March 21, 1996
Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, D.C. 20549
Re: Residential Asset Securities Corporation
Post-Effective Amendment No. 1 to Registration
Statement on Form S-3 (File No. 33-56893)
Ladies and Gentlemen:
On behalf of Residential Asset Securities Corporation
(the "Company"), we have caused to be filed with you
electronically under EDGAR, the captioned Post-Effective
Amendment
No. 1 to Registration Statement on Form S-3 (the "Amendment").
The Amendment expands the types of mortgages and manufactured
housing contracts to include assets secured by second or more
junior liens and updates the prospectus in certain respects.
Three courtesy copies of the Amendment in printed
format are being forwarded to Mr. Charles A. Sjoquist. The
courtesy copies have been marked to indicate changes from
Amendment No. 2 to the Registration Statement on Form S-3 as
filed
on May 9, 1995.
If you should have any questions concerning the
Amendment, please do not hesitate to call the undersigned at
(212)
506-5070.
Very truly yours,
/s/ Katharine I. Crost
Katharine I. Crost
KIC/mb
cc: Charles A. Sjoquist, Esq.
Branch Chief
Division of Corporation Finance
Branch 11 (Mail Stop 7-2)
As filed with the Securities and Exchange Commission on
March 21, 1996Registration No. 33-56893
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
POST-EFFECTIVE AMENDMENT NO. 1
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:
Katharine I. Crost, Esq.
Orrick, Herrington &
Sutcliffe
666 Fifth Avenue
New York, New York
10103
Robert L. Schwartz,Esq.
General Counsel
GMAC Mortgage Corporation
3031 West Grand Boulevard
Detroit, Michigan
48232
Stephen S. Kudenholdt, Esq.
Paul D. Tvetenstrand,Esq.
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 as determined by market conditions.
If the only securities being registered on this Form are being
offered pursuant to dividend or interest reinvestment plans,
please check the following box.
If any of the securities being registered on this Form are to
be offered on a delayed or continuous basis pursuant to Rule 415
under the Securities Act of 1933, other than securities offered
only in connection with dividend or interest reinvestment plans,
please check the following box.
If this Form is filed to register additional securities for an
offering pursuant to Rule 462(b) under the Securities Act, please
check the following box and list the Securities Act registration
statement number of the earlier effective registration statement
for the same offering.
If this Form is a post-effective amendment filed pursuant to
Rule 462(c) under the Securities Act, check the following box and
list the Securities Act Registration Statement number of the
earlier effective registration statement for the same offering.
If delivery of the prospectus is expected to be made pursuant
to Rule 434, please check the following box.
CALCULATION OF REGISTRATION FEE
Proposed Maximum
Title of Securities Amount to Offering Price
Being Registered be registered Per Unit
Mortgage and Manufacured $2,000,000,000 100%(1)
Housing Contract
Pass-Through Certificates
Proposed Maximum
Title of Securities Aggregate Offering Amount of
Being Registered Price Registration Fee
Mortgage and Manufacured $2,000,000,000(1) $689,660*
Housing Contract
Pass-Through Certificates
(*) Previously paid.
(1) Estimated solely for the purpose of calculating the
registration fee.
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.
SUBJECT TO COMPLETION, DATED MARCH 21, 1996
Prospectus Supplement
Version I-A
(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 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.
For a discussion of significant matters affecting investments in
the Certificates, see "Risk Factors" [commencing on page S-18
herein and] commencing in the Prospectus on page 11.
______________________
___________________________ (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 cer-
tain 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] [second] [junior] 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 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_-_].
Company. . . . . . . . . . . . Residential Asset Securities
Corporation, a corporation
organized under the laws of the
State of Delaware, an affiliate
of 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 the Mortgage Collateral with
an aggregate principal balance
of $__________. [____% of the
Mortgage Loans are secured by
junior liens, and ____% of the
Mortgage Loans are secured by
first liens.] 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 Mortgaged 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. [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 StrippedI nterests
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 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) [will be fixed
and] are set forth on the cover
hereof.
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 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 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
in the manner and priority set
forth herein.
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. . . . Holders of the Senior
Certificates (other than the
Principal Only Certificates and
Stripped Interest Certificates)
will be entitled to receive a
distribution of principal on
each Distribution Date, in the
manner and priority set forth
herein, to the extent of the
portion of the Available
Distribution Amount remaining
after the Senior Interest
Distribution Amount and
Principal Only Distribution
Amount (each as defined herein)
are distributed. Holders of
the Principal Only Certificates
will be entitled to receive a
distribution of principal on
each Distribution Date, in the
manner and priority set forth
herein, to the extent of the
excess of the Available
Distribution Amount over the
Senior Interest Distribution
Amount.
Holders of the Class M
Certificates will be entitled
to receive a distribution of
principal on each Distribution
Date, in the manner and
priority set forth herein, 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.
The Stripped Interests
Certificates will not receive
any principal distributions.
See "Description of the Offered
Certificates Principal
Distributions on the Senior
Certificates" and " Principal
Distributions on the Class M
Certificates" herein.
[Advances. . . . . . . . . . . The [Master] Servicer[s] [is]
[are] required to make 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
"Risk Factors 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]. [Since a
[significant portion] of the
Mortgage Loans are secured by
junior deeds of trust or
mortgages subordinate to the
rights of the lenders under the
related senior deeds of trust
or mortgages, a decline in real
estate values would adversely
affect the position of the
Trust Fund as a junior lender
before having such an effect on
that of the related senior
lender. A primary risk to
holders of Junior Mortgage
Loans is the possibility that
adequate funds will not be
received in connection with a
foreclosure of any related
senior lien to satisfy fully
any such senior liens and the
Junior Mortgage Loan.
[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 "Risk Factors" 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 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 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
[not] 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 SMMEA] [because the
Mortgage Pool includes Mortgage
Loans that are secured by
junior liens on the related
Mortgaged Properties]. [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.
RISK FACTORS
[Prospective Certificateholders should consider, among other
things, the items discussed under "Risk Factors" in the
Prospectus
and the following factors in connection with the purchase of the
Certificates:]
[APPROPRIATE RISK FACTORS 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 Loans are secured by [mortgages] [deeds
of
trust] [deeds to secure debt] creating [first] [second] [junior]
liens on the related Mortgaged Properties.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 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.] Defaults on mortgage loans are expected
to occur with greater frequency in their early years. [The rate
of default of Junior Mortgage Loans may be greater than that of
mortgage loans secured by first liens on comparable properties.]
[Approximately ___% of the Mortgage Loans are secured by a
first lien on the related Mortgaged Property, approximately ___%
of the Mortgage Loans are secured by a second lien on the related
Mortgaged Property and approximately ___% of the Mortgage Loans
are secured by a more junior lien on the related Mortgaged
Property.]
[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 a Periodic 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 or be less than 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.]
LIBOR
Adjustment Date 1990 1991 1992 1993 1994
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
[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 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 or be less than 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.]
[Month and Year of
Next Adjustment Dates Number of
MortgageLoans Aggregate
Principal
Balance Percentage of
Mortgage Loans
January 199_ . . . . ___ $ __________ ______%
February 199_. . . . ___ __________ _______
March 199_ . . . . . ___ __________ _______
April 199_ . . . . . ___ __________ _______
________________ . . ___ __________ _______
________________ . .
Total. . . ___ $ __________ _____%]
[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.]
Mortgage Rates
Mortgage Rates Number Principal Balance Percentage of
[Mortgage]
[Contract] Pool
$ . . %
Total. . . .
. %
As of the Cut-off Date, the weighted average Mortgage Rate
of the [Mortgage Loans] [Contracts] was approximately _________%
per annum.
[Net Mortgage Rates
Net Mortgage Rates Number Principal Balance Percentage of
[Mortgage]
[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
Gross Margins Number Principal Balance Percentage of
[Mortgage]
[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
[Minimum] [Maximum]
Mortgage Rates Number Principal Balance Percentage of
[Mortgage]
[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
Principal Balance Number Principal Balance Percentage of
[Mortgage]
[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
Remaining Months
to Maturity Number Principal Balance Percentage of
[Mortgage]
[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
Months
Since Origination Number Principal Balance Percentage of
[Mortgage]
[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
Loan-to-Value
Ratio Number Principal Balance Percentage of
[Mortgage]
[Contract] Pool
$ . . %
Total. . . $ . . %
The weighted average Loan-to-Value Ratio at origination of
the [Mortgage Loans] [Contracts] will have been approximately
__.__%.
Original Combined Loan-To-Value Ratios for Mortgage Loans
Secured by Junior Liens
Combined
Loan-to-Value
Ratio (%) Number of
Mortgage Loans Principal Balance Percentage of
Mortgage Pool
$ . . %
Total. . . $ . . %
The weighted average Combined Loan-to-Value Ratio at
origination of the Junior Mortgage Loans will have been
approximately ____%.
Junior Mortgage Ratios
Junior Mortgage
Ratio(%) Number of
Mortgage Loans Principal Balance Percentage of
Mortgage Pool
$ . . %
Total. . . $ . . %
The weighted average Junior Mortgage Ratio as of the Cut-off
Date will have been approximately ____%.
Geographic Distributions of Mortgaged Properties
State Number Principal Balance Percentage of
[Mortgage]
[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
Property Number Principal Balance Percentage of
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
Development(attached)..
. .
Total.......... $ . . %
[[Mortgage Loan] [Contracts] Purposes
Loan Purpose Number Principal Balance Percentage of
[Mortgage]
[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
Type of Program Number Principal Balance Percentage of
[Mortgage]
[Contract] Pool
Full
Documentation. . $ . . %
Limited
Documentation. .
No Documentation . .
Total . . . $ . . %]
Occupancy Types
Occupancy Number Principal Balance Percentage of
[Mortgage]
[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 the
AlterNet Mortgage Program primarily for the purchase of mortgage
loans that would not qualify for other 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. Each AlterNet
Program Seller has been selected by Residential Funding on the
basis of criteria set forth in the AlterNet Seller Guide or as
otherwise approved by the Company. 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 of the Mortgage Loan, or in the case of a
refinanced or modified Mortgage Loan, either the lesser of the
sales price and the appraised value determined at origination of
the Mortgage Loan or, if applicable, the appraisal at the time of
the refinancing or modification of the Mortgage Loan.
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
Distribution
Date Class [__] Class [__]
PAC Principal
Component Class [___]
TAC Principal
Component Class [ ]
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. [Although little data is
available with respect to the rate of default on Junior Mortgage
Loans, the rate of default of such Mortgage Loans may be greater
than that of mortgage loans secured by first liens on comparable
properties.] The rate of default on [Mortgage Loans] [Contracts]
which are refinance or limited documentation mortgage loans, and
on [Mortgage Loans] [Contracts] with high [Combined]
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
Distribution
Date Class A-1 Class A-2 Class A-4 Class M
0%[]%[]%[]%[]% 0%[]%[]%[]%[]% 0%[]%[]%[]%[]% 0%[]%[]%[]%[]%
Initial
Percentage
Weighted Average
Life 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
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
Assumed Purchase
Price 0% [ ]% [ ]%[ ]% [ ]% [ ]%
$[____________][____]%[____]%[____]% [____] %[____]% [____]%
Pre-Tax Yield to Maturity of the Stripped Interests
Certificates at the Following Percentages of SPA
Assumed Purchase
Price 0% [ ]% [ ]% [ ]% [ ]% [ ]%
$[____________][____]% [____]% [____]% [____]%[____]%[____]%
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_.
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
(Dollar Amounts in Thousands)
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.
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 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 REMIC Regulations 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 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 fiduciary of any employee benefit plan or other plan
or
arrangement subject to ERISA or Section 4975 of the Code (a
"Plan") or any insurance company (whether through its general or
separate accounts) or other person investing "plan assets" of any
Plan should carefully review with its legal advisors whether the
purchase or holding of Offered Certificates could give rise to a
transaction prohibited or not otherwise permissible under ERISA
or
Section 4975 of the Code. The exemptive relief afforded by the
Exemption, as described under "ERISA Considerations Prohibited
Transaction Exemptions" in the Prospectus, will not likely apply
to the purchase, sale or holding of the Class M Certificates
(because of the subordinate nature thereof) or Residual
Certificates. The purchase or holding of the Offered Certificates
(other than the Class M Certificates or Residual Certificates)
by,
on behalf of or with "plan assets" of a Plan may qualify for
exemptive relief under the Exemption; however, the Exemption
contains a number of conditions including the requirement that
any
such Plan must be an "accredited investor" as defined in Rule
501(a)(1) of Regulation D of the Securities and Exchange
Commission under the Securities Act of 1933, as amended. In
addition, because it is not likely that the Class M Certificates
or Residual Certificates will qualify for exemptive relief under
the Exemption, the similar exemptions issued to the Underwriter
or
PTCE 83-1, purchases of such Certificates by, on behalf of or
with
"plan assets" of any Plan are not to be registered unless the
transferee provides an opinion of counsel satisfactory to the
Master Servicer, the Company and the Trustee that the purchase of
any such Certificate by, on behalf of or with "plan assets" of
any
Plan is permissible under applicable law, will not result in any
non-exempt prohibited transaction under ERISA or Section 4975 of
the Code, and will not subject the Master Servicer, the Company
or
the Trustee to any obligation in addition to those undertaken in
the Pooling and Servicing Agreement. Purchasers using insurance
company general account funds to effect such purchase should
consider the availability of Prohibited Transaction Class
Exemption 95-60 (60 Fed. Reg. 35925, July 12, 1995) issued by the
U.S. Department of Labor. See "ERISA Considerations" in the
Prospectus.]
[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 not be
subordinated and 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 and the Principal Only Certificates and Stripped
Interests Certificates are only entitled to payments of principal
and interest, respectively, 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 one or more important aspects of the
Exemption to be included if appropriate.]
LEGAL INVESTMENT MATTERS
The [Senior] Certificates will [not] 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][because the Mortgage Pool includes
Mortgage
Loans that are secured by junior liens on the related Mortgaged
Properties]. [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" 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 . .
Risk Factors. . .
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 Underwriter[s]]
PROSPECTUS SUPPLEMENT
________________, 199_
SUBJECT TO COMPLETION, DATED MARCH 21, 1996
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.
For a discussion of significant matters affecting investments in
the Certificates, see "Risk Factors" [commencing on page S-11
herein and] commencing in the Prospectus on page 11.
[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_]
* Graphic explanation: There is a Header running horizontally on
this page. It reads: Information contained herein is subject to
completion or amendment. A registration statement relating to
these securities and exchange commission. These securities may
not be sold nor may offers to buy be accepted prior to the time
the registration statement becomes effective. This preliminary
prospectus supplement shall not constitute an offer to sell or
the solicitation of an offer to buy nor shall there be any sale
of these securities in any state in which such offer,
solicitation or sale would be unlawful prior to registration or
qualification under the securities laws of any such state.
(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.
[RISK FACTORS]
[Prospective Certificateholders should consider, among other
things, the items discussed under "Risk Factors" in the
Prospectus
and the following factors in connection with the purchase of the
Certificates:]
[APPROPRIATE RISK FACTORS 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:
Aggregate
Outstanding Weighted
Principal Balance Weighted Average Average
Series of the Mortagage Loans Mortgage Rate Servicing Fee
$ % %
Pass-Through
Weighted Weighted Rate on the
Average Average Term Underlying
Original Term to Scheduled Agency
Series to Maturity(1) Maturity(1) Securities
Aggregate $
(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 Class A-2 Class A-3
Distribu 0% % % % % 0% % % % % 0% % % % %
tion Date
Initial
Percenta
age.....
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.]
[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 one or more important aspects of the
Exemption 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. . .
Risk Factors . .
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]
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 or junior lien
closed-end 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 described 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 "Risk Factors" commencing herein on page
12.
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
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 March 21, 1996.
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.
INCORPORATION OF CERTAIN INFORMATION BY REFERENCE
With respect to each series of Certificates offered hereby,
there are incorporated herein and in the related Prospectus
Supplement by reference all documents and report filed or caused
to be filed by the Company pursuant to Section 13(a), 13(c), 14
or
15(d) of the Securities Exchange Act of 1934, prior to the
termination of the offering of the related series of
Certificates,
that relate specifically to such related series of Certificates.
The Company will provide or cause to be provided without charge
to
each person to whom this Prospectus and related Prospectus
Supplement is delivered in connection with the offering of one or
more classes of such series of Certificates, upon written or oral
request of such person, a copy of any or all such reports
incorporated herein by reference, in each case to the extent such
reports relate to one or more of such classes of such series of
Certificates, other than the exhibits to such documents, unless
such exhibits are specifically incorporated by reference in such
documents. Requests should be directed in writing to Residential
Asset Securities Corporation, 8400 Normandale Lake Boulevard,
Suite 700, Minnesota 55437, or by telephone at (612) 832-7000.
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
Caption
Page
ADDITIONAL INFORMATION . . . . . . . . . . . . . . . . . . . . .
. . . . . . 2
REPORTS TO CERTIFICATEHOLDERS. . . . . . . . . . . . . . . . . .
. . . . . . 2
INCORPORATION OF CERTAIN
INFORMATION BY REFERENCE. . . . . . . . . . . . . . . . . .
. . . . . . 2
SUMMARY OF PROSPECTUS. . . . . . . . . . . . . . . . . . . . . .
. . . . . . 6
RISK FACTORS . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . 13
Risks Associated with the
Mortgage Collateral. . . . . . . . . . . . . . . . . .
. . . . . . 13
Yield and Prepayment
Considerations . . . . . . . . . . . . . . . . . . . .
. . . . . . 15
Limited Representations and
Warranties . . . . . . . . . . . . . . . . . . . . . .
. . . . . . 15
Limited Liquidity. . . . . . . . . . . . . . . . . . . . .
. . . . . . 15
Limited Obligations. . . . . . . . . . . . . . . . . . . .
. . . . . . 16
Limitations, Reduction and
Substitution of Credit
Enhancement. . . . . . . . . . . . . . . . . . . . . .
. . . . . . 16
THE TRUST FUNDS. . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . 17
General. . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . 17
The Mortgage Loans . . . . . . . . . . . . . . . . . . . .
. . . . . . 18
The Contracts. . . . . . . . . . . . . . . . . . . . . . .
. . . . . . 24
The Agency Securities. . . . . . . . . . . . . . . . . . .
. . . . . . 25
Mortgage Collateral Sellers. . . . . . . . . . . . . . . .
. . . . . . 27
Representations with Respect to
Mortgage Collateral. . . . . . . . . . . . . . . . . .
. . . . . . 27
Repurchases of Mortgage
Collateral . . . . . . . . . . . . . . . . . . . . . .
. . . . . . 29
Limited Right of Substitution. . . . . . . . . . . . . . .
. . . . . . 30
DESCRIPTION OF THE CERTIFICATES. . . . . . . . . . . . . . . . .
. . . . . . 31
General. . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . 31
Form of Certificates . . . . . . . . . . . . . . . . . . .
. . . . . . 31
Assignment of Mortgage Loans . . . . . . . . . . . . . . .
. . . . . . 34
Assignment of Contracts. . . . . . . . . . . . . . . . . .
. . . . . . 35
Review of Mortgage Loan or
Contract Documents . . . . . . . . . . . . . . . . . .
. . . . . . 35
Assignment of Agency Securities. . . . . . . . . . . . . .
. . . . . . 36
Spread . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . 36
Payments on Mortgage Collateral. . . . . . . . . . . . . .
. . . . . . 36
Withdrawals from the Custodial
Account. . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . 39
Distributions. . . . . . . . . . . . . . . . . . . . . . .
. . . . . . 40
Advances . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . 42
Prepayment Interest Shortfalls . . . . . . . . . . . . . .
. . . . . . 43
Reports to Certificateholders. . . . . . . . . . . . . . .
. . . . . . 44
Servicing and Administration of
Mortgage Collateral. . . . . . . . . . . . . . . . . .
. . . . . . 45
Realization Upon Defaulted
Property . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . 49
SUBORDINATION. . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . 51
DESCRIPTION OF CREDIT ENHANCEMENT. . . . . . . . . . . . . . . .
. . . . . . 53
General. . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . 53
Letters of Credit. . . . . . . . . . . . . . . . . . . . .
. . . . . . 54
Mortgage Pool Insurance Policies . . . . . . . . . . . . .
. . . . . . 54
Special Hazard Insurance Policies. . . . . . . . . . . . .
. . . . . . 56
Bankruptcy Bonds . . . . . . . . . . . . . . . . . . . . .
. . . . . . 57
Reserve Funds. . . . . . . . . . . . . . . . . . . . . . .
. . . . . . 57
Certificate Insurance Policies . . . . . . . . . . . . . .
. . . . . . 58
Surety Bonds . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . 58
Maintenance of Credit Enhancement. . . . . . . . . . . . .
. . . . . . 58
Reduction or Substitution of
Credit Enhancement . . . . . . . . . . . . . . . . . .
. . . . . . 59
INSURANCE POLICIES ON MORTGAGE
LOANS OR CONTRACTS. . . . . . . . . . . . . . . . . . . . .
. . . . . . 60
Primary Mortgage Insurance
Policies . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . 60
Standard Hazard Insurance on
Mortgaged Properties . . . . . . . . . . . . . . . . .
. . . . . . 61
Standard Hazard Insurance on
Manufactured Homes . . . . . . . . . . . . . . . . . .
. . . . . . 62
FHA Mortgage Insurance . . . . . . . . . . . . . . . . . .
. . . . . . 62
VA Mortgage Guaranty . . . . . . . . . . . . . . . . . . .
. . . . . . 63
THE COMPANY. . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . 63
RESIDENTIAL FUNDING CORPORATION. . . . . . . . . . . . . . . . .
. . . . . . 64
THE POOLING AND SERVICING
AGREEMENT . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . 64
Servicing and Administration . . . . . . . . . . . . . . .
. . . . . . 64
Events of Default. . . . . . . . . . . . . . . . . . . . .
. . . . . . 64
Rights Upon Event of Default . . . . . . . . . . . . . . .
. . . . . . 65
Amendment. . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . 66
Termination; Retirement of
Certificates . . . . . . . . . . . . . . . . . . . . .
. . . . . . 67
The Trustee. . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . 67
YIELD CONSIDERATIONS . . . . . . . . . . . . . . . . . . . . . .
. . . . . . 68
MATURITY AND PREPAYMENT
CONSIDERATIONS. . . . . . . . . . . . . . . . . . . . . . .
. . . . . . 71
CERTAIN LEGAL ASPECTS OF MORTGAGE
LOANS AND CONTRACTS . . . . . . . . . . . . . . . . . . . .
. . . . . . 74
The Mortgage Loans . . . . . . . . . . . . . . . . . . . .
. . . . . . 74
The Contracts. . . . . . . . . . . . . . . . . . . . . . .
. . . . . . 82
Environmental Legislation. . . . . . . . . . . . . . . . .
. . . . . . 85
Soldiers' and Sailors' Civil
Relief Act of 1940 . . . . . . . . . . . . . . . . . .
. . . . . . 86
Default Interest and Limitations
on Prepayments . . . . . . . . . . . . . . . . . . . .
. . . . . . 86
Forfeitures in Drug and RICO
Proceedings. . . . . . . . . . . . . . . . . . . . . .
. . . . . . 86
CERTAIN FEDERAL INCOME TAX
CONSEQUENCES. . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . 87
General. . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . 87
REMICs . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . 88
STATE AND OTHER TAX CONSEQUENCES . . . . . . . . . . . . . . . .
. . . . . . 104
ERISA CONSIDERATIONS . . . . . . . . . . . . . . . . . . . . . .
. . . . . . 105
Plan Asset Regulations . . . . . . . . . . . . . . . . . .
. . . . . . 105
Prohibited Transaction Exemption . . . . . . . . . . . . .
. . . . . . 106
Tax-Exempt Investors . . . . . . . . . . . . . . . . . . .
. . . . . . 108
Consultation with Counsel. . . . . . . . . . . . . . . . .
. . . . . . 108
LEGAL INVESTMENT MATTERS . . . . . . . . . . . . . . . . . . . .
. . . . . . 109
USE OF PROCEEDS. . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . 110
METHODS OF DISTRIBUTION. . . . . . . . . . . . . . . . . . . . .
. . . . . . 110
LEGAL MATTERS. . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . 111
FINANCIAL INFORMATION. . . . . . . . . . . . . . . . . . . . . .
. . . . . . 112
INDEX OF PRINCIPAL DEFINITIONS . . . . . . . . . . . . . . . . .
. . . . . . 113
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 consisting primarily of 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 or 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 specified 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 specified 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 "Risk
Factors 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 specifies, 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 Distributions." 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
Corporation of PA, 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
or junior liens on one- to four-
family residential properties (each,
a "Mortgaged Property"). 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 or junior 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, which constitute first or
junior liens on such property
("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 and
except with respect to any class of
Certificates that will evidence an
interest in Mortgages secured by
second or more junior liens, each
class of Certificates offered hereby
and by the related Prospectus
Supplement 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.
RISK FACTORS
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 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, the
Mortgagors may not be able to make their loan payments as such
payments increase and thus the likelihood of default will
increase.
The Mortgage Loans may be secured by junior liens on the
related Mortgaged Properties ("Junior Mortgage Loans") that will
be subordinate to the rights of the mortgagee under the related
senior mortgage or mortgages. Accordingly, the holder of a
Junior
Mortgage Loan will be subject to a loss of its mortgage if the
holder of a senior mortgage is successful in foreclosure of its
mortgage since no junior liens or encumbrances survive such a
foreclosure. Also, due to the priority of the senior mortgage,
the holder of a Junior Mortgage Loan may not be able to control
the timing, method or procedure of any foreclosure action
relating
to the Mortgaged Property. Investors should be aware that any
liquidation, insurance or condemnation proceeds received in
respect of such Junior Mortgage Loans will be available to
satisfy
the outstanding balance of such Mortgage Loans only to the extent
that the claims of such senior mortgages have been satisfied in
full, including any related foreclosure costs. For Mortgage
Loans
secured by junior liens that have low Junior Mortgage Ratios,
foreclosure costs may be substantial relative to the outstanding
balance of the Mortgage Loan upon default, and therefore the
amount of any liquidation proceeds available to
Certificateholders
may be smaller as a percentage of the outstanding balance of the
Mortgage Loan than would be the case in a typical pool of first
lien residential loans. In addition, the holder of a Junior
Mortgage Loan may only foreclose on the related Mortgaged
Property
subject to any senior mortgages, in which case such holder must
either pay the entire amount due on the senior mortgages to the
senior mortgagees at or prior to the foreclosure sale or
undertake
the obligation to make payments on the senior mortgages. The
Trust Fund will not have any source of funds to satisfy the
senior
mortgages or make payments due to the senior mortgagees, although
the Master Servicer or Subservicer may, at its option, advance
such amounts to the extent deemed recoverable and prudent. In
the
event that proceeds from a foreclosure or similar sale of the
related Mortgaged Property are insufficient to satisfy all senior
liens and the Mortgage Loan in the aggregate, the Trust Fund, as
the holder of the junior lien, and, accordingly, Holders of one
or
more classes of the Certificates, are likely to (i) incur losses
in jurisdictions in which a deficiency judgment against the
borrower is not available, and (ii) incur losses if any
deficiency
judgment obtained is not realized upon. In the event that such
proceeds are insufficient to satisfy all senior liens and to
reimburse the Master Servicer or Subservicer for any advances
made
in respect thereof, such losses could exceed the amount of the
Junior Mortgage Loan.
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.
With respect to Junior Mortgage Loans in general, and in
particular those having high Combined Loan-to-Value Ratios or low
Junior Mortgage Ratios, the foregoing considerations may result
in
circumstances under which it would be uneconomical to foreclose
on
the related Mortgaged Property in the event of a default. The
actual Junior Mortgage Ratio at any time may be lower than
indicated in the Prospectus Supplement as a result of any
reductions in the Stated Principal Balance thereof. In addition,
the actual Combined Loan-to-Value Ratio at any time may be higher
than indicated in the Prospectus Supplement if the Junior
Mortgage
Loan or any senior mortgage loan is subject to negative
amortization. In such circumstances, repayment of the Junior
Mortgage Loan would depend solely on the credit of the Mortgagor,
and the ability to obtain repayment of the Mortgage Loan may be
generally similar to that which would be experienced if the
Mortgage Loan were an unsecured consumer loan. Moreover, while
in
most jurisdictions a mortgagee would be permitted to elect to
either foreclose or sue to collect the debt evidenced by the
Mortgage Note, in some jurisdictions suits to collect the debt
are
prohibited until the mortgagee has sought to foreclose against
the
security, so that the mortgagee may be forced to foreclose first
and thereafter obtain a deficiency judgment. In addition, in
some
jurisdictions, where the mortgagee has chosen to sue on the debt
in lieu of foreclosure, the mortgagee will be barred from
foreclosing against the security.
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 "Risk Factors," 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 first or junior mortgages or leases on
cooperative apartment units and loans to cooperative
associations,
and which are closed-end loans that do not permit revolving debt;
(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. 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,
deeds to secure debt or other similar security instruments
(collectively, "Mortgages") creating a first or junior lien on
the
related Mortgaged Properties. The Mortgage Loans may also include
Cooperative Loans evidenced by promissory notes secured by a
first
or junior 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.
With respect to any Junior Mortgage Loan, the "Combined
Loan-to-Value Ratio" generally will be the ratio, expressed as a
percentage, of the sum of (i) the Cut-off Date Principal Balance
of such Junior Mortgage Loan and (ii) the principal balance of
any
related mortgage loans that constitute liens senior to the lien
of
the Junior Mortgage Loan on the related Mortgaged Property, at
the
time of the origination of such Junior Mortgage Loan (or, if
appropriate, at the time of an appraisal subsequent to
origination), to the lesser of (A) the appraised value of the
related Mortgaged Property determined in the appraisal used in
the
origination of such Junior Mortgage Loan (or, if appropriate, the
value determined in an appraisal obtained subsequent to
origination) and (B) if applicable under the corresponding
program, the sales price of each Mortgaged Property. With
respect
to each Junior Mortgage Loan, the "Junior Mortgage Ratio"
generally will be the ratio, expressed as a percentage, of the
Cut-off Date Principal Balance of such Junior Mortgage Loan to
the
sum of (i) the Cut-off Date Principal Balance of such Junior
Mortgage Loan and (ii) the principal balance of any mortgage
loans
senior to the Junior Mortgage Loan at the time of the origination
of such Junior Mortgage Loan.
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. Investors should be aware that a Junior
Mortgage Loan may be subordinate to a negatively amortizing
senior
mortgage loan. An increase in the principal balance of such
senior mortgage loan may cause the sum of the outstanding
principal balance of the senior mortgage loan and the outstanding
principal balance of the Junior Mortgage Loan to exceed the sum
of
such principal balances at the time of origination of the Junior
Mortgage Loan. The related Prospectus Supplement will specify
whether the ARM Loans underlying a series are Neg-Am ARM Loans
and
the percentage of any Junior Mortgage Loans that are subordinate
to any related senior mortgage loan that is negatively
amortizing.
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 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 including, in the case of Junior Mortgage Loans,
payments
required to be made on any senior mortgage. 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.
The level of review by Residential Funding, if any, will
vary depending on a number of factors. 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 for conformity with the applicable underwriting
standards and 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. In its underwriting analysis, Residential Funding
may
also consider the applicable credit score of the related
Mortgagor
used in connection with the origination of the Mortgage Loan (as
determined based on a credit scoring model acceptable to the
Company.)
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 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.
With respect to the Company's underwriting standards, as
well as any other underwriting standards that may be applicable
to
any Mortgage Loans, such underwriting standards generally include
a set of specific criteria pursuant to which the underwriting
evaluation is made. However, the application of such
underwriting
standards does not imply that each specific criterion was
satisfied individually. Rather, a Mortgage Loan will be
considered to be originated in accordance with a given set of
underwriting standards if, based on an overall qualitative
evaluation, the loan is in substantial compliance with such
underwriting standards. For example, a Mortgage Loan may be
considered to comply with a set of underwriting standards, even
if
one or more specific criteria included in such underwriting
standards were not satisfied, if other factors compensated for
the
criteria that were not satisfied or if the Mortgage Loan is
considered to be in substantial compliance with the underwriting
standards.
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. (S)
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 81/2 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. (S) 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 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 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 the 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 lien having at least the
priority
represented and warranted in the related Pooling and Servicing
Agreement 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, (c) liens of any senior mortgages, in the case of
Junior Mortgage Loans and (d) 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 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
FDIC (either in its corporate capacity or as receiver for a
depository institution), may also be a Mortgage Collateral
Seller,
in which event neither the FDIC 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 FDIC may have no obligation to
repurchase any Mortgage Collateral for a breach of a
representation or warranty.
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"), or Cedel
Bank,
societe anonyme ("CEDEL") or the Euroclear System ("Euroclear")
(in Europe) if they are participants of such systems, or
indirectly through organizations which are participants in such
systems, or through such other depository or facility as may be
specified in the related Prospectus Supplement. As to any such
class of Certificates so issued ("Book-Entry Certificates"), the
record holder of such Certificates will be DTC's nominee. CEDEL
and Euroclear will hold omnibus positions on behalf of their
participants through customers' securities accounts in CEDEL's
and
Euroclear's names on the books of their respective depositaries
(the "Depositaries"), which in turn will hold such positions in
customers' securities accounts in the depositaries' names on the
books of DTC.
DTC is a limited-purpose trust company organized under the
laws of the State of New York, which holds securities for its
participating organizations ("DTC Participants," and together
with
the CEDEL and Euroclear 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 Book-Entry
Certificate (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 Book-Entry
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 Book-Entry Certificates will be required to be made in
minimum
denominations specified in the related Prospectus Supplement.
The
ability of a Beneficial Owner to pledge Book-Entry 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.
Because of time zone differences, the securities account of
a CEDEL or Euroclear participant as a result of a transaction
with
a DTC Participant (other than a depositary holding on behalf of
CEDEL or Euroclear) will be credited during subsequent securities
settlement processing day (which must be a business day for CEDEL
or Euroclear, as the case may be) immediately following the DTC
settlement date. Such credits or any transactions in such
securities settled during such processing will be reported to the
relevant Euroclear Participant or CEDEL Participants on such
business day. Cash received in CEDEL or Euroclear as a result of
sales of securities by or through a CEDEL Participant or
Euroclear
Participant to a DTC Participant (other than the depositary for
CEDEL or Euroclear) will be received with value on the DTC
settlement date, but will be available in the relevant CEDEL or
Euroclear cash account only as of the business day following
settlement in DTC.
Transfers between Participants will occur in accordance with
DTC rules. Transfers between CEDEL Participants and Euroclear
Participants will occur in accordance with their respective rules
and operating procedures.
Cross-market transfers between persons holding directly or
indirectly through DTC, on the one hand, and directly or
indirectly through CEDEL Participants or Euroclear Participants,
on the other, will be effected by DTC in accordance with DTC
rules
on behalf of the relevant European international clearing system
by the relevant Depositaries; however, such cross market
transactions will require delivery of instructions to the
relevant
European international clearing system by the counterparty in
such
system in accordance with its rules and procedures and within its
established deadlines (European time). The relevant European
international clearing system will, if the transaction meets its
settlement requirements, deliver instructions to its Depositary
to
take action to effect final settlement on its behalf by
delivering
or receiving securities in DTC, and making or receiving payment
in
accordance with normal procedures for same day funds settlement
applicable to DTC. CEDEL Participants and Euroclear Participants
may not deliver instructions directly to the Depositaries.
CEDEL is incorporated under the laws of Luxembourg as a
professional depository. CEDEL holds securities for its
participating organizations ("CEDEL Participants") and
facilitates
the clearance and settlement of securities transactions between
CEDEL Participants through electronic book-entry changes in
accounts of CEDEL Participants, thereby eliminating the need for
physical movement of certificates. Transactions may be settled in
CEDEL in any of 28 currencies, including United States dollars.
CEDEL provides to its CEDEL Participants, among other things,
services for safekeeping, administration, clearance and
settlement
of internationally traded securities and securities lending and
borrowing. CEDEL interfaces with domestic markets in several
countries. As a professional depository, CEDEL is subject to
regulation by the Luxembourg Monetary Institute. CEDEL
participants are recognized financial institutions around the
world, including underwriters, securities brokers and dealers,
banks, trust companies, checkering corporations and certain other
organizations. Indirect access to CEDEL is also available to
others, such as banks, brokers, dealers and trust companies that
clear through or maintain a custodial relationship with a CEDEL
Participant, either directly or indirectly.
Euroclear was created in 1968 to hold securities for
participants of Euroclear ("Euroclear Participants") and to clear
and settle transactions between Euroclear Participants through
simultaneous electronic book-entry delivery against payment,
thereby eliminating the need for physical movement of
certificates
and any risk from lack of simultaneous transfers of securities
and
cash. Transactions may now be settled in any of 31 currencies,
including United States dollars. Euroclear includes various other
services, including securities lending and borrowing and
interfaces with domestic markets in several countries generally
similar to the arrangements for cross-market transfers with DTC
described above. Euroclear is operated by the Brussels, Belgium
office of Morgan Guaranty Trust Company of New York (the
"Euroclear Operator"), under contract with Euroclear Clearance
Systems S.C., a Belgian co-operative corporation (the
"Cooperative"). All operations are conducted by the Euroclear
Operator, and all Euroclear securities clearance accounts and
Euroclear cash accounts are accounts with the Euroclear Operator,
not the Cooperative. The Cooperative establishes policy for
Euroclear on behalf of Euroclear Participants. Euroclear
Participants include banks (including central banks), securities
brokers and dealers and other professional financial
intermediaries. Indirect access to Euroclear is also available to
other firms that clear through or maintain a custodial
relationship with a Euroclear Participant, either directly or
indirectly.
The Euroclear Operator is the Belgian branch of a New York
banking corporation which is a member bank of the Federal Reserve
System. As such, it is regulated and examined by the Board of
Governors of the Federal Reserve System and the New York State
Banking Department, as well as the Belgian Banking Commission.
Securities clearance accounts and cash accounts with the
Euroclear
Operator are governed by the Terms and Conditions Governing Use
of
Euroclear and the related Operating Procedures of the Euroclear
System and applicable Belgian law (collectively, the "Terms and
Conditions"). The Terms and Conditions govern transfers of
securities and cash within Euroclear, withdrawals of securities
and cash from Euroclear, and receipts of payments with respect to
securities in Euroclear. All securities in Euroclear are held on
a
fungible basis without attribution of specific certificates to
specific securities clearance accounts. The Euroclear Operator
acts under the Terms and Conditions only on behalf of Euroclear
Participants, and has no record of or relationship with persons
holding through Euroclear Participants.
Distributions in respect of the Book-Entry 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 Book-Entry Certificates under the Pooling and
Servicing Agreement only at the direction of one or more
Participants to whose account the Book-Entry 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,
any Servicer, the Company, the Certificate Administrator, 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 Book-
Entry 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 or Combined
Loan-
to-Value Ratio and Junior Mortgage Ratio, as applicable, 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 incurred in
connection with acquiring by foreclosure or deed in lieu of
foreclosure a Mortgaged Property, including, if the Master
Servicer and any affiliate of the Master Servicer provides
services such as appraisals and brokerage services that are
customarily provided by persons other than servicers of
mortgage loans, reasonable compensation for such services
("Servicing Advances") as to any Mortgaged Property, out of
late payments, Insurance Proceeds, Liquidation Proceeds, any
proceeds in respect of any REO Mortgage Loan 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 April 1996:
Date Note Description
April 1. . . . . . . . (A) Cut-off Date.
April 2-30 . . . . . . (B) The Servicers or the Sub-
Servicers, as applicable, receive
any Principal Prepayments and
applicable interest on such
Principal Prepayments.
April 30 . . . . . . . (C) Record Date.
May 1. . . . . . . . . (D) The due date for a Mortgage Loan
or Contract (the "Due Date").
May 17 . . . . . . . . (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 May 1 and
received or advanced by them.
May 20 . . . . . . . . (F) Determination Date.
May 28 . . . . . . . . (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
April 1, 1996, after deducting principal payments due on or
before such date. Those principal payments due on or before
April 1, and the accompanying interest payments, and any
Principal Prepayments received as of the close of business
on April 1, 1996 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 May 28 (because May 25, 1996 is not a
business day) will be made to Certificateholders of
record at the close of business on April 30.
(D) Scheduled principal and interest payments are due from
Mortgagors.
(E) Payments due on May 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
April balances (with the exception of interest from
the date of prepayment of any Mortgage Loan or
Contract prepaid in full during April and interest on
the amount of partial Principal Prepayments in April).
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 May 17 (because May 18, 1996 is not a
business day) 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 April will have been remitted to the
Master Servicer or the Servicer, as applicable, within
five business days of receipt).
(F) On May 20, the Master Servicer or the Certificate
Administrator, if any, will determine the amounts of
principal and interest which will be passed through on
May 28 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 May 1 which have been received from Servicers or
Sub-Servicers prior to and including May 17, as well
as all Principal Prepayments received on Mortgage
Loans in April (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 May 28 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 May 28, the amounts determined on May 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 (each,
a
"Sub-Servicer") 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.
In connection with any significant partial prepayment of a
Mortgage Loan, the Master Servicer, to the extent not
inconsistent
with the terms of the Mortgage Note and local law and practice,
may permit the Mortgage Loan to be re-amortized such that the
monthly payment is recalculated as an amount that will fully
amortize the remaining principal amount thereof by the original
maturity date based on the original Mortgage Rate, provided that
such re-amortization shall not be permitted if it would
constitute
a modification of the Mortgage Loan for federal income tax
purposes.
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 unless, in the case of Junior Mortgage
Loans, the Mortgagor is required to escrow such amounts pursuant
to the senior mortgage documents. 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 (i) the fees of any
Sub-Servicers, (ii) 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, reimbursement of expenses incurred in connection
with
a foreclosure or deed in lieu of foreclosure upon a Mortgaged
Property, 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 (iii)
expenses related to the 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, any
proceeds
in respect of an REO Mortgage Loan (with respect to expenses
incurred in connection with a foreclosure or deed in lieu of
foreclosure) 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 Attestation 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
With respect to a Mortgage Loan in default, the Master
Servicer or the related Subservicer will decide whether to
foreclose upon the Mortgage Property or write off the principal
balance of the Mortgage Loan or Contract as a bad debt. In
connection with such decision, the Master Servicer or the related
Subservicer will, following usual practices in connection with
senior and junior mortgage servicing activities, estimate the
proceeds expected to be received and the expenses expected to be
incurred in connection with such foreclosure to determine whether
a foreclosure proceeding is appropriate. With respect to any
Junior Mortgage Loan, following any default thereon, in the event
that the senior mortgage holder commences a foreclosure action it
is likely that such Mortgage Loan will be written off as bad debt
with no foreclosure proceeding unless foreclosure proceeds for
such Mortgage Loan are expected to at least satisfy the related
senior mortgage loan in full and to pay foreclosure costs. See
"Risk Factors Risks Associated with the Mortgage Collateral"
herein.
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) subject to any senior loan positions and certain other
restrictions pertaining to junior loans as described under
"Certain Legal Aspects of Mortgage Loans and Related
Matters Foreclosure on Mortgage Loans" 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
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 losses, "Defaulted Mortgage Losses");
(ii) of a type generally covered by a Special Hazard Insurance
Policy (any such losses, "Special Hazard Losses"); (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 losses, "Bankruptcy Losses"); 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 losses, "Fraud Losses").
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 first and junior liens 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 a Mortgage Loan or
Contract
would become an unsecured creditor to the extent the outstanding
principal balance of such Mortgage Loan (together with any senior
mortgage loan, with respect to a Junior 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. Unless
otherwise specified in the Prospectus Supplement, the Company
will
have the ability to cancel any Primary Insurance Policy if the
Loan-to-Value Ratio of the Mortgage Loan is reduced below 80% (or
a lesser specified percentage) based on an appraisal of the
Mortgaged Property after the related Closing Date or as a result
of principal payments that reduce the principal balance of the
Mortgage Loan after such Closing Date. 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. Junior
Mortgage Loans generally will not be required by the Company to
be
covered by a primary mortgage guaranty insurance policy insuring
against default on such Mortgage Loan.
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 received by the
insured
(other than the proceeds of hazard insurance) that are derived
from the related Mortgaged Property, (ii) hazard insurance
proceeds received by the insured 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
(i)
the principal balance of such Mortgage Loan and, in the case of
Junior Mortgage Loans, the principal balance of any senior
mortgage loans, or (ii) 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. If Junior Mortgage Loans are included within any
Trust Fund, investors should also consider the application of
hazard insurance proceeds discussed herein under "Certain Legal
Aspects of the Mortgage Loans and Contracts The Mortgage
Loans Junior Mortgages, Rights of Senior Mortgages."
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 General Motors
Acceptance Corporation. 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, 1995, Residential Funding was master servicing a mortgage
loan
portfolio of approximately $25.256 billion.
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 or Combined Loan-to-Value Ratios, as applicable,
may be higher than for other types of mortgage loans or
manufactured housing contracts. See "Risk Factors Risks
Associated
with the Mortgage Collateral." 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.
For any Junior Mortgage Loans, the inability of the
Mortgagor to pay off the balance thereof may affect the ability
of
the Mortgagor to obtain refinancing of any related senior
mortgage
loan, thereby preventing a potential improvement in the
Mortgagor's circumstances. Furthermore, if so specified in the
related Prospectus Supplement, under the applicable Pooling and
Servicing Agreement the Master Servicer may be restricted or
prohibited from consenting to any refinancing of any related
senior mortgage loan, which in turn could adversely affect the
Mortgagor's circumstances or result in a prepayment or default
under the corresponding Junior 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.
Generally, junior mortgage loans are not viewed by
Mortgagors as permanent financing. Accordingly, Junior Mortgage
Loans may experience a higher rate of prepayment than typical
first lien mortgage loans.
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 deeds of trust, mortgages or deeds to secure debt,
depending upon the prevailing practice in the state in which the
related Mortgaged Property is located. In some states, a
mortgage,
deed of trust or deed to secure debt creates a lien upon the real
property encumbered by the mortgage. In other states, the
mortgage, deed of trust or deed to secure debt 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. A deed to secure debt typically has
two
parties, pursuant to which the borrower, or grantor, conveys
title
to the real property to the grantee, or lender, generally with a
power of sale, until such time as the debt is repaid. The
trustee's authority under a deed of trust and the mortgagee's
authority under a mortgage or a deed to secure debt are governed
by the law of the state in which the real property is located,
the
express provisions of the deed of trust, mortgage or deed to
secure debt 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 security interest
in, the cooperative shares and proprietary leases or occupancy
agreements, 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 the filing of the financing statements
related thereto) in the appropriate recording office or the
taking
of possession of the cooperative shares, depending on the law of
the state in which the cooperative is located. Such a lien or
security interest is not, in general, prior to liens in favor of
the cooperative corporation for unpaid assessments or common
charges.
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 or a deed to secure debt may also
be foreclosed by judicial action, foreclosure of a deed of trust
or a deed to secure debt is generally accomplished by a non-
judicial trustee's sale under a specific provision in the deed of
trust which authorizes the trustee or lender, as applicable, to
sell the property upon any default by the borrower under the
terms
of the note or deed of trust or a deed to secure debt. 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 or lender, as applicable,
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 a mortgage, a deed of trust
or deed to secure debt, 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, deed of trust or deed to secure
debt, 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. In some cases, a deficiency judgment may
be
pursued in lieu of foreclosure. 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."
A junior mortgagee may not foreclose on the property
securing a Junior Mortgage Loan unless it forecloses subject to
the senior mortgages, in which case it must either pay the entire
amount due on the senior mortgages to the senior mortgagees prior
to or at the time of the foreclosure sale or undertake the
obligation to make payments on the senior mortgages in the event
the mortgagor is in default thereunder, in either event adding
the
amounts expended to the balance due on the junior loan, and may
be
subrogated to the rights of the senior mortgagees. In addition,
in the event that the foreclosure by a junior mortgagee triggers
the enforcement of a "due-on-sale" clause in a senior mortgage,
the junior mortgagee may be required to pay the full amount of
the
senior mortgages to the senior mortgagees (to avoid a default
with
respect thereto). Accordingly, with respect to such Junior
Mortgage Loans, if the junior lender purchases the property, the
lender's title will be subject to all senior liens and claims and
certain governmental liens. The proceeds received by the referee
or trustee from the sale are applied first to the costs, fees and
expenses of sale and then in satisfaction of the indebtedness
secured by the mortgage or deed of trust under which the sale was
conducted. Any remaining proceeds are generally payable to the
holders of junior mortgages or deeds of trust and other liens and
claims in order of their priority, whether or not the borrower is
in default. Any additional proceeds are generally payable to the
mortgagor or trustor. The payment of the proceeds to the holders
of junior mortgages may occur in the foreclosure action of the
senior mortgagee or may require the institution of separate legal
proceedings. See "Risk Factors Risks Associated with the
Mortgage
Collateral" and "Description of the Certificates Realization Upon
Defaulted Property" herein.
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 and 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.
A foreclosure on the cooperative shares is accomplished by
public sale in accordance with the provisions of Article 9 of the
Uniform Commercial Code (the "UCC") and the security agreement
relating to those shares. Article 9 of the UCC requires that a
sale be conducted in a "commercially reasonable" manner. Whether
a
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 creditors selling similar collateral in the same area
will be considered reasonably conducted.
Where the lienholder is the junior lienholder, any
foreclosure may be delayed until the junior lienholder obtains
actual possession of such cooperative shares . Additionally, if
the lender does not have a first priority perfected security
interest in such cooperative shares, any foreclosure sale would
be
subject to the rights and interests of any creditor holding
senior
interests therein. Also, a junior lienholder may not be able to
obtain a recognition agreement from a cooperative since many
cooperatives do not permit subordinate financing. Without a
recognition agreement, the junior lienholder will not be afforded
the usual lender protections (i.e., notice of default and
opportunity to cure) from the cooperative which are generally
provided for in recognition agreements.
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, a
deed to secure debt 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 or a deed to secure debt.
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 or a deed to secure debt. 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,
deed to secure debt 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, deed to
secure debt 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.
Certain of the Mortgage Loans may be subject to special
rules, disclosure requirements and other provisions that were
added to the federal Truth-in-Lending Act by the Homeownership
and
Equity Protection Act of 1994 (such Mortgage Loans, "High Cost
Loans"), if such Mortgage Loans were originated on or after
October 1, 1995, are not mortgage loans made to finance the
purchase of the mortgaged property and have interest rates or
origination costs in excess of certain prescribed levels.
Purchasers or assignees of any High Cost Loan, including any
Trust
Fund, could be liable for all claims and subject to all defenses
arising under such provisions that the borrower could assert
against the originator thereof. Remedies available to the
borrower include monetary penalties, as well as recision rights
if
the appropriate disclosures were not given as required.
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. 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,
deeds
to secure debt 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
deed to secure debt or 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.
Usury limits apply to junior mortgage loans in many states.
Any applicable usury limits in effect at origination will be
reflected in the maximum Mortgage Rates on ARM Loans, which will
be set forth in the related Prospectus Supplement.
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.
Junior Mortgages; Rights of Senior Mortgagees
The Mortgage Loans included in the Trust Fund may be junior
to other mortgages, deeds to secure debt or deeds of trust held
by
other lenders. The rights of the Trust Fund (and therefore the
Certificateholders), as mortgagee under a junior mortgage, are
subordinate to those of the mortgagee under the senior mortgage,
including the prior rights of the senior mortgagee to receive
hazard insurance and condemnation proceeds and to cause the
property securing the Mortgage Loan to be sold upon default of
the
mortgagor, which may extinguish the junior mortgagee's lien
unless
the junior mortgagee asserts its subordinate interest in the
property in foreclosure litigation and, in certain cases, either
reinstates or satisfies the defaulted senior loan or loans. A
junior mortgagee may satisfy a defaulted senior loan in full or,
in some states, may cure such default and bring the senior loan
current thereby reinstating the senior loan, in either event
usually adding the amounts expended to the balance due on the
junior loan. In most states, absent a provision in the mortgage,
deed to secure debt or deed of trust, no notice of default is
required to be given to a junior mortgagee. Where applicable law
or the terms of the senior mortgage, deed to secure debt or deed
of trust do not require notice of default to the junior
mortgagee,
the lack of any such notice may prevent the junior mortgagee from
exercising any right to reinstate the loan which applicable law
may provide.
The standard form of the mortgage, deed to secure debt or
deed of trust used by most institutional lenders confers on the
mortgagee the right both to receive all proceeds collected under
any hazard insurance policy and all awards made in connection
with
condemnation proceedings, and to apply such proceeds and awards
to
any indebtedness secured by the mortgage, deed to secure debt or
deed of trust, in such order as the mortgagee may determine.
Thus, in the event improvements on the property are damaged or
destroyed by fire or other casualty, or in the event the property
is taken by condemnation, the mortgagee or beneficiary under
underlying senior mortgages will have the prior right to collect
any insurance proceeds payable under a hazard insurance policy
and
any award of damages in connection with the condemnation and to
apply the same to the indebtedness secured by the senior
mortgages. Proceeds in excess of the amount of senior mortgage
indebtedness, in most cases, may be applied to the indebtedness
of
junior mortgages in the order of their priority.
Another provision sometimes found in the form of the
mortgage, deed to secure debt or deed of trust used by
institutional lenders obligates the mortgagor to pay before
delinquency all taxes and assessments on the property and, when
due, all encumbrances, charges and liens on the property which
are
prior to the mortgage or deed of trust, to provide and maintain
fire insurance on the property, to maintain and repair the
property and not to commit or permit any waste thereof, and to
appear in and defend any action or proceeding purporting to
affect
the property or the rights of the mortgagee under the mortgage.
Upon a failure of the mortgagor to perform any of these
obligations, the mortgagee or beneficiary is given the right
under certain mortgages or deeds of trust to perform the
obligation itself, at its election, with the mortgagor agreeing
to
reimburse the mortgagee for any sums expended by the mortgagee on
behalf of the mortgagor. All sums so expended by a senior
mortgagee become part of the indebtedness secured by the senior
mortgage. Also, since most senior mortgages require the related
Mortgagor to make escrow deposits with the holder of the senior
mortgage for all real estate taxes and insurance premiums, many
junior mortgagees will not collect and retain such escrows and
will rely upon the holder of the senior mortgage to collect and
disburse such escrows.
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 record a
mortgage, deed of trust or deed to secure debt, as applicable,
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 recordings
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 lien 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.
Default Interest and Limitations on Prepayments
Notes and mortgages may contain provisions that obligate the
borrower to pay a late charge or additional interest if payments
are not timely made, and in some circumstances, may prohibit
prepayments for a specified period and/or condition prepayments
upon the borrower's payment of prepayment fees or yield
maintenance penalties. In certain states, there are or may be
specific limitations upon the late charges which a lender may
collect from a borrower for delinquent payments. Certain states
also limit the amounts that a lender may collect from a borrower
as an additional charge if the loan is prepaid. In addition, the
enforceability of provisions that provide for prepayment fees or
penalties upon an involuntary prepayment is unclear under the
laws
of many states. Most conventional single-family mortgage loans
may be prepaid in full or in part without penalty. The
regulations of the Federal Home Loan Bank Board, as succeeded by
the OTS, prohibit the imposition of a prepayment penalty or
equivalent fee for or in connection with the acceleration of a
loan by exercise of a due-on-sale clause. A mortgagee to whom a
prepayment in full has been tendered may be compelled to give
either a release of the mortgage or an instrument assigning the
existing mortgage. The absence of a restraint on prepayment,
particularly with respect to Mortgage Loans having higher
mortgage
rates, may increase the likelihood of refinancing or other early
retirements of the Mortgage Loans.
Forfeitures in Drug and RICO Proceedings
Federal law provides that property owned by persons
convicted of drug-related crimes or of criminal violations of the
Racketeer Influenced and Corrupt Organizations ("RICO") statute
can be seized by the government if the property was used in, or
purchased with the proceeds of, such crimes. Under procedures
contained in the Comprehensive Crime Control Act of 1984 (the
"Crime Control Act"), the government may seize the property even
before conviction. The government must publish notice of the
forfeiture proceeding and may give notice to all parties "known
to
have an alleged interest in the property," including the holders
of mortgage loans.
A lender may avoid forfeiture of its interest in the
property if it establishes that: (i) its mortgage was executed
and
recorded before commission of the crime upon which the forfeiture
is based, or (ii) the lender was, at the time of execution of the
mortgage, "reasonably without cause to believe" that the property
was used in, or purchased with the proceeds of, illegal drug or
RICO activities.
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 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 Conference Committee Report
(the "Committee Report") accompanying the Tax Reform Act of 1986
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 Internal Revenue Service (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.
The OID Regulations suggest that original issue discount
with respect to securities that represent multiple uncertificated
REMIC regular interests, in which ownership interests will be
issued simultaneously to the same buyer and which may be required
under the related 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 securities that represent the ownership
of multiple uncertificated REMIC regular interests 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 in the related Prospectus Supplement, treating
all such uncertificated regular interests as a single debt
instrument as set forth in the OID Regulations, so long as the
Pooling and Servicing Agreement requires that such uncertificated
regular interests be transferred together.
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, including provisions (a) requiring
any transferee of a REMIC Residual Certificate to provide an
affidavit representing that it is not a "disqualified
organization" and is not acquiring the REMIC Residual Certificate
on behalf of a "disqualified organization," undertaking to
maintain such status and agreeing to obtain a similar affidavit
from any person to whom it shall transfer the REMIC Residual
Certificate, (b) providing that any transfer of a REMIC Residual
Certificate to a "disqualified person" shall be null and void and
(c) granting to the Master Servicer or Certificate Administrator,
as applicable, the right, without notice to the holder or any
prior holder, to sell to a purchaser of its choice any REMIC
Residual Certificate that shall become owned by a "disqualified
organization" despite (a) and (b) above.
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. (S) 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 Section 4975 of 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/or Section 4975 of 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 Services, Moody's Investors Service, Inc., Duff &
Phelps, Inc. or Fitch Investors Service, L.P. Fourth, the Trustee
cannot be an affiliate of any other member of the "Restricted
Group" which consists of any Underwriter, the Company, the Master
Servicer, the Certificate Administrator, any Servicer, any Sub-
Servicer, the Trustee 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 or a Disqualified Person 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
("PTCE") 83-1 ("PTCE 83-1") for certain transactions involving
mortgage pool investment trusts. However, PTCE 83-1 does not
provide exemptive relief with respect to Certificates evidencing
interests in Trust Funds that include Mortgage Loans secured by
third or more junior liens, Contracts or Cooperative Loans. In
addition, such fiduciary or other Plan investor should consider
the availability of PTCE 95-60, regarding investments by
insurance
company general accounts, PTCE 90-1, regarding investments by
insurance company pooled separate accounts, PTCE 91-38, regarding
investments by bank collective investment funds, and PTCE 84-14,
regarding transactions effected by "qualified professional asset
managers." 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. There can be no
assurance that any of these exemptions will apply with respect to
any particular Plan's or other Plan Asset investor's investment
in
the Certificates or, even if an exemption were deemed to apply,
that any exemption would apply to all prohibited transactions
that
may occur in connection with such an investment.
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 and except with respect to any class of Certificates
that will evidence an interest in Mortgage Loans secured by
second
or more junior liens, 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 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. (S) 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 and any class of Certificates that evidences
an interest in Mortgage Loans secured by second or more junior
liens, 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
Page
Accrual Certificates . . . . . . . . . . . . . . . . . . . . . .
. . . . . . 7
Advance. . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . .43
Affiliated Seller. . . . . . . . . . . . . . . . . . . . . . . .
. . . . . .27
Agency Securities. . . . . . . . . . . . . . . . . . . . . . . .
. . . . . .10
Agency Securities Pool . . . . . . . . . . . . . . . . . . . . .
. . . . . .17
AlterNet Loans . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . .18
AlterNet Mortgage Program. . . . . . . . . . . . . . . . . . . .
. . . . . .18
AlterNet Program Seller. . . . . . . . . . . . . . . . . . . . .
. . . . . .27
AlterNet Seller Guide. . . . . . . . . . . . . . . . . . . . . .
. . . . . .24
Appraised Value. . . . . . . . . . . . . . . . . . . . . . . . .
. . . .19, 25
ARM Loans. . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . .20
Balloon Amount . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . .18
Balloon Loans. . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . .18
Bankruptcy Amount. . . . . . . . . . . . . . . . . . . . . . . .
. . . . . .52
Bankruptcy Losses. . . . . . . . . . . . . . . . . . . . . . . .
. . . . . .53
Beneficial Owner . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . .32
Bi-Weekly Loans. . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . .18
Book-Entry Certificates. . . . . . . . . . . . . . . . . . . . .
. . . . . .32
Buy-Down Funds . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . .21
Buy-Down Loans . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . .18
Buy-Down Period. . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . .21
CEDEL. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . .32
CEDEL Participants . . . . . . . . . . . . . . . . . . . . . . .
. . . . . .33
Certificate Account. . . . . . . . . . . . . . . . . . . . . . .
. . . . . .17
Certificate Administrator. . . . . . . . . . . . . . . . . . . .
. . . . . . 1
Certificate Insurance Policy . . . . . . . . . . . . . . . . . .
. . . . . .58
Certificate Registrar. . . . . . . . . . . . . . . . . . . . . .
. . . . . .31
Certificateholder. . . . . . . . . . . . . . . . . . . . . . . .
. . . . . .31
Certificates . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . 1
Closing Date . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . .90
Code . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . .12
Combined Loan-to-Value Ratio . . . . . . . . . . . . . . . . . .
. . . . . .19
Commission . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . .17
Committee Report . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . .89
Company. . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . 1
Compensating Interest. . . . . . . . . . . . . . . . . . . . . .
. . . . . .44
Contract Pool. . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . .10
Contract Pool Insurance Policy . . . . . . . . . . . . . . . . .
. . . . . .56
Contracts. . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . 1
Contributions Tax. . . . . . . . . . . . . . . . . . . . . . . .
. . . . . 101
Conventional Loans . . . . . . . . . . . . . . . . . . . . . . .
. . . . . .18
Convertible Mortgage Loan. . . . . . . . . . . . . . . . . . . .
. . . . . .21
Cooperative. . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . .33
Cooperative Dwellings. . . . . . . . . . . . . . . . . . . . . .
. . . . . .18
Cooperative Loans. . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . 9
Cooperative Note . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . .75
Cooperatives . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . .18
Crime Control Act. . . . . . . . . . . . . . . . . . . . . . . .
. . . . . .87
Custodial Account. . . . . . . . . . . . . . . . . . . . . . . .
. . . . . .17
Custodian. . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . .17
Cut-off Date . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . .17
Debt Service Reduction . . . . . . . . . . . . . . . . . . . . .
. . . . . .57
Defaulted Mortgage Losses. . . . . . . . . . . . . . . . . . . .
. . . . . .53
Deferred Interest. . . . . . . . . . . . . . . . . . . . . . . .
. . . . . .21
Deficient Valuation. . . . . . . . . . . . . . . . . . . . . . .
. . . . . .57
Depositaries . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . .32
Determination Date . . . . . . . . . . . . . . . . . . . . . . .
. . . . . .41
Disqualified Persons . . . . . . . . . . . . . . . . . . . . . .
. . . . . 105
Distribution Amount. . . . . . . . . . . . . . . . . . . . . . .
. . . . . .40
Distribution Date. . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . 8
DOL. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . 105
DOL Regulations. . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . 105
DTC. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . .32
DTC Participants . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . .32
Due Date . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . .41
Eligible Account . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . .38
ERISA. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . .12
ERISA Plans. . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . 105
Escrow Account . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . .46
Euroclear. . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . .32
Euroclear Operator . . . . . . . . . . . . . . . . . . . . . . .
. . . . . .33
Euroclear Participants . . . . . . . . . . . . . . . . . . . . .
. . . . . .33
Exchange Act . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . 2
Excluded Plan. . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . 107
Exemption. . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . 106
Extraordinary Losses . . . . . . . . . . . . . . . . . . . . . .
. . . . . .53
Fannie Mae . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . .17
Fannie Mae Securities. . . . . . . . . . . . . . . . . . . . . .
. . . . . .17
FDIC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . .27
FHA. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . .18
FHA Contracts. . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . .24
FHA Loans. . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . .18
Form 8-K . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . .17
Fraud Loss Amount. . . . . . . . . . . . . . . . . . . . . . . .
. . . . . .52
Fraud Losses . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . .53
Freddie Mac. . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . .17
Freddie Mac Act. . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . .26
Freddie Mac Securities . . . . . . . . . . . . . . . . . . . . .
. . . . . .17
Garn-St Germain Act. . . . . . . . . . . . . . . . . . . . . . .
. . . . . .80
Ginnie Mae . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . .17
Ginnie Mae Securities. . . . . . . . . . . . . . . . . . . . . .
. . . . . .17
GMAC Mortgage. . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . 1
GPM Loans. . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . .18
Gross Margin . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . .20
High Cost Loans. . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . .80
Housing Act. . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . .25
HUD. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . .18
Index. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . .20
Indirect Participants. . . . . . . . . . . . . . . . . . . . . .
. . . . . .32
Insurance Proceeds . . . . . . . . . . . . . . . . . . . . . . .
. . . . . .37
IRAs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . 105
IRS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . .90
Issue Premium. . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . .96
Junior Mortgage Loans. . . . . . . . . . . . . . . . . . . . . .
. . . . . .13
Junior Mortgage Ratio. . . . . . . . . . . . . . . . . . . . . .
. . . . . .20
Letter of Credit . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . .54
Letter of Credit Bank. . . . . . . . . . . . . . . . . . . . . .
. . . . . .54
Liquidated Contract. . . . . . . . . . . . . . . . . . . . . . .
. . . . . .50
Liquidated Mortgage Loan . . . . . . . . . . . . . . . . . . . .
. . . . . .50
Liquidation Proceeds . . . . . . . . . . . . . . . . . . . . . .
. . . . . .37
Loan-to-Value Ratio. . . . . . . . . . . . . . . . . . . . . . .
. . . . . .19
Manufactured Home. . . . . . . . . . . . . . . . . . . . . . . .
. . . . . .10
Mark-to-Market Regulations . . . . . . . . . . . . . . . . . . .
. . . . . .99
Master Commitments . . . . . . . . . . . . . . . . . . . . . . .
. . . . . .24
Master Servicer. . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . 1
Maximum Mortgage Rate. . . . . . . . . . . . . . . . . . . . . .
. . . . . .20
Mezzanine Certificates . . . . . . . . . . . . . . . . . . . . .
. . . . . . 7
Minimum Mortgage Rate. . . . . . . . . . . . . . . . . . . . . .
. . . . . .20
Modified Mortgage Loan . . . . . . . . . . . . . . . . . . . . .
. . . . . .18
Mortgage Collateral. . . . . . . . . . . . . . . . . . . . . . .
. . . . . . 1
Mortgage Collateral Seller . . . . . . . . . . . . . . . . . . .
. . . . . . 9
Mortgage Loans . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . 1
Mortgage Note. . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . .34
Mortgage Pool. . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . 9
Mortgage Pool Insurance Policy . . . . . . . . . . . . . . . . .
. . . . . .54
Mortgage Rates . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . .18
Mortgaged Property . . . . . . . . . . . . . . . . . . . . . . .
. . . . 9, 10
Mortgages. . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . .18
Mortgagors . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . .13
Neg-Am ARM Loans . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . .20
Net Mortgage Rate. . . . . . . . . . . . . . . . . . . . . . . .
. . . . . .69
Nonrecoverable Advance . . . . . . . . . . . . . . . . . . . . .
. . . . . .39
OID Regulations. . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . .87
OTS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . 109
Participants . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . .32
Parties in Interest. . . . . . . . . . . . . . . . . . . . . . .
. . . . . 105
Pass-Through Rate. . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . 7
Paying Agent . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . .40
Percentage Interest. . . . . . . . . . . . . . . . . . . . . . .
. . . . . .40
Periodic Cap . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . .20
Permitted Investments. . . . . . . . . . . . . . . . . . . . . .
. . . . . .38
Plan Assets. . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . 105
Plans. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . 105
Policy Statement . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . 109
Pool Insurer . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . .54
Pooling and Servicing Agreement. . . . . . . . . . . . . . . . .
. . . . . . 1
Prepayment Interest Shortfall. . . . . . . . . . . . . . . . . .
. . . . . .43
Primary Insurance Policy . . . . . . . . . . . . . . . . . . . .
. . . . . .60
Primary Insurer. . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . .60
Principal Prepayments. . . . . . . . . . . . . . . . . . . . . .
. . . . . .42
Prohibited Transactions Tax. . . . . . . . . . . . . . . . . . .
. . . . . 101
PTCE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . 108
PTCE 83-1. . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . 108
Purchase Price . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . .29
Qualified Insurer. . . . . . . . . . . . . . . . . . . . . . . .
. . . . . .59
Qualified Retirement Plans . . . . . . . . . . . . . . . . . . .
. . . . . 105
Qualified Substitute Contract. . . . . . . . . . . . . . . . . .
. . . . . .30
Qualified Substitute Mortgage Loan . . . . . . . . . . . . . . .
. . . . . .30
Rating Agency. . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . .11
Realized Loss. . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . .51
Record Date. . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . .40
Registration Statement . . . . . . . . . . . . . . . . . . . . .
. . . . . . 2
REMIC. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . 1
REMIC Certificates . . . . . . . . . . . . . . . . . . . . . . .
. . . . . .87
REMIC Provisions . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . .87
REMIC Regular Certificates . . . . . . . . . . . . . . . . . . .
. . . . . .88
REMIC Regulations. . . . . . . . . . . . . . . . . . . . . . . .
. . . . . .88
REMIC Residual Certificates. . . . . . . . . . . . . . . . . . .
. . . . . .88
REO Contract . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . .50
REO Mortgage Loan. . . . . . . . . . . . . . . . . . . . . . . .
. . . . . .50
Repurchased Contract . . . . . . . . . . . . . . . . . . . . . .
. . . . . .30
Repurchased Mortgage Loan. . . . . . . . . . . . . . . . . . . .
. . . . . .30
Reserve Fund . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . .57
Residential Funding. . . . . . . . . . . . . . . . . . . . . . .
. . . . . . 6
Restricted Group . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . 106
RICO . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . .87
Senior Certificates. . . . . . . . . . . . . . . . . . . . . . .
. . . . . . 7
Senior Percentage. . . . . . . . . . . . . . . . . . . . . . . .
. . . . . .52
Senior/Subordinate Series. . . . . . . . . . . . . . . . . . . .
. . . . . .31
Servicer . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . 1
Servicing Advances . . . . . . . . . . . . . . . . . . . . . . .
. . . . . .39
Servicing Fee. . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . .46
Single Certificate . . . . . . . . . . . . . . . . . . . . . . .
. . . . . .45
SMMEA. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . .11
Special Hazard Amount. . . . . . . . . . . . . . . . . . . . . .
. . . . . .52
Special Hazard Insurance Policy. . . . . . . . . . . . . . . . .
. . . . . .56
Special Hazard Insurer . . . . . . . . . . . . . . . . . . . . .
. . . . . .56
Special Hazard Losses. . . . . . . . . . . . . . . . . . . . . .
. . . . . .53
Special Servicer . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . .48
Spread . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . .36
Stated Principal Balance . . . . . . . . . . . . . . . . . . . .
. . . . . .52
Strip Certificate. . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . 7
Sub-Servicer . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . .45
Sub-Servicing Agreement. . . . . . . . . . . . . . . . . . . . .
. . . . . .45
Subordinate Certificates . . . . . . . . . . . . . . . . . . . .
. . . . . . 7
Surety Bond. . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . .58
Tax-Exempt Investor. . . . . . . . . . . . . . . . . . . . . . .
. . . . . 108
Tax-Favored Plans. . . . . . . . . . . . . . . . . . . . . . . .
. . . . . 105
Terms and Conditions . . . . . . . . . . . . . . . . . . . . . .
. . . . . .33
Tiered REMICs. . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . .89
Title V. . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . .81
Title VIII . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . .81
Trust Agreement. . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . 1
Trust Fund . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . 1
Trustee. . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . .17
UBTI . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . 108
UCC. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . .78
Unaffiliated Seller. . . . . . . . . . . . . . . . . . . . . . .
. . . . . .27
Underwriter. . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . 106
VA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . .18
VA Contracts . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . .24
VA Loans . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . .18
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 14. Other Expenses of Issuance and Distribution.
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
Item 15. Indemnification of Directors and Officers.
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.
Item 16. Exhibits.
Exhibits--
* 1.1 Form of Underwriting Agreement.
* 3.1 Certificate of Incorporation.
* 3.2 By-Laws.
* 4.1 Form of Pooling and Servicing
Agreement.
* Previously filed.
* 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
as part of 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).
*24.1 Power of Attorney, dated December
12, 1994.
24.2 Power of Attorney, dated March 21, 1996.
* Previously filed.
Item 17. Undertakings.
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 this Registration
Statement. Notwithstanding the foregoing, any
increase or decrease in the volume of securities
offered (if the total dollar value of securities
offered would not exceed that which was registered)
and any deviation from the low or high and of the
estimated maximum offering range may be reflected in
the form of prospectus filed with the Commission
pursuant to Rule 424(b) if, in the aggregate, the
changes in volume and price represent no more than 20
percent change in the maximum aggregate offering price
set forth in the "Calculation of Registration Fee"
table in the effective 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 this Registration Statement is on Form S-3, Form S-8 or
Form F-3, and 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 this
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, reasonably believes that the
security rating requirement referred to in Transaction
Requirement
B.2 or B.5 of Form S-3 will be met by the time of sale of the
securities registered hereby, and has duly caused this Post-
Effective Amendment No. 1 to the Registration Statement to be
signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Minneapolis, State of Minnesota, on
the
21st day of March, 1996.
RESIDENTIAL ASSET
SECURITIES CORPORATION
By: /s/ Keenen W.
Dammen
Keenen W. Dammen
President
Pursuant to the requirements of the Securities
Act
of 1933, this Post-Effective Amendment No. 1 to Registration
Statement has been signed below by the following persons in the
capacities and on the dates indicated:
SIGNATURE TITLE DATE
* President and Chief Executive
March
21, 1996
Keenen W. Dammen Officer (Principal Executive
Officer)
* Director, Treasurer and Chief
Financial
March 21, 1996
Davee L. OlsonOfficer (Principal Financial
Officer)
* Director
March 21, 1996
Bruce J. Paradis
* Director
March 21, 1996
Dennis W. Sheehan
* Controller (Principal
March 21,
1996
Scott T. Young Accounting Officer)
* This Post-Effective Amendment No. 1 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
Attorney-in-Fact
EXHIBIT INDEX
Exhibits
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 as part of 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).
24.2 - Power of Attorney, dated March 21, 1996.
EXHIBIT 5.1
March 21, 1996
Residential Asset Securities Corporation
8400 Normandale Lake Boulevard
Minneapolis, Minnesota 55437
Ladies and Gentlemen:
At your request, we have examined Post-Effective Amendment
No. 1 to the Registration Statement on Form S-3 (Registration No.
33-56893) as filed by Residential Asset Securities Corporation, a
Delaware corporation (the "Registrant"), with the Securities and
Exchange Commission on December 16, 1994 (as amended on the date
hereof, the "Registration Statement"), in connection with the
registration under the Securities Act of 1933, as amended (the
"Act"), of Mortgage and Manufactured Housing Contract
Pass-Through
Certificates (the "Certificates"). The Certificates are issuable
in series (each, a "Series") under either a separate Pooling and
Servicing Agreement (each such agreement, a "Pooling and
Servicing
Agreement") by and among the Registrant, the Master Servicer or
Servicer named therein and the Trustee named therein or a Trust
Agreement (each such agreement, a "Trust Agreement") by and among
the Registrant, the Trustee named therein and the Certificate
Administrator named therein. The Certificates of each Series are
to be sold as set forth in the Registration Statement, any
amendment thereto, and the prospectus and prospectus supplement
relating to such Series.
We have examined such instruments, documents and records as
we deemed relevant and necessary as a basis of our opinion
hereinafter expressed. In such examination, we have assumed the
following: (a) the authenticity of original documents and the
genuineness of all signatures; (b) the conformity to the
originals
of all documents submitted to us as copies; and (c) the truth,
accuracy and completeness of the information, representations and
warranties contained in the records, documents, instruments and
certificates we have reviewed.
Based on such examination, we are of the opinion that when
the issuance of each Series of Certificates has been duly
authorized by appropriate corporate action and the Certificates
of
such Series have been duly executed, authenticated and delivered
in accordance with the Pooling and Servicing Agreement or the
Trust Agreement relating to such Series and sold, the
Certificates
will be legally issued, fully paid, binding obligations of the
trust created by the Pooling and Servicing Agreement or the Trust
Agreement, and the holders of the Certificates will be entitled
to
the benefits of the Pooling and Servicing Agreement or the Trust
Agreement, except as enforcement thereof may be limited by
applicable bankruptcy, insolvency, reorganization, arrangement,
fraudulent conveyance, moratorium, or other laws relating to or
affecting the rights of creditors generally and general
principles
of equity, including without limitation, concepts of materiality,
reasonableness, good faith and fair dealing, and the possible
unavailability of specific performance or injunctive relief,
regardless of whether such enforceability is considered in a
proceeding in equity or at law.
We hereby consent to the filing of this opinion as an
exhibit to the Registration Statement and to the use of our name
wherever appearing in the Registration Statement and the
prospectus contained therein. In giving such consent, we do not
consider that we are "experts," within the meaning of the term as
used in the Act or the rules and regulations of the Commission
issued thereunder, with respect to any part of the Registration
Statement, including this opinion as an exhibit or otherwise.
Very truly yours,
/s/ Orrick, Herrington &
Sutcliffe
ORRICK, HERRINGTON &
SUTCLIFFE
Exhibit 5.2
March 21, 1996
Residential Asset Securities Corporation
8400 Normandale Lake Boulevard
Minneapolis, Minnesota 55437
Re: Residential Asset Securities Corporation
Mortgage and Manufactured Housing Contract
Pass-Through Certificates;
Post-Effective Amendment No. 1 to the
Registration Statement on Form S-3
Ladies and Gentlemen:
We are counsel to Residential Asset Securities
Corporation, a Delaware corporation (the "Registrant") in
connection with the registration under the Securities Act of
1933,
as amended (the "Act"), of Mortgage and Manufactured Housing
Contract Pass-Through Certificates (the "Certificates"), and the
related preparation and filing of Post-Effective Amendment No. 1
to the Registration Statement on Form S-3 (Registration No. 33-
56893) as filed by the Registrant with the Securities and
Exchange
Commission on December 16, 1994 (as amended on the date hereof,
the "Registration Statement"). The Certificates are issuable in
series under separate pooling and servicing agreements (each such
agreement, a "Pooling and Servicing Agreement") or trust
agreements (each such agreement, a "Trust Agreement"), among the
Registrant, a master servicer, servicer or certificate
administrator to be identified in the prospectus supplement for
such series of Certificates and a trustee to be identified in the
prospectus supplement for such series of Certificates. Each
Pooling and Servicing Agreement or Trust Agreement will be
substantially in the respective form filed as an Exhibit to the
Registration Statement.
In connection with rendering this opinion letter, we
have examined the forms of the Pooling and Servicing Agreement
and
Trust Agreement contained as Exhibits in the Registration
Statement, the Registration Statement and such records and other
documents as we have deemed necessary. As to matters of fact, we
have examined and relied upon representations or certifications
of
officers of the Registrant or public officials. We have assumed
the authenticity of all documents submitted to us as originals,
the genuineness of all signatures, the legal capacity of natural
persons and the conformity to the originals of all documents. We
have assumed that all parties, other than the Registrant, had the
corporate power and authority to enter into and perform all
obligations thereunder, and, as to such parties, we also have
assumed the due authorization by all requisite corporate action,
the due execution and delivery and the enforceability of such
documents.
In rendering this opinion letter, we express no
opinion as to the laws of any jurisdiction other than the laws of
the State of New York and the corporate laws of the State of
Delaware, nor do we express any opinion, either implicitly or
otherwise, on any issue not expressly addressed below. In
rendering this opinion letter, we have not passed upon and do not
pass upon the application of "doing business" or the securities
laws of any jurisdiction. This opinion letter is further subject
to the qualification that enforceability may be limited by
(i) bankruptcy, insolvency, liquidation, receivership,
moratorium,
reorganization or other laws affecting the enforcement of the
rights of creditors generally and (ii) general principles of
equity, whether enforcement is sought in a proceeding in equity
or
at law.
Based on the foregoing, we are of the opinion that:
1. When a Pooling and Servicing Agreement or Trust
Agreement for a series of Certificates has been duly authorized
by
all necessary action and duly executed and delivered by the
parties thereto, such Pooling and Servicing Agreement or Trust
Agreement will be a legal and valid obligation of the Registrant.
2. When a Pooling and Servicing Agreement or Trust
Agreement for a series of Certificates has been duly authorized
by
all necessary action and duly executed and delivered by the
parties thereto, and when the Certificates of such series have
been duly executed and authenticated in accordance with the
provisions of that Pooling and Servicing Agreement or Trust
Agreement, and issued and sold as contemplated in the
Registration
Statement and the prospectus and prospectus supplement delivered
in connection therewith, such Certificates will be legally and
validly issued and outstanding, fully paid and non-assessable,
and
the holders of such Certificates will be entitled to the benefits
of that Pooling and Servicing Agreement or Trust Agreement.
3. The description of federal income tax
consequences appearing under the heading "Certain Federal Income
Tax Consequences" in the prospectus contained in the Registration
Statement, while not purporting to discuss all possible federal
income tax consequences of an investment in Certificates, is
accurate with respect to those tax consequences which are
discussed.
We hereby consent to the filing of this opinion letter
as an Exhibit to the Registration Statement, and to the use of
our
name in the prospectus and prospectus supplement included in the
Registration Statement under the heading "Legal Matters", and in
the prospectus included in the Registration Statement under the
heading "Certain Federal Income Tax Consequences", without
admitting that we are "experts" within the meaning of the Act,
and
the rules and regulations thereunder, with respect to any part of
the Registration Statement, including this Exhibit.
Very truly yours,
/s/ Thacher Proffitt &
Wood
Thacher Proffitt & Wood
EXHIBIT 8.1
March 21, 1996
Residential Asset Securities Corporation
8400 Normandale Lake Boulevard
Minneapolis, Minnesota 55437
Ladies and Gentlemen:
We have advised Residential Asset Securities Corporation
(the "Registrant") with respect to certain federal income tax
aspects of the issuance by the Registrant of its Mortgage and
Manufactured Housing Contract Pass-Through Certificates, issuable
in series (the "Certificates"). Such advice conforms to the
description of selected federal income tax consequences to
holders
of the Certificates that appears under the heading "Certain
Federal Income Tax Consequences" in the prospectus (the
"Prospectus") forming a part of Post-Effective Amendment No. 1 to
the Registration Statement on Form S-3 (Registration No.
33-56893)
as filed by the Registrant with the Securities and Exchange
Commission under the Securities Act of 1933, as amended (the
"Act"), on December 16, 1994 (as amended on the date hereof, the
"Registration Statement"). Such description does not purport to
discuss all possible income tax ramifications of the proposed
issuance, but with respect to those tax consequences which are
discussed, in our opinion the description is accurate in all
material respects.
We hereby consent to the filing of this opinion as an
exhibit to the Registration Statement and to the use of our name
wherever appearing in the Registration Statement and the
Prospectus contained therein. In giving such consent, we do not
consider that we are "experts," within the meaning of the term as
used in the Act or the rules and regulations of the Commission
issued thereunder, with respect to any part of the Registration
Statement, including this opinion as an exhibit or otherwise.
Very truly yours,
/s/ Orrick, Herrington &
Sutcliffe
ORRICK, HERRINGTON & SUTCLIFFE
EXHIBIT 24.2
RESIDENTIAL ASSET SECURITIES CORPORATION
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose
signature appears below constitutes and appoints Keenen W. Dammen
as his true and lawful attorney-in-fact and agents, with full
power of substitution and resubstitution, for him and in his
name,
place and stead, in any and all capacities (including his
capacity
as director and/or officer of Residential Asset Securities
Corporation), to sign any or all amendments (including post-
effective amendments) to the Registration Statement on Form S-3,
and to file the same, with all exhibits thereto, and other
documents in connection therewith, with the Securities and
Exchange Commission, granting unto said attorney-in-fact and
agents full power and authority to do and perform each and every
act and thing requisite and necessary to be done in and about the
premises, as fully and to all intents and purposes as he might or
could do in person, hereby ratifying and confirming that said
attorney-in-fact and agent, or his substitute or substitutes, may
lawfully do or cause to be done by virtue hereof.
SIGNATURETITLE DATE
/s/ Davee L. Olson Director, Treasurer and
March
21, 1996
Davee L. OlsonChief Financial Officer
(Principal Financial Officer)
/s/ Dennis W. Sheehan Director
March 21, 1996
Dennis W. Sheehan
