rate. The Residual
Certificates represent the right to
receive certain distributions, if
any, of amounts which are in excess
of the amounts required to be
distributed to all other classes of
Offered Certificates following the
retirement of all of the Offered
Certificates.] [The Residual
Certificates are not being offered
hereby.]
[Residential Funding initially will
retain [a de minimis portion of]
the Residual Certificates; however,
the Residual Certificates held by
Residential Funding may be sold at
any time in accordance with the
terms of the Trust Agreement.]
Denominations . . . . The Class A-1, Class A-2 and Class
A-3 Certificates will be offered in
registered form, in minimum
denominations of $[ ] and
integral multiples of $[
] in excess thereof [, with one
Class [____] Certificate evidencing
the sum of an authorized
denomination thereof plus the
remainder of the aggregate initial
Certificate Principal Balance of
such class]. The Fixed Strip
Certificates and Residual
Certificates will be offered in
registered form in minimum
denominations of a [____]%
Percentage Interest [, except, in
the case of the Residual
Certificates, as otherwise set
forth herein under "Certain Federal
Income Tax Consequences."]
[Certificate Registration. The Offered Certificates (other
than the [Fixed Strip and Residual]
Certificates) will be represented
by one or more certificates
registered in the name of Cede &
Co., as nominee of The Depository
Trust Company ("DTC"). No person
acquiring an interest in the
Offered Certificates (other than
the [Fixed Strip and Residual]
Certificates) will be entitled to
receive a Certificate of such class
in fully registered, certificated
form, except under the limited
circumstances described in the
Prospectus under "Description of
the Certificates Form of
Certificates." The [Fixed Strip
and Residual] Certificates will be
offered in fully registered,
certificated form. See
"Description of the
Certificates Form of Certificates"
in the Prospectus.]
Pass-Through Rates on the
Offered Certificates . . The Pass-Through Rates on all
classes of the Offered Certificates
are the fixed rates set forth
above. The Fixed Strip
Certificates have no Certificate
Principal Balance and will accrue
interest at the applicable Pass-
Through Rate on the related
Notional Amount (as defined
herein).
Interest Distributions on the
Offered Certificates. . Holders of each class of Offered
Certificates (the
"Certificateholders") will be
entitled to receive interest
distributions in an amount equal to
the Accrued Certificate Interest on
such class on each Distribution
Date, (i) in the case of the Class
A-1 Certificates, Class A-2
Certificates, Fixed Strip
Certificates and Residual
Certificates, to the extent of the
amount available for interest
distributions (as described herein
under "Description of the Offered
Certificates-Interest
Distributions") for such
Distribution Date and (ii) in the
case of the Class A-3 Certificates,
to the extent of the Available
Distribution Amount for such
Distribution Date after
distributions of interest and
principal to the Class A-1
Certificates, Class A-2
Certificates, Fixed Strip
Certificates and Residual
Certificates, commencing on the
first Distribution Date in the case
of all classes of Offered
Certificates (other than the Class
A-3 Certificates) and commencing on
the Accretion Termination Date (as
defined below) in the case of the
Class A-3 Certificates.
With respect to any Distribution
Date, "Accrued Certificate
Interest" will be equal to (a) in
the case of each class of Offered
Certificates (other than the Fixed
Strip Certificates), one month's
interest accrued on the related
Certificate Principal Balance of
such class, at the Pass-Through
Rate on such class and (b) in the
case of the Fixed Strip
Certificates, one month's interest
accrued on the related Notional
Amount thereof at the Pass-Through
Rate set forth below; [in each case
less the class's pro rata portion
of any Prepayment Interest
Shortfall (as defined herein)
allocated to any of the Underlying
Agency Securities].
The "Notional Amount" of the Fixed
Strip Certificates with respect to
any Distribution Date is equal to
the aggregate Certificate Principal
Balance of the Underlying Agency
Securities immediately prior to the
most recent Underlying Security
Distribution Date.
The Accretion Termination Date is
the first Distribution Date to
occur on which the Certificate
Principal Balance of the Residual,
Class A-1 and Class A-2
Certificates have been reduced to
zero. On each Distribution Date
preceding the Accretion Termination
Date, an amount equal to the
Accrued Certificate Interest on the
Class A-3 Certificates will be
added to the Certificate Principal
Balance thereof (the "Accretion
Amount") and will thereafter accrue
interest at the applicable Pass-
Through Rate. On each Distribution
Date on or after the Accretion
Termination Date, Accrued
Certificate Interest will generally
be payable to the holders of the
Class A-3 Certificates, as
described herein. See "Description
of the Offered
Certificates Interest
Distributions" herein.
Principal Distributions on the
Offered Certificates . Holders of the Offered Certificates
(other than the Fixed Strip
Certificates) will be entitled to
receive, in the aggregate, on each
Distribution Date, to the extent of
the portion of the Available
Distribution Amount (as defined
herein) remaining after the
aggregate amount of Accrued
Certificate Interest to be
distributed to the holders of the
Offered Certificates is
distributed, a distribution
allocable to principal which will
be equal to the sum of (i) the
aggregate amount distributed in
respect of principal on all of the
Underlying Agency Securities on the
immediately preceding Underlying
Security Distribution Date and (ii)
the Accretion Amount. Distributions
of principal on the Offered
Certificates will be made first to
the Residual Certificates, second
to Class A-1 Certificates, third to
the Class A-2 Certificates and
fourth to the Class A-3
Certificates, in each case until
the Certificate Principal Balance
thereof is reduced to zero. The
Fixed Strip Certificates have no
Certificate Principal Balance and,
accordingly, will not be entitled
to any principal distributions.
See "Description of the Offered
Certificates Principal
Distributions herein.
As to each of the Underlying Agency
Securities, principal distributions
will be made thereon on each
Underlying Security Distribution
Date in the respective amounts
described herein under "Description
of the Underlying Agency
Securities."
Optional Termination. At its option, the Certificate
Administrator or the Company may
repurchase from the Trust Fund all
of the Underlying Agency Securities
remaining in the Trust Fund, and
thereby effect early retirement of
the Offered Certificates, at such
time as the aggregate Certificate
Principal Balance of the Underlying
Agency Securities is less than
[____]% of the aggregate
Certificate Principal Balance
thereof as of the Delivery Date, as
described herein. See "Trust
Agreement Termination" herein and
"The Pooling and Servicing
Agreement-Termination; Retirement
of Certificates" in the Prospectus.
Special Prepayment
Considerations . . The rate and timing of principal
payments on the Offered
Certificates will depend, among
other things, on the rate and
timing of principal payments on the
Underlying Agency Securities, which
in turn will be affected by the
rate and timing of principal
payments on the Mortgage Loans. As
is the case with mortgage-backed
securities generally, the
Underlying Agency Securities and,
as a result, the Offered
Certificates are subject to
substantial inherent cash-flow
uncertainties because the Mortgage
Loans may be prepaid at any time.
Generally, when prevailing interest
rates increase, prepayment rates on
mortgage loans tend to decrease,
resulting in a slower return of
principal to investors at a time
when reinvestment at such higher
prevailing rates would be
desirable. Conversely, when
prevailing interest rates decline,
prepayment rates on mortgage loans
tend to increase, resulting in a
faster return of principal to
investors at a time when
reinvestment at comparable yields
may not be possible.
The allocation of prepayments among
certain classes of the Offered
Certificates will be affected by
certain other factors, as follows:
Distributions of principal to the
Offered Certificates will be made
first to the Residual Certificates,
second, to the Class A-1
Certificates, third, to the Class
A-2 Certificates and fourth, to the
Class A-3 Certificates, in each
case until the Certificate
Principal Balance thereof is
reduced to zero. The timing of
commencement of principal
distributions and the weighted
average lives of the Class A-2
Certificates and Class A-3
Certificates will be affected by
the rates of prepayment experienced
both before and after the
commencement of principal
distributions on such classes.
See "Description of the Offered
Certificates Principal
Distributions," "Description of the
Underlying Agency Securities" and
"Certain Yield and Prepayment
Considerations" herein and
"Maturity and Prepayment
Considerations" in the Prospectus.
For further information regarding
the effect of principal prepayments
on the weighted average lives of
the Offered Certificates (other
than the Fixed Strip Certificates
and Residual Certificates), see the
table entitled "Percent of Initial
Certificate Principal Balance
Outstanding at the Following
Percentages of SPA" herein.
Special Yield Considerations The yield to maturity on each
class of the Offered
Certificates will depend, among
other things, on the rate and
timing of principal payments on
the Underlying Agency
Securities, which in turn will
be affected by the rate and
timing of principal payments on
the Mortgage Loans and the
allocation thereof to reduce
the Certificate Principal
Balance or Notional Amount of
such class. The yield to
maturity on each class of
Offered Certificates will also
depend on the Pass-Through Rate
and the purchase price for such
class. [The yield to investors
on any class of Offered
Certificates will be adversely
affected by any allocation
thereto of Prepayment Interest
Shortfalls on the Mortgage
Loans, which are expected to
result from the distribution of
interest only to the date of
prepayment (rather than a full
month's interest) in connection
with prepayments in full, and
the lack of any distribution of
interest on the amount of any
partial prepayments.]
In general, if a class of Offered
Certificates is purchased at a
premium and principal distributions
thereon occur at a rate faster than
anticipated at the time of
purchase, the investor's actual
yield to maturity will be lower
than that assumed at the time of
purchase. Conversely, if a class
of Offered Certificates is
purchased at a discount and
principal distributions thereon
occur at a rate slower than that
assumed at the time of purchase,
the investor's actual yield to
maturity will be lower than that
assumed at the time of purchase.
The Offered Certificates were
structured assuming, among other
things, a prepayment assumption of
[____]% SPA (as defined herein) and
corresponding weighted average
lives as described herein under
"Description of the Underlying
Agency Securities." The
prepayment, yield and other
assumptions to be used for pricing
purposes for the respective classes
that are to be offered hereunder
may vary as determined at the time
of sale.
The yield of certain classes of the
Offered Certificates will be
particularly sensitive to changes
in the rates of prepayment of the
Mortgage Loans and other factors,
as follows:
The yield to investors on the Fixed
Strip Certificates will be
extremely sensitive to the rate and
timing of principal payments on the
Underlying Agency Securities, which
in turn will be affected by the
rate and timing of principal
payments on the Mortgage Loans
included in the related Mortgage
Pools, which rate may fluctuate
significantly over time. [In
addition, Prepayment Interest
Shortfalls allocated to the
Underlying Agency Securities, will
be allocated to the Fixed Strip
Certificates and each other class
of Offered Certificates on a pro
rata basis based on the aggregate
Accrued Certificate Interest
thereon, regardless, in the case of
the Fixed Strip Certificates, of
whether such Prepayment Interest
Shortfalls are attributable to
those Underlying Agency Securities
used for purposes of determining
the related Notional Amount.] An
extremely rapid rate of principal
payments on the Underlying Agency
Securities could result in the
failure of investors in the Fixed
Strip Certificates to recover
their initial investments.
Because the Class A-3 Certificates
do not receive any distribution of
interest until the Accretion
Termination Date, the Class A-3
Certificates will likely experience
greater price and yield volatility
than would mortgage pass-through
certificates which are otherwise
similar but that are entitled to
current distributions of interest.
Investors should consider whether
such volatility is in accordance
with their investment needs.
Holders of the Residual
Certificates are entitled to
receive distributions of principal
and interest as described herein
under "Description of the Offered
Certificates-Interest
Distributions" and "-Principal
Distributions"; however, holders of
such Certificates may have tax
liabilities with respect to their
Certificates during the early years
of the term of the Trust Fund that
substantially exceed the principal
and interest payable thereon during
such periods.
See "Certain Yield and Prepayment
Considerations," especially " Fixed
Strip Certificate Yield
Considerations" and " Additional
Yield Considerations Applicable
Solely to the Residual
Certificates" herein, "Certain
Federal Income Tax Consequences"
herein and in the Prospectus and
"Yield Considerations" in the
Prospectus.
Certain Federal Income Tax
Consequences . . . A "real estate mortgage investment
conduit" (a "REMIC") election will
be made with respect to the Trust
Fund for federal income tax
purposes. Upon the issuance of the
Offered Certificates, [Orrick,
Herrington & Sutcliffe] [Thacher
Proffitt & Wood], New York, New
York, tax counsel to the Company,
will deliver its opinion generally
to the effect that, assuming
compliance with all provisions of
the Trust Agreement, the Trust Fund
will qualify as a REMIC under
Sections 860A through 860G of the
Internal Revenue Code of 1986 (the
"Code").
[ADDITIONAL TAX CONSEQUENCES TO BE
INCLUDED AS APPROPRIATE.]
For further information regarding
the federal income tax consequences
of investing in the Offered
Certificates, see "Certain Federal
Income Tax Consequences" herein and
in the Prospectus.
ERISA Considerations. [ERISA CONSIDERATIONS TO BE
INCLUDED AS NECESSARY.] See "ERISA
Considerations" [herein and] in the
Prospectus.
Ratings . . . . . . . It is a condition to the issuance
of the Offered Certificates that
the Class A-1, Class A-2, Class A-
3, Fixed Strip and Class R
Certificates be rated "[__]" by
[__________] and "[__]" by
[________]. A security rating is
not a recommendation to buy, sell
or hold securities and may be
subject to revision or withdrawal
at any time by the assigning rating
organization. A security rating
does not address the frequency of
prepayments of Mortgage Loans, or
the corresponding effect on yield
to investors. The rating of the
Fixed Strip Certificates does not
address the possibility that the
holders of such Certificates may
fail to fully recover their initial
investments. See "Certain Yield
and Prepayment Considerations" and
"Ratings" herein and "Yield
Considerations" in the Prospectus.
Legal Investment Matters . The Offered Certificates will
constitute "mortgage related
securities" for purposes of the
Secondary Mortgage Market
Enhancement Act of 1984, as amended
("SMMEA"), for so long as they are
rated in one of the two highest
rating categories by at least one
nationally recognized statistical
rating organization, and, as such,
will be legal investments for
certain entities to the extent
provided in SMMEA. Institutions
whose investment activities are
subject to legal investment laws
and regulations or review by
regulatory authorities should
consult with their legal advisors
in determining whether and to what
extent the Offered Certificates
constitute legal investments under
SMMEA or are subject to restriction
on investment, capital requirements
or otherwise. See "Legal
Investment Matters" herein and in
the Prospectus.
[SPECIAL CONSIDERATIONS]
[Prospective Certificateholders should consider, among other
things, the items discussed under "Special Considerations" in the
Prospectus and the following factors in connection with the purchase
of the Certificates:]
[APPROPRIATE SPECIAL CONSIDERATIONS REGARDING MORTGAGE COLLATERAL TO
BE INSERTED AS NECESSARY]
DESCRIPTION OF THE OFFERED CERTIFICATES
General
The Series [199_-_] Mortgage Pass-Through Certificates will
include the following five classes (the "Offered Certificates"):
(i) Class A-1 Certificates, Class A-2 Certificates and Class A-3
Certificates, (ii) the Class S Certificates (the "Fixed Strip
Certificates") and (iii) the Class R Certificates (the "Residual
Certificates").
The Offered Certificates in the aggregate will represent the
entire beneficial ownership interest in the Trust Fund. The Trust
Fund will consist of: (i) the Underlying Agency Securities,
including all distributions thereon payable after the Delivery Date;
and (ii) such assets as from time to time are identified as
deposited in respect of the Underlying Agency Securities in the
Certificate Account and belonging to the Trust Fund.
Available Distribution Amount
The "Available Distribution Amount" with respect to the
Offered Certificates for any Distribution Date will be equal to the
aggregate amount of distributions on the Underlying Agency
Securities on the immediately preceding Underlying Security
Distribution Date, after deduction of the related Servicing Fee (as
described herein under "Trust Agreement Compensation of Certificate
Administrator").
Interest Distributions
Holders of each class of Offered Certificates will be entitled
to receive interest distributions in an amount equal to the Accrued
Certificate Interest on such class on each Distribution Date, (i) in
the case of the Class A-1 Certificates, Class A-2 Certificates,
Fixed Strip Certificates and Residual Certificates, to the extent of
the Available Distribution Amount for such Distribution Date and
(ii) in the case of the Class A-3 Certificates to the extent of the
Available Distribution Amount for such Distribution Date after
distributions of interest and principal on the Class A-1
Certificates, Class A-2 Certificates, Fixed Strip Certificates and
Residual Certificates, commencing on the first Distribution Date in
the case of all classes of Offered Certificates (other than the
Class A-3 Certificates) and commencing on the Accretion Termination
Date in the case of the Class A-3 Certificates. Notwithstanding the
foregoing sentence, the amount available for interest distributions
on the Offered Certificates on any Distribution Date shall not
exceed the aggregate amounts distributed on the Underlying Agency
Securities on the preceding Underlying Security Distribution Date in
respect of interest, reduced by the Servicing Fee (as defined
herein), which is calculated at a rate of [____]% per annum.
With respect to any Distribution Date, "Accrued Certificate
Interest" will be equal to (a) in the case of each class of Offered
Certificates (other than the Fixed Strip Certificates) one month's
interest accrued on the Certificate Principal Balance of such class
at the Pass-Through Rate set forth on the cover hereof and (b) in
the case of the Fixed Strip Certificates, one month's interest
accrued on the Notional Amount at the applicable Pass-Through Rate[;
in each case minus the aggregate amount of Prepayment Interest
Shortfalls for such Distribution Date as described in the following
sentence, which shall be allocated among the Offered Certificates
(including the Fixed Strip Certificates and, in the case of such
Certificates, without regard to the source of such Prepayment
Interest Shortfalls in proportion to the total amount of Accrued
Certificate Interest that would have been paid thereon absent such
reductions]. [For purposes of the foregoing, the aggregate amount
of Prepayment Interest Shortfalls for any Distribution Date will be
equal to the aggregate amount of Prepayment Interest Shortfalls, if
any, allocated to each of the Underlying Agency Securities for the
immediately preceding Underlying Security Distribution Date.] [Any
Prepayment Interest Shortfalls will not be offset by a reduction of
the servicing compensation of the Certificate Administrator or
otherwise.] Accrued Certificate Interest is calculated on the basis
of a 360-day year consisting of twelve 30-day months.
The "Accretion Termination Date" for the Class A-3
Certificates is the first Distribution Date on or after the
Certificate Principal Balances of the Residual Certificates, Class
A-1 Certificates and Class A-2 Certificates have been reduced to
zero. On each Distribution Date preceding the Accretion Termination
Date, an amount equal to the amount of Accrued Certificate Interest
on the Class A-3 Certificates for such date will be added to the
Certificate Principal Balance thereof (the "Accretion Amount"), and
such amount will be distributed to the holders of the Offered
Certificates, other than the Class A-3 Certificates, as described
herein, in reduction of the Certificate Principal Balances thereof,
as described herein. On each Distribution Date on or after the
Accretion Termination Date, the entire amount of Accrued Certificate
Interest on the Class A-3 Certificates for such Distribution Date
will be payable to the holders of the Class A-3 Certificates, to the
extent not required to fully retire the remaining Offered
Certificates (other than the Class A-3 Certificates) on the
Accretion Termination Date.
The Pass-Through Rates on all classes of Offered Certificates
are the fixed rates set forth on the cover hereof. The Fixed Strip
Certificates have no Certificate Principal Balance and will accrue
interest at the applicable Pass-Through Rate on the Notional Amount.
As described herein, the Accrued Certificate Interest
allocable to each class of Offered Certificates is based on the
Certificate Principal Balance thereof or, in the case of the Fixed
Strip Certificates, on the Notional Amount. The "Certificate
Principal Balance" of any Offered Certificate as of any date of
determination is equal to the initial Certificate Principal Balance
thereof, reduced by the aggregate of all amounts allocable to
principal previously distributed with respect to such Offered
Certificate and, in the case of the Class A-3 Certificates,
increased by the amount of any Accrued Certificate Interest added to
the Certificate Principal Balance of such class. The "Notional
Amount" of the Fixed Strip Certificates is initially $[__________]
and with respect to any Distribution Date is equal to the aggregate
Certificate Principal Balance of the Underlying Agency Securities
immediately prior to the most recent Underlying Security
Distribution Date.
Principal Distributions
Holders of the Offered Certificates (other than the Fixed
Strip Certificates, which are not entitled to receive any principal
distributions) will be entitled to receive, in the aggregate on each
Distribution Date, to the extent of the portion of the Available
Distribution Amount remaining after Accrued Certificate Interest has
been distributed to the holders of the Class A-1 Certificates, Class
A-2 Certificates, Fixed Strip Certificates and Residual Certificates
for such Distribution Date (and, in the case of any payments of
principal to the Class A-3 Certificates, after Accrued Certificate
Interest has been distributed to the holders thereof for such
Distribution Date), a distribution allocable to principal which will
be equal to the sum of (i) the aggregate amount distributed in
respect of principal on all of the Underlying Agency Securities on
the immediately preceding Underlying Security Distribution Date and
(ii) the Accretion Amount (together, the "Principal Distribution
Amount").
On each Distribution Date, the Principal Distribution Amount
shall be distributed as follows:
(i) first, to the holders of the Residual
Certificates, until the Certificate Principal Balance thereof
is reduced to zero;
(ii) second, to the holders of the Class A-1
Certificates, until the Certificate Principal Balance thereof
is reduced to zero;
(iii) third, to the holders of the Class A-2
Certificates, until the Certificate Principal Balance thereof
is reduced to zero; and
(iv) fourth, to the holders of the Class A-3
Certificates, until the Certificate Principal Balance thereof
is reduced to zero.
DESCRIPTION OF THE UNDERLYING AGENCY SECURITIES
[Each Underlying Agency Security (which may be a GNMA I
Certificate or a GNMA II Certificate as referred to by Ginnie Mae)
underlying the Series [199_-_] Certificates will be a "fully-
modified pass-through" mortgage-backed certificate issued and
serviced by a mortgage banking company or other financial concern (a
"Ginnie Mae Issuer") approved by Ginnie Mae as a seller-servicer of
FHA Loans and VA Loans.
The mortgage loans underlying Ginnie Mae Securities may
consist of FHA Loans or VA Loans secured by one- to four-family
residential properties and eligible for inclusion in mortgage pools
underlying Ginnie Mae Securities, which may be level payment first
lien mortgage loans (including "buy-down" mortgage loans) or
graduated payment first lien mortgage loans.
Ginnie Mae has approved the issuance of each Underlying Agency
Security in accordance with a guarantee agreement (a "Guarantee
Agreement") between Ginnie Mae and the Ginnie Mae Issuer. Pursuant
to its Guarantee Agreement, a Ginnie Mae Issuer will be required to
advance its own funds in order to make timely payments of all
amounts due on each Underlying Agency Security, even if the payments
received by the Ginnie Mae Issuer on the Mortgage Loans relating to
each Underlying Agency Security are less than the amounts due on
each such Underlying Agency Security.
The full and timely payment of principal and interest on each
Underlying Agency Security will be guaranteed by Ginnie Mae, which
obligation is backed by the full faith and credit of the United
States. See "The Agency Securities Government National Mortgage
Association" and " Ginnie Mae Securities" in the Prospectus. Each
Underlying Agency Security will have an original maturity of not
more than 30 years. Each Underlying Agency Security will be based
on and backed by a Mortgage Pool and will provide for the payment by
or on behalf of the Ginnie Mae Issuer to the registered holder of
such Underlying Agency Security of fixed monthly payments of
principal and interest equal to the aggregate amount of the
scheduled monthly principal and interest payments on the Mortgage
Loans relating to such Underlying Agency Security, less a servicing
and guarantee fee of 0.5% and up to 1.5% per annum of the
outstanding principal balance for such GNMA I Certificates and GNMA
II Certificates, respectively. In addition, each payment will
include any prepayments of principal of the Mortgage Loans relating
to such Underlying Agency Security and liquidation proceeds in the
event of a foreclosure or other disposition of any such Mortgage
Loans.
Mortgage loans underlying a particular GNMA I Certificate must
have the same annual interest rate (except for pools of mortgage
loans secured by mobile homes). The annual pass-through rate on
each GNMA I Certificate is the annual interest rate on the mortgage
loans included in the pool of mortgages backing such GNMA I
Certificate less 0.5% per annum of the unpaid principal balance of
such loans. This amount consists of 0.44% to be paid to the Ginne
Mae Issuer of the GNMA I Certificate (or its agent) as a fee for
servicing the loans and the GNMA I Certificates and a guaranty fee
of 0.06%, which must be paid out to Ginnie Mae by the Ginnie Mae
Issuer. Mortgage loans underlying a particular GNMA II Certificate
may have annual interest rates that vary from each other by up to
1%. The annual pass-through rate on each GNMA II Certificate will
be between 0.5% and 1.5% per annum less than the highest annual
interest rate on the mortgage loans included in the pool of
mortgages backing such GNMA II Certificate. The difference between
the GNMA II Certificate rate and rates on the underlying mortgages
consists of a guaranty fee of 0.06% which must be paid to Ginnie Mae
by the Ginnie Mae Issuer and a servicing fee of between 0.44% and
1.44% to be paid to the Ginnie Mae Issuer (or its agent).
All Ginnie Mae Securities underlying the Series [199_-_]
Certificates will have original maturities of not more than 30 years
(but may have original maturities of substantially less than 30
years). In general, Ginnie Mae requires that at least 90% of the
original principal amount of the mortgage pool underlying a Ginnie
Mae Security must be mortgages with maturities of 20 years or more.
However, in certain circumstances, Ginnie Mae Securities may be
backed by pools of mortgage loans at least 90% of the original
principal amount of which have original maturities of at least 15
years. Each mortgage loan underlying a Ginnie Mae Security, at the
time Ginnie Mae issues its guarantee commitment, must be originated
no more than 12 months prior to such commitment date.
No Ginnie Mae Issuer will insure or guarantee the Offered
Certificates or the Underlying Agency Securities. Each Ginnie Mae
Issuer will be obligated under its Guarantee Agreement with Ginnie
Mae to service the pooled Mortgage Loans in accordance with FHA and
VA requirements and with generally accepted practices in the
mortgage lending industry. Each Ginnie Mae Issuer's
responsibilities with respect to the pooled Mortgage Loans will
include collection of all principal and interest payments and
payments made by borrowers toward escrows established for taxes and
insurance premiums; maintenance of necessary hazard insurance
policies; institution of all actions necessary to foreclose on, or
take other appropriate action with respect to, loans in default; and
collection of FHA insurance and VA guarantee benefits.
If a Ginnie Mae Issuer is unable to make the payments on an
Underlying Agency Security as it becomes due, it must promptly
notify Ginnie Mae and request Ginnie Mae to make such payment. Upon
notification and request, Ginnie Mae will make such payments
directly to the registered holder of such Underlying Agency
Security. In the event no payment is made by a Ginnie Mae Issuer
and the Ginnie Mae Issuer fails to notify and request Ginnie Mae to
make such payment, the holder of such Underlying Agency Security
will have recourse only against Ginnie Mae to obtain such payment.
The Trustee or its nominee, as registered holder of the Underlying
Agency Security, will have the right to proceed directly against
Ginnie Mae under the terms of the Guaranty Agreement relating to
such Underlying Agency Security for any amounts that are not paid
when due.
Regular monthly installment payments on each Underlying Agency
Security will be comprised of interest due as specified on such
Underlying Agency Security plus the scheduled principal payments on
the related Mortgage Loans due on the first day of the month in
which the scheduled monthly installment on such Underlying Agency
Security is due. Such regular monthly installments on each such
Underlying Agency Security will be paid to the Trustee as registered
holder by the 15th day of each month in the case of a GNMA I
Certificate and will be mailed to the Trustee by the 20th day of
each month in the case of a GNMA II Certificate (each, an
"Underlying Security Distribution Date"). Any principal prepayments
on any Mortgage Loans underlying an Underlying Agency Security or
any other early recovery of principal of such loans will be passed
through to the Trustee as the registered holder of the Underlying
Agency Security.
Pools of non-graduated payment mortgages evidenced by certain
of the Ginnie Mae Securities may consist of level payment mortgages
for which funds have been provided (and deposited in escrow
accounts) by one or more Ginnie Mae Issuers, their affiliates or
other persons to reduce the borrowers' monthly payments during the
early years of such mortgage loans. Payments due the registered
holders of such "buy down" Ginnie Mae Securities, however, will be
computed in the same manner as payments derived from level payment
non-buy down Ginnie Mae Securities and will include amounts to be
collected from both the borrowers and the escrow accounts under the
control of the Ginnie Mae Issuer. The obligations of Ginnie Mae and
the Ginnie Mae Issuer with respect to such buy down Ginnie Mae
Security will be the same as with respect to non-buy down Ginnie Mae
Securities.]
The Underlying Agency Securities had an aggregate outstanding
principal balance of approximately $[___________], pass-through
rates of [___]% and a weighted average remaining term to stated
maturity of approximately [_____] months as of the Reference Date.
[INSERT ADDITIONAL DESCRIPTION OF UNDERLYING AGENCY SECURITIES AS
APPROPRIATE]
A Current Report on Form 8-K will be available to purchasers
of the Offered Certificates and will be filed, together with the
Trust Agreement, with the Securities and Exchange Commission within
fifteen days after the initial issuance of the Offered Certificates.
CERTAIN YIELD AND PREPAYMENT CONSIDERATIONS
General
The yield to maturity and the aggregate amount of
distributions on the Offered Certificates will be affected by the
rate and timing of principal payments on the Underlying Agency
Securities, which in turn will be affected by the rate and timing of
principal payments on the Mortgage Loans. Such yield may be
adversely affected by a higher or lower than anticipated rate of
principal payments on the Mortgage Loans in the Trust Fund. The
rate of principal payments on such Mortgage Loans will in turn be
affected by the amortization schedules of the Mortgage Loans, the
rate and timing of principal prepayments thereon by the Mortgagors
and liquidations of defaulted Mortgage Loans. The timing of changes
in the rate of prepayments and liquidations of the Mortgage Loans
may affect the yield to an investor, even if the average rate of
principal payments experienced over time is consistent with an
investor's expectation. Since the rate and timing of principal
payments on the Mortgage Loans will depend on future events and on
a variety of factors (as described more fully herein under "Yield
Considerations" and "Maturity and Prepayment Considerations" and in
the Prospectus), no assurance can be given as to such rate or the
timing of principal payments on the Offered Certificates.
The Mortgage Loans generally may be prepaid by the Mortgagors
at any time without payment of any prepayment fee or penalty. The
Mortgage Loans generally contain due-on-sale clauses. Prepayments
(to the extent of distributions thereof on the related Underlying
Agency Securities) and liquidations of the Mortgage Loans will
result in distributions to holders of the Offered Certificates of
principal amounts which would otherwise be distributed over the
remaining terms of the Mortgage Loans. Factors affecting prepayment
of mortgage loans include changes in mortgagors' housing needs, job
transfers, unemployment, mortgagors' net equity in the mortgaged
properties, changes in the value of the mortgaged properties,
mortgage market interest rates, solicitations and servicing
decisions. In addition, if prevailing mortgage rates fall
significantly below the Mortgage Rates on the Mortgage Loans, the
rate of prepayments (including refinancings) would be expected to
increase. Conversely, if prevailing mortgage rates rise
significantly above the Mortgage Rates on the Mortgage Loans, the
rate of prepayment on the Mortgage Loans would be expected to
decrease.
[The aggregate amount of interest otherwise payable to holders
of the Offered Certificates will be reduced by any Prepayment
Interest Shortfalls with respect to the Underlying Agency
Securities.] [In addition, Prepayment Interest Shortfalls allocated
to the Underlying Agency Securities, will be allocated to the Fixed
Strip Certificates and each other class of Offered Certificates on
a pro rata basis based on the aggregate Accrued Certificate Interest
thereon, regardless, in the case of the Fixed Strip Certificates, of
whether such Prepayment Interest Shortfalls are attributable to
those Underlying Agency Securities used for purposes of determining
the notional amount.] Such Prepayment Interest Shortfalls will not
be offset by a reduction in the Servicing Fee payable to the
Certificate Administrator or otherwise. See "Yield Considerations"
in the Prospectus and "Description of the Offered
Certificates Interest Distributions" and "Description of the
Underlying Agency Securities" herein for a discussion of the effect
of principal prepayments on the Mortgage Loans on the yield to
maturity of the Offered Certificates.
The yield to maturity of the Offered Certificates will depend
on the price paid by the holders of the Offered Certificates and the
related Pass-Through Rate. The extent to which the yield to
maturity of an Offered Certificate is sensitive to prepayments will
depend, in part, upon the degree to which it is purchased at a
discount or premium. In general, if a class of Offered Certificates
is purchased at a premium and principal distributions thereon occur
at a rate faster than anticipated at the time of purchase, the
investor's actual yield to maturity will be lower than that assumed
at the time of purchase. Conversely, if a class of Offered
Certificates is purchased at a discount and principal distributions
thereon occur at a rate slower than that assumed at the time of
purchase, the investor's actual yield to maturity will be lower than
that assumed at the time of purchase. For additional considerations
relating to the yield on the Offered Certificates, see "Yield
Considerations" and "Maturity and Prepayment Considerations" in the
Prospectus.
The yield to maturity on the Offered Certificates will be less
that the yield that would otherwise be produced by the applicable
Pass-Through Rate and the applicable purchase price because, while
interest on the Mortgage Loans will accrue monthly and will be
payable of the first day of each month, distributions on the
Underlying Agency Certificates will be made on the [15th][20th] day
of each month (or, if such day is not a business day, the next
business day) and distributions on the Offered Certificates will not
be made until the third business day following such distribution
date.
Weighted average life refers to the average amount of time
that will elapse from the date of issuance of a security to the date
of distribution to the investor of each dollar distributed in
reduction of principal of such security (assuming no losses). The
weighted average life of the Offered Certificates will be influenced
by, among other things, the rate at which principal of the Mortgage
Loans is paid, which may be in the form of scheduled amortization,
prepayments or liquidations.
The assumed final Distribution Date with respect to each class
of the Offered Certificates is [__________ __, 20__] which is the
Distribution Date [immediately] [____ months] following the latest
scheduled maturity date for any Mortgage Loan. No event of default,
change in the priorities for distribution among the various classes
or other provisions under the Trust Agreement will arise or become
applicable solely by reason of the failure to retire the entire
Certificate Principal Balance of any class of Offered Certificates
on or before its assumed final Distribution Date.
Prepayments on mortgage loans are commonly measured relative
to a prepayment standard or model. The model used in this
Prospectus Supplement, the standard prepayment assumption ("SPA"),
represents an assumed rate of prepayment each month relative to the
then outstanding principal balance of a pool of new mortgage loans.
A prepayment assumption of 100% SPA assumes constant prepayment
rates of 0.2% per annum of the then outstanding principal balance of
such mortgage loans in the first month of the life of the mortgage
loans and an additional 0.2% per annum in each month thereafter
until the thirtieth month. Beginning in the thirtieth month and in
each month thereafter during the life of the mortgage loans, 100%
SPA assumes a constant prepayment rate of 6% per annum each month.
As used in the table below, "0% SPA" assumes prepayment rates equal
to 0% of SPA (i.e., no prepayments). Correspondingly, "[___]% SPA"
assumes prepayment rates equal to [___]% of SPA, and so forth. SPA
does not purport to be a historical description of prepayment
experience or a prediction of the anticipated rate of prepayment of
any pool of mortgage loans, including the Mortgage Loans.
As described herein under "Certain Federal Income Tax
Consequences," the prepayment assumption with respect to the
Underlying Agency Securities that will be used in determining the
rate of accrued original issue discount, market discount and
premium, if any, on the Offered Certificates for federal income tax
purposes will be [____]% SPA. The original prepayment assumption
for each series of the Underlying Security is indicated in the
corresponding Term Sheet.
Modeling Assumptions
The table set forth below entitled "Percent of Initial
Certificate Principal Balance Outstanding at the Following
Percentage of SPA" has been prepared on the basis of certain
assumptions as described below (the "Modeling Assumptions")
regarding the weighted average characteristics of the Mortgage Loans
that are included in the Mortgage Pools and the performance thereof.
Modeling Assumptions include among other things, that as of the
Reference Date, the characteristics of the Mortgage Loans in each
respective Mortgage Pool and the Pass-Through Rate for the related
Underlying Agency Securities are as set forth in the following
table:
<TABLE>
<CAPTION>
Pass-
Through
Aggregate Weighted Rate on
Outstanding Weighted Average the
Principal Average Term to Underlyi-
Balance of Weighted Weighted Original Schedule ng
the Average Average Term to d Agency
Mortgage Mortgage Servicing Maturity Maturity Securiti
Series Loans Rate g Fee (1) (1) es
<C>
<C>
<C>
<C>
<C>
<C>
<C>
Aggreg
ate..
</TABLE>
(1) In months.
In addition, the Modeling Assumptions, among other things, assume
that: (i) the Underlying Agency Security Principal Balance is
$[_______________]; (ii) the scheduled monthly payment for a
Mortgage Loan in each respective Mortgage Pool has been based on its
outstanding balance, interest rate and term to scheduled maturity,
such that the Mortgage Loan will amortize in amounts sufficient for
repayment thereof over its remaining term to maturity; (iii) the
[Ginnie Mae Issuer] will not repurchase any Mortgage Loan or
exercise any option to purchase the remaining Mortgage Loans in any
Mortgage Pool, and neither the Certificate Administrator nor the
Company will exercise any option to purchase the Underlying Agency
Securities and thereby cause a termination of the Trust Fund; (iv)
there are no delinquencies on the Mortgage Loans, and principal
payments on the Mortgage Loans will be timely received together with
prepayments, if any, at the respective constant percentages of SPA
set forth in the table; (v) there is no Prepayment Interest
Shortfall or any other interest shortfall in any month; (vi) as of
the date of issuance of the Offered Certificates, the Underlying
Agency Securities are as described herein under "Description of the
Underlying Agency Securities" and in the corresponding Term Sheet;
(vii) payments on the Offered Certificates will be received on the
28th day of each month, commencing [__________ __, 199_]; (viii)
payments on the Mortgage Loans earn no reinvestment return; (ix)
there are no additional ongoing Trust Fund expenses payable out of
the Trust Fund; and (x) the Offered Certificates will be purchased
on [__________ __, 19__].
The actual characteristics and performance of the Mortgage
Loans differ from the Modeling Assumptions used in constructing the
table set forth below, which is hypothetical in nature and is
provided only to give a general sense of how the principal cash
flows might behave under varying prepayment scenarios. For example,
it is very unlikely that the Mortgage Loans will prepay at a
constant level of SPA until maturity or that all of the Mortgage
Loans will prepay at the same level of SPA. Moreover, the diverse
remaining terms to maturity of the Mortgage Loans could produce
slower or faster principal distributions than indicated in the table
at the various constant percentages of SPA specified, even if the
weighted average remaining term to maturity of the Mortgage Loans is
as assumed. Any difference between the Modeling Assumptions and the
actual characteristics and performance of the Mortgage Loans, or
actual prepayment or loss experience, will affect the percentages of
initial Certificate Principal Balances outstanding over time and the
weighted average lives of the classes of Offered Certificates.
Subject to the foregoing discussion and the Modeling
Assumptions, the following table indicates the weighted average
lives of the Class A-1, Class A-2 and Class A-3 Certificates, and
sets forth the percentages of the initial Certificate Principal
Balance of each such Class A-1, Class A-2 and Class A-3 Certificate
that would be outstanding after each of the dates shown at various
percentages of SPA.
Percent of Initial Certificate Principal Balance
Outstanding at the Following Percentages of SPA
Class A-1
Distribution
Date
0%
%
%
%
%
Initial
Percentage . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . .
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. . . . .
Weighted
Average Life
in Years**
Percent of Initial Certificate Principal Balance
Outstanding at the Following Percentages of SPA
Class A-2
Distribution
Date
0%
%
%
%
%
Initial
Percentage . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . .
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. . . . .
Weighted
Average Life
in Years**
Percent of Initial Certificate Principal Balance
Outstanding at the Following Percentages of SPA
Class A-3
Distribution
Date
%
%
0%
%
%
%
%
Initial
Percentage . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . .
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. . . . .
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. . . . .
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. . . . .
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. . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . .
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. . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . .
Weighted
Average Life
in Years**
* Indicates a number that is greater than zero but less than 0.5%.
** The weighted average life of a Certificate of any class is determined by
(i) multiplying the
amount of each net distribution in reduction of Certificate Principal
Balance by the number
of years from the date of issuance of the Certificate to the related
Distribution Date, (ii)
adding the results, and (iii) dividing the sum by the aggregate of the net
distributions
described in clause (i) above.
This table has been prepared based on the Modeling Assumptions (including the
assumptions
regarding the characteristics and performance of the Mortgage Loans, which
differ from the actual
characteristics and performance thereof) and should be read in conjunction
therewith.
Fixed Strip Certificate Yield Considerations
The yield to maturity on each class of the Fixed Strip
Certificates will be extremely sensitive to the rate and timing of
receipt of principal payments on the Underlying Agency Securities,
which in turn will be affected by the rate and timing of principal
payments (including prepayments, defaults and liquidations) on the
Mortgage Loans included in the corresponding Mortgage Pools, which
rate may fluctuate significantly over time.
The following table indicates the sensitivity of the yield to
maturity on each class of the Fixed Strip Certificates to various
constant rates of prepayment by projecting the monthly aggregate
payments of interest on the Fixed Strip Certificates and computing
the corresponding pre-tax yields to maturity on a corporate bond
equivalent basis, based on the Modeling Assumptions including the
assumptions regarding the characteristics and performance of the
Mortgage Loans included in the corresponding Mortgage Pools which
differ from the actual characteristics and performance thereof, and
assuming further that the Pass-Through Rate and Notional Amount on
the Fixed Strip Certificates are as set forth herein. Any
differences between the Modeling Assumptions and the actual
characteristics and performance of the corresponding Mortgage Loans
may result in yields being different from those shown in such table.
Discrepancies between assumed and actual characteristics and
performance underscore the hypothetical nature of the table, which
is provided only to give a general sense of the sensitivity of
yields in varying prepayment scenarios.
Pre-Tax Yield to Maturity of the Fixed Strip
Certificates at the Following
Percentages of SPA
Assumed
Purchase
Price 0% [___]% [___]% [___]%[___]%
$[__________] [____]% [____]%[____]% [____]% [____]%
Each pre-tax yield to maturity set forth in the preceding
table was calculated by determining the monthly discount rate which,
when applied to the assumed stream of cash flows to be paid on the
Fixed Strip Certificates, would cause the discounted present value
of such assumed stream of cash flows to equal the assumed purchase
price listed in the table for such class of Fixed Strip
Certificates. Accrued interest is included in the purchase prices
shown and is used in computing the corporate bond equivalent yields
shown. These yields do not take into account the different interest
rates at which investors may be able to reinvest funds received by
them as distributions on the Fixed Strip Certificates, and thus do
not reflect the return on any investment in the Fixed Strip
Certificates when any reinvestment rates other than the discount
rates are considered.
Notwithstanding the assumed prepayment rates reflected in the
preceding table, it is highly unlikely that the Mortgage Loans
included in the corresponding Mortgage Pools will be prepaid
according to one particular pattern. For this reason, and because
the timing of cash flows is critical to determining yields, the pre-
tax yields to maturity on the Fixed Strip Certificates are likely to
differ from those shown in the table, even if all of the
corresponding Mortgage Loans prepay at the indicated constant
percentages of SPA over any given time period or over the entire
life of the Offered Certificates.
There can be no assurance that the corresponding Mortgage
Loans will prepay at any particular rate or that the yield on the
Fixed Strip Certificates will conform to the yields described
herein. Moreover, the various remaining terms to maturity of the
corresponding Mortgage Loans could produce slower or faster
principal distributions than indicated in the preceding table at the
various constant percentages of SPA specified, even if the weighted
average remaining term to maturity of the corresponding Mortgage
Loans is as assumed. Investors are urged to make their investment
decisions based on their determinations as to anticipated rates of
prepayment under a variety of scenarios. Investors in the Fixed
Strip Certificates should fully consider the risk that a rapid rate
of prepayments on the Mortgage Loans could result in the failure of
such investors to fully recover their investments.
For additional considerations relating to the yield on the
Offered Certificates, see "Yield Considerations" and "Maturity and
Prepayment Considerations" in the Prospectus.
Additional Yield Considerations Applicable Solely to the Residual
Certificates
The Residual Certificateholders' after-tax rate of return on
their Residual Certificates will reflect their pre-tax rate of
return, reduced by the taxes required to be paid with respect to the
Residual Certificates. Holders of Residual Certificates may have
tax liabilities with respect to their Residual Certificates during
the early years of the Trust Fund's term that substantially exceed
any distributions payable thereon during any such period. In
addition, holders of Residual Certificates may have tax liabilities
with respect to their Residual Certificates the present value of
which substantially exceeds the present value of distributions
payable thereon and of any tax benefits that may arise with respect
thereto. Accordingly, the after-tax rate of return on the Residual
Certificates may be negative or may otherwise be significantly
adversely affected. The timing and amount of taxable income
attributable to the Residual Certificates will depend on, among
other things, the timing and amounts of prepayments and losses
experienced with respect to the Mortgage Loans underlying the
Underlying Agency Securities.
The Residual Certificateholders should consult their tax
advisors as to the effect of taxes and the receipt of any payments
made to such holders in connection with the purchase of the Residual
Certificates on after-tax rates of return on the Residual
Certificates. See "Certain Federal Income Tax Consequences" herein
and in the Prospectus.
TRUST AGREEMENT
General
The Certificates will be issued pursuant to a Trust Agreement
(the "Trust Agreement"), dated as of [__________ __, 199_], among
the Company, the Certificate Administrator, and [
], as Trustee. Reference is made to the Prospectus for important
information in addition to that set forth herein regarding the terms
and conditions of the Trust Agreement and the Offered Certificates.
The Offered Certificates will be transferable and exchangeable at
the corporate trust office of the Trustee, which will serve as
Certificate Registrar and Paying Agent. The Company will provide a
prospective or actual Certificateholder without charge, on written
request, a copy of the Trust Agreement (without exhibits) .
Requests should be addressed to the [__________], Residential Asset
Securities Corporation,
[_________________________________________________].
The Certificate Administrator
[Residential Funding, an indirect wholly-owned subsidiary of
GMAC Mortgage and an affiliate of the Company], [__________] will
act as certificate administrator with respect to the Offered
Certificates pursuant to the Trust Agreement. [For a general
description of Residential Funding and its activities, see
"Residential Funding Corporation" in the Prospectus.]
Assignment of the Underlying Agency Securities
On the Delivery Date, the Company will deliver to the Trustee,
with respect to each class of Underlying Agency Securities, the
Certificate for such class registered in the name of the Trustee,
evidencing the entire interest in such class. The Trustee will be
entitled to receive distributions in respect of each Underlying
Agency Security beginning with the distributions thereon in
[__________, 199_]. A Certificate Account will be established as
part of the Trust Fund, which shall be an Eligible Account as
described in the Prospectus under "Description of the
Certificates Payments on Mortgage Collateral," into which the
Trustee shall deposit all amounts received as distributions on the
Underlying Agency Securities (net of the Servicing Fee described
below), pending distributions on the Offered Certificates on each
Distribution Date.
Compensation of Certificate Administrator
The primary compensation to be paid to the Certificate
Administrator in respect of its certificate administration
activities in respect of the Offered Certificates pursuant to the
Trust Agreement will be [____]% per annum of the aggregate
outstanding Certificate Principal Balance of the Underlying Agency
Securities (the "Servicing Fee"), payable monthly out of the
interest distributions on such Underlying Agency Securities. The
Certificate Administrator is obligated to pay certain ongoing
expenses associated with the Trust Fund and incurred by the
Certificate Administrator in connection with its responsibilities
under the Trust Agreement. See "Description of the
Certificates Servicing and Administration of Mortgage Collateral" in
the Prospectus for information regarding other possible compensation
to the Certificate Administrator and for information regarding
expenses payable by the Certificate Administrator.
Actions in Respect of the Underlying Agency Securities
If at any time the Trustee, in its capacity as the registered
holder of the Underlying Agency Securities, is requested to take any
action or to give any consent, approval or waiver, the Trust
Agreement provides that the Trustee, in its capacity as holder of
the Underlying Agency Securities, may take action in connection with
the enforcement of any rights and remedies available to it in such
capacity with respect thereto, will promptly notify all of the
holders of the Offered Certificates and will act only in accordance
with the written directions of holders of the Offered Certificates
evidencing at least 51% of the voting rights.
Voting Rights
Certain actions specified in the Prospectus that may be taken
by holders of Offered Certificates evidencing a specified percentage
of all undivided interests in the Trust Fund may be taken by holders
of Offered Certificates entitled in the aggregate to such percentage
of the voting rights. [____]% of all voting rights will be
allocated among all holders of the Class A-1, Class A-2 and Class A-
3 Certificates in proportion to their then-outstanding Certificate
Principal Balances and [____]% and [____]% of all voting rights will
be allocated among holders of the Class S Certificates and Residual
Certificates, respectively, in proportion to the Percentage
Interests (as defined in the Prospectus) evidenced by their
respective Certificates. The Trust Agreement will be subject to
amendment without the consent of the holders of the Residual
Certificates in certain circumstances.
Termination
Either the Certificate Administrator or the Company may, at
its option, repurchase from the Trust Fund all of the Underlying
Agency Securities remaining in such Trust Fund and other assets
thereof, and thereby effect early retirement of the Offered
Certificates at such time as the aggregate of the Certificate
Principal Balances of such Underlying Agency Securities is less than
[____]% of the aggregate of the Certificate Principal Balances of
the Underlying Agency Securities as of the Closing Date. In the
event such option is exercised, the purchase price distributed with
respect to each of the Offered Certificates will be 100% of its then
outstanding Certificate Principal Balance plus interest thereon at
the Pass-Through Rate.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
Upon the issuance of the Offered Certificates, [Orrick,
Herrington & Sutcliffe] [Thacher Proffitt & Wood], counsel to the
Company, will deliver its opinion generally to the effect that,
assuming compliance with all provisions of the Trust Agreement, the
Trust Fund will qualify as a REMIC under Sections 860A through 860G
of the Code.
For federal income tax purposes, the Residual Certificates
will be the sole class of "residual interests" in the Trust Fund and
the Offered Certificates (other than the Residual Certificates) will
represent ownership of "regular interests" in the Trust Fund and
will be generally treated as debt instruments of the Trust Fund. See
"Certain Federal Income Tax Consequences" in the Prospectus.
[ADDITIONAL TAX CONSIDERATIONS TO BE INCLUDED AS APPROPRIATE]
For further information regarding the federal income tax
consequences of investing in the Offered Certificates, see "Certain
Federal Income Tax Consequences" in the Prospectus.
ERISA CONSIDERATIONS
[A description of whether there will be any exemption from
"plan asset" treatment will be available with respect to the Series
to be included as appropriate.]
[A statement of whether the Series will be an Exempt or a
Nonexempt Series to be included if appropriate]
[To qualify for exemption under PTCE 83-1 (see "ERISA
Considerations Prohibited Transaction Exemption" in the Prospectus),
a Certificate of an Exempt Series must entitle its holder to pass-
through payments of both principal and interest on the Mortgage
Loans. Any Plan fiduciary who proposes to cause a Plan to purchase
Offered Certificates should consult with its counsel with respect to
the potential consequences under ERISA and Section 4975 of the Code
of the Plan's acquisition and ownership of Offered Certificates.
See "ERISA Considerations" in the Prospectus.]
[A Description of PTE 90-23 to be included if appropriate.]
METHOD OF DISTRIBUTION
Subject to the terms and conditions set forth in the
Underwriting Agreement dated [__________ __, 199_] (the
"Underwriting Agreement"), the Underwriter has agreed to purchase
and the Company has agreed to sell to the Underwriter the Offered
Certificates. It is expected that delivery of the Offered
Certificates will be [made at the offices of [___________________]]
[through the book-entry facilities of The Depository Trust Company]
on or about [____________ __, 199_], against payment therefor in
immediately available funds.
The Underwriting Agreement provides that the obligation of the
Underwriter to pay for and accept delivery of the Offered
Certificates is subject to, among other things, the receipt of
certain legal opinions and to the conditions, among others, that no
stop order suspending the effectiveness of the Company's
Registration Statement shall be in effect, and that no proceedings
for such purpose shall be pending before or threatened by the
Securities and Exchange Commission.
The distribution of the Offered Certificates by the
Underwriter may be effected, from time to time, in one or more
negotiated transactions, or otherwise, at varying prices to be
determined at the time of sale. Proceeds to the Company from the
sale of the Offered Certificates, before deducting expenses payable
by the Company, will be approximately [ ]% of the aggregate
Certificate Principal Balance of the Offered Certificates plus
accrued interest thereon from the Reference Date. The Underwriter
may effect such transactions by selling its Certificates to or
through dealers, and such dealers may receive compensation in the
form of underwriting discounts, concessions or commissions from the
Underwriter for whom they act as agent. In connection with the sale
of the Offered Certificates, the Underwriter may be deemed to have
received compensation from the Company in the form of underwriting
compensation. The Underwriter and any dealers that participate with
the Underwriter in the distribution of the Offered Certificates may
be deemed to be underwriters and any profit on the resale of the
Offered Certificates positioned by them may be deemed to be
underwriting discounts and commissions under the Securities Act of
1933, as amended.
The Underwriting Agreement provides that the Company will
indemnify the Underwriter, and under limited circumstances the
Underwriter will indemnify the Company, against certain civil
liabilities under the Securities Act of 1933, as amended, or
contribute to payments required to be made in respect thereof.
There can be no assurance that a secondary market for the
Offered Certificates will develop or, if it does develop, that it
will continue. The primary source of information available to
investors concerning the Offered Certificates will be the monthly
statements provided to the Certificateholders as of each
Distribution Date, which will include information as to the
Certificate Principal Balance or Notional Amount, as applicable, of
the Offered Certificates. There can be no assurance that any
additional information regarding the Offered Certificates will be
available through any other source. In addition, the Company is not
aware of any source through which price information about the
Offered Certificates will be generally available on an ongoing
basis. The limited nature of such information regarding the Offered
Certificates may adversely affect the liquidity of the Offered
Certificates, even if a secondary market for the Offered
Certificates becomes available.
LEGAL OPINIONS
Certain legal matters relating to the Offered Certificates
will be passed upon for the Company by Orrick, Herrington &
Sutcliffe] [Thacher Proffitt & Wood], New York, New York and for the
Underwriter by [____________________], [____________________].
RATING
It is a condition to the issuance of the Offered Certificates
that the Class A-1, Class A-2, Class A-3, Fixed Strip and Class R
Certificates be rated "[__]" by [____________] and "[__]" by
[________].
[[_________________] ratings on mortgage pass-through
certificates address the likelihood of the receipt by
Certificateholders of payments required under the Trust Agreement.
[________________] ratings take into consideration the credit
quality of the Mortgage Pool, structural and legal aspects
associated with the Certificates, and the extent to which the
payment stream in the Mortgage Pool is adequate to make payments
required under the Certificates. [________________] rating on the
Certificates does not, however, constitute a statement regarding
frequency of prepayments on the Mortgage Loans. See "Certain Yield
and Prepayment Considerations" herein.] [The "r" of the "AAAr"
rating of the Class [__] Certificates by [_________________] is
attached to highlight derivative, hybrid, and certain other
obligations that [_________________] believes may experience high
volatility or high variability in expected returns due to non-credit
risks. Examples of such obligations are: securities whose
principal or interest return is indexed to equities, commodities, or
currencies; certain swaps and options; and interest only and
principal only mortgage securities. The absence of an "r" symbol
should not be taken as an indication that an obligation will exhibit
no volatility or variability in total return.]
[The ratings of [______] on mortgage pass-through certificates
[also] address the likelihood of the receipt by Certificateholders
of all distributions on the Mortgage Loans to which they are
entitled. The rating process addresses the structural and legal
aspects associated with the Certificates, including the nature of
the Mortgage Loans. The ratings assigned to mortgage pass-through
certificates do not represent any assessment of the likelihood or
rate of principal prepayments. The rating does not address the
possibility that Certificateholders might suffer a lower than
anticipated yield.]
[The ratings of [________] assigned to mortgage pass-through
certificates [also] address the likelihood of the receipt by
Certificateholders of all distributions to which such
Certificateholders are entitled. [________] ratings on mortgage
pass-through certificates do not represent any assessment of the
likelihood that principal prepayments will be made by the mortgagors
or the degree to which such prepayments differ from that originally
anticipated. The ratings assigned to mortgage pass-through
certificates do not represent any assessment of the likelihood or
rate of principal prepayments. The rating does not address the
possibility that Certificateholders might suffer a lower than
anticipated yield or that rapid rates of principal prepayments could
result in a failure of the holders of the Fixed Strip Certificates
to fully recover their initial investment.]
The Company has not requested a rating on the Offered
Certificates by any rating agency other than [__________] and
[__________]. However, there can be no assurance as to whether any
other rating agency will rate the Offered Certificates, or, if it
does, what rating would be assigned by any such other rating agency.
A rating on the Certificates by another rating agency, if assigned
at all, may be lower than the ratings assigned to the Offered
Certificates by [_________] and [__________].
A security rating is not a recommendation to buy, sell or
hold securities and may be subject to revision or withdrawal at any
time by the assigning rating organization. Each security rating
should be evaluated independently of any other security rating.
The rating of the Fixed Strip Certificates does not address the
possibility that the holders of such Certificates may fail to fully
recover their initial investment. In the event that the rating
initially assigned to the Offered Certificates is subsequently
lowered for any reason, no person or entity is obligated to provide
any additional support or credit enhancement with respect to the
Offered Certificates.
LEGAL INVESTMENT MATTERS
The Offered Certificates will constitute "mortgage related
securities" for purposes of the Secondary Mortgage Market
Enhancement Act of 1984, as amended ("SMMEA"), for so long as they
are rated in one of the two highest rating categories by at least
one nationally recognized statistical rating organization, and, as
such, will be legal investments for certain entities to the extent
provided in SMMEA. SMMEA provides, however, that states could
override its provisions on legal investment and restrict or
condition investment in mortgage related securities by taking
statutory action on or prior to October 3, 1991. Certain states
have enacted legislation which overrides the preemption provisions
of SMMEA.
The Company makes no representations as to the proper
characterization of any class of the Offered Certificates for legal
investment or other purposes, or as to the ability of particular
investors to purchase any class of the Offered Certificates under
applicable legal investment restrictions. These uncertainties may
adversely affect the liquidity of any class of Offered Certificates.
Accordingly, all institutions whose investment activities are
subject to legal investment laws and regulations, regulatory capital
requirements or review by regulatory authorities should consult with
their own legal advisors in determining whether and to what extent
any class of the Offered Certificates constitutes a legal investment
or is subject to investment, capital or other restrictions.
See "Legal Investment Matters" in the Prospectus.
No dealer, salesman or other person has been authorized to
give any information or to make any representations not contained in
this Prospectus Supplement and the Prospectus and, if given or made,
such information or representations must not be relied upon as
having been authorized by the Company or by the Underwriter. This
Prospectus Supplement and the Prospectus do not constitute an offer
to sell, or a solicitation of an offer to buy, the securities
offered hereby to anyone in any jurisdiction in which the person
making such offer or solicitation is not qualified to do so or to
anyone to whom it is unlawful to make any such offer or
solicitation. Neither the delivery of this Prospectus Supplement
and the Prospectus nor any sale made hereunder shall, under any
circumstances, create an implication that information herein or
therein is correct as of any time since the date of this Prospectus
Supplement or the Prospectus.
TABLE OF CONTENTS
Page
Prospectus Supplement
Summary . . . . . . . . . S-
Description of the Offered Certificates S-
Description of the Underlying Agency Securities S-
Certain Yield and Prepayment Considerations S-
Trust Agreement . . . . . S-
Certain Federal Income Tax Consequences S-
ERISA Considerations. . . S-
Method of Distribution. . S-
Legal Opinions. . . . . . S-
Rating. . . . . . . . . . S-
Legal Investment Matters. S-
Prospectus
Summary of Prospectus . .
Special Considerations. .
The Trust Funds . . . . .
Description of the Certificates. . . . . .
Subordination . . . . . .
Description of Credit Enhancement. . . . .
Insurance Policies on Mortgage Loans or Contracts
The Company . . . . . . .
Residential Funding Corporation. . . . . .
The Pooling and Servicing Agreement. . . .
Yield Considerations. . .
Maturity and Prepayment Considerations
Certain Legal Aspects of Mortgage
Loans and Contracts. .
Certain Federal Income Tax Consequences
State Tax Consequences. .
ERISA Considerations. . .
Legal Investment Matters.
Use of Proceeds . . . . .
Methods of Distribution .
Legal Matters . . . . . .
Financial Information . .
Additional Information. .
Index of Principal Definitions . . . . . .
Residential
Asset Securities
Corporation
$[__________]
Mortgage Pass-Through
Certificates
Series [199_-_]
Class A-1Certificates[____]% $[________]
Class A-2Certificates[____]% $[________]
Class A-3Certificates[____]% $[________]
Class S Certificates[____]% $ 0
Class R Certificates[____]% $[________]
__________________________________________
Prospectus Supplement
[__________ __, 199_]
_______________________________________________
[Name of Underwriter]
