<PAGE>
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PROSPECTUS SUPPLEMENT
(TO PROSPECTUS DATED AUGUST 22, 1997)
$600,135,000
RESIDENTIAL ASSET SECURITIES CORPORATION
COMPANY
RESIDENTIAL FUNDING CORPORATION
MASTER SERVICER
MORTGAGE PASS-THROUGH CERTIFICATES, SERIES 1997-KS4
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<S> <C> <C> <C> <C> <C>
$79,798,000 Adjustable Rate(1) Class A-I-1 Certificates $ 23,257,000 6.98% Class A-I-5 Certificates
$15,000,000 6.46% Class A-I-2 Certificates $ 20,000,000 6.68% Class A-I-6 Certificates
$32,000,000 6.56% Class A-I-3 Certificates $200,060,000 Adjustable Rate(2) Class A-II-1 Certificates
$30,000,000 6.72% Class A-I-4 Certificates $200,020,000 Adjustable Rate(2) Class A-II-2 Certificates
</TABLE>
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(1) The Class A-I-1 Certificates will accrue interest during each Interest
Accrual Period (as defined herein) at a rate per annum equal to One-Month
LIBOR (as defined herein) plus 0.14%.
(2) The Class A-II Certificates (as defined herein) will accrue interest during
each Interest Accrual Period at a rate per annum equal to One-Month LIBOR
plus the Applicable Group II Spread (as defined herein) with respect to the
related class of Class A-II Certificates, in each case not to exceed the
Maximum Group II Rate for such Interest Accrual Period, as described herein.
------------------------
The Series 1997-KS4 Mortgage Pass-Through Certificates (the 'CERTIFICATES') will
consist of the following thirteen classes: (i) Class A-I-1 Certificates, Class
A-I-2 Certificates, Class A-I-3 Certificates, Class A-I-4 Certificates, Class
A-I-5 Certificates and Class A-I-6 Certificates (collectively, the 'CLASS A-I
CERTIFICATES'); (ii) Class A-II-1 Certificates and Class A-II-2 Certificates
(together, the 'CLASS A-II CERTIFICATES'); (iii) Class SB-I Certificates and
Class SB-II Certificates (together, the 'CLASS SB CERTIFICATES'); and (iv) Class
R-I Certificates, Class R-II Certificates and Class R-III Certificates
(collectively, the 'CLASS R CERTIFICATES' or the 'RESIDUAL CERTIFICATES'). The
Class A-I Certificates and Class A-II Certificates are referred to herein
collectively as the 'CLASS A CERTIFICATES.' Only the Class A Certificates are
offered hereby. See the 'Index of Principal Definitions' in the Prospectus for
the meanings of capitalized terms and acronyms not otherwise defined herein.
Distributions on the Class A Certificates will be made on the 25th day of each
month or, if such day is not a business day, then on the next business day,
commencing in December 1997 (each, a 'DISTRIBUTION DATE'). As described herein,
interest payable with respect to each Distribution Date on each class of Class A
Certificates will be based on the Certificate Principal Balance thereof and the
related Pass-Through Rate thereon, which will be fixed for the Class A-I
Certificates (other than the Class A-I-1 Certificates) and adjustable for the
Class A-I-1 Certificates and Class A-II
(Continued on following page)
[Logo]
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PROCEEDS OF THE ASSETS IN THE TRUST FUND AND PROCEEDS FROM THE POLICY (AS
DESCRIBED HEREIN) ARE THE SOLE SOURCE OF PAYMENTS ON THE CLASS A CERTIFICATES.
THE CLASS A CERTIFICATES DO NOT REPRESENT AN INTEREST IN OR OBLIGATION OF THE
COMPANY, THE MASTER SERVICER, GMAC MORTGAGE GROUP, INC. OR ANY OF THEIR
AFFILIATES. NEITHER THE CLASS A CERTIFICATES NOR THE MORTGAGE LOANS ARE INSURED
OR GUARANTEED BY ANY GOVERNMENTAL AGENCY OR INSTRUMENTALITY OR BY THE COMPANY,
THE MASTER SERVICER, GMAC MORTGAGE GROUP, INC. 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.
------------------------
FOR A DISCUSSION OF SIGNIFICANT MATTERS AFFECTING INVESTMENTS IN THE CLASS A
CERTIFICATES, SEE 'RISK FACTORS' COMMENCING ON PAGE S-14 HEREIN AND 'RISK
FACTORS' IN THE PROSPECTUS COMMENCING ON PAGE 9.
There is currently no secondary market for the Class A Certificates. Neither the
Company, Residential Funding Securities Corporation (the 'UNDERWRITER') nor any
other person or entity intends to create a secondary market in the Class A
Certificates. There can be no assurance that a secondary market for the Class A
Certificates will develop or, if it does develop, that it will continue. The
Class A Certificates will not be listed on any securities exchange.
The Class A Certificates will be offered by the Underwriter, an affiliate of the
Company, on a best efforts basis, 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 termination of the offering is the earlier
to occur of November 20, 1998 or the date on which all of the Class A
Certificates have been sold. Proceeds of the offering will not be placed in
escrow, trust or any similar arrangement. The proceeds to the Company from any
sale of the Class A 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 the Underwriter and any dealer. The Class A Certificates
are offered subject to receipt and acceptance by the Underwriter, to prior sale
and to the Underwriter's right to reject any order in whole or in part and to
withdraw, cancel or modify the offer without notice.
It is expected that delivery of the Class A Certificates will be made only in
book-entry form through the facilities of DTC, CEDEL or Euroclear, as discussed
herein, on or about November 25, 1997, against payment therefor in immediately
available funds.
RESIDENTIAL FUNDING SECURITIES CORPORATION
The date of this Prospectus Supplement is November 20, 1997.
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(Continued from previous page)
Certificates. Distributions in respect of principal of the Class A Certificates
will be made with respect to each Loan Group as described herein under
'Description of the Certificates -- Principal Distributions on the Class A
Certificates.' The rights of the holders of the Class SB Certificates and Class
R Certificates to receive distributions with respect to the Mortgage Loans in
the related Loan Group will be subordinate to the rights of the holders of the
related Class A Certificates to the extent described herein and in the
Prospectus.
It is a condition of the issuance of the Class A Certificates that they be rated
'AAA' by each of Standard & Poor's Ratings Services ('Standard & Poor's') and
Fitch Investors Service, L.P. ('Fitch') and 'Aaa' by Moody's Investors Service,
Inc. ('Moody's').
On or before the date of issuance of the Certificates, the Company will obtain
from Ambac Assurance Corporation (the 'INSURER'), a certificate guaranty
insurance policy (the 'POLICY'), which will, subject to its terms, protect the
holders of the Class A Certificates against any interest shortfalls (except as
described herein) allocated to the Class A Certificates and the principal
portion of any Realized Losses allocated to the Class A Certificates. See
'Description of the Certificates -- Certificate Guaranty Insurance Policy'
herein.
The Certificates in the aggregate will evidence the entire beneficial ownership
interest in a trust fund (the 'TRUST FUND') consisting primarily of a pool (the
'MORTGAGE POOL') of conventional, one- to four-family first mortgage loans and
junior mortgage loans (the 'MORTGAGE LOANS') to be deposited by the Company into
the Trust Fund for the benefit of the Certificateholders. The Mortgage Loans
have been originated using underwriting standards that are less stringent than
the underwriting standards applied by other first or junior mortgage loan
purchase programs such as those run by Fannie Mae or Freddie Mac. See 'Risk
Factors -- Risks Associated with the Mortgage Loans' herein. The characteristics
of the Mortgage Loans are described herein under 'Description of the Mortgage
Pool.' The Mortgage Pool consists of two groups of Mortgage Loans ('LOAN GROUP
I' and 'LOAN GROUP II,' and each, a 'LOAN GROUP'), designated as the 'GROUP I
LOANS' and 'GROUP II LOANS.' The Class A-I Certificates will correspond to the
Group I Loans and initially will evidence, in the aggregate, an approximate 100%
undivided interest in the Group I Loans, which consist of fixed-rate Mortgage
Loans with terms to maturity of not more than 30 years (or, in the case of
approximately 34.1% of the Group I Loans, not more than 15 years). The Class
A-II Certificates will correspond to the Group II Loans and initially will
evidence an approximate 100% undivided interest in the Group II Loans, which
consist of adjustable rate Mortgage Loans with terms to maturity of not more
than 30 years. Distributions of interest and principal on the Class A-I
Certificates and Class A-II Certificates will be based on interest and principal
received or advanced with respect to the Group I Loans and Group II Loans,
respectively, except under the limited circumstances described herein. See
'Description of the Certificates -- Interest Distributions,' ' -- Principal
Distributions on the Class A Certificates' and ' -- Overcollateralization
Provisions' herein.
The Class A Certificates initially will be represented by certificates
registered in the name of Cede & Co., as nominee of DTC, as further described
herein. Investors in the Class A Certificates may elect to hold such
Certificates through DTC (in the United States) or CEDEL or Euroclear (in
Europe). Definitive certificates will be available for the Class A Certificates
only under the limited circumstances described herein. See 'Description of the
Certificates -- Book-Entry Registration' herein.
As described herein, three REMIC elections will be made in connection with the
Trust Fund for federal income tax purposes. Each class of Class A Certificates
will represent ownership of 'regular interests' in the related REMIC and each
class of the Residual Certificates will constitute the sole class of 'residual
interests' in the related REMIC. See 'Certain Federal Income Tax Consequences'
herein and in the Prospectus.
THE YIELD TO MATURITY ON THE CLASS A CERTIFICATES WILL DEPEND ON THE RATE AND
TIMING OF PRINCIPAL PAYMENTS (INCLUDING PREPAYMENTS, DEFAULTS AND LIQUIDATIONS)
ON THE MORTGAGE LOANS IN THE APPLICABLE LOAN GROUP. THE MORTGAGE LOANS GENERALLY
MAY BE PREPAID IN FULL OR IN PART AT ANY TIME. THE YIELD TO INVESTORS ON THE
CLASS A CERTIFICATES MAY BE ADVERSELY AFFECTED BY ANY SHORTFALLS IN INTEREST
COLLECTED ON THE MORTGAGE LOANS IN THE APPLICABLE LOAN GROUP DUE TO PREPAYMENTS,
LIQUIDATIONS OR OTHERWISE. THE YIELD TO INVESTORS ON THE CLASS A CERTIFICATES
MAY ALSO BE ADVERSELY AFFECTED BY THE UNCERTAINTY OF THE AVAILABILITY OF LOAN
GROUP I EXCESS CASH FLOW AND LOAN GROUP II EXCESS CASH FLOW (EACH AS DEFINED
HEREIN) TO COVER ANY PREPAYMENT INTEREST SHORTFALLS OR CLASS A-II BASIS RISK
SHORTFALLS (EACH AS DEFINED HEREIN) AND SUCH SHORTFALLS MAY REMAIN UNPAID ON THE
FINAL DISTRIBUTION DATE. SEE 'SUMMARY -- SPECIAL PREPAYMENT CONSIDERATIONS,'
' -- SPECIAL YIELD CONSIDERATIONS' AND 'CERTAIN YIELD AND PREPAYMENT
CONSIDERATIONS' HEREIN AND 'YIELD CONSIDERATIONS' IN THE PROSPECTUS.
------------------------
THE CLASS A CERTIFICATES OFFERED BY THIS PROSPECTUS SUPPLEMENT CONSTITUTE PART
OF A SEPARATE SERIES OF CERTIFICATES ISSUED BY THE COMPANY AND ARE BEING OFFERED
PURSUANT TO ITS PROSPECTUS DATED AUGUST 22, 1997, OF WHICH THIS PROSPECTUS
SUPPLEMENT IS A PART AND WHICH ACCOMPANIES THIS PROSPECTUS SUPPLEMENT. THE
PROSPECTUS CONTAINS IMPORTANT INFORMATION REGARDING THIS OFFERING WHICH IS NOT
CONTAINED HEREIN, AND PROSPECTIVE INVESTORS ARE URGED TO READ THE PROSPECTUS
AND THIS PROSPECTUS SUPPLEMENT IN FULL. SALES OF THE CLASS A CERTIFICATES MAY
NOT BE CONSUMMATED UNLESS THE PURCHASER HAS RECEIVED BOTH THIS PROSPECTUS
SUPPLEMENT AND THE PROSPECTUS.
------------------------
UNTIL NINETY DAYS AFTER THE DATE OF THIS PROSPECTUS SUPPLEMENT, ALL DEALERS
EFFECTING TRANSACTIONS IN THE CLASS A CERTIFICATES, WHETHER OR NOT PARTICIPATING
IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS SUPPLEMENT AND 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.
(ii)
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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 thereto in the Prospectus. See 'Index of Principal Definitions' in the
Prospectus.
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Title of Securities....................... Mortgage Pass-Through Certificates, Series 1997-KS4.
Company................................... Residential Asset Securities Corporation, an affiliate of Residential
Funding Corporation, and an indirect wholly-owned subsidiary of GMAC
Mortgage Group, Inc. See 'The Company' in the Prospectus.
Master Servicer........................... Residential Funding Corporation, an affiliate of the Company and an
indirect wholly-owned subsidiary of GMAC Mortgage Group, Inc. See
'Pooling and Servicing Agreement -- The Master Servicer' herein and
'Residential Funding Corporation' in the Prospectus.
Trustee................................... The First National Bank of Chicago, a national banking association.
Cut-off Date.............................. November 1, 1997.
Delivery Date............................. On or about November 25, 1997.
Mortgage Pool............................. The Mortgage Pool will consist of Mortgage Loans with an aggregate
principal balance as of the Cut-off Date of approximately
$600,136,273. The Mortgage Loans are secured by first and junior
liens on fee simple interests in one- to four-family residential real
properties (each a 'MORTGAGED PROPERTY'). The Mortgage Pool will
consist of the Group I Loans and Group II Loans. All percentages of
the Mortgage Loans described herein are approximate percentages
(except as otherwise indicated) by aggregate principal balance of the
Mortgage Loans (except as otherwise indicated) as of the Cut-off
Date.
Group I Loans. The Group I Loans consist of 2,383 fixed rate Mortgage
Loans with an aggregate principal balance as of the Cut-off Date of
approximately $200,055,769. The Group I Loans have individual
principal balances at origination of at least $6,600 but not more
than $600,000, with an average principal balance at origination of
approximately $84,204. 65.9% of the Group I Loans have terms to
maturity from the date of origination or modification of greater than
15 but not more than 30 years, with a weighted average term to stated
maturity of approximately 353 months as of the Cut-off Date. 34.1% of
the Group I Loans have terms to maturity from the date of origination
of not more than 15 years, with a weighted average stated term to
maturity of approximately 174 months as of the Cut-off Date. 64.3% of
the Group I Loans will be refinance mortgage loans. 3.3% of the Group
I Loans are Junior Mortgage Loans. 23.2% of the Group I Loans are
Balloon Mortgage Loans (as defined herein). 85.5% of the Group I
Loans are being or will be subserviced by Ocwen Federal.
Group II Loans. The Group II Loans consist of 3,463 adjustable rate
Mortgage Loans with an aggregate principal balance as of the Cut-off
Date of approximately $400,080,505. The Group II Loans have
individual principal balances at origination of at least $11,250 but
not more than $1,000,000 with an average principal balance at
origination of approximately $115,767 and terms to maturity of not
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more than 30 years, with a weighted average remaining term to stated
maturity of approximately 357 months as of the Cut-off Date. 7.4% of
the Group II Loans will have been purchased from HomeComings
Financial Network, Inc., an Affiliated Seller. 97.8% of the Group II
Loans are being or will be subserviced by Ocwen Federal.
The Treasury Index Group II Loans (as defined herein) will adjust
annually, commencing approximately (i) one year after origination
(with respect to the One-Year Fixed Period Treasury Index Group II
Loans) or (ii) three years after origination (with respect to the
Three-Year Fixed Period Treasury Index Group II Loans), in each case
on the Adjustment Date (as defined herein) specified in the related
Mortgage Note to a rate equal to the sum of One-Year U.S. Treasury
(as defined herein) and the Note Margin set forth in the related
Mortgage Note, subject to the limitations described herein.
The Six Month LIBOR Group II Loans, One Year Fixed Period LIBOR Group
II Loans, Two Year Fixed Period LIBOR Group II Loans and Three Year
Fixed Period LIBOR Group II Loans (each as defined herein) will
adjust semi-annually commencing approximately (i) six months after
origination (with respect to the Six Month LIBOR Group II Loans),
(ii) one year after origination (with respect to the One Year Fixed
Period LIBOR Group II Loans), (iii) two years after origination (with
respect to the Two Year Fixed Period LIBOR Group II Loans), or (iv)
three years after origination (with respect to the Three Year Fixed
Period LIBOR Group II Loans), in each case on the Adjustment Date
specified in the related Mortgage Note to a rate equal to the sum of
Six-Month LIBOR (as defined herein) and the Note Margin set forth in
the related Mortgage Note, subject to the limitations described
herein.
The amount of the monthly payment on each Group II Loan will be
adjusted semi-annually or annually, as applicable, on the Due Date of
the month following the month in which the first Adjustment Date
occurs to the amount necessary to pay interest at the then applicable
Mortgage Rate and to fully amortize the outstanding principal balance
of the Group II Loan over its remaining term to stated maturity.
As of the Cut-off Date, the Group II Loans will initially bear
interest at Mortgage Rates of at least 6.625% per annum but no more
than 14.875% per annum, with a weighted average Mortgage Rate of
approximately 9.922% per annum as of the Cut-off Date. The Group II
Loans will have different Adjustment Dates, Note Margins and
limitations on the Mortgage Rate adjustments, as described herein.
For a further description of the Mortgage Loans, see 'Description of
the Mortgage Pool' herein. The Mortgage Loans have been originated
using underwriting standards that are less stringent than the
underwriting standards applied by other first or junior mortgage loan
purchase programs such as those administered by Fannie Mae or by
Freddie Mac or the Company's affiliate, Residential Funding, for the
purpose of collateralizing securities issued by Residential Funding
Mortgage Securities I, Inc. and Residential Accredit Loans,
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S-2
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Inc. See 'Risk Factors -- Risks Associated with the Mortgage Loans'
herein.
Index..................................... With respect to the One Year Fixed Period Treasury Index Group II
Loans and Three Year Fixed Period Treasury Index Group II Loans, the
Index (as defined herein) will be One-Year U.S. Treasury, as most
recently available as of forty-five days (or 30 days, with respect to
one Mortgage Loan) prior to the related Adjustment Date. With respect
to the Six Month LIBOR Group II Loans, One Year Fixed Period LIBOR
Group II Loans, Two Year Fixed Period LIBOR Group II Loans and the
Three Year Fixed Period LIBOR Group II Loans, the Index will be
Six-Month LIBOR, as most recently available (i) as of the first
business day of the month immediately preceding the month in which
the Adjustment Date occurs, or (ii) as of the date forty-five days
prior to the Adjustment Date. See 'Description of the Mortgage
Pool -- Group II Loans -- Mortgage Rate Adjustment -- One-Year
Treasury' and ' -- Six-Month LIBOR' herein.
Class A Certificates...................... The Class A Certificates will be issued pursuant to a Pooling and
Servicing Agreement, to be dated as of the Cut-off Date, among the
Company, the Master Servicer and the Trustee (the 'POOLING AND
SERVICING AGREEMENT'). The Class A-I Certificates in the aggregate
will correspond to the Group I Loans and initially will evidence an
approximate 100% undivided interest in the Group I Loans. The Class
A-II Certificates will correspond to the Group II Loans and initially
will evidence an approximate 100% undivided interest in the Group II
Loans. The Class A Certificates, together with the Class SB
Certificates and the Class R Certificates, will evidence the entire
beneficial ownership interest in the Trust Fund. The Class A
Certificates will have the following Pass-Through Rates, Certificate
Principal Balances and other features as of the Cut-off Date:
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Class A-I-1 Certificates Adjustable Rate(1) $ 79,798,000 Senior/Group I
Class A-I-2 Certificates 6.46% $ 15,000,000 Senior/Group I
Class A-I-3 Certificates 6.56% $ 32,000,000 Senior/Group I
Class A-I-4 Certificates 6.72% $ 30,000,000 Senior/Group I
Class A-I-5 Certificates 6.98% $ 23,257,000 Senior/Group I
Class A-I-6 Certificates 6.68% $ 20,000,000 Senior/Group I
Class A-II-1 Certificates Adjustable Rate(2) $200,060,000 Senior/Group II
Class A-II-2 Certificates Adjustable Rate(2) $200,020,000 Senior/Group II
------------
(1) The Class A-I-1 Certificates will accrue interest during each
Interest Accrual Period at a rate per annum equal to One-Month
LIBOR plus 0.14%.
(2) The Class A-II Certificates will accrue interest during each
Interest Accrual Period at a rate per annum equal to One-Month
LIBOR plus the Applicable Group II Spread with respect to the
related Class of Class A-II Certificates, not to exceed the
Maximum Group II Rate for such Interest Accrual Period, as
described herein.
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For a description of the interest and principal distributions to the
Class A Certificates see 'Summary -- Pass-Through Rates on the Class
A Certificates,' ' -- Interest Distributions,' and ' -- Principal
Distributions,' 'Description of the Certificates -- Interest
Distributions,' ' -- Principal Distributions on the Class A
Certificates.'
Pass-Through Rates on the Class A
Certificates............................ The Pass-Through Rates on the Class A-I Certificates (other than
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the Class A-I-1 Certificates) are fixed and are set forth on the
cover hereof; provided that with respect to the Class A-I-5
Certificates, on any Distribution Date the Pass-Through Rate on the
Class A-I-5 Certificates shall not exceed the weighted average of the
Net Mortgage Rates on the Group I Loans as of the Due Date
immediately preceding the related Due Period (the 'MAXIMUM CLASS
A-I-5 RATE').
The Pass-Through Rate on the Class A-I-1 Certificates with respect to
each Distribution Date will be the per annum rate equal to One-Month
LIBOR plus 0.14%. If on any Distribution Date, the product of (i) the
Pass-Through Rate of the Class A-I-1 Certificates and (ii) the
Certificate Principal Balance thereof, exceeds the portion of the
Available Distribution Amount available to pay interest on the Class
A-I-1 Certificates (the 'Class A-I-1 Basis Risk Shortfall'), the
amount of such excess will be paid by the Insurer pursuant to the
terms of the Policy. Investors in the Class A-I-1 Certificates should
be aware that proceeds of the Policy relating to Class A-I-1 Basis
Risk Shortfalls may not be treated as 'interest on obligations
secured by mortgages on real property or on interests in real
property' under Section 856(c)(3)(B) of the Code. See 'Certain
Federal Income Tax Consequences' herein.
Interest due on the Class A-I Certificates on any Distribution Date
will be reduced by any Prepayment Interest Shortfalls (as defined
herein) allocated to the Class A-I Certificates and not offset by
Eligible Master Servicing Compensation, Loan Group I Excess Cash Flow
and Loan Group II Excess Cash Flow available therefor in respect of
such Distribution Date.
The Pass-Through Rate on the Class A-II Certificates with respect to
each Distribution Date will be the per annum rate equal to the lesser
of (i) One-Month LIBOR plus the Applicable Group II Spread (as
defined herein) with respect to the related Class of Class A-II
Certificates and (ii) a per annum rate (the 'MAXIMUM GROUP II RATE')
equal to (x)(1) one-twelfth of the aggregate Stated Principal Balance
of the Group II Loans multiplied by the weighted average of the
Maximum Net Mortgage Rates on such Mortgage Loans as of the Due Date
immediately preceding the related Due Period, divided by (2) the
Certificate Principal Balance of the Class A-II Certificates
multiplied by (y) 360 divided by the actual number of days in the
related Interest Accrual Period.
The 'APPLICABLE GROUP II SPREAD' for each Class of Class A-II
Certificates is as follows: (i) Class A-II-1, 0.22% per annum, or on
any Distribution Date following the Loan Group II Optional
Termination Date, 0.44% per annum; and (ii) Class A-II-2, 0.195% per
annum, or on any Distribution Date following the Loan Group II
Optional Termination Date, 0.39% per annum.
Interest due on the Class A-II Certificates on any Distribution Date
will be reduced by any Prepayment Interest Shortfalls allocated to
the Class A-II Certificates and not offset by Eligible Master
Servicing Compensation, Loan Group I Excess Cash Flow and Loan Group
II Excess Cash Flow available therefor in respect of
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S-4
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such Distribution Date and by any Class A-II Basis Risk Shortfalls
(as defined below) in respect of such Distribution Date.
See ' -- Interest Distributions' below.
Interest Distributions.................... On each Distribution Date, (i) holders of the Class A-I Certificates
will be entitled to receive interest distributions in an amount equal
to the Accrued Certificate Interest (as defined below) thereon for
such Distribution Date to the extent of the Available Distribution
Amount for Loan Group I for such Distribution Date; provided that on
any Distribution Date on which the amount of Prepayment Interest
Shortfalls with respect to Loan Group I for such Distribution Date
exceeds the aggregate of (a) Eligible Master Servicing Compensation
derived from Loan Group I, (b) Eligible Master Servicing Compensation
derived from Loan Group II (to the extent remaining after covering
any Prepayment Interest Shortfalls with respect to Loan Group II) and
(c) Loan Group I Excess Cash Flow and Loan Group II Excess Cash Flow
available to offset such shortfalls on such Distribution Date, the
amount of any such difference (any such amount, a 'GROUP I PREPAYMENT
INTEREST SHORTFALL'), will not be included in the Class A-I Interest
Distribution Amount (as defined herein) for such Distribution Date.
Any such Group I Prepayment Interest Shortfalls will accrue interest
at the related Pass-Through Rate on the class of Class A-I
Certificates to which such shortfalls are allocated (as adjusted from
time to time, in the case of the Class A-I-1 Certificates) and will
be paid (together with interest thereon) on future Distribution Dates
only to the extent of any Loan Group I Excess Cash Flow and Loan
Group II Excess Cash Flow available therefor on such Distribution
Dates. See 'Description of the Certificates -- Overcollateralization
Provisions' herein.
On each Distribution Date, (i) holders of the Class A-II Certificates
will be entitled to receive interest distributions in an amount equal
to the Accrued Certificate Interest thereon for such Distribution
Date to the extent of the Available Distribution Amount for Loan
Group II for such Distribution Date; provided, that on any
Distribution Date on which:
(i) Accrued Certificate Interest on the Class A-II Certifi-
cates exceeds an amount equal to (a) one-twelfth of the
aggregate Stated Principal Balance of the Group II Loans
multiplied by (b) the weighted average of the Net Mortgage Rates
on the Group II Loans as of the Due Date immediately preceding
the related Due Period (any such excess, the 'Class A-II Basis
Risk Shortfall'); or
(ii) the amount of Prepayment Interest Shortfalls with
respect to Loan Group II for such Distribution Date exceeds the
aggregate of (a) Eligible Master Servicing Compensation derived
from Loan Group II, (b) Eligible Master Servicing Compensation
derived from Loan Group I (to the extent remaining after
covering any Prepayment Interest Shortfalls with respect to Loan
Group I) and (c) Loan Group II Excess Cash Flow and Loan Group I
Excess Cash Flow available to
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offset such shortfalls on such Distribution Date (the 'Group II
Prepayment Interest Shortfalls');
the aggregate amount of any such differences will not be included in
the Class A-II Interest Distribution Amount (as defined herein) for
such Distribution Date. Any such Class A-II Basis Risk Shortfalls and
Class A-II Prepayment Interest Shortfalls will accrue interest at the
Pass-Through Rate on the Class A-II Certificates (as adjusted from
time to time) and will be paid (together with interest thereon) on
future Distribution Dates only to the extent of any Loan Group II
Excess Cash Flow and Loan Group I Excess Cash Flow available therefor
on such Distribution Dates. See 'Description of the
Certificates -- Overcollateralization Provisions' herein.
The ratings assigned to the Class A Certificates do not address the
likelihood of the receipt of any amounts in respect of any Group I
Prepayment Interest Shortfalls, Group II Prepayment Interest
Shortfalls or Class A-II Basis Risk Shortfalls. The Policy will not
cover any of such shortfalls and such shortfalls may remain unpaid on
the final Distribution Date.
With respect to any class of Class A Certificates and any
Distribution Date, Accrued Certificate Interest will be equal to
interest accrued during the related Interest Accrual Period on the
Certificate Principal Balance of the Certificates of such class at
the Pass-Through Rate on such class for such Distribution Date,
subject to reduction for certain interest shortfalls, including the
interest portion of Realized Losses not covered by Subordination and
interest shortfalls relating to the Relief Act, as further described
herein. The Interest Accrual Period for the Class A-I Certificates
(other than the Class A-I-1 Certificates) is the calendar month
preceding the month in which such Distribution Date occurs. The
Interest Accrual Period for the Class A-I-1 Certificates and Class
A-II Certificates will be (i) with respect to the Distribution Date
occurring in December 1997, the period commencing on the Delivery
Date and ending on the day preceding the Distribution Date occurring
in December 1997, and (ii) with respect to any Distribution Date
after the Distribution Date in December 1997, the period commencing
on the Distribution Date in the month immediately preceding the month
in which such Distribution Date occurs and ending on the day
preceding such Distribution Date. Interest will be calculated on the
basis of a 360-day year consisting of twelve 30-day months for the
Class A-I Certificates (other than the Class A-I-1 Certificates) and
on the basis of the actual number of days in the related Interest
Accrual Period and a 360-day year for the Class A-I-1 Certificates
and Class A-II Certificates. See 'Description of the
Certificates -- Interest Distributions' herein.
Principal Distributions................... Holders of the Class A 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
related Available Distribution Amount remaining after the Accrued
Certificate Interest has been distributed on the related Class A
Certificates.
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The subordination and cash flow provisions of the Class SB
Certificates will result in a limited acceleration of the principal
payments to the holders of the Class A Certificates; such
subordination provisions are described under 'Description of the
Certificates -- Overcollateralization Provisions' herein. Such subor-
dination provisions have the effect of shortening the weighted
average life of the Class A Certificates by increasing the rate at
which principal is distributed to the Class A Certificateholders. See
'Certain Yield and Prepayment Considerations' herein and 'Yield
Considerations' and 'Maturity and Prepayment Considerations' in the
Prospectus.
See 'Description of the Certificates -- Principal Distributions on
the Class A Certificates' herein.
Credit Enhancement........................ The credit enhancement provided for the benefit of the Class A
Certificateholders primarily consists of (i) the
overcollateralization provisions described herein (represented by the
related Class SB Certificates), (ii) the limited availability of the
Loan Group I Excess Cash Flow and Loan Group II Excess Cash Flow to
pay amounts related to Realized Losses allocated to the Class A
Certificates, and (iii) the Policy.
Overcollateralization: The subordination and cash flow provisions of
the Class SB Certificates result in a limited acceleration of the
Class A Certificates relating to a Loan Group relative to the
amortization of the Mortgage Loans in the related Loan Group. This
acceleration feature creates overcollateralization that results from
the excess of the aggregate principal balances of the Mortgage Loans
in a Loan Group over the aggregate Certificate Principal Balance of
the related Class A Certificates. Once the required level of
overcollateralization for a Loan Group is reached, the acceleration
feature for such Loan Group will cease, unless necessary to maintain
the required level of overcollateralization.
Pursuant to the Pooling and Servicing Agreement, the required level
of overcollateralization for a Loan Group may increase or decrease
over time as described herein. An increase would result in a
temporary period of accelerated principal distributions to the
related Class A Certificates to increase the actual level of
overcollateralization for such Loan Group to its required level; a
decrease would result in a temporary period of decelerated principal
distributions to reduce the actual level of overcollateralization to
its required level. See 'Description of the
Certificates -- Overcollateralization Provisions' herein.
Excess Cash Flow: Loan Group I Excess Cash Flow and Loan Group II
Excess Cash Flow will be available to cover Realized Losses on the
Mortgage Loans to the extent and in the manner described herein. See
' -- Allocation of Losses; Subordination,' below.
The Certificate Guaranty Insurance Policy: The Class A Certificates
will be entitled to the benefit of the Policy to be issued by the
Insurer. See ' -- Certificate Guaranty Insurance Policy,' below.
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Certificate Guaranty Insurance Policy..... The Insurer will issue the Policy as a means of providing additional
credit enhancement to the Class A Certificates. Under the Policy, the
Insurer will, subject to the terms of the Policy, pay to the Trustee,
for the benefit of the holders of the Class A Certificates, on each
Distribution Date, as further described herein, an amount that will
cover any shortfalls in amounts available to pay the Interest
Distribution Amount on any Distribution Date, the principal portion
of any Realized Losses allocated to the Class A Certificates and the
Certificate Principal Balance of the Class A Certificates to the
extent unpaid on the final Distribution Date. A payment by the
Insurer under the Policy is referred to herein as an 'INSURED
AMOUNT.' The Policy will not provide coverage for shortfalls in
respect of the Relief Act, Group I Prepayment Interest Shortfalls,
Group II Prepayment Interest Shortfalls and Class A-II Basis Risk
Shortfalls. See 'Description of the Certificates -- Certificate
Guaranty Insurance Policy' and 'The Insurer' herein.
Advances.................................. The Master Servicer is required to make Advances in respect of
delinquent payments of principal and interest on the Mortgage Loans,
subject to the limitations described herein. See 'Description of the
Certificates -- Advances' herein and in the Prospectus.
Allocation of Losses; Subordination....... Except as otherwise described herein, Realized Losses will be
allocated: first, to the Loan Group I Excess Cash Flow for the
related Distribution Date in the case of Realized Losses on Group I
Loans and to the Loan Group II Excess Cash Flow for the related
Distribution Date in the case of Realized Losses on Group II Loans;
second, to the Loan Group II Excess Cash Flow (to the extent
remaining after covering Realized Losses on the Group II Loans) for
the related Distribution Date in the case of Realized Losses on Group
I Loans and to the Loan Group I Excess Cash Flow (to the extent
remaining after covering Realized Losses on the Group I Loans) for
the related Distribution Date in the case of Realized Losses on Group
II Loans; third, to the Class SB Certificates up to an amount equal
to the excess, if any, of (x) the then aggregate Stated Principal
Balance of the Mortgage Loans over (y) the then aggregate Certificate
Principal Balance of the Class A Certificates; provided that the
allocation of Realized Losses to Excess Cash Flow and the Class SB
Certificates as described in clauses first, second, and third above
is subject to the limitations set forth in the Pooling and Servicing
Agreement; and fourth, in the case of a Realized Loss on a Group I
Loan, among all the Class A-I Certificates (on a pro rata basis), and
in the case of a Realized Loss on a Group II Loan, between the Class
A-II Certificates (on a pro rata basis). See 'Description of the
Certificates -- Allocation of Losses; Subordination' herein. Subject
to the terms of the Policy, all Realized Losses allocated to the
Class A Certificates will be covered by the Policy. See 'Description
of the Certificates -- Certificate Guaranty Insurance Policy' herein.
Neither the Class A Certificates nor the Mortgage Loans are insured
or guaranteed by any governmental agency or instrumentality or by the
Company, the Master Servicer, the Trustee, GMAC Mortgage Group, Inc.
or any affiliate thereof.
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Class SB Certificates and
Class R Certificates.................... The Class SB Certificates and Class R Certificates will have an
aggregate initial Certificate Principal Balance of $1,273. Neither
the Class SB Certificates nor the Class R Certificates are being
offered hereby.
Optional Termination...................... At its option, on any Distribution Date when the aggregate Stated
Principal Balance of the Group I Loans or Group II Loans, as
applicable, is less than 10% of the aggregate Stated Principal
Balance of the related Loan Group as of the Cut-off Date (the 'LOAN
GROUP I OPTIONAL TERMINATION DATE' and 'LOAN GROUP II OPTIONAL
TERMINATION DATE,' as applicable), the Master Servicer or the Company
may (i) purchase from the Trust Fund all remaining Group I Loans or
Group II Loans, as applicable, and other assets related thereto, and
thereby effect early retirement of the Class A-I Certificates or
Class A-II Certificates, as applicable, or (ii) purchase in whole,
but not in part, the Class A-I Certificates or Class A-II
Certificates, as applicable. See 'Pooling and Servicing
Agreement -- Termination' herein and 'The Pooling and Servicing
Agreement -- Termination; Retirement of Certificates' in the Pro-
spectus.
Special Prepayment Considerations......... The rate and timing of principal payments on the Class A Certificates
related to each Loan Group will differ, and will depend on, among
other things, the rate and timing of principal payments (including
prepayments, defaults, liquidations and purchases of Mortgage Loans
due to a breach of representation and warranty) on the Mortgage Loans
in such Loan Group (or, in the case of the Class A-II Certificates,
on the Sub-Group of Group II Loans to which such Class A-II
Certificates relate). As is the case with mortgage-backed securities
generally, the Class A Certificates are subject to substantial
inherent cash flow uncertainties because the Mortgage Loans may be
prepaid at any time subject, in the case of certain Mortgage Loans,
to the prepayment penalty provisions described herein under
'Description of the Mortgage Pool'. 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.
Investors in the Class A-I-5 Certificates should be aware that the
prepayment of Group I Loans with higher Net Mortgage Rates may result
in a lower Maximum Class A-I-5 Rate. Investors in the Class A-II
Certificates should be aware that the prepayment of the Group II
Loans with higher Maximum Net Mortgage Rates may result in a lower
Maximum Group II Rate.
Investors in the Class A-I Certificates should be aware that 3.3% of
the Group I Loans will be secured by junior liens on the related
Mortgage Properties. Generally, junior mortgage loans are not viewed
by Mortgagors as permanent financing. Accordingly, such
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Junior Group I Loans (as defined herein) may experience a higher rate
of prepayment than first lien mortgage loans.
The multiple class structure of Class A Certificates results in the
allocation of payments among certain classes as follows:
Class A-I Certificates: The Class A-I Certificates are subject to
various priorities for payment of principal as described herein.
Distributions of principal on classes of Class A-I Certificates
having an earlier priority of payment will be affected by the rates
of prepayments of the Group I Loans early in the life of the Mortgage
Pool. The timing of commencement of principal distributions and the
weighted average lives of classes of Class A-I Certificates with a
later priority of payment will be affected by the rates of
prepayments of the Group I Loans experienced both before and after
the commencement of principal distributions on such classes.
Class A-I-6 Certificates: As described herein, during certain
periods, all or a disproportionately large percentage of principal
payments on the Mortgage Loans in each Loan Group will be allocated
among the related classes of Class A Certificates (other than the
Class A-I-6 Certificates with respect to the Group I Loans) and,
during certain periods, no principal payments (or, relative to the
interest in the Group I Loans represented by the Class A-I-6
Certificates, a disproportionately small or large portion of such
payments) will be distributed to the Class A-I-6 Certificates. Unless
the Certificate Principal Balances of the Class A-I Certificates
(other than the Class A-I-6 Certificates) have been reduced to zero,
the Class A-I-6 Certificates will not be entitled to receive
distributions of principal until the Distribution Date occurring in
December 2000 and will not receive their pro rata share of the
Principal Distribution Amount with respect to Loan Group I until the
Distribution Date occurring in December 2003.
See 'Description of the Certificates -- Principal Distributions on
the Class A 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 life of the Class A
Certificates, see the tables entitled 'Percent of Initial Certificate
Principal Balance Outstanding of the Group I Certificates at the
Following Percentages of the Group I Prepayment Assumption' and
'Percent of Initial Certificate Principal Balance Outstanding of the
Group II Certificates at the Following Percentages of CPR' herein.
Special Yield Considerations.............. The yield to maturity on the Class A Certificates will depend on,
among other things, the rate and timing of principal payments
(including prepayments, defaults, liquidations and purchases of
Mortgage Loans due to a breach of representation and warranty) on the
Mortgage Loans and the allocation thereof to reduce the Certificate
Principal Balance of such class. Prepayment Interest Shortfalls will
not adversely affect the yield to investors in the Class A
Certificates to the extent such Prepayment Interest Shortfalls are
offset by the Eligible Master Servicing Compensation, Loan Group I
Excess Cash Flow and Loan Group II Excess
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Cash Flow available therefor. To the extent that Prepayment Interest
Shortfalls are not so covered, such shortfalls may adversely affect
the yield to investors in the Class A Certificates and may remain
unpaid on the final Distribution Date. See 'Description of the
Certificates -- Interest Distributions' herein.
In general, if the Class A Certificates are purchased at a premium
and principal distributions to such class occur at a rate faster than
the rate assumed at the time of purchase, the investor's actual yield
to maturity will be lower than anticipated at the time of purchase.
Conversely, if the Class A Certificates are purchased at a discount
and principal distributions to such class occur at a rate slower than
the rate assumed at the time of purchase, the investor's actual yield
to maturity will be lower than anticipated at the time of purchase.
The amount of Loan Group I Excess Cash Flow may be adversely affected
by the prepayment of the Group I Loans with higher Mortgage Rates and
the reduction of the Mortgage Rates on the Equity Lending Mortgage
Loans (as defined herein). Any such reduction will reduce the amount
of Loan Group I Excess Cash Flow that is available to cover Realized
Losses, to reduce the Certificate Principal Balance of the Class A-I
Certificates in order to increase overcollateralization on the Class
A-I Certificates and to cover Class A-I-1 Basis Risk Shortfalls,
Class A-II Basis Risk Shortfalls, Group I Prepayment Interest
Shortfalls and Group II Prepayment Interest Shortfalls. The amount of
Loan Group II Excess Cash Flow may be adversely affected by the
prepayment of the Group II Loans with higher Mortgage Rates. Any such
reduction will reduce the amount of Loan Group II Excess Cash Flow
that is available to cover Realized Losses, to reduce the Certificate
Principal Balance of the Class A-II Certificates in order to increase
overcollateralization on the Class A-II Certificates and to cover
Class A-II Basis Risk Shortfalls, Group I Prepayment Interest
Shortfalls and Group II Prepayment Interest Shortfalls. See
'Description of the Mortgage Pool -- General -- Group I Loans,'
'Description of the Mortgage Pool -- General -- Group II Loans,'
'Description of the Certificates -- Overcollateralization Provisions'
and ' -- Allocation of Realized Losses' herein.
The multiple class structure of the Class A Certificates causes the
yield of certain classes to be particularly sensitive to changes in
the rates of prepayment of the Mortgage Loans and other factors, as
follows:
Class A-I-6 Certificates: Investors in the Class A-I-6 Certificates
should be aware that because the Class A-I-6 Certificates do not
receive any payments of principal prior to the Distribution Date
occurring in December 2000 and prior to the Distribution Date
occurring in December 2003 will receive a disproportionately small
portion of principal payments with respect to the Mortgage Loans in
Loan Group I (in each case, unless the Certificate Principal Balances
of the other classes of Class A-I Certificates have been reduced to
zero), the weighted average life of the Class A-I-6 Certificates will
be longer than would otherwise be the case, and the effect on the
market value of the Class A-I-6 Certificates of changes
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in market interest rates or market yields for similar securities may
be greater than for other classes of Class A-I Certificates entitled
to such distributions.
Class A-II Certificates: Investors in the Class A-II Certificates
should be aware that the yield on such Certificates will depend on,
among other things, the rate and timing of principal payments
(including prepayments, defaults, liquidations and purchases of
Mortgage Loans due to a breach of representation and warranty) on the
Sub-Group of Group II Loans to which such Class A-II Certificates
relate and the allocation thereof to reduce the Certificate Principal
Balance of such class. See 'Description of the Class A
Certificates -- Principal Distributions on the Class A Certificates'
herein.
Class A-I-1 Certificates and Class A-II Certificates. The yield to
investors on the Class A-I-1 Certificates and Class A-II Certificates
will be sensitive to fluctuations in the level of One-Month LIBOR
and, in the case of the Class A-II Certificates, may be adversely
affected by the application of the Maximum Group II Rate.
Additionally, investors in the Class A-II Certificates should be
aware that because the Pass-Through Rate on the Class A-II
Certificates adjusts monthly, while the interest rates of the Group
II Loans adjust annually or semi-annually, Class A-II Basis Risk
Shortfalls could result. See 'Certain Yield and Prepayment Consid-
erations' herein and 'Yield Considerations' in the Prospectus.
Certain Federal Income Tax
Consequences............................ Three separate REMIC elections will be made with respect to the Trust
Fund for federal income tax purposes. Upon the issuance of the Class
A Certificates, Orrick, Herrington & Sutcliffe LLP, 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, REMIC I, REMIC II and
REMIC III will each qualify as a REMIC under Sections 860A through
860G of the Code.
The assets of REMIC I will consist of the Group I Loans, any
Mortgaged Properties relating to REO Mortgage Loans relating to Group
I, such assets as from time to time are deposited in the Custodial
Account or the Certificate Account with respect to the Group I Loans
and related Mortgaged Properties relating to REO Mortgage Loans, any
hazard or other insurance policies with respect to the Group I Loans
and any proceeds of such policies, but will not include any proceeds
of the Policy. The assets of REMIC II will consist of the Group II
Loans, any Group II Mortgaged Properties relating to REO Mortgage
Loans, such assets as from time to time are deposited in the
Custodial Account or the Certificate Account with respect to the
Group II Loans and related Mortgaged Properties relating to REO
Mortgage Loans, any hazard or other insurance policies with respect
to the Group II Loans and any proceeds of such policies, but will not
include any proceeds of the Policy.
For federal income tax purposes, (a) the Class R-I Certificates will
be the sole class of 'residual interests' in REMIC I; (b) the Class
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R-II Certificates will be the sole class of 'residual interests' in
REMIC II; and (c) the separate non-certificated regular interests in
REMIC I and REMIC II will be the 'regular interests' in REMIC I and
REMIC II, respectively, and will constitute the assets of REMIC III.
Each class of Class A Certificates and Class SB Certificates will
generally represent ownership of 'regular interests' in REMIC III and
will generally be treated as representing ownership of debt
instruments of REMIC III, and the Class R-III Certificates will
constitute the sole class of 'residual interests' in REMIC III.
Investors in the Class A-I-1 Certificates should be aware that
proceeds of the Policy relating to Class A-I-1 Basis Risk Shortfalls
may not be treated as 'interest on obligations secured by mortgages
on real property or on interests in real property' under Section
856(c)(3)(B) of the Code. See 'Certain Federal Income Tax
Consequences' herein.
For further information regarding the federal income tax conse-
quences of investing in the Class A Certificates, see 'Certain
Federal Income Tax Consequences' herein and in the Prospectus.
Legal Investment.......................... The Class A Certificates will not constitute 'mortgage related
securities' for purposes of SMMEA. Institutions whose investment
activities are subject to legal investment laws and regulations,
regulatory capital requirements or review by regulatory authorities
may be subject to restrictions on investment in the Class A
Certificates and should consult with their legal advisors. See 'Legal
Investment' herein and 'Legal Investment Matters' in the Prospectus.
Ratings................................... It is a condition of the issuance of the Class A Certificates that
they be rated 'AAA' by each of Standard & Poor's and Fitch, and 'Aaa'
by Moody's. 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, the
likelihood of the receipt of any amounts in respect of Group I
Prepayment Interest Shortfalls, Group II Prepayment Interest
Shortfalls or Class A-II Basis Risk Shortfalls or the corresponding
effect on yield to investors. See 'Certain Yield and Prepayment
Considerations' and 'Ratings' herein and 'Yield Considerations' in
the Prospectus.
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RISK FACTORS
In addition to the matters described elsewhere in this Prospectus
Supplement and the Prospectus, prospective investors should carefully consider,
among other things, the following factors in connection with the purchase of the
Class A Certificates:
RISKS ASSOCIATED WITH THE MORTGAGE LOANS
The Mortgage Loans have been originated using underwriting standards that
are less stringent than the underwriting standards applied by other first or
junior mortgage loan purchase programs such as those run by Fannie Mae or by
Freddie Mac or by the Company's affiliate, Residential Funding, for the purpose
of collateralizing securities issued by Residential Funding Mortgage Securities
I, Inc. and Residential Accredit Loans, Inc. For example, the Mortgage Loans may
have been made to Mortgagors having imperfect credit histories, ranging from
minor delinquencies to bankruptcies, or Mortgagors with higher ratios of monthly
mortgage payments to income or higher ratios of total monthly credit payments to
income. As a result of the underwriting standards, the Mortgage Loans are likely
to experience rates of delinquency, foreclosure and bankruptcy that are higher,
and that may be substantially higher, than those experienced by mortgage loans
underwritten in a more traditional manner. As of the Cut-off Date, 8.7% and 7.6%
of the Group I Loans and Group II Loans, respectively, are at least 30 days
delinquent in payment of principal and interest. As of the Cut-off Date, none of
the Group I Loans or Group II Loans are 60 or more days delinquent in payment of
principal and interest. See 'Description of the Mortgage Pool -- Mortgage Pool
Characteristics' and ' -- Underwriting Standards' herein. The Mortgage Loans
with higher loan-to-value ratios (each, a 'LOAN-TO-VALUE RATIO') may also
present a greater risk of loss. In particular, 27.0% and 37.7% of the Group I
Loans and Group II Loans, respectively, are Mortgage Loans with a Loan-to-Value
Ratio at origination in excess of 80% that are not insured by a Primary
Insurance Policy that might otherwise protect against such greater risk of loss.
23.2% of the Group I Loans may not be fully amortizing over their terms to
maturity and, thus, will require substantial principal payments (i.e., a Balloon
Payment, as defined herein) at their stated maturity. Mortgage loans with
Balloon Payments involve a greater degree of risk because the ability of a
mortgagor to make a Balloon Payment typically will depend upon its ability
either to timely refinance the loan or to timely sell the related Mortgaged
Property. See 'Description of the Mortgage Pool -- General' herein.
3.3% of the Group I Loans are Junior Mortgage Loans and accordingly are
secured by junior liens on the related Mortgaged Properties, which liens will be
subordinate to the rights of the mortgagee under the related senior mortgage or
mortgages (such Group I Loans, the 'JUNIOR GROUP I LOANS'). Accordingly, the
holder of a Junior Group I 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 Group I 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 Group I 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
additional information regarding mortgage loans secured by junior liens see
'Risk Factors' and 'Certain Legal Aspects of Mortgage Loans and Contracts' in
the Prospectus.
The Equity Lending Mortgage Loans comprise approximately 9.2% of the Group
I Loans. 95.7% of the Equity Lending Mortgage Loans have an interest rate
reduction feature that depends upon the payment performance of the Mortgagor on
each of such Mortgage Loans, which feature can reduce the Mortgage Rate on such
Mortgage Loans by a total amount ranging from 0.50% to 1.00% during the first
two years after origination. See 'Description of the Mortgage
Pool -- General -- Group I Loans.' Any such reduction will reduce the amount of
Loan Group I Excess Cash Flow that is available to cover Realized Losses,
increase overcollateralization on the Class A-I Certificates and cover Group I
Prepayment Interest Shortfalls, Group II Prepayment Interest Shortfalls, Class
A-I-1 Basis Risk Shortfalls and Class A-II Basis Risk Shortfalls, in each case
to the extent and in the manner described herein. See 'Description of the
Mortgage Pool -- General -- Group I Loans,' 'Description of the
Certificates -- Overcollateralization Provisions' and ' -- Allocation of
Realized Losses' herein.
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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 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 in the Trust Fund 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.
LIMITED OBLIGATIONS
The Certificates will not represent an interest in or obligation of the
Company, the Master Servicer, the Mortgage Collateral Sellers, GMAC Mortgage
Group, Inc. or any of their affiliates. The only obligations of the foregoing
entities with respect to the Certificates or any Mortgage Loan will be the
obligations (if any) of the Company, the Mortgage Collateral Sellers and the
Master Servicer pursuant to certain limited representations and warranties made
with respect to the Mortgage Loans and the Master Servicer's servicing
obligations under the Pooling and Servicing Agreement (including the Master
Servicer's limited obligation to make certain Advances). Neither the
Certificates nor the underlying Mortgage Loans will be guaranteed or insured by
any governmental agency or instrumentality, or by the Company, the Master
Servicer, the Mortgage Collateral Sellers, GMAC Mortgage Group, Inc. or any of
their affiliates. Proceeds of the assets included in the Trust Fund (including
the Mortgage Loans and the Policy) will be the sole source of payments on the
Certificates, and there will be no recourse to the Company, the Master Servicer,
the Mortgage Collateral Sellers, GMAC Mortgage Group, Inc. 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 AND REDUCTION OF CREDIT ENHANCEMENT
The credit enhancement for the Class A Certificates primarily consists of
the overcollateralization provisions described herein and the Policy, and also
includes the limited availability of (i) the Loan Group I Excess Cash Flow to
pay amounts related to Realized Losses allocated to the Class A-II Certificates
and (ii) the Loan Group II Excess Cash Flow to pay amounts related to Realized
Losses allocated to the Class A-I Certificates, in each case in the manner and
to the extent described herein. None of the Company, the Master Servicer, the
Mortgage Collateral Sellers, GMAC Mortgage Group, Inc. nor any of their
affiliates will have any obligation to replace or supplement such credit
enhancement, or to take any other action to maintain any rating of the Class A
Certificates.
CLASS A-II CERTIFICATE PASS-THROUGH RATE RISK AND YIELD CONSIDERATIONS
The yield to investors on the Class A-II Certificates will be sensitive to
fluctuations in the level of One-Month LIBOR and may be adversely affected by
the application of the Maximum Group II Rate. In addition, the prepayment of the
Group II Loans with higher Maximum Net Mortgage Rates may result in a lower
Maximum Group II Rate. If on any Distribution Date the application of the
Maximum Group II Rate results in an interest payment lower than One-Month LIBOR
plus the related margin on such Certificates during the related Interest Accrual
Period, the value of the Class A-II Certificates may be temporarily or
permanently reduced.
Investors in the Class A-II Certificates should be aware that the Mortgage
Rate on each Group II Loan will adjust either semi-annually or annually (such
adjustment to commence as described herein), based upon One-Year U.S. Treasury
or Six-Month LIBOR, as applicable, and the Pass-Through Rate on the Class A-II
Certificates will adjust monthly based upon One-Month LIBOR as described under
'Description of the Certificates -- Calculation of One-Month LIBOR' herein,
subject to the Maximum Group II Rate. Consequently, the interest that becomes
due on the Group II Loans during the related Due Period may not be equal to the
amount of interest that would accrue on the Class A-II Certificates at One-Month
LIBOR plus the Applicable Group II Spread during the related Interest Accrual
Period. In particular, because the Pass-Through Rate on the Class A-II
Certificates adjusts monthly, while the interest rates on the Group II Loans
adjust semi-annually or annually (and in some cases, only after the expiration
of the related fixed rate period), subject to any applicable Periodic Cap,
Maximum Mortgage Rate and Minimum Mortgage Rate, in a rising interest rate
environment, the
S-15
<PAGE>
<PAGE>
Accrued Certificate Interest on the Class A-II Certificates may be greater than
an amount equal to (a) one-twelfth of the aggregate Stated Principal Balance of
the Group II Loans multiplied by (b) the weighted average of the Net Mortgage
Rates on the Group II Loans as of the first day of the calendar month in which
the Interest Accrual Period begins, resulting in Class A-II Basis Risk
Shortfalls. Furthermore, each of the Group II Loans bear interest as of the
Cut-off Date or as of their dates of origination at initial rates that were
determined without regard to the applicable Index. Class A-II Basis Risk
Shortfalls are not covered by the Policy and are not addressed by the rating
assigned to the Class A-II Certificates. Such shortfalls are payable only to the
extent of Eligible Master Servicing Compensation, Loan Group II Excess Cash Flow
and Loan Group I Excess Cash Flow (in each case to the extent available
therefor) and may remain unpaid on the final Distribution Date.
The yield to maturity on the Class A-II Certificates may be affected by the
resetting of the Mortgage Rates on the Group II Loans on the related Adjustment
Dates. In addition, because the Mortgage Rate for each Group II Loan is based on
the related Index plus the related Note Margin, such rate could be higher than
prevailing market interest rates, which may result in an increase in the rate of
prepayments on the Group II Loans after such adjustment.
CLASS A-I-5 CERTIFICATE YIELD CONSIDERATIONS
The yield to investors on the Class A-I-5 Certificates may be adversely
affected by any application of the Maximum Class A-I-5 Rate. The prepayment of
the Group I Loans with higher Mortgage Rates may result in a lower Maximum Class
A-I-5 Rate. If on any Distribution Date the application of the Maximum Class
A-I-5 Rate results in an interest payment lower than 6.98% per annum, the value
of the Class A-I-5 Certificates may be temporarily or permanently reduced.
DESCRIPTION OF THE MORTGAGE POOL
GENERAL
The Mortgage Pool will consist of Mortgage Loans with an aggregate
principal balance outstanding as of the Cut-off Date, after deducting payments
of principal due on such date, of $600,136,273. The Mortgage Loans are secured
by first and junior liens on fee simple interests in one- to four-family
residential real properties. 4.6% of the Mortgage Loans have a Due Date other
than the first day of each month. The Mortgage Pool consists, and the Mortgage
Pool will consist, of two groups of Mortgage Loans ('LOAN GROUP I' and 'LOAN
GROUP II,' and each, a 'LOAN GROUP'), designated as the 'GROUP I LOANS' and
'GROUP II LOANS.' The Group I Loans will consist of fixed-rate Mortgage Loans
with original terms to maturity of not more than 30 years (or, in the case of
approximately 34.1% of the Group I Loans (including Balloon Mortgage Loans), not
more than 15 years). The Group II Loans will consist of adjustable rate Mortgage
Loans with original terms to maturity of not more than 30 years.
With respect to Mortgage Loans that have been modified, references herein
to the date of origination shall be deemed to be the date of the most recent
modification. 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.
The Company and Residential Funding will make certain limited
representations and warranties regarding the Mortgage Loans as of the date of
issuance of the Certificates. The Company and Residential Funding will be
required to repurchase or substitute for any Mortgage Loan as to which a breach
of its representations and warranties with respect to such Mortgage Loan occurs
if such breach materially and adversely affects the interests of the
Certificateholders in any such Mortgage Loan and such Mortgage Loan is not
otherwise repurchased by the related Mortgage Collateral Seller. The Company, as
assignee of Residential Funding, will also assign to the Trustee for the benefit
of the Certificateholders certain of its rights, title and interest in any
agreement relating to the transfer and assignment of the Mortgage Loans to the
Company by Residential Funding, including certain representations and warranties
made by the Mortgage Collateral Sellers. Insofar as any such agreement relates
to the representations and warranties made by the related Mortgage Collateral
Seller in respect of such Mortgage Loan and any remedies provided thereunder for
any breach of such representations and warranties, such right, title and
interest may be enforced by the Master Servicer on behalf of the Trustee and the
Certificateholders. However, neither the Company nor Residential Funding will be
required to repurchase or substitute for any Mortgage Loan in the event of a
breach of its representations and warranties with respect to
S-16
<PAGE>
<PAGE>
such Mortgage Loan if the substance of any such breach also constitutes fraud in
the origination of such affected Mortgage Loan.
23.2% of the Group I Loans require monthly payments of principal based on
30 year amortization schedules and have scheduled maturity dates of 15 years
(or, in the case of one Group I Loan, five years, and in the case of another
Group I Loan, seven years) from the due date of the first monthly payment (each
such Mortgage Loan, a 'BALLOON MORTGAGE LOAN'), leaving a substantial portion of
the original principal amount due and payable on the respective scheduled
maturity date (a 'BALLOON PAYMENT'). The existence of a Balloon Payment
generally will require the related mortgagor to refinance such Mortgage Loan or
to sell the Mortgaged Property on or prior to the scheduled maturity date. The
ability of a mortgagor to accomplish either of these goals will be affected by a
number of factors, including the level of available mortgage rates at the time
of sale or refinancing, the mortgagor's equity in the related Mortgaged
Property, the financial condition of the mortgagor, tax laws and prevailing
general economic conditions. None of the Company, the Master Servicer or the
Trustee is obligated to refinance any Balloon Mortgage Loan. Subject to the
terms of the Policy, the Policy will provide coverage on any losses incurred
upon liquidation of a Balloon Mortgage Loan arising out of or in connection with
the failure of a Mortgagor to make its Balloon Payment.
GROUP I LOANS. The Group I Loans consist of 2,383 fixed rate Mortgage Loans
with an aggregate principal balance as of the Cut-off Date of approximately
$200,055,769. The Group I Loans had individual principal balances at origination
of at least $6,600 but not more than $600,000, with an average principal balance
at origination of approximately $84,204. 65.9% of the Group I Loans have terms
to maturity from the date of origination or modification of greater than 180
months but not more than 30 years, with a weighted average remaining term to
stated maturity of approximately 353 months as of the Cut-off Date. 34.1% of the
Group I Loans have terms to maturity from the date of origination of not more
than 15 years, with a weighted average term to maturity of approximately 174
months as of the Cut-off Date. 23.2% of the Group I Loans are Balloon Mortgage
Loans. Approximately 9.2% of the Group I Loans were purchased from Equity
Lending Inc. (the 'EQUITY LENDING MORTGAGE LOANS'), an Unaffiliated Seller.
Approximately 5.7% of the Group I Loans were purchased from HomeComings
Financial Network, an Affiliated Seller. Except as described in the second
preceding sentence, no Unaffiliated Seller sold more than 6.8% of the Group I
Loans to Residential Funding. Approximately 85.5% of the Group I Loans are being
or will be subserviced by Ocwen Federal.
76.8% of the Equity Lending Mortgage Loans are Balloon Mortgage Loans.
Approximately 95.7% of the Mortgage Notes with respect to Equity Lending
Mortgage Loans provide that the Mortgage Rate thereon can be reduced by either
0.50%, 0.75% or 1.00% (depending on the risk category of each Mortgage Loan) on
a semi-annual basis during the first two years after origination if the
Mortgagor makes its full monthly payment prior to the 12th day of each month for
six consecutive months during such two year period. If the Mortgagor makes its
full monthly payment prior to the 12th day of each month consecutively for each
month during the first two years after origination, the Mortgage Rate may be
reduced further to a level that ranges from 8.4% to 10.4% per annum.
GROUP II LOANS. The Group II Loans consist of 3,463 adjustable rate
Mortgage Loans with an aggregate principal balance as of the Cut-off Date of
approximately $400,080,505. The Group II Loans had individual principal balances
at origination of at least $11,250 but not more than $1,000,000, with an average
principal balance at origination of approximately $115,767. All Group II Loans
have original terms to maturity of not more than 30 years, with a weighted
average remaining term to stated maturity of approximately 357 months as of the
Cut-off Date. Approximately 23.8% of the Group II Loans will have been purchased
from Chase Manhattan Mortgage Corp., an Unaffiliated Seller. Except as described
in the preceding sentence, no Unaffiliated Seller sold more than 8.7% of the
Group II Loans to Residential Funding. Approximately 97.8% of the Group II Loans
are being or will be subserviced by Ocwen Federal.
MORTGAGE POOL CHARACTERISTICS
As of the Cut-off Date, 7.9% of the Mortgage Loans are at least 30 days
delinquent in payment of principal and interest. As of the Cut-off Date, no
Mortgage Loan is 60 days or more delinquent in payment of principal and
interest.
A substantial portion of the Mortgage Loans provide for payment of a
prepayment charge. As to some of those Mortgage Loans, the prepayment charge
provisions provide for payment of a prepayment charge for
S-17
<PAGE>
<PAGE>
partial prepayments and full prepayments made within up to five years following
the origination of such Mortgage Loan, in an amount equal to the lesser of (i)
six months' advance interest on the amount of the prepayment that, when added to
all other amounts prepaid during the twelve-month period immediately preceding
the date of the prepayment, exceeds twenty percent (20%) of the original
principal amount of the Mortgage Loan or (ii) the maximum amount permitted by
state law. As to remainder of such Mortgage Loans, the prepayment charge
provisions provide for payment of a prepayment charge for full prepayments made
within two years of the origination of the Mortgage Loan, in an amount not to
exceed one percent (1%) of the original principal amount of the Mortgage Loan.
Prepayment charges received on the Mortgage Loans will not be available for
distribution on the Certificates.
3.3% of the Group I Loans are Junior Mortgage Loans. None of the Group II
Loans are Junior Mortgage Loans.
No Mortgage Loan provides for deferred interest or negative amortization.
None of the Group I Loans will be Buydown Loans.
Approximately 0.7% of the Group I Loans will be High Cost Loans.
Approximately 0.1% of the Group II Loans will be High Cost Loans.
Approximately 0.8% of the Group I Loans will have Mortgage Rates calculated
on the basis of the simple interest method.
GROUP I LOANS
None of the Group I Loans will have been originated prior to March 20, 1995
or will have a maturity date later than October 1, 2027. No Group I Loan will
have a remaining term to maturity as of the Cut-off Date of less than 46 months.
The weighted average stated term to maturity of the Group I Loans as of the
Cut-off Date will be approximately 292 months.
As of the Cut-off Date, 8.7% of the Group I Loans are at least 30 days
delinquent in payment of principal and interest and none of the Group I Loans
are 60 or more days delinquent in payment of principal and interest.
Six of the Group I Loans, representing 0.4% of the Group I Loans (the
'MULTIPLE PROPERTY GROUP I LOANS'), are secured by a mortgage and deed of trust
covering two properties. The laws of the states in which such properties are
located may limit the amount of recovery on a particular foreclosure property
located in such state to the difference between the amount of the outstanding
indebtedness and the value of the property or properties previously foreclosed,
rather than the actual amounts recovered in such foreclosure or foreclosures.
Furthermore, due to the effect of 'one-action' or 'security first' rules in some
states, the remedies that a lender may exercise upon an event of default as
against a property or other collateral or against a borrower may result in the
impairment or loss of the lender's lien on other properties or the lender's
security interest in other collateral. Such considerations could delay or reduce
the ultimate recovery by a Certificateholder in the event of an event of default
under a Multiple Property Group I Loan and could increase the costs of
foreclosure.
Set forth below is a description of certain additional characteristics of
the Group I Loans as of the Cut-off Date (except as otherwise indicated). All
percentages of the Group I Loans are approximate percentages by aggregate
principal balance of the Group I Loans as of the Cut-off Date (except as
otherwise indicated). Unless otherwise specified, all principal balances of the
Group I Loans are as of the Cut-off Date and are rounded to the nearest dollar.
S-18
<PAGE>
<PAGE>
ORIGINAL MORTGAGE LOAN PRINCIPAL BALANCES OF THE GROUP I LOANS
<TABLE>
<CAPTION>
NUMBER OF PERCENT OF
ORIGINAL MORTGAGE LOAN BALANCE MORTGAGE LOANS PRINCIPAL BALANCE GROUP I LOANS
- -------------------------------------------------------------- -------------- ----------------- -------------
<S> <C> <C> <C>
$ 0 - 100,000............................................ 1,722 $ 97,043,794 48.51%
100,001 - 200,000............................................ 555 74,855,646 37.42
200,001 - 300,000............................................ 84 20,087,151 10.04
300,001 - 400,000............................................ 19 6,503,981 3.25
400,001 - 500,000............................................ 1 439,190 0.22
500,001 - 600,000............................................ 2 1,126,006 0.56
------ ----------------- -------------
Total.................................................... 2,383 $ 200,055,769 100.00%
------ ----------------- -------------
------ ----------------- -------------
</TABLE>
As of the Cut-off Date, the average unpaid principal balance of the Group I
Loans will be approximately $83,951.
NET MORTGAGE RATES OF THE GROUP I LOANS
<TABLE>
<CAPTION>
NUMBER OF PERCENT OF
NET MORTGAGE RATES (%) MORTGAGE LOANS PRINCIPAL BALANCE MORTGAGE POOL
- --------------------------------------------------------------- -------------- ----------------- -------------
<S> <C> <C> <C>
6.500 - 6.999................................................. 3 $ 496,210 0.25%
7.000 - 7.499................................................. 17 1,923,726 0.96
7.500 - 7.999................................................. 57 7,344,296 3.67
8.000 - 8.499................................................. 176 19,434,599 9.71
8.500 - 8.999................................................. 318 30,442,148 15.22
9.000 - 9.499................................................. 387 39,731,003 19.86
9.500 - 9.999................................................. 323 28,383,313 14.19
10.000 - 10.499................................................ 269 20,963,289 10.48
10.500 - 10.999................................................ 228 15,486,436 7.74
11.000 - 11.499................................................ 169 10,500,022 5.25
11.500 - 11.999................................................ 148 9,778,021 4.89
12.000 - 12.499................................................ 86 5,092,880 2.55
12.500 - 12.999................................................ 74 4,353,498 2.18
13.000 - 13.499................................................ 42 2,146,445 1.07
13.500 - 13.999................................................ 18 867,650 0.43
14.000 - 14.499................................................ 21 962,522 0.48
14.500 - 14.999................................................ 9 302,244 0.15
15.000 - 15.499................................................ 9 396,428 0.20
15.500 - 15.999................................................ 23 1,180,736 0.59
16.000 - 16.499................................................ 5 186,142 0.09
16.500 - 16.999................................................ 1 84,161 0.04
------ ----------------- -------------
Total..................................................... 2,383 $ 200,055,769 100.00%
------ ----------------- -------------
------ ----------------- -------------
</TABLE>
As of the Cut-off Date, the weighted average Net Mortgage Rate of the Group
I Loans will be approximately 9.8001% per annum.
S-19
<PAGE>
<PAGE>
MORTGAGE RATES OF THE GROUP I LOANS
<TABLE>
<CAPTION>
NUMBER OF PERCENT OF
MORTGAGE RATES (%) MORTGAGE LOANS PRINCIPAL BALANCE GROUP I LOANS
- -------------------------------------------------------------- -------------- ----------------- -------------
<S> <C> <C> <C>
7.500 - 7.999............................................... 9 $ 1,238,507 0.62%
8.000 - 8.499............................................... 32 4,133,881 2.07
8.500 - 8.999............................................... 121 14,268,429 7.13
9.000 - 9.499............................................... 211 20,988,274 10.49
9.500 - 9.999............................................... 452 46,101,418 23.04
10.000 - 10.499............................................... 303 28,012,769 14.00
10.500 - 10.999............................................... 349 28,490,419 14.24
11.000 - 11.499............................................... 215 14,982,687 7.49
11.500 - 11.999............................................... 204 13,945,369 6.97
12.000 - 12.499............................................... 129 7,435,921 3.72
12.500 - 12.999............................................... 142 9,238,883 4.62
13.000 - 13.499............................................... 69 4,178,243 2.09
13.500 - 13.999............................................... 50 2,498,249 1.25
14.000 - 14.499............................................... 23 1,300,694 0.65
14.500 - 14.999............................................... 22 906,577 0.45
15.000 - 15.499............................................... 9 263,054 0.13
15.500 - 15.999............................................... 8 351,382 0.18
16.000 - 16.499............................................... 12 443,933 0.22
16.500 - 16.999............................................... 21 1,154,522 0.58
17.000 - 17.499............................................... 1 38,400 0.02
17.500 - 17.999............................................... 1 84,161 0.04
------ ----------------- -------------
Total.................................................... 2,383 $ 200,055,769 100.00%
------ ----------------- -------------
------ ----------------- -------------
</TABLE>
As of the Cut-off Date, the weighted average Mortgage Rate of the Group I
Loans will be approximately 10.4952% per annum.
ORIGINAL LOAN-TO-VALUE RATIOS OF THE GROUP I LOANS*
<TABLE>
<CAPTION>
NUMBER OF PERCENT OF
ORIGINAL LOAN-TO-VALUE RATIO (%) MORTGAGE LOANS PRINCIPAL BALANCE GROUP I LOANS
- -------------------------------------------------------------- -------------- ----------------- -------------
<S> <C> <C> <C>
0.01 - 50.00................................................ 194 $ 10,002,920 5.00%
50.01 - 55.00................................................ 42 3,125,039 1.56
55.01 - 60.00................................................ 85 5,736,869 2.87
60.01 - 65.00................................................ 137 10,406,863 5.20
65.01 - 70.00................................................ 217 17,485,071 8.74
70.01 - 75.00................................................ 346 29,420,836 14.71
75.01 - 80.00................................................ 630 61,873,003 30.93
80.01 - 85.00................................................ 356 29,895,332 14.94
85.01 - 90.00................................................ 325 30,208,946 15.10
90.01 - 95.00................................................ 18 844,780 0.42
95.01 - 100.00................................................ 32 1,020,943 0.51
LTV > 100.00.................................................. 1 35,168 0.02
------ ----------------- -------------
Total.................................................... 2,383 $ 200,055,769 100.00%
------ ----------------- -------------
------ ----------------- -------------
</TABLE>
- ------------
* With respect to the Junior Group I Loans, this table was calculated using the
Combined Loan-to-Value Ratio of such Group I Loans.
The weighted average Loan-to-Value Ratio at origination of the Group I
Loans will be approximately 74.40%.
S-20
<PAGE>
<PAGE>
GEOGRAPHIC DISTRIBUTION OF MORTGAGED PROPERTIES OF THE GROUP I LOANS
<TABLE>
<CAPTION>
NUMBER OF PERCENT OF
STATE MORTGAGE LOANS PRINCIPAL BALANCE GROUP I LOANS
- -------------------------------------------------------------- -------------- ----------------- -------------
<S> <C> <C> <C>
California.................................................... 181 $ 21,524,534 10.76%
Florida....................................................... 246 21,334,718 10.66
Georgia....................................................... 170 15,457,318 7.73
Minnesota..................................................... 159 12,159,445 6.08
Michigan...................................................... 181 11,993,733 6.00
Colorado...................................................... 138 11,696,108 5.85
Texas......................................................... 138 10,759,529 5.38
New York...................................................... 71 9,622,848 4.81
Illinois...................................................... 80 6,582,038 3.29
Other(1)...................................................... 1,019 78,925,498 39.45
------ ----------------- -------------
Total.................................................... 2,383 $ 200,055,769 100.00%
------ ----------------- -------------
------ ----------------- -------------
</TABLE>
- ------------
(1) Other includes states and the District of Columbia with under 3%
concentrations individually.
No more than 0.2% of the Group I Loans will be secured by Mortgaged
Properties located in any one zip code area in California and no more than 0.4%
of the Group I Loans will be secured by Mortgaged Properties located in any one
zip code area outside California.
MORTGAGE LOAN PURPOSE OF THE GROUP I LOANS
<TABLE>
<CAPTION>
NUMBER OF PERCENT OF
LOAN PURPOSE MORTGAGE LOANS PRINCIPAL BALANCE GROUP I LOANS
- -------------------------------------------------------------- -------------- ----------------- -------------
<S> <C> <C> <C>
Purchase...................................................... 774 $ 71,453,399 35.72%
Rate/Term Refinance........................................... 296 26,116,949 13.05
Equity Refinance.............................................. 1,313 102,485,421 51.23
------ ----------------- -------------
Total.................................................... 2,383 $ 200,055,769 100.00%
------ ----------------- -------------
------ ----------------- -------------
</TABLE>
The weighted average Loan-to-Value Ratio at origination of rate and term
refinance Group I Loans will be 74.74%. The weighted average Loan-to-Value Ratio
at origination of equity refinance Group I Loans will be 71.17%.
MORTGAGE LOAN DOCUMENTATION TYPES OF THE GROUP I LOANS
<TABLE>
<CAPTION>
NUMBER OF PERCENT OF
DOCUMENTATION TYPE MORTGAGE LOANS PRINCIPAL BALANCE GROUP I LOANS
- -------------------------------------------------------------- -------------- ----------------- -------------
<S> <C> <C> <C>
Full Documentation............................................ 1,951 $ 158,581,259 79.27%
Limited/Reduced............................................... 10 678,984 0.34
Reduced Documentation......................................... 422 40,795,526 20.39
------ ----------------- -------------
Total.................................................... 2,383 $ 200,055,769 100.00%
------ ----------------- -------------
------ ----------------- -------------
</TABLE>
The weighted average Loan-to-Value Ratio at origination of the Group I
Loans which were underwritten under a reduced loan documentation program will be
69.69%. No more than 10.1% of such reduced loan documentation Group I Loans will
be secured by Mortgaged Properties located in California.
S-21
<PAGE>
<PAGE>
OCCUPANCY TYPES OF THE GROUP I LOANS
<TABLE>
<CAPTION>
NUMBER OF PERCENT OF
OCCUPANCY MORTGAGE LOANS PRINCIPAL BALANCE GROUP I LOANS
- -------------------------------------------------------------- -------------- ----------------- -------------
<S> <C> <C> <C>
Primary Residence............................................. 2,171 $ 185,792,706 92.87%
Second/Vacation............................................... 29 2,172,726 1.09
Non Owner-occupied............................................ 183 12,090,338 6.04
------ ----------------- -------------
Total.................................................... 2,383 $ 200,055,769 100.00%
------ ----------------- -------------
------ ----------------- -------------
</TABLE>
MORTGAGED PROPERTY TYPES OF THE GROUP I LOANS
<TABLE>
<CAPTION>
NUMBER OF PERCENT OF
PROPERTY TYPE MORTGAGE LOANS PRINCIPAL BALANCE GROUP I LOANS
- -------------------------------------------------------------- -------------- ----------------- -------------
<S> <C> <C> <C>
Single-family detached........................................ 2,018 $ 165,205,160 82.58%
Planned Unit Developments (detached).......................... 113 14,800,772 7.40
Two- to four-family units..................................... 87 7,574,827 3.79
Condo Low-Rise (less than 5 stories).......................... 70 4,657,044 2.33
Condo Mid-Rise (5 to 8 stories)............................... 1 41,159 0.02
Manufactured Home............................................. 26 1,437,550 0.72
Condo High-Rise (9 stories or more)........................... 3 323,058 0.16
Townhouse..................................................... 22 1,639,412 0.82
Townhouse (2 to 4 family units)............................... 6 987,619 0.49
Planned Unit Developments (attached).......................... 33 3,195,330 1.60
Modular....................................................... 4 193,838 0.10
------ ----------------- -------------
Total.................................................... 2,383 $ 200,055,769 100.00%
------ ----------------- -------------
------ ----------------- -------------
</TABLE>
RISK GRADES OF THE GROUP I LOANS
<TABLE>
<CAPTION>
NUMBER OF PERCENT OF
RISK GRADE MORTGAGE LOANS PRINCIPAL BALANCE GROUP I LOANS
- ------------------------------------------------------------- -------------- ----------------- -------------
<S> <C> <C> <C>
Category 1A.................................................. 1,022 $ 94,641,857.03 47.31%
Category 1................................................... 609 51,651,012.75 25.82
Category 2................................................... 449 35,982,637.99 17.99
Category 3................................................... 204 12,257,181.47 6.13
Category 4................................................... 99 5,523,079.60 2.76
------ ----------------- -------------
Total................................................... 2,383 $ 200,055,768.84 100.00%
------ ----------------- -------------
------ ----------------- -------------
</TABLE>
S-22
<PAGE>
<PAGE>
GROUP II LOANS
MORTGAGE RATE ADJUSTMENT. The Mortgage Rate on 1199 Group II Loans,
representing approximately 34.8% of the Group II Loans (the 'TREASURY INDEX
MORTGAGE LOANS'), will adjust annually commencing approximately (i) one year
after origination (with respect to 682 Group II Loans representing approximately
22.3% of the Group II Loans) (the 'ONE YEAR FIXED PERIOD TREASURY INDEX GROUP II
LOANS'), or (ii) three years after origination (with respect to 517 Group II
Loans, representing approximately 12.6% of the Group II Loans) (the 'THREE YEAR
FIXED PERIOD TREASURY INDEX GROUP II LOANS') specified in the related Mortgage
Note to a rate equal to the sum of One-Year U.S. Treasury and a fixed percentage
set forth in the related Mortgage Note (the 'NOTE MARGIN'), subject to the
limitations described herein. The Mortgage Rate on 2264 Group II Loans,
representing approximately 65.2% of the Group II Loans, will adjust
semi-annually commencing approximately (i) six months after origination (with
respect to 272 Group II Loans, representing approximately 8.1% of the Group II
Loans) (the 'SIX MONTH LIBOR GROUP II LOANS'), (ii) one year after origination
(with respect to 41 Group II Loans, representing approximately 1.9% of the Group
II Loans) (the 'ONE YEAR FIXED PERIOD LIBOR GROUP II LOANS'); (iii) two years
after origination (with respect to 1,756 Group II Loans, representing
approximately 49.6% of the Group II Loans) (the 'TWO YEAR FIXED PERIOD LIBOR
GROUP II LOANS')), or (iv) three years after origination (with respect to 195
Group II Loans, representing approximately 5.5% of the Group II Loans (the
'THREE YEAR FIXED PERIOD LIBOR GROUP II LOANS'), in each case on the Adjustment
Date specified in the related Mortgage Note to a rate equal to the sum (rounded
as specified in the related Mortgage Notes) of Six-Month LIBOR and the Note
Margin set forth in the related Mortgage Note, subject to the limitations
described herein.
The amount of the monthly payment on each Group II Loan will be adjusted
semi-annually or annually, as applicable, on the Due Date 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 to fully amortize the
outstanding principal balance of each Group II Loan over its remaining term to
stated maturity. As of the Cut-off Date, 0.5% of the Group II Loans will have
reached their first Adjustment Date. The Group II Loans will have various
Adjustment Dates, Note Margins and limitations on the Mortgage Rate adjustments,
as described below.
The Mortgage Rate on each Group II Loan may not increase or decrease on any
Adjustment Date by more than a specified percentage per annum (the 'PERIODIC
RATE CAP'). With respect to the One Year Fixed Period Treasury Index Group II
Loans, the Periodic Rate Cap is not more than 2.0%; provided, however, that the
Mortgage Rate on certain of the One Year Fixed Period Treasury Index Group II
Loans may adjust by up to 3.0% on the initial Adjustment Date. With respect to
the Three-Year Fixed Period Treasury Index Group II Loans, the Periodic Rate Cap
is not more than 2.0%; provided, however, that the Mortgage Rate on certain of
the Three-Year Fixed Period Treasury Index Group II Loans may adjust by up to
3.0% on the initial Adjustment Date. With respect to the Six Month LIBOR Group
II Loans, the Periodic Rate Cap is not more than 3.0%; provided, however, that
the Mortgage Rate on certain of the Six Month LIBOR Group II Loans may adjust by
up to 3.0% on the initial Adjustment Date. With respect to the One Year Fixed
Period LIBOR Group II Loans, the Periodic Rate Cap is not more than 1.0%;
provided, however, that the Mortgage Rate on certain of the One Year Fixed
Period LIBOR Group II Loans may adjust by up to 2.0% on the Initial Adjustment
Date. With respect to the Two Year Fixed Period LIBOR Group II Loans, the
Periodic Rate Cap is not more than 3.0%; provided, however, that the Mortgage
Rate on certain of the Two Year Fixed Period LIBOR Group II Loans may adjust by
up to 3.1% on the initial Adjustment Date. With respect to the Three Year Fixed
Period LIBOR Group II Loans, the Periodic Rate Cap is not more than 1.5%;
provided, however, that the Mortgage Rate on certain of Three Year Fixed Period
LIBOR Group II Loans may adjust by up to 4.0% on the initial Adjustment Date.
The Mortgage Rate on a Group II Loan may not exceed the maximum Mortgage
Rate (the 'MAXIMUM MORTGAGE RATE') or be less than the minimum Mortgage Rate
(the 'MINIMUM MORTGAGE RATE') specified for such Group II Loan in the related
Mortgage Note. The Minimum Mortgage Rate for each Group II Loan will be equal to
the Note Margin, except in the case of 74.4% of the Group II Loans, which have a
Minimum Mortgage Rate greater than the Note Margin. The Minimum Mortgage Rates
on the Group II Loans will range from 2.75% to 14.875%, with a weighted average
Minimum Mortgage Rate as of the Cut-off Date of 8.8447%. The Maximum Mortgage
Rates on the Group II Loans will range from 13.125% to 21.00%, with a weighted
average Maximum Mortgage Rate as of the Cut-off Date of 16.2026%. No Group II
Loan provides for payment caps on any Adjustment Date that would result in
deferred interest or negative amortization.
S-23
<PAGE>
<PAGE>
With respect to the One Year Fixed Period Treasury Index Group II Loans and
Three Year Fixed Period Treasury Index Group II Loans, the Index will be a per
annum rate equal to the weekly average yield on U.S. Treasury securities
adjusted to a constant maturity of one year as reported by the Federal Reserve
Board in statistical Release No. H.15(519) (the 'RELEASE') as most recently
available as of the date forty-five days prior to the Adjustment Date ('ONE-YEAR
U.S. TREASURY'). Such average yields reflect the yields for the week prior to
that week. With respect to the Six Month LIBOR Group II Loans, One Year Fixed
Period LIBOR Group II Loans, Two Year Fixed Period LIBOR Group II Loans and the
Three Year Fixed Period LIBOR Group II Loans, the Index 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
('SIX-MONTH LIBOR') as published in The Wall Street Journal and as most recently
available (i) as of the first business day of the month immediately preceding
the month in which the Adjustment Date occurs or (ii) as of the date forty-five
days prior to the Adjustment Date (each such date as of which Six-Month LIBOR is
determined, a 'REFERENCE DATE'), except that with respect to 59 Six Month LIBOR
Group II Loans, representing approximately 2.1% of the Group II Loans, the Index
will be Six-Month LIBOR, as published by Fannie Mae and as most recently
available as of the date forty-five days prior to the Adjustment Date. One-Year
U.S. Treasury and Six-Month LIBOR are referred to herein as an 'INDEX.' In the
event that the related Index specified in a Mortgage Note is no longer
available, an index reasonably acceptable to the Trustee that is based on
comparable information will be selected by the Master Servicer.
One-Year U.S. Treasury. One-Year U.S. Treasury is currently calculated
based on information reported in the Release. Listed below are the weekly
average yields on actively traded U.S. Treasury securities adjusted to a
constant maturity of one year as reported in the Release on the date that would
have been applicable to mortgage loans whose index was the rate most recently
available as of the date forty-five days prior to the adjustment date and having
the following adjustment dates for the indicated years. Such average yields may
fluctuate significantly from week to week as well as over longer periods and may
not increase or decrease in a constant pattern from period to period. The
following does not purport to be representative of future average yields. No
assurance can be given as to the average yields on such U.S. Treasury securities
on any Adjustment Date or during the life of any Treasury Index Group II Loan.
ONE-YEAR U.S. TREASURY
<TABLE>
<CAPTION>
ADJUSTMENT DATE 1993 1994 1995 1996 1997
- -------------------------------------------------------------------- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
January 1........................................................... 3.64% 3.55% 6.42% 5.45% 5.44%
February 1.......................................................... 3.72 3.60 7.10 5.35 5.46
March 1............................................................. 3.60 3.63 7.24 5.17 5.61
April 1............................................................. 3.41 3.85 6.79 4.85 5.53
May 1............................................................... 3.39 4.28 6.54 5.15 5.72
June 1.............................................................. 3.31 4.71 6.28 5.62 5.99
July 1.............................................................. 3.27 5.49 6.00 5.67 5.90
August 1............................................................ 3.61 5.16 5.69 5.86 5.72
September 1......................................................... 3.42 5.49 5.47 5.90 5.54
October 1........................................................... 3.48 5.60 5.71 5.60 5.55
November 1.......................................................... 3.32 5.62 5.63 5.88 5.59
December 1.......................................................... 3.35 6.04 5.60 5.57 5.45
</TABLE>
Six-Month LIBOR. Listed below are levels of Six-Month LIBOR as published by
The Wall Street Journal that are or would have been applicable to mortgage loans
with a Reference Date of the first business day of the preceding month, and
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 Six-Month LIBOR published by
Fannie Mae, or published in The Wall Street Journal on a different Reference
Date would have been at the same levels as those set forth below. The following
does not purport to be representative of future levels of Six-Month LIBOR (as
published by Fannie Mae or The Wall Street Journal). No assurance can be given
as to the level of Six-Month LIBOR on any Adjustment Date or during the life of
any Mortgage Loan based on Six-Month LIBOR.
S-24
<PAGE>
<PAGE>
SIX-MONTH LIBOR
<TABLE>
<CAPTION>
ADJUSTMENT DATE 1993 1994 1995 1996 1997
- --------------------------------------------------------- ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
January 1................................................ 4.000% 3.500% 6.562% 5.718% 5.562%
February 1............................................... 3.625 3.500 7.000 5.531 5.625
March 1.................................................. 3.375 3.375 6.687 5.281 5.687
April 1.................................................. 3.312 4.000 6.437 5.312 5.718
May 1.................................................... 3.375 4.250 6.500 5.531 5.968
June 1................................................... 3.312 4.688 6.375 5.562 6.000
July 1................................................... 3.500 5.000 6.000 5.656 6.000
August 1................................................. 3.500 5.250 6.000 5.812 5.937
September 1.............................................. 3.500 5.313 5.875 5.906 5.812
October 1................................................ 3.437 5.313 5.906 5.843 5.843
November 1............................................... 3.375 5.750 5.968 5.750 5.843
December 1............................................... 3.437 5.937 5.875 5.562 5.812
</TABLE>
The initial Mortgage Rate in effect on a Group II Loan generally will be
lower, and may be significantly lower, than the Mortgage Rate that would have
been in effect based on the related Index and Note Margin. Therefore, unless the
related Index declines after origination of a Group II Loan, the related
Mortgage Rate will generally increase on the first Adjustment Date following
origination of such Group II Loan subject to the Periodic Rate Cap. The
repayment of the Group II Loans will be dependent on the ability of the
Mortgagors to make larger monthly payments following adjustments of the Mortgage
Rate. Group II 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 related Index values), Note Margins, Maximum Mortgage Rates and
Minimum Mortgage Rates. The Net Mortgage Rate with respect to each Group II 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 Group II
Loan will be adjusted on each Adjustment Date to equal the Mortgage Rate thereon
minus the sum of (i) the rate per annum at which the related master servicing
and subservicing fees accrue thereon (the 'SERVICING FEE RATE') and (ii) the
Policy Premium Rate (as defined herein), subject to any Periodic Rate Cap, but
may not exceed the Maximum Mortgage Rate minus the sum of the Servicing Fee Rate
and the Policy Premium Rate (the 'MAXIMUM NET MORTGAGE RATE') or be less than
the Minimum Mortgage Rate minus the sum of the Servicing Fee Rate and the Policy
Premium Rate (the 'MINIMUM NET MORTGAGE RATE') for such Group II Loan. The Net
Mortgage Rate with respect to each Group I Loan will equal the Mortgage Rate
thereon minus the sum of (i) the Servicing Fee Rate with respect to such Group I
Loan and (ii) the Policy Premium Rate. See 'Description of the Mortgage
Pool -- Mortgage Pool Characteristics' herein.
S-25
<PAGE>
<PAGE>
GROUP II LOAN CHARACTERISTICS. The Group II Loans will have the following
characteristics as of the Cut-off Date:
<TABLE>
<CAPTION>
LIBOR INDEX TREASURY INDEX AGGREGATE FOR ALL
MORTGAGE LOANS(1) MORTGAGE LOAN(2) GROUP II LOANS
--------------------- -------------------- --------------------
<S> <C> <C> <C>
Number of Mortgage Loans..... 2,264 1,199 3,463
Weighted Average of Net
Mortgage Rates............. 9.2428% 9.1975% 9.2270%
Range of Net Mortgage
Rates...................... 5.9300% to 14.1550% 6.4300% to 14.1800% 5.9300% to 14.1800%
Mortgage Rates:
Weighted Average........ 9.9378% 9.8925% 9.9220%
Range................... 6.6250% to 14.8500% 7.1250% to 14.8750% 6.6250% to 14.8750%
Note Margins:
Weighted Average........ 5.9676% 5.8655% 5.9321%
Range................... 3.0000% to 10.1250% 2.7500% to 9.1250% 2.7500% to 10.1250%
Minimum Mortgage Rates:
Weighted Average........ 8.6564% 9.1975% 8.8447%
Range................... 3.0000% to 14.8500% 2.7500% to 14.8750% 2.7500% to 14.8750%
Minimum Net Mortgage Rates:
Weighted Average........ 7.9614% 8.5025% 8.1497%
Range................... 2.3050% to 14.1550% 2.0550% to 14.1800% 2.0550% to 14.1800%
Maximum Mortgage Rates:
Weighted Average........ 16.3283% 15.9670% 16.2026%
Range................... 13.7000% to 20.9990% 13.1250% to 21.0000% 13.1250% to 21.0000%
Maximum Net Mortgage Rates:
Weighted Average........ 15.6333% 15.2720% 15.5076%
Range................... 13.0050% to 20.2950% 12.4300% to 20.3050% 12.4300% to 20.3050%
Weighted Average Months to
next Adjustment Date after
November 1, 1997(3)........ 20 16 19
</TABLE>
- ------------
(1) This column contains aggregate information with respect to the Six Month
LIBOR Group II Loans, One Year Fixed Period LIBOR Group II Loans, Two Year
Fixed Period LIBOR Group II Loans and Three Year Fixed Period LIBOR Group II
Loans.
(2) This column contains aggregate information with respect to the One Year
Fixed Period Treasury Index Group II Loans and the Three Year Fixed Period
Treasury Index Group II Loans.
(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 November 1, 1997.
None of the Group II Loans will have been originated prior to February 23,
1996, or will have a maturity date later than November 1, 2027. No Group II Loan
will have a remaining term to stated maturity as of the Cut-off Date of less
than 340 months. The weighted average term to stated maturity of the Group II
Loans as of the Cut-off Date will be approximately 357 months. The weighted
average original term to maturity of the Group II Loans as of the Cut-off Date
will be approximately 360 months.
As of the Cut-off Date, 7.6% of the Group II Loans are at least 30 days
delinquent in payment of principal and interest, and none of the Group II Loans
are 60 or more days delinquent in payment of principal and interest.
The Group II Loans are generally assumable pursuant to the terms of the
related Mortgage Note. See 'Maturity and Prepayment Considerations' in the
Prospectus.
S-26
<PAGE>
<PAGE>
Set forth below is a description of certain additional characteristics of
the Group II Loans as of the Cut-off Date (except as otherwise indicated). All
percentages of the Group II Loans are approximate percentages by aggregate
principal balance of the Group II Loans as of the Cut-off Date (except as
otherwise indicated). Unless otherwise specified, all principal balances of the
Group II Loans are as of the Cut-off Date and are rounded to the nearest dollar.
ORIGINAL MORTGAGE LOAN PRINCIPAL BALANCES OF THE GROUP II LOANS
<TABLE>
<CAPTION>
NUMBER OF PERCENT OF
ORIGINAL MORTGAGE LOAN BALANCE MORTGAGE LOANS PRINCIPAL BALANCE GROUP II LOANS
- ------------------------------------------------------------- -------------- ----------------- --------------
<S> <C> <C> <C>
$ 0 - 100,000.......................................... 1,800 $ 118,705,834 29.67%
100,001 - 200,000.......................................... 1,296 178,614,944 44.64
200,001 - 300,000.......................................... 263 63,547,145 15.88
300,001 - 400,000.......................................... 79 26,711,103 6.68
400,001 - 500,000.......................................... 18 8,075,305 2.02
500,001 - 600,000.......................................... 5 2,721,828 0.68
700,001 - 800,000.......................................... 1 707,685 0.18
900,001 - 1,000,000......................................... 1 996,661 0.25
------ ----------------- -------
Total................................................... 3,463 $ 400,080,505 100.00%
------ ----------------- -------
------ ----------------- -------
</TABLE>
As of the Cut-off Date, the average unpaid principal balance of the Group
II Loans will be approximately $115,530.
ORIGINAL MORTGAGE LOAN PRINCIPAL BALANCES OF THE SUB-GROUP II-B MORTGAGE LOANS
<TABLE>
<CAPTION>
NUMBER OF PERCENT OF SUCH
ORIGINAL MORTGAGE LOAN BALANCE MORTGAGE LOANS PRINCIPAL BALANCE MORTGAGE LOANS
- ------------------------------------------------------------ -------------- ----------------- ----------------
<S> <C> <C> <C>
$ 0 - 50,000.......................................... 102 $ 3,895,243 1.95%
50,001 - 100,000.......................................... 646 50,184,635 25.09
100,001 - 150,000.......................................... 623 76,254,494 38.12
150,001 - 200,000.......................................... 331 57,879,359 28.94
200,001 - 214,600.......................................... 57 11,806,652 5.90
------ ----------------- -------
Total.................................................. 1,759 $ 200,020,383 100.00%
------ ----------------- -------
------ ----------------- -------
</TABLE>
As of the Cut-off Date, the average unpaid principal balance of the
Sub-Group II-B Mortgage Loans will be approximately $113,713.
S-27
<PAGE>
<PAGE>
NET MORTGAGE RATES OF THE GROUP II LOANS
<TABLE>
<CAPTION>
NUMBER OF PERCENT OF
NET MORTGAGE RATES (%) MORTGAGE LOANS PRINCIPAL BALANCE GROUP II LOANS
- ------------------------------------------------------------- -------------- ----------------- --------------
<S> <C> <C> <C>
5.500 - 5.999.............................................. 2 $ 73,876 0.02%
6.000 - 6.499.............................................. 1 116,527 0.03
6.500 - 6.999.............................................. 10 1,368,428 0.34
7.000 - 7.499.............................................. 45 5,577,290 1.39
7.500 - 7.999.............................................. 175 24,778,069 6.19
8.000 - 8.499.............................................. 422 58,734,985 14.68
8.500 - 8.999.............................................. 692 92,032,250 23.00
9.000 - 9.499.............................................. 646 77,188,234 19.29
9.500 - 9.999.............................................. 526 56,005,526 14.00
10.000 - 10.499.............................................. 442 42,636,902 10.66
10.500 - 10.999.............................................. 224 19,812,273 4.95
11.000 - 11.499.............................................. 149 11,625,256 2.91
11.500 - 11.999.............................................. 51 4,650,215 1.16
12.000 - 12.499.............................................. 36 2,647,134 0.66
12.500 - 12.999.............................................. 18 1,522,836 0.38
13.000 - 13.499.............................................. 19 1,105,933 0.28
13.500 - 13.999.............................................. 3 121,266 0.03
14.000 - 14.499.............................................. 2 83,507 0.02
------ ----------------- -------
Total................................................... 3,463 $ 400,080,505 100.00%
------ ----------------- -------
------ ----------------- -------
</TABLE>
As of the Cut-off Date, the weighted average Net Mortgage Rate of the Group
I Loans will be approximately 9.2270% per annum.
MORTGAGE RATES OF THE GROUP II LOANS
<TABLE>
<CAPTION>
NUMBER OF PERCENT OF
MORTGAGE RATES (%) MORTGAGE LOANS PRINCIPAL BALANCE GROUP II LOANS
- ------------------------------------------------------------- -------------- ----------------- --------------
<S> <C> <C> <C>
6.500 - 6.999.............................................. 2 $ 73,876 0.02%
7.000 - 7.499.............................................. 6 737,450 0.18
7.500 - 7.999.............................................. 32 3,969,258 0.99
8.000 - 8.499.............................................. 81 11,531,737 2.88
8.500 - 8.999.............................................. 344 47,290,837 11.82
9.000 - 9.499.............................................. 508 70,559,270 17.64
9.500 - 9.999.............................................. 787 99,267,259 24.81
10.000 - 10.499.............................................. 521 56,869,735 14.21
10.500 - 10.999.............................................. 537 54,494,579 13.62
11.000 - 11.499.............................................. 277 25,484,028 6.37
11.500 - 11.999.............................................. 191 16,019,549 4.00
12.000 - 12.499.............................................. 78 6,526,261 1.63
12.500 - 12.999.............................................. 47 3,812,699 0.95
13.000 - 13.499.............................................. 19 1,133,697 0.28
13.500 - 13.999.............................................. 22 1,820,854 0.46
14.000 - 14.499.............................................. 8 348,981 0.09
14.500 - 14.999.............................................. 3 140,436 0.04
------ ----------------- -------
Total................................................... 3,463 $ 400,080,505 100.00%
------ ----------------- -------
------ ----------------- -------
</TABLE>
As of the Cut-off Date, the weighted average Mortgage Rate of the Group II
Loans will be approximately 9.9220% per annum.
S-28
<PAGE>
<PAGE>
ORIGINAL LOAN-TO-VALUE RATIOS OF THE GROUP II LOANS
<TABLE>
<CAPTION>
NUMBER OF PERCENT OF
ORIGINAL LOAN-TO-VALUE RATIO (%) MORTGAGE LOANS PRINCIPAL BALANCE GROUP II LOANS
- ------------------------------------------------------------- -------------- ----------------- --------------
<S> <C> <C> <C>
0.01 - 50.00................................................ 135 $ 11,306,816 2.83%
50.01 - 55.00................................................ 57 5,995,903 1.50
55.01 - 60.00................................................ 91 9,205,777 2.30
60.01 - 65.00................................................ 165 15,535,495 3.88
65.01 - 70.00................................................ 291 30,437,261 7.61
70.01 - 75.00................................................ 426 47,400,291 11.85
75.01 - 80.00................................................ 1,081 127,137,953 31.78
80.01 - 85.00................................................ 610 71,970,727 17.99
85.01 - 90.00................................................ 592 79,300,484 19.82
90.01 - 95.00................................................ 15 1,789,797 0.45
------ ----------------- -------
Total................................................... 3,463 $ 400,080,505 100.00%
------ ----------------- -------
------ ----------------- -------
</TABLE>
The weighted average Loan-to-Value Ratio at origination of the Group II
Loans will be approximately 78.71%.
GEOGRAPHIC DISTRIBUTION OF MORTGAGED PROPERTIES OF THE GROUP II LOANS
<TABLE>
<CAPTION>
NUMBER OF PERCENT OF
STATE MORTGAGE LOANS PRINCIPAL BALANCE GROUP II LOANS
- ------------------------------------------------------------- -------------- ----------------- --------------
<S> <C> <C> <C>
California................................................... 308 $ 55,094,044 13.77%
Texas........................................................ 321 31,235,977 7.81
Florida...................................................... 280 29,894,172 7.47
Washington................................................... 173 22,383,362 5.59
Georgia...................................................... 171 21,440,422 5.36
Colorado..................................................... 147 18,911,623 4.73
Michigan..................................................... 199 18,112,463 4.53
Utah......................................................... 130 16,835,368 4.21
Illinois..................................................... 153 16,785,295 4.20
New York..................................................... 105 15,677,918 3.92
New Jersey................................................... 99 13,092,677 3.27
Other(1)..................................................... 1,377 140,617,184 35.15
------ ----------------- -------
Total................................................... 3,463 $ 400,080,505 100.00%
------ ----------------- -------
------ ----------------- -------
</TABLE>
- ------------
(1) Other includes states and the District of Columbia with under 3%
concentrations individually.
No more than 0.3% of the Group II Loans will be secured by Mortgaged
Properties located in any one zip code area in California and no more than 0.4%
of the Group II Loans will be secured by Mortgaged Properties located in any one
zip code area outside California.
MORTGAGE LOAN PURPOSE OF THE GROUP II LOANS
<TABLE>
<CAPTION>
NUMBER OF PERCENT OF
LOAN PURPOSE MORTGAGE LOANS PRINCIPAL BALANCE GROUP II LOANS
- ------------------------------------------------------------- -------------- ----------------- --------------
<S> <C> <C> <C>
Purchase..................................................... 1,658 $ 194,280,832 48.56%
Rate/Term Refinance.......................................... 328 39,912,665 9.98
Equity Refinance............................................. 1,477 165,887,007 41.46
------ ----------------- -------
Total................................................... 3,463 $ 400,080,505 100.00%
------ ----------------- -------
------ ----------------- -------
</TABLE>
The weighted average Loan-to-Value Ratio at origination of rate and term
refinance Group II Loans will be 77.84%. The weighted average Loan-to-Value
Ratio at origination of equity refinance Group II Loans will be 75.51%.
S-29
<PAGE>
<PAGE>
MORTGAGE LOAN DOCUMENTATION TYPES OF THE GROUP II LOANS
<TABLE>
<CAPTION>
NUMBER OF PERCENT OF
DOCUMENTATION TYPE MORTGAGE LOANS PRINCIPAL BALANCE GROUP II LOANS
- ------------------------------------------------------------- -------------- ----------------- --------------
<S> <C> <C> <C>
Full Documentation........................................... 2,744 $ 308,656,509 77.15%
Limited/Reduced.............................................. 12 832,650 0.21
Reduced Documentation........................................ 707 90,591,346 22.64
------ ----------------- -------
Total................................................... 3,463 $ 400,080,505 100.00%
------ ----------------- -------
------ ----------------- -------
</TABLE>
The weighted average Loan-to-Value Ratio at origination of the Group II
Loans which were underwritten under a reduced loan documentation program will be
72.06%. No more than 9.9% of such reduced loan documentation Group II Loans will
be secured by Mortgaged Properties located in California.
OCCUPANCY TYPES OF THE GROUP II LOANS
<TABLE>
<CAPTION>
NUMBER OF PERCENT OF
OCCUPANCY MORTGAGE LOANS PRINCIPAL BALANCE GROUP II LOANS
- ------------------------------------------------------------- -------------- ----------------- --------------
<S> <C> <C> <C>
Primary Residence............................................ 3,219 $ 379,406,711 94.83%
Second/Vacation.............................................. 32 3,576,420 0.89
Non Owner-occupied........................................... 212 17,097,374 4.27
------ ----------------- -------
Total................................................... 3,463 $ 400,080,505 100.00%
------ ----------------- -------
------ ----------------- -------
</TABLE>
MORTGAGED PROPERTY TYPES OF THE GROUP II LOANS
<TABLE>
<CAPTION>
NUMBER OF PERCENT OF
PROPERTY TYPE MORTGAGE LOANS PRINCIPAL BALANCE GROUP II LOANS
- ------------------------------------------------------------- -------------- ----------------- --------------
<S> <C> <C> <C>
Single-family detached....................................... 2,788 $ 315,229,705 78.79%
Planned Unit Developments (detached)......................... 273 42,912,271 10.73
Two- to four-family units.................................... 134 15,371,930 3.84
Condo Low-Rise (less than 5 stories)......................... 124 10,674,337 2.67
Condo Mid-Rise (5 to 8 stories).............................. 2 371,627 0.09
Manufactured Home............................................ 26 1,615,422 0.40
Condo High-Rise (9 stories or more).......................... 7 827,260 0.21
Townhouse.................................................... 31 3,634,156 0.91
Townhouse (2 to 4 family units).............................. 1 76,238 0.02
Planned Unit Developments (attached)......................... 75 9,258,108 2.31
Modular...................................................... 2 109,449 0.03
------ ----------------- -------
Total................................................... 3,463 $ 400,080,505 100.00%
------ ----------------- -------
------ ----------------- -------
</TABLE>
RISK GRADES OF THE GROUP II LOANS
<TABLE>
<CAPTION>
NUMBER OF PERCENT OF
RISK GRADE MORTGAGE LOANS PRINCIPAL BALANCE GROUP II LOANS
- ------------------------------------------------------------- -------------- ----------------- --------------
<S> <C> <C> <C>
Category 1A.................................................. 1,210 $ 152,360,678 38.08%
Category 1................................................... 982 122,537,582 30.63
Category 2................................................... 791 81,595,662 20.39
Category 3................................................... 310 29,942,861 7.48
Category 4................................................... 170 13,643,721 3.41
------ ----------------- -------
Total................................................... 3,463 $ 400,080,505 100.00%
------ ----------------- -------
------ ----------------- -------
</TABLE>
S-30
<PAGE>
<PAGE>
MORTGAGE RATES OF THE GROUP II LOANS
(BASED ON SIX-MONTH LIBOR)
<TABLE>
<CAPTION>
NUMBER OF PERCENT OF SUCH
MORTGAGE RATES (%) MORTGAGE LOANS PRINCIPAL BALANCE MORTGAGE LOANS
- ------------------------------------------------------------ -------------- ----------------- ----------------
<S> <C> <C> <C>
6.500 - 6.999............................................. 2 $ 73,876 0.03%
7.000 - 7.499............................................. 5 620,924 0.24
7.500 - 7.999............................................. 25 2,571,519 0.99
8.000 - 8.499............................................. 51 7,396,460 2.84
8.500 - 8.999............................................. 205 27,683,574 10.61
9.000 - 9.499............................................. 356 50,470,462 19.35
9.500 - 9.999............................................. 491 61,173,545 23.45
10.000 - 10.499............................................. 343 37,137,830 14.24
10.500 - 10.999............................................. 364 38,424,190 14.73
11.000 - 11.499............................................. 190 17,022,274 6.53
11.500 - 11.999............................................. 132 10,715,436 4.11
12.000 - 12.499............................................. 43 3,604,800 1.38
12.500 - 12.999............................................. 32 2,597,127 1.00
13.000 - 13.499............................................. 9 491,609 0.19
13.500 - 13.999............................................. 13 736,112 0.28
14.000 - 14.499............................................. 2 95,847 0.04
14.500 - 14.999............................................. 1 26,963 0.01
------ ----------------- -------
Total.................................................. 2,264 $ 260,842,547 100.00%
------ ----------------- -------
------ ----------------- -------
</TABLE>
As of the Cut-off Date, the weighted average Mortgage Rate of the Group II
Loans based on Six-Month LIBOR will be approximately 9.9378% per annum.
NOTE MARGINS OF THE GROUP II LOANS
(BASED ON SIX-MONTH LIBOR)
<TABLE>
<CAPTION>
NUMBER OF PERCENT OF SUCH
NOTE MARGINS (%) MORTGAGE LOANS PRINCIPAL BALANCE MORTGAGE LOANS
- ------------------------------------------------------------ -------------- ----------------- ----------------
<S> <C> <C> <C>
3.000 - 3.499............................................. 4 $ 706,257 0.27%
3.500 - 3.999............................................. 13 1,617,333 0.62
4.000 - 4.499............................................. 55 6,812,505 2.61
4.500 - 4.999............................................. 206 25,098,392 9.62
5.000 - 5.499............................................. 413 52,135,259 19.99
5.500 - 5.999............................................. 470 59,477,079 22.80
6.000 - 6.499............................................. 343 37,976,037 14.56
6.500 - 6.999............................................. 344 36,962,480 14.17
7.000 - 7.499............................................. 201 20,984,034 8.04
7.500 - 7.999............................................. 111 10,197,545 3.91
8.000 - 8.499............................................. 52 4,366,506 1.67
8.500 - 8.999............................................. 27 2,472,312 0.95
9.000 - 9.499............................................. 12 1,129,542 0.43
9.500 - 9.999............................................. 10 766,605 0.29
10.000 - 10.499............................................. 3 140,661 0.05
------ ----------------- -------
Total.................................................. 2,264 $ 260,842,547 100.00%
------ ----------------- -------
------ ----------------- -------
</TABLE>
As of the Cut-off Date, the weighted average Note Margin of the Group II
Loans based on Six-Month LIBOR will be approximately 5.9676% per annum.
S-31
<PAGE>
<PAGE>
MAXIMUM MORTGAGE RATES OF THE GROUP II LOANS
(BASED ON SIX-MONTH LIBOR)
<TABLE>
<CAPTION>
NUMBER OF PERCENT OF SUCH
MAXIMUM MORTGAGE RATES (%) MORTGAGE LOANS PRINCIPAL BALANCE MORTGAGE LOANS
- ------------------------------------------------------------ -------------- ----------------- ----------------
<S> <C> <C> <C>
13.000 - 13.999............................................. 12 $ 1,240,210 0.48%
14.000 - 14.999............................................. 191 25,940,777 9.94
15.000 - 15.999............................................. 639 89,594,521 34.35
16.000 - 16.999............................................. 618 70,574,100 27.06
17.000 - 17.999............................................. 517 50,617,409 19.41
18.000 - 18.999............................................. 225 18,791,631 7.20
19.000 - 19.999............................................. 50 3,489,246 1.34
20.000 - 20.999............................................. 12 594,652 0.23
------ ----------------- -------
Total.................................................. 2,264 $ 260,842,547 100.00%
------ ----------------- -------
------ ----------------- -------
</TABLE>
As of the Cut-off Date, the weighted average Maximum Mortgage Rate of the
Group II Loans based on Six-Month LIBOR will be approximately 16.3283% per
annum.
MINIMUM MORTGAGE RATES OF THE GROUP II LOANS
(BASED ON SIX-MONTH LIBOR)
<TABLE>
<CAPTION>
NUMBER OF PERCENT OF SUCH
MINIMUM MORTGAGE RATES (%) MORTGAGE LOANS PRINCIPAL BALANCE MORTGAGE LOANS
- ------------------------------------------------------------ -------------- ----------------- ----------------
<S> <C> <C> <C>
3.000 - 3.999............................................. 11 $ 1,746,953 0.67%
4.000 - 4.999............................................. 173 21,364,587 8.19
5.000 - 5.999............................................. 281 35,774,421 13.71
6.000 - 6.999............................................. 109 12,376,498 4.74
7.000 - 7.999............................................. 81 9,540,255 3.66
8.000 - 8.999............................................. 164 22,454,331 8.61
9.000 - 9.999............................................. 566 73,804,503 28.29
10.000 - 10.999............................................. 516 53,774,869 20.62
11.000 - 11.999............................................. 282 23,839,022 9.14
12.000 - 12.999............................................. 60 5,116,186 1.96
13.000 - 13.999............................................. 18 928,112 0.36
14.000 - 14.999............................................. 3 122,810 0.05
------ ----------------- -------
Total.................................................. 2,264 $ 260,842,547 100.00%
------ ----------------- -------
------ ----------------- -------
</TABLE>
As of the Cut-off Date, the weighted average Minimum Mortgage Rate of the
Group II Loans based on Six-Month LIBOR will be approximately 8.6564% per annum.
S-32
<PAGE>
<PAGE>
NEXT INTEREST RATE ADJUSTMENT DATES OF THE GROUP II LOANS
(BASED ON SIX-MONTH LIBOR)
<TABLE>
<CAPTION>
NUMBER OF PERCENT OF SUCH
NEXT INTEREST ADJUSTMENT DATE MORTGAGE LOANS PRINCIPAL BALANCE MORTGAGE LOANS
- ------------------------------------------------------------ -------------- ----------------- ----------------
<S> <C> <C> <C>
December 1997............................................... 22 $ 2,449,016 0.94%
January 1998................................................ 31 4,541,044 1.74
February 1998............................................... 89 10,210,246 3.91
March 1998.................................................. 75 8,828,927 3.38
April 1998.................................................. 42 4,843,171 1.86
May 1998.................................................... 13 1,704,724 0.65
June 1998................................................... 13 2,511,037 0.96
July 1998................................................... 16 3,255,499 1.25
August 1998................................................. 12 2,013,777 0.77
September 1998.............................................. 1 224,768 0.09
January 1999................................................ 1 120,040 0.05
February 1999............................................... 3 311,678 0.12
March 1999.................................................. 2 183,614 0.07
April 1999.................................................. 22 2,700,893 1.04
May 1999.................................................... 28 3,779,069 1.45
June 1999................................................... 64 9,286,201 3.56
July 1999................................................... 128 15,092,757 5.79
August 1999................................................. 529 60,474,310 23.18
September 1999.............................................. 532 56,705,529 21.74
October 1999................................................ 367 41,824,260 16.03
November 1999............................................... 78 7,656,857 2.94
December 1999............................................... 2 177,203 0.07
March 2000.................................................. 1 150,655 0.06
May 2000.................................................... 4 1,130,170 0.43
June 2000................................................... 2 123,476 0.05
July 2000................................................... 25 3,040,130 1.17
August 2000................................................. 63 6,158,052 2.36
September 2000.............................................. 47 4,972,486 1.91
October 2000................................................ 43 5,076,461 1.95
November 2000............................................... 9 1,296,500 0.50
------ ----------------- -------
Total.................................................. 2,264 $ 260,842,547 100.00%
------ ----------------- -------
------ ----------------- -------
</TABLE>
As of the Cut-off Date, the weighted average Months to Next Interest Rate
Adjustment Date of the Group II Loans based on Six-Month LIBOR will be
approximately 20.
S-33
<PAGE>
<PAGE>
MORTGAGE RATES OF THE GROUP II LOANS
(BASED ON ONE-YEAR U.S. TREASURY)
<TABLE>
<CAPTION>
NUMBER OF PERCENT OF SUCH
MORTGAGE RATES (%) MORTGAGE LOANS PRINCIPAL BALANCE MORTGAGE LOANS
- ------------------------------------------------------------ -------------- ----------------- ----------------
<S> <C> <C> <C>
7.000 - 7.499............................................. 1 $ 116,527 0.08%
7.500 - 7.999............................................. 7 1,397,740 1.00
8.000 - 8.499............................................. 30 4,135,277 2.97
8.500 - 8.999............................................. 139 19,607,263 14.08
9.000 - 9.499............................................. 152 20,088,808 14.43
9.500 - 9.999............................................. 296 38,093,714 27.36
10.000 - 10.499............................................. 178 19,731,905 14.17
10.500 - 10.999............................................. 173 16,070,390 11.54
11.000 - 11.499............................................. 87 8,461,753 6.08
11.500 - 11.999............................................. 59 5,304,112 3.81
12.000 - 12.499............................................. 35 2,921,461 2.10
12.500 - 12.999............................................. 15 1,215,572 0.87
13.000 - 13.499............................................. 10 642,088 0.46
13.500 - 13.999............................................. 9 1,084,742 0.78
14.000 - 14.499............................................. 6 253,134 0.18
14.500 - 14.999............................................. 2 113,473 0.08
------ ----------------- -------
Total.................................................. 1,199 $ 139,237,958 100.00%
------ ----------------- -------
------ ----------------- -------
</TABLE>
As of the Cut-off Date, the weighted average Mortgage Rate of the Group II
Loans based on One-Year U.S. Treasury will be approximately 9.8925% per annum.
NOTE MARGINS OF THE GROUP II LOANS
(BASED ON ONE-YEAR U.S. TREASURY)
<TABLE>
<CAPTION>
NUMBER OF PERCENT OF SUCH
NOTE MARGINS (%) MORTGAGE LOANS PRINCIPAL BALANCE MORTGAGE LOANS
- ------------------------------------------------------------ -------------- ----------------- ----------------
<S> <C> <C> <C>
2.500 - 2.999............................................... 4 $ 583,750 0.42%
3.500 - 3.999............................................... 14 1,397,143 1.00
4.000 - 4.499............................................... 39 4,509,736 3.24
4.500 - 4.999............................................... 79 10,676,889 7.67
5.000 - 5.499............................................... 235 29,500,313 21.19
5.500 - 5.999............................................... 246 28,844,794 20.72
6.000 - 6.499............................................... 194 22,290,343 16.01
6.500 - 6.999............................................... 174 18,638,310 13.39
7.000 - 7.499............................................... 110 12,384,917 8.89
7.500 - 7.999............................................... 74 7,711,781 5.54
8.000 - 8.499............................................... 18 1,430,239 1.03
8.500 - 8.999............................................... 10 939,732 0.67
9.000 - 9.499............................................... 2 330,011 0.24
------ ----------------- -------
Total.................................................. 1,199 $ 139,237,958 100.00%
------ ----------------- -------
------ ----------------- -------
</TABLE>
As of the Cut-off Date, the weighted average Note Margin of the Group II
Loans based on One-Year U.S. Treasury will be approximately 5.8655% per annum.
S-34
<PAGE>
<PAGE>
MAXIMUM MORTGAGE RATES OF THE GROUP II LOANS
(BASED ON ONE-YEAR U.S. TREASURY)
<TABLE>
<CAPTION>
NUMBER OF PERCENT OF SUCH
MAXIMUM MORTGAGE RATES (%) MORTGAGE LOANS PRINCIPAL BALANCE MORTGAGE LOANS
- ------------------------------------------------------------ -------------- ----------------- ----------------
<S> <C> <C> <C>
13.000 - 13.999............................................. 8 $ 1,514,266 1.09%
14.000 - 14.999............................................. 161 22,191,935 15.94
15.000 - 15.999............................................. 419 55,478,537 39.84
16.000 - 16.999............................................. 357 36,338,111 26.10
17.000 - 17.999............................................. 168 16,458,075 11.82
18.000 - 18.999............................................. 58 5,123,431 3.68
19.000 - 19.999............................................. 19 1,742,022 1.25
20.000 - 20.999............................................. 8 366,607 0.26
21.000 - 21.999............................................. 1 24,974 0.02
------ ----------------- -------
Total.................................................. 1,199 $ 139,237,958 100.00%
------ ----------------- -------
------ ----------------- -------
</TABLE>
As of the Cut-off Date, the weighted average Maximum Mortgage Rate of the
Group II Loans based on One-Year U.S. Treasury will be approximately 15.9670%
per annum.
MINIMUM MORTGAGE RATES OF THE GROUP II LOANS
(BASED ON ONE-YEAR U.S. TREASURY)
<TABLE>
<CAPTION>
NUMBER OF PERCENT OF SUCH
MINIMUM MORTGAGE RATES (%) MORTGAGE LOANS PRINCIPAL BALANCE MORTGAGE LOANS
- ------------------------------------------------------------ -------------- ----------------- ----------------
<S> <C> <C> <C>
2.000 - 2.999............................................. 4 $ 583,750 0.42%
3.000 - 3.999............................................. 6 807,134 0.58
4.000 - 4.999............................................. 43 5,820,462 4.18
5.000 - 5.999............................................. 103 13,691,885 9.83
6.000 - 6.999............................................. 17 2,115,347 1.52
7.000 - 7.999............................................. 12 1,775,728 1.28
8.000 - 8.999............................................. 117 16,131,225 11.59
9.000 - 9.999............................................. 353 45,963,110 33.01
10.000 - 10.999............................................. 325 32,745,061 23.52
11.000 - 11.999............................................. 143 13,416,273 9.64
12.000 - 12.999............................................. 49 4,094,545 2.94
13.000 - 13.999............................................. 19 1,726,830 1.24
14.000 - 14.999............................................. 8 366,607 0.26
------ ----------------- -------
Total.................................................. 1,199 $ 139,237,958 100.00%
------ ----------------- -------
------ ----------------- -------
</TABLE>
As of the Cut-off Date, the weighted average Minimum Mortgage Rate of the
Group II Loans based on One-Year U.S. Treasury will be approximately 9.1975% per
annum.
S-35
<PAGE>
<PAGE>
NEXT INTEREST RATE ADJUSTMENT DATES OF THE GROUP II LOANS
(BASED ON ONE-YEAR U.S. TREASURY)
<TABLE>
<CAPTION>
NUMBER OF PERCENT OF SUCH
NEXT INTEREST ADJUSTMENT DATE MORTGAGE LOANS PRINCIPAL BALANCE MORTGAGE LOANS
- ------------------------------------------------------------ -------------- ----------------- ----------------
<S> <C> <C> <C>
December 1997............................................... 1 $ 84,208 0.06%
January 1998................................................ 1 368,498 0.26
February 1998............................................... 8 1,351,263 0.97
March 1998.................................................. 10 2,636,180 1.89
April 1998.................................................. 5 496,460 0.36
May 1998.................................................... 16 4,286,971 3.08
June 1998................................................... 95 11,900,839 8.55
July 1998................................................... 129 16,649,051 11.96
August 1998................................................. 187 21,989,074 15.79
September 1998.............................................. 87 10,656,741 7.65
October 1998................................................ 130 16,736,416 12.02
November 1998............................................... 13 1,848,700 1.33
March 1999.................................................. 1 244,136 0.18
November 1999............................................... 1 34,906 0.03
December 1999............................................... 1 184,072 0.13
January 2000................................................ 2 103,503 0.07
February 2000............................................... 35 2,824,579 2.03
March 2000.................................................. 52 4,238,204 3.04
April 2000.................................................. 104 10,640,254 7.64
May 2000.................................................... 116 12,047,594 8.65
June 2000................................................... 100 10,159,353 7.30
July 2000................................................... 45 4,263,739 3.06
August 2000................................................. 57 5,272,168 3.79
September 2000.............................................. 3 221,052 0.16
------ ----------------- -------
Total.................................................. 1,199 $ 139,237,958 100.00%
------ ----------------- -------
------ ----------------- -------
</TABLE>
As of the Cut-off Date, the weighted average Months to Next Interest Rate
Adjustment Date of the Group II Loans based on One-Year U.S. Treasury will be
approximately 16.
STANDARD HAZARD INSURANCE AND PRIMARY MORTGAGE INSURANCE
Each Mortgage Loan is required to be covered by a standard hazard insurance
policy. In addition, to the best of the Company's knowledge, 30 Group I Loans
and 18 Group II Loans with Loan-to-Value Ratios at origination in excess of 80%,
representing 1.8% and 0.5% of such Mortgage Loans, respectively, will be insured
by a Primary Insurance Policy covering the amount of such Mortgage Loan in
excess of 75% of the value of the related Mortgaged Property used in determining
such Loan-to-Value Ratio (the 'APPRAISED VALUE'). An additional 27.0% and 37.7%
of the Group I Loans and Group II Loans, respectively, are Mortgage Loans with a
Loan-to-Value Ratio (or Combined Loan-to-Value Ratio in the case of the Junior
Group I Loans) at origination in excess of 80% that are not insured by a Primary
Insurance Policy. Substantially all of such Primary Insurance Policies were
issued by General Electric Mortgage Insurance Corporation, Republic Mortgage
Insurance Company, United Guaranty Residential Insurance Company, Mortgage
Guaranty Insurance Corporation, Commonwealth Mortgage Assurance Company and PMI
Mortgage Insurance Company (collectively, the 'PRIMARY INSURERS'). Each Primary
Insurer has a claims paying ability currently acceptable to the Rating Agencies
that have been requested to rate the Certificates; however, there is no
assurance as to the actual ability of any Primary Insurer to pay claims. See
'Insurance Policies on Mortgage Loans or Contracts -- Standard Hazard Insurance
on Mortgaged Properties' and ' -- Primary Mortgage Insurance Policies' in the
Prospectus.
UNDERWRITING STANDARDS
Prior to assignment to the Company, Residential Funding reviewed the
underwriting standards for the Mortgage Loans and purchased all such Mortgage
Loans from Mortgage Collateral Sellers who participated in
S-36
<PAGE>
<PAGE>
or whose loans were in substantial conformity with the standards set forth in
Residential Funding's AlterNet Program or which are otherwise in conformity with
the standards set forth in the description of risk categories set forth herein.
All of the Mortgage Loans had features that generally distinguish such
loans from the more stringent underwriting requirements used as standards for
Fannie Mae and Freddie Mac, and moreover, from the more stringent underwriting
standards set forth in Residential Funding's Seller Guide for mortgage loan
collateral that does not present significant special risk features (which
generally provides the basis for underwriting Mortgage Loans that serve as the
assets for securities issued by Residential Funding's affiliates, Residential
Funding Mortgage Securities I, Inc. and Residential Accredit Loans, Inc.).
Residential Funding established risk categories by which it could aggregate
acceptable loans into groupings considered to have progressively greater risk
characteristics. A more detailed description of those risk categories applicable
to the Mortgage Loans is set forth below.
Residential Funding's underwriting of the Mortgage Loans generally
consisted of analyzing the following as standards applicable to the Mortgage
Loans: the creditworthiness of a mortgagor, the income sufficiency of a
mortgagor's projected family income relative to the mortgage payment and to
other fixed obligations (including in certain instances rental income from
investment property), and the adequacy of the mortgaged property (expressed in
terms of Loan-to-Value Ratio), to serve as the collateral for a mortgage loan.
Generally, each mortgagor would 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, each mortgagor furnished information (which may
have been 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
summarized 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, income derived
from the mortgaged property may have been considered for underwriting purposes.
With respect to mortgaged property consisting of vacation or second homes,
generally no income derived from the property was considered for underwriting
purposes.
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 was 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 insurance and other fixed obligations other than housing
expenses). The originator's guidelines for mortgage loans generally specify that
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 have considered the amount of liquid assets available to
the mortgagor after origination.
Certain of the Mortgage Loans have been originated under 'limited
documentation' programs that 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 profile would
have been undertaken by the originator and the underwriting for such mortgage
loans will place a greater emphasis on the value of the mortgaged property. As
used in this section, 'LOAN-TO-VALUE RATIO' shall generally mean that ratio,
expressed as a percentage of (a) the principal amount of the Mortgage Loan at
origination, over (b) the lesser of the sales price or the appraised value of
the related Mortgaged Property at origination, or in the case of a refinanced or
modified Mortgage Loan, either the appraised value determined at origination or,
if applicable, at the time of the refinancing or modification.
The adequacy of a mortgaged property as security for repayment of the
related mortgage loan generally has been determined by an appraisal in
accordance with pre-established appraisal procedure guidelines for appraisals
established by or acceptable to the originator. Appraisers were either 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 would have considered a market data
analysis of recent
S-37
<PAGE>
<PAGE>
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 or Combined Loan-to-Value Ratio may have been
based on the appraised value as indicated on a review appraisal conducted by the
Mortgage Collateral Seller or originator.
Generally, the Mortgage Loans were either originated and underwritten in
accordance with Residential Funding's AlterNet Program, as discussed below, or
otherwise acquired from a Mortgage Collateral Seller based on standards
consistent with the following discussion on risk category classification.
The risk categories determined by Residential Funding as applicable to all
of the Mortgage Loans are expressed herein as Risk Categories 1A, 1, 2, 3 and 4.
Risk Category 1A: Under Risk Category 1A, the prospective mortgagor must
have repaid installment or revolving debt according to its terms. A maximum of
one 30-day late payment, and no 60-day or 90-day late payments, within the last
12 months is acceptable on an existing mortgage loan. Minor derogatory items are
allowed as to non-mortgage credit (provided, open collections and charge-offs in
excess of $200 must be paid down to zero at closing unless they are 3 years or
older and not reflected in the title report or are medical related). As to each
mortgagor in this Risk Category, no bankruptcies were discharged during the
three-year period prior to the date the mortgage loan was made and there was
evidence that the mortgagor had 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 90% is permitted for a mortgage loan on a single family
owner-occupied property (with the exception of 16 Mortgage Loans with
Loan-to-Value Ratios in excess of 90%) (or 85% for a mortgage loan originated
under a limited documentation program). A maximum Loan-to-Value Ratio of 75%
(with the exception of 63 Mortgage Loans with Loan-to-Value Ratios in excess of
75%) (or 70% for mortgage loans originated under the limited documentation
program, with the exception of 13 non-owner-occupied limited documentation
Mortgage Loans with Loan-to-Value Ratios in excess 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 which, in the case of
adjustable rate mortgage loans will be based on the initial rate on the mortgage
loan plus 2% per annum unless the initial rate would not be subject to change
for an extended period.
Risk Category 1: Under Risk Category 1, the prospective mortgagor is
required to have generally repaid all previous or existing installment or
revolving debt according to its terms. A maximum of two 30-day late payments,
and no 60-day or 90-day late payments, within the last 12 months is acceptable
on an existing mortgage loan. As to non-mortgage credit, some prior defaults may
have occurred (provided, open collections and charge-offs in excess of $200 must
be paid down to zero at closing unless they are 3 years or older and not
reflected in the title report or are medical related). No bankruptcies were
discharged during the two-year period prior to the date the mortgage loan was
made and there was evidence that the Mortgagor had 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 85% (with the exception of 320
Mortgage Loans with Loan-to-Value Ratios in excess of 85%) (or 80% for mortgage
loans originated under a limited documentation program, with the exception of 4
owner-occupied limited documentation Mortgage Loans with Loan-to-Value Ratios in
excess of 80%) is permitted for a mortgage loan on an owner-occupied property. A
maximum Loan-to-Value Ratio of 75% (or 70% for mortgage loans originated under a
limited documentation program) is permitted for a mortgage loan on a non-owner-
occupied property (with the exception of 21 Mortgage Loans on non-owner-occupied
property with Loan-to-Value Ratios in excess of 75% and 11 such Mortgage Loans
with Loan-to-Value Ratios in excess of 70% for mortgage loans originated under a
limited documentation program). The debt service-to-income ratio generally is
50% or less which, in the case of adjustable rate mortgage loans will be based
on an initial rate on the mortgage loan plus 2% per annum unless the initial
rate would not be subject to change for an extended period.
Risk Category 2: Under Risk Category 2, the prospective mortgagor may not
have paid all previous or existing installment or revolving debt according to
its terms, and may have some charge-offs. A maximum of four 30-day late
payments, and one 60-day but no 90-day late payments, within the last 12 months
is acceptable on an existing mortgage loan. As to non-mortgage credit, some
prior defaults may have occurred (provided, open collections and charge-offs
must be paid down to an amount not in excess of $500 at closing unless they are
3 years or older and not reflected in the title report or are medical related).
No bankruptcies were discharged during the twelve-month period prior to the date
the mortgage loan was made and there was evidence that the Mortgagor had
re-established its credit to an acceptable level. The applicant must have also
established some good credit since any bankruptcy proceedings. The mortgaged
property must be in average to good condition. A
S-38
<PAGE>
<PAGE>
maximum Loan-to-Value Ratio of 85% (with the exception of 38 Mortgage Loans with
Loan-to-Value Ratios in excess of 85%) (or 80% for mortgage loans originated
under a limited documentation program, with the exception of 3 Mortgage Loans
with Loan-to-Value Ratios in excess of 80%) is permitted for a mortgage loan on
an owner-occupied property. A maximum Loan-to-Value Ratio of 75% (with the
exception of 4 Mortgage Loans with a Loan-to-Value Ratio in excess of 75%) (or
70% for mortgage loans originated under a limited documentation program) is
permitted for a mortgage loan on a non-owner-occupied property. The debt
service-to-income ratio generally is 50% or less which, in the case of
adjustable rate mortgage loans will be based on the initial rate on the mortgage
loan plus 2% per annum unless the initial rate would not be subject to change
for an extended period.
Risk Category 3: Under Risk Category 3, the prospective mortgagor may have
experienced significant credit problems in the past. As to mortgage credit, the
mortgagor may have had a history of being generally 30 to 60 days delinquent,
and a maximum of one 90-day late payment within the last 12 months is acceptable
on an existing mortgage loan. As to non-mortgage credit, significant prior
defaults may have occurred (provided, open collections and charge-offs must be
paid down to an amount not in excess of $1,000 at closing unless they are 3
years or older and not reflected in the title report or are medical related). No
bankruptcies were discharged during the 12-month period prior to the date the
mortgage loan was made. The mortgaged property must be in average to good
condition. A maximum Loan-to-Value Ratio of 75% (with the exception of 164
Mortgage Loans with Loan-to-Value Ratios in excess of 75%) (or 70% for mortgage
loans originated under a limited documentation program, with the exception of 4
Mortgage Loans with Loan-to-Value Ratios in excess of 70%) is permitted for
mortgage loans on an owner-occupied property. A maximum Loan-to-Value Ratio of
65% is permitted for mortgage loans originated under a full or limited
documentation program on a non-owner-occupied property (with the exception of 8
Mortgage Loans originated under a full documentation program and 1 Mortgage Loan
originated under a limited documentation program with Loan-to-Value Ratios in
excess of 65%). The debt service-to-income ratio generally is 55% or less which,
in the case of adjustable rate mortgage loans will be based on the initial rate
on the mortgage loan plus 2% per annum unless the initial rate would not be
subject to change for an extended period.
Risk Category 4: Under Risk Category 4, the prospective mortgagor may have
experienced substantial credit problems in the past. As to mortgage credit, the
mortgagor may have had a history of being generally 30 to 60 days delinquent,
and a maximum of two 90-day late payments within the last 12 months is
acceptable on an existing mortgage loan. The prospective mortgagor's credit
history is poor and a notice of default may have been filed. As to non-mortgage
credit, significant prior defaults may have occurred and any open collections
and charge-offs may not have been paid off prior to closing. A bankruptcy filing
by the mortgagor is permitted if it is discharged at closing. The mortgaged
property must be in average to good condition. A maximum Loan-to-Value Ratio of
70% (with the exception of 37 Mortgage Loans with Loan-to-Value Ratios in excess
of 70%) (or 65% for mortgage loans originated under a limited documentation
program) (with the exception of 11 Mortgage Loans with Loan-to-Value Ratios in
excess of 65%) is permitted for mortgage loans on an owner-occupied property. A
maximum Loan-to-Value Ratio of 60% is permitted for mortgage loans originated
under a full or limited documentation program on a non-owner-occupied property
(with the exception of 2 Mortgage Loans originated under a full documentation
program and 1 Mortgage Loan originated under a limited documentation program
with Loan-to-Value Ratios in excess of 60%). The debt service-to-income ratio is
55% or less (with the exception of 2 Mortgage Loans originated under a full
documentation program and 1 Mortgage Loan originated under a limited
documentation program with debt service-to-income ratios in excess of 55%)
which, in the case of adjustable rate mortgage loans will be based on the
initial rate on the mortgage loan plus 2% per annum unless the initial rate
would not be subject to change for an extended period.
As described above, the indicated underwriting standards applicable to the
Mortgage Loans include the foregoing categories and characteristics as
guidelines only. On a case-by-case basis, the underwriting process may determine
that the prospective mortgagor warrants a risk category upgrade based on
compensating factors. For example, the underwriting standards applicable for
Risk Categories 1A, 1 and 2 may include debt service-to-income ratios up to 5%
higher for mortgage loans which have Loan-to-Value Ratios of 70% or less. An
additional 5% variance for mortgage loans which have Loan-to-Value Ratios 65% or
less may also have been permitted. Similar variance adjustments of up to 5% may
have been allowed for Risk Category 3 for mortgage loans that have Loan-to-Value
Ratios less than 65%.
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In the preceding discussion of risk grade classifications, standards
referencing a Loan-to-Value Ratio would also apply, with respect to 77.2% of the
Junior Group I Loans, which have a Combined Loan-to-Value Ratio less than or
equal to 90%. The remaining 22.8% of the Junior Group I Loans have Combined
Loan-to-Value Ratios greater than 90% and up to 102%, with only one Mortgage
Loan having a Combined Loan-to-Value Ratio over 100%.
The foregoing risk grade classifications are based on factors that are
exclusive of the additional protection against loss that primary mortgage
insurance customarily provides on loans which have Loan-to-Value Ratios in
excess of 80%. 27.0% and 37.7% of the Group I Loans and Group II Loans,
respectively, have Loan-to-Value Ratios in excess of 80% with no primary
mortgage insurance coverage.
Based on the indicated underwriting standards applicable for mortgage loans
with risk features originated thereunder, and in particular mortgage loans in
Risk Categories 3 and 4 as described herein, such mortgage 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.
THE ALTERNET PROGRAM
Residential Funding has established a program (the 'ALTERNET PROGRAM')
primarily for the purchase of mortgage loans that are made to borrowers that may
have imperfect credit histories, higher debt to income ratios or mortgage loans
that present certain other risks to investors. The Mortgage Collateral Sellers
that participate in the AlterNet Mortgage Program (each, an 'ALTERNET PROGRAM
SELLER') have been selected by Residential Funding on the basis of criteria set
forth in Residential Funding's AlterNet Seller Guide (the 'ALTERNET SELLER
GUIDE'). For those Mortgage Loans that Residential Funding purchased from
AlterNet Program Sellers, each Mortgage Loan determined by Residential Funding
to be acceptable for purchase would have been originated in accordance with or
would have been determined to be generally consistent with the provisions of the
AlterNet Seller Guide. With limited exceptions, each AlterNet Program Seller is
a HUD-approved mortgagee (or otherwise originates loans on behalf of a
HUD-approved mortgagee) or a financial institution supervised by a federal or
state authority and has demonstrated experience (which may be through a
predecessor entity) in originating mortgage loans. If an AlterNet Program Seller
becomes the subject of a receivership, conservatorship or other insolvency or
bankruptcy proceeding 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.
RESIDENTIAL FUNDING
Residential Funding will be responsible for master servicing the Mortgage
Loans. Such responsibilities will include the receipt of funds from
Sub-Servicers, the reconciliation of servicing activity with respect to the
Mortgage Loans, investor reporting, remittances to the Trustee to accommodate
distributions to Certificateholders, follow up with Sub-Servicers with respect
to Mortgage Loans that are delinquent or for which servicing decisions may need
to be made, management and liquidation of mortgaged properties acquired by
foreclosure or deed in lieu of foreclosure, notices and other responsibilities
as detailed in the Pooling and Servicing Agreement.
Residential Funding and its affiliates are active purchasers of
non-conforming mortgage loans and have sold a substantial amount of mortgage
loans that do not present certain of the special risk factors presented by the
Mortgage Loans as described herein. Residential Funding serves as the master
servicer for transactions backed by most of such mortgage loans. As a result of
the program criteria and underwriting standards of the Mortgage Loans, however,
the Mortgage Loans may experience rates of delinquency, foreclosure and loss
that are higher than those experienced by other pools of mortgage loans for
which Residential Funding acts as master servicer.
SERVICING
Primary servicing will be provided by Ocwen Federal Bank FSB ('OCWEN
FEDERAL') with respect to approximately 93.7% of the Mortgage Loans.
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Ocwen Federal, a federally-chartered savings bank, is a wholly-owned
subsidiary of Ocwen Financial Corporation, which is engaged in the servicing of
various financial instruments, including performing and non-performing
single-family, multi-family and commercial mortgage loans. It has entered into
an agreement by which it will provide the primary servicing for various risk
featured mortgage loans that had been acquired by Residential Funding. Ocwen
Federal is an approved HUD servicer. The home office of Ocwen Federal is in Fort
Lee, New Jersey, and its servicing operations are located at 1675 Palm Beach
Lakes Boulevard, West Palm Beach, Florida 33401. The major business of Ocwen
Federal is servicing performing and non-performing mortgage loan assets for both
securitized and whole loan portfolios. Ocwen Federal has acquired mortgage loan
portfolios from the Resolution Trust Corporation, private investors and HUD
through HUD's auction of defaulted FHA loans.
ADDITIONAL INFORMATION
The description in this Prospectus Supplement of the Mortgage Pool and the
Mortgaged Properties is based upon the Mortgage Pool as constituted at the close
of business on the Cut-off Date, as adjusted for the scheduled principal
payments due on or before such date. Prior to the issuance of the Class A
Certificates, Mortgage Loans may be removed from the Mortgage Pool as a result
of incomplete documentation or otherwise, if the Company deems such removal
necessary or appropriate. A limited number of other mortgage loans may be
included in the Mortgage Pool prior to the issuance of the Class A Certificates.
The Company believes that the information set forth herein will be substantially
representative of the characteristics of the Mortgage Pool as it will be
constituted at the time the Class A Certificates are issued, although the range
of Mortgage Rates and maturities and certain other characteristics of the
Mortgage Loans in the Mortgage Pool may vary.
A Current Report on Form 8-K, together with the Pooling and Servicing
Agreement, will be filed with the Securities and Exchange Commission within
fifteen days after the initial issuance of the Class A Certificates. In the
event Mortgage Loans are removed from or added to the Mortgage Pool as set forth
in the preceding paragraph, such removal or addition will be noted in the
Current Report on Form 8-K.
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DESCRIPTION OF THE CERTIFICATES
GENERAL
The Series 1997-KS4 Mortgage Pass-Through Certificates (the 'CERTIFICATES')
will consist of the following thirteen classes: (i) Class A-I-1 Certificates,
Class A-I-2 Certificates, Class A-I-3 Certificates, Class A-I-4 Certificates,
Class A-I-5 Certificates and Class A-I-6 Certificates (collectively, the 'CLASS
A-I CERTIFICATES'); (ii) Class A-II-1 Certificates and Class A-II-2 Certificates
(together, the 'CLASS A-II CERTIFICATES'); (iii) Class SB-I Certificates and
Class SB-II Certificates (together, the 'CLASS SB CERTIFICATES'); and (iv) Class
R-I Certificates, Class R-II Certificates and Class R-III Certificates
(collectively, the 'CLASS R CERTIFICATES' or the 'RESIDUAL CERTIFICATES'). The
Class A-I Certificates and Class A-II Certificates are referred to herein
collectively as the 'CLASS A CERTIFICATES.' Only the Class A Certificates are
offered hereby. See the 'Index of Principal Definitions' in the Prospectus for
the meanings of capitalized terms and acronyms not otherwise defined herein.
The Certificates in the aggregate will evidence the entire beneficial
ownership interest in the Trust Fund. The Trust Fund will consist of: (i) the
Mortgage Loans; (ii) such assets as from time to time are identified as
deposited in respect of the Mortgage Loans in the Custodial Account and in the
Certificate Account and belonging to the Trust Fund; (iii) property acquired by
foreclosure of such Mortgage Loans or deed in lieu of foreclosure; (iv) any
applicable Primary Insurance Policies and standard hazard insurance policies;
(v) the Policy; and (vi) all proceeds of the foregoing.
The Class A Certificates will be issued, maintained and transferred on the
book-entry records of DTC and its Participants. The Class A Certificates will be
issued in minimum denominations of $25,000 and integral multiples of $1 in
excess thereof.
The Class A Certificates will be represented by one or more certificates
registered in the name of the nominee of DTC. The Company has been informed by
DTC that DTC's nominee will be Cede & Co. ('CEDE'). No Beneficial Owner will be
entitled to receive a Definitive Certificate, except as set forth in the
Prospectus under 'Description of the Certificates -- Form of Certificates.'
Investors in the Class A Certificates may elect to hold their Class A
Certificates through DTC (in the United States) or CEDEL or Euroclear (in
Europe). 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 Depositaries, which in turn will hold such positions
in customers' securities accounts in the Depositaries' names on the books of
DTC. Unless and until Definitive Certificates are issued for the Class A
Certificates under the limited circumstances described herein, all references to
actions by Certificateholders with respect to the Class A Certificates shall
refer to actions taken by DTC upon instructions from its Participants, and all
references herein to distributions, notices, reports and statements to
Certificateholders with respect to the Class A Certificates shall refer to
distributions, notices, reports and statements to DTC or Cede, as the registered
holder of the Class A Certificates, for distribution to Beneficial Owners by DTC
in accordance with DTC procedures.
BOOK-ENTRY REGISTRATION
General. Beneficial Owners that are not Participants or Indirect
Participants but desire to purchase, sell or otherwise transfer ownership of, or
other interests in, the Class A Certificates may do so only through Participants
and Indirect Participants. In addition, Beneficial Owners will receive all
distributions of principal of and interest on the Class A Certificates from the
Paying Agent through DTC and Participants. Accordingly, Beneficial Owners may
experience delays in their receipt of payments. Unless and until Definitive
Certificates are issued for the Class A Certificates, it is anticipated that the
only registered Certificateholder of the Class A Certificates will be Cede, as
nominee of DTC. Beneficial Owners will not be recognized by the Trustee or the
Master Servicer as Certificateholders, as such term is used in the Pooling and
Servicing Agreement, and Beneficial Owners will be permitted to receive
information furnished to Certificateholders and to exercise the rights of
Certificateholders only indirectly through DTC, its Participants and Indirect
Participants.
Under the rules, regulations and procedures creating and affecting DTC and
its operations (the 'RULES'), DTC is required to make book-entry transfers of
Class A Certificates among Participants and to receive and transmit
distributions of principal of, and interest on, such Class A Certificates.
Participants and Indirect Participants with which Beneficial Owners have
accounts with respect to such Class A Certificates similarly are required to
make book-entry transfers and receive and transmit such distributions on behalf
of their respective
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Beneficial Owners. Accordingly, although Beneficial Owners will not possess
physical certificates evidencing their interests in the Class A Certificates,
the Rules provide a mechanism by which Beneficial Owners, through their
Participants and Indirect Participants, will receive distributions and will be
able to transfer their interests in the Class A Certificates. Transfers between
Participants will occur in accordance with the Rules. Transfers between CEDEL
Participants and Euroclear Participants will occur in accordance with their
respective rules and operating procedures.
None of the Company, the Master Servicer or the Trustee will have any
liability for any actions taken by DTC or its nominee, including, without
limitation, actions for any aspect of the records relating to or payments made
on account of beneficial ownership interests in the Class A Certificates held by
Cede, as nominee for DTC, or for maintaining, supervising or reviewing any
records relating to such beneficial ownership interests.
Definitive Certificates. Definitive Certificates will be issued to
Beneficial Owners or their nominees, respectively, rather than to DTC or its
nominee, only under the limited conditions set forth in the Prospectus under
'Description of the Certificates -- Form of Certificates.'
Upon the occurrence of an event described in the Prospectus in the fourth
paragraph under 'Description of the Certificates -- Form of Certificates,' the
Trustee is required to notify, through DTC, Participants who have ownership of
Class A Certificates as indicated on the records of DTC of the availability of
Definitive Certificates for their Class A Certificates. Upon surrender by DTC of
the definitive certificates representing the Class A Certificates and upon
receipt of instructions from DTC for re-registration, the Trustee will reissue
the Class A Certificates as Definitive Certificates issued in the respective
principal amounts owned by individual Beneficial Owners, and thereafter the
Trustee and the Master Servicer will recognize the holders of such Definitive
Certificates as Certificateholders under the Pooling and Servicing Agreement.
For additional information regarding DTC, Cedel and Euroclear and the Class
A Certificates, see 'Description of the Certificates -- Form of Certificates' in
the Prospectus.
MULTIPLE LOAN GROUP STRUCTURE
The Mortgage Loans in the Trust Fund consist of the Group I Loans and Group
II Loans, as described above under 'Description of the Mortgage Pool.'
Distributions of interest and principal on the Class A-I Certificates and Class
A-II Certificates will be based primarily on interest and principal received or
advanced with respect to the Group I Loans and Group II Loans, respectively;
however, the Loan Group I Excess Cash Flow will be available to pay amounts
related to Realized Losses allocated to the Class A-II Certificates, Group II
Cumulative Insurance Payments, Group II Prepayment Interest Shortfalls and Class
A-II Basis Risk Shortfalls and the Loan Group II Excess Cash Flow will be
available to pay amounts related to Realized Losses allocated to the Class A-I
Certificates, Group I Cumulative Insurance Payments, Group I Prepayment Interest
Shortfalls and Class A-I-1 Basis Risk Shortfalls, in each case in the manner and
to the extent described herein. See ' -- Interest Distributions', ' -- Principal
Distributions on the Class A Certificates' and ' -- Overcollateralization
Provisions' herein.
AVAILABLE DISTRIBUTION AMOUNT
The 'AVAILABLE DISTRIBUTION AMOUNT' for any Distribution Date will be
determined separately with respect to Loan Group I and Loan Group II, and in
each case will equal the sum of (i) the aggregate amount of scheduled payments
on the related Mortgage Loans due during the related Due Period and received on
or prior to the related Determination Date, after deduction of the related
master servicing fees and any related subservicing fees (collectively, the
'SERVICING FEES') and the premium payable on the Policy in respect of the
related Class A Certificates for such Distribution Date, (ii) certain
unscheduled payments, including Mortgagor prepayments on such Mortgage Loans,
Insurance Proceeds and Liquidation Proceeds from such Mortgage Loans and
proceeds from repurchases of and substitutions for such Mortgage Loans occurring
during the preceding calendar month and (iii) all Advances made for such
Distribution Date in respect of such Mortgage Loans, in each case net of amounts
reimbursable therefrom to the Master Servicer and any Sub-Servicer. In addition
to the foregoing amounts, with respect to unscheduled collections (other than
Mortgagor prepayments) on the Mortgage Loans in any Loan Group, the Master
Servicer may elect to treat such amounts as included in the related Available
Distribution Amount for the Distribution Date in the month of receipt, but is
not obligated to do so. Any such amount with respect to which such election is
so made shall be treated as having been received
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on the last day of the preceding calendar month for the purposes of calculating
the amount of principal and interest distributions to any class of Certificates.
With respect to any Distribution Date, (i) the 'DUE PERIOD' is the second day of
the calendar month immediately preceding the month in which such Distribution
Date occurs through the first day of the calendar month in which such
Distribution Date occurs and (ii) 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 immediately succeeding business day. The 'DUE DATE' with
respect to each Mortgage Loan is the date on which the monthly payment is due.
With respect to any Distribution Date and the Class A Certificates related
to any Loan Group, the amount of the premium payable to the Insurer with respect
to the Policy is equal to one-twelfth of the product of the percentage (the
'POLICY PREMIUM RATE') specified in the Insurance and Indemnity Agreement, dated
as of November 25, 1997, among the Insurer, the Company, the Trustee and the
Master Servicer (the 'INSURANCE AGREEMENT') and the aggregate Certificate
Principal Balance of the related Class A Certificates immediately prior to such
Distribution Date.
INTEREST DISTRIBUTIONS
On each Distribution Date, holders of the Class A-I Certificates will be
entitled to receive interest distributions (the 'CLASS A-I INTEREST DISTRIBUTION
AMOUNT') in an amount equal to the Accrued Certificate Interest (as defined
below) thereon for such Distribution Date to the extent of the Available
Distribution Amount for Loan Group I (other than the portion of the Available
Distribution Amount for Loan Group I that is attributable to principal paid on
or with respect to the Group I Loans) for such Distribution Date; provided, that
on any Distribution Date on which the amount of Prepayment Interest Shortfalls
with respect to Loan Group I for such Distribution Date exceeds the aggregate of
(a) Eligible Master Servicing Compensation derived from Loan Group I, (b)
Eligible Master Servicing Compensation derived from Loan Group II (to the extent
remaining after covering any Prepayment Interest Shortfalls with respect to Loan
Group II) and (c) Loan Group I Excess Cash Flow and Loan Group II Excess Cash
Flow available to offset such shortfalls on such Distribution Date, the
aggregate amount of any such differences (any such amount, a 'GROUP I PREPAYMENT
INTEREST SHORTFALL') allocable to the related class of Class A-I Certificates,
will not be included in the Class A-I Interest Distribution Amount. Any such
Group I Prepayment Interest Shortfalls will accrue interest at the related
Pass-Through Rate on the class of Class A-I Certificates to which such
shortfalls are allocated (as adjusted from time to time, in the case of the
Class A-I-1 Certificates) and will be paid (together with interest thereon) on
future Distribution Dates only to the extent of any Loan Group I Excess Cash
Flow and Loan Group II Excess Cash Flow available therefor on such Distribution
Dates.
On each Distribution Date, holders of the Class A-II Certificates will be
entitled to receive interest distributions (the 'CLASS A-II INTEREST
DISTRIBUTION AMOUNT' and, together with the Class A-I Interest Distribution
Amount, the 'INTEREST DISTRIBUTION AMOUNT') in an amount equal to the Accrued
Certificate Interest thereon for such Distribution Date to the extent of the
Available Distribution Amount for Loan Group II for such Distribution Date;
provided, that on any Distribution Date on which:
(i) Accrued Certificate Interest on the Class A-II Certificates
exceeds an amount equal to (a) one-twelfth of the aggregate Stated
Principal Balance of the Group II Loans multiplied by (b) the weighted
average of the Net Mortgage Rates on the Group II Loans as of the Due Date
immediately preceding the related Due Period (any such excess, the 'Class
A-II Basis Risk Shortfall'); or
(ii) the amount of Prepayment Interest Shortfalls with respect to Loan
Group II for such Distribution Date exceeds the aggregate of (a) Eligible
Master Servicing Compensation derived from Loan Group II, (b) Eligible
Master Servicing Compensation derived from Loan Group I (to the extent
remaining after covering any Prepayment Interest Shortfalls with respect to
Loan Group I) and (c) Loan Group II Excess Cash Flow and Loan Group I
Excess Cash Flow available to offset such shortfalls on such Distribution
Date (the 'Group II Prepayment Interest Shortfalls');
the aggregate amount of any such differences will not be included in the Class
A-II Interest Distribution Amount for such Distribution Date. Any such Class
A-II Basis Risk Shortfalls and Group II Prepayment Interest Shortfalls will
accrue interest at the related Pass-Through Rate on the class of Class A-II
Certificates to which such shortfalls are allocated (as adjusted from time to
time) and will be paid (together with interest thereon) on
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future Distribution Dates only to the extent of any Loan Group II Excess Cash
Flow and Loan Group I Excess Cash Flow available therefor on such Distribution
Dates.
The ratings assigned to the Class A Certificates do not address the
likelihood of the receipt of any amounts in respect of any Group I Prepayment
Interest Shortfalls, Group II Prepayment Interest Shortfalls or Class A-II Basis
Risk Shortfalls. The Policy will not cover any of such shortfalls and such
shortfalls may remain unpaid on the final Distribution Date. See
' -- Overcollateralization Provisions' and ' -- Certificate Guaranty Insurance
Policy' herein.
With respect to any class of Class A Certificates and any Distribution
Date, Accrued Certificate Interest will be equal to interest accrued during the
related Interest Accrual Period on the Certificate Principal Balance of the
Certificates of such class at the Pass-Through Rate on such class for such
Distribution Date, less interest shortfalls from the related Loan Group, if any,
allocated to such class for such Distribution Date, to the extent not covered
with respect to the Class A Certificates by the Subordination provided by the
related class of Class SB Certificates, including (i) the interest portions of
Realized Losses incurred by the related Loan Group including Special Hazard
Losses in excess of the related Special Hazard Amount ('EXCESS SPECIAL HAZARD
LOSSES'), Fraud Losses in excess of the related Fraud Amount ('EXCESS FRAUD
LOSSES'), Bankruptcy Losses in excess of the related Bankruptcy Amount ('EXCESS
BANKRUPTCY LOSSES') and losses occasioned by war, civil insurrection, certain
governmental actions, nuclear reaction and certain other risks ('EXTRAORDINARY
LOSSES') not allocated through Subordination, (ii) the interest portion of any
Advances with respect to the related Loan Group 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 (iii) any other interest shortfalls with respect to the related Loan Group
not covered by Subordination, including interest shortfalls relating to the
Relief Act or similar legislation or regulations, all allocated to the related
class or classes of Class A Certificates in accordance with the amounts of
Accrued Certificate Interest that would have accrued on such Certificates absent
such reduction; provided, however, that in the event that any shortfall
described in (i) or (ii) of this sentence is allocated to the Class A
Certificates, subject to the terms of the Policy, the amount of such allocated
shortfall will be drawn under the Policy and distributed to the holders of the
Class A Certificates. Notwithstanding the foregoing, if payments are not made as
required under the Policy, any such interest shortfalls may be allocated to the
Class A Certificates. See 'Description of the Certificates -- Certificates
Guaranty Insurance Policy.'
The Interest Accrual Period for the Class A-I Certificates (other than the
Class A-I-1 Certificates) is the calendar month preceding the month in which
such Distribution Date occurs. With respect to the Class A-I-1 Certificates and
Class A-II Certificates, the Interest Accrual Period shall be (i) with respect
to the Distribution Date in December 1997, the period commencing on the Delivery
Date and ending on the day preceding the Distribution Date in December 1997, and
(ii) with respect to any Distribution Date after the Distribution Date in
December 1997, the period commencing on the Distribution Date in the month
immediately preceding the month in which such Distribution Date occurs and
ending on the day preceding such Distribution Date. Interest will be calculated
on the basis of a 360-day year consisting of twelve 30-day months for the Class
A-I Certificates (other than the Class A-I-1 Certificates) and on the basis of
the actual number of days in the related Interest Accrual Period and a 360-day
year for the Class A-I-1 Certificates and Class A-II Certificates.
The Pass-Through Rates on the Class A-I Certificates (other than the Class
A-I-1 Certificates) are fixed and are set forth on the cover hereof; provided
that on any Distribution Date the Pass-Through Rate with respect to the Class
A-I-5 Certificates shall not exceed the weighted average of the Net Mortgage
Rates on the Group I Loans as of the Due Date immediately preceding the related
Due Period (the 'MAXIMUM CLASS A-I-5 RATE'). As of the Cut-off Date,
approximately 0.25% of the Group I Loans had Net Mortgage Rates that are lower
than the Pass-Through Rate with respect to the Class A-I-5 Certificates shown on
the cover hereof.
The Pass-Through Rate on the Class A-I-1 Certificates with respect to each
Distribution Date will be the per annum rate equal to One-Month LIBOR plus
0.14%. If on any Distribution Date, the product of (i) the Pass-Through Rate of
the Class A-I-1 Certificates and (ii) the Certificate Principal Balance thereof
exceeds the portion of the Available Distribution Amount available to pay
interest on the Class A-I-1 Certificates, the amount of such excess will be paid
by the Insurer pursuant to the terms of the Policy. Investors in the Class A-I-1
Certificates should be aware that proceeds of the Policy relating to Class A-I-1
Basis Risk Shortfalls may not be treated as 'interest on obligations secured by
mortgages on real property or on interests in real property' under Section
856(c)(3)(A) of the Code. See 'Certain Federal Income Tax Consequences' herein.
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The Pass-Through Rate on the Class A-II Certificates with respect to each
Distribution Date will be the per annum rate equal to the lesser of (i)
One-Month LIBOR plus the Applicable Group II Spread (as defined herein) with
respect to the related Class of Class A-II Certificates and (ii) a per annum
rate (the 'MAXIMUM GROUP II RATE') equal to (x)(1) one-twelfth of the aggregate
Stated Principal Balance of the Group II Loans multiplied by the weighted
average of the Maximum Net Mortgage Rates on such Mortgage Loans as of the Due
Date immediately preceding the related Due Period, divided by (2) the
Certificate Principal Balance of the Class A-II Certificates multiplied by (y)
360 divided by the actual number of days in the related Interest Accrual Period.
The 'APPLICABLE GROUP II SPREAD' for each Class of Class A-II Certificates is as
follows: (i) Class A-II-1, 0.22% per annum, or on any Distribution Date
following the Loan Group II Optional Termination Date, 0.44% per annum; and (ii)
Class A-II-2, 0.195% per annum, or on any Distribution Date following the Loan
Group II Optional Termination Date, 0.39% per annum.
The Pass-Through Rate on the Class A-I-1 Certificates and Class A-II
Certificates for the current and immediately preceding calendar month may be
obtained by telephoning the Trustee at (800) 524-9274.
With respect to any Distribution Date, any Prepayment Interest Shortfalls
on the Group I Loans during the preceding calendar month will be offset: (i)
first, by the Master Servicer, but only to the extent such Prepayment Interest
Shortfalls do not exceed Eligible Master Servicing Compensation derived from
Loan Group I; (ii) second, by the Master Servicer, but only to the extent such
Prepayment Interest Shortfalls do not exceed Eligible Master Servicing
Compensation derived from Loan Group II, and only to the extent remaining after
covering any Prepayment Interest Shortfalls with respect to Loan Group II; and
(iii) third, by Loan Group I Excess Cash Flow and Loan Group II Excess Cash Flow
available therefor for such Distribution Date. Any Prepayment Interest
Shortfalls with respect to Loan Group I not covered by clauses (i), (ii) and
(iii) of the previous sentence for the related Distribution Date will be Group I
Prepayment Interest Shortfalls and will be allocated to each class of Class A-I
Certificates on a pro rata basis based on the amount of Accrued Certificate
Interest on each such class otherwise payable on such Distribution Date.
With respect to any Distribution Date, any Prepayment Interest Shortfalls
on the Group II Loans during the preceding calendar month will be offset: (i)
first, by the Master Servicer, but only to the extent such Prepayment Interest
Shortfalls do not exceed Eligible Master Servicing Compensation derived from
Loan Group II; (ii) second, by the Master Servicer, but only to the extent such
Prepayment Interest Shortfalls do not exceed Eligible Master Servicing
Compensation derived from Loan Group I, and only to the extent remaining after
covering any Prepayment Interest Shortfalls with respect to Loan Group I; and
(iii) third, by Loan Group II Excess Cash Flow and Loan Group I Excess Cash Flow
available therefor for such Distribution Date. Any Prepayment Interest
Shortfalls with respect to Loan Group II not covered by clauses (i), (ii) and
(iii) of the previous sentence for the related Distribution Date will be Group
II Prepayment Interest Shortfalls and will be allocated to each class of Class
A-II Certificates on a pro rata basis based on the amount of Accrued Certificate
Interest on each such class otherwise payable on such Distribution Date.
With respect to each Loan Group, 'ELIGIBLE MASTER SERVICING COMPENSATION'
shall be an amount equal to the lesser of (a) one-twelfth of 0.125% of the
Stated Principal Balance (as defined herein) of the Mortgage Loans in the
related Loan Group immediately preceding such Distribution Date and (b) the sum
of the master servicing fee payable to the Master Servicer in respect of its
master servicing activities and reinvestment income received by the Master
Servicer on amounts payable with respect to such Distribution Date with respect
to such Loan Group.
The Prepayment Interest Shortfall for any Distribution Date and each Loan
Group is equal to the aggregate shortfall, if any, in collections of interest
resulting from Mortgagor prepayments on the Mortgage Loans in the related Loan
Group 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 in part are applied to reduce the outstanding principal balance of
the related Mortgage Loans as of the Due Date immediately preceding the date of
prepayment. No assurance can be given that the amounts available to cover
Prepayment Interest Shortfalls will be sufficient therefor. See
' -- Overcollateralization Provisions' and 'The Pooling and Servicing
Agreement -- Servicing and Other Compensation and Payment of Expenses' herein.
The 'CERTIFICATE PRINCIPAL BALANCE' of any Class A 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 (including such amounts
paid pursuant to the
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Policy) 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 (other than any amounts that have been paid pursuant to
the Policy). The Certificate Principal Balance of each of the Class SB
Certificates, as of any date of determination, is equal to the excess, if any,
of (a) the then aggregate Stated Principal Balance (as defined herein) of the
Mortgage Loans in the related Loan Group over (b) the then aggregate Certificate
Principal Balance of the Class A-I Certificates or Class A-II Certificates, as
applicable.
DETERMINATION OF ONE-MONTH LIBOR
The Pass-Through Rate on the Class A-I-1 Certificates and Class A-II
Certificates for any Interest Accrual Period, including the initial Interest
Accrual Period, will be determined on the second LIBOR Business Day immediately
prior to the commencement of such Interest Accrual Period (each, a 'LIBOR RATE
ADJUSTMENT DATE').
On each LIBOR Rate Adjustment Date, One-Month LIBOR shall be established by
the Trustee and, as to any Interest Accrual Period, will equal the rate for one
month United States dollar deposits that appears on the Telerate Screen Page
3750 as of 11:00 a.m., London time, on such LIBOR Rate Adjustment Date.
'TELERATE SCREEN PAGE 3750' means the display designated as page 3750 on the
Telerate Service (or such other page as may replace page 3750 on that service
for the purpose of displaying London interbank offered rates of major banks). If
such rate does not appear on such page (or such other page as may replace that
page on that service, or if such service is no longer offered, such other
service for displaying One-Month LIBOR or comparable rates as may be selected by
the Trustee after consultation with the Master Servicer), the rate will be the
Reference Bank Rate. The 'REFERENCE BANK RATE' will be determined on the basis
of the rates at which deposits in U.S. Dollars are offered by the reference
banks (which shall be three major banks that are engaged in transactions in the
London interbank market, selected by the Trustee after consultation with the
Master Servicer) as of 11:00 a.m., London time, on the LIBOR Rate Adjustment
Date to prime banks in the London interbank market for a period of one month in
amounts approximately equal to the Certificate Principal Balance of the Class
A-I-1 Certificates and Class A-II Certificates then outstanding. The Trustee
will request the principal London office of each of the reference banks to
provide a quotation of its rate. If at least two such quotations are provided,
the rate will be the arithmetic mean of the quotations. If on such date fewer
than two quotations are provided as requested, the rate will be the arithmetic
mean of the rates quoted by one or more major banks in New York City, selected
by the Trustee after consultation with the Master Servicer, as of 11:00 a.m.,
New York City time, on such date for loans in U.S. Dollars to leading European
banks for a period of one month in amounts approximately equal to the
Certificate Principal Balance of the Class A-I-1 Certificates and Class A-II
Certificates then outstanding. If no such quotations can be obtained, the rate
will be One-Month LIBOR for the prior Distribution Date. 'LIBOR BUSINESS DAY'
means any day other than (i) a Saturday or a Sunday or (ii) a day on which
banking institutions in the city of London, England are required or authorized
by law to be closed.
The establishment of One-Month LIBOR by the Trustee and the Trustee's
subsequent calculation of the Pass-Through Rate applicable to the Class A-I-1
Certificates and Class A-II Certificates for the relevant Interest Accrual
Period, in the absence of manifest error, will be final and binding.
PRINCIPAL DISTRIBUTIONS ON THE CLASS A CERTIFICATES
Holders of each of the Class A-I Certificates and Class A-II Certificates
will be entitled to receive on each Distribution Date, to the extent of the
portion of the related Available Distribution Amount remaining after the related
Interest Distribution Amount is distributed, a distribution allocable to
principal, determined separately for the Class A-I Certificates and the Class
A-II Certificates, equal to the applicable Principal Distribution Amount. The
'PRINCIPAL DISTRIBUTION AMOUNT' for the Class A-I Certificates and the Class
A-II Certificates for any Distribution Date will be the lesser of:
(a) the excess of (i) the related Available Distribution Amount over
(ii) the related Interest Distribution Amount; and
(b) the sum of:
(i) the principal portion of all scheduled monthly payments on the
Mortgage Loans in the related Loan Group received or Advanced (as
defined herein) with respect to the related Due Period;
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(ii) the principal portion of all proceeds of the repurchase of
Mortgage Loans in the related Loan Group (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;
(iii) the principal portion of all other unscheduled collections
received on the Mortgage Loans in the related Loan Group during the
preceding calendar month (or deemed to be received during the preceding
calendar month) (including, without limitation, full and partial
Principal Prepayments made by the respective Mortgagors), to the extent
not distributed in the preceding month;
(iv) the principal portion of any Realized Losses incurred (or
deemed to have been incurred) on any Mortgage Loans in the related Loan
Group in the calendar month preceding such Distribution Date to the
extent covered by Loan Group I Excess Cash Flow for such Distribution
Date (in the case of Realized Losses incurred on Group I Loans) or to
the extent covered by Loan Group II Excess Cash Flow for such
Distribution Date (in the case of Realized Losses incurred on Group II
Loans) or by the Excess Cash Flow from the other Loan Group, in each
case to the extent described under ' -- Overcollateralization
Provisions' below; and
(v) the amount of any related Subordination Increase Amount (as
defined herein) for such Distribution Date;
minus
(vi) the amount of any related Subordination Reduction Amount (as
defined herein) for such Distribution Date.
In no event will the Principal Distribution Amount with respect to a Loan
Group and any Distribution Date be (x) less than zero or (y) greater than the
then outstanding Certificate Principal Balance of the related Class A
Certificates.
Distributions of the Principal Distribution Amount for Loan Group I to the
Class A-I Certificates on each Distribution Date will be made as follows:
(i) first, to the Class A-I-6 Certificates, in an amount equal to the
Class A-I-6 Lockout Distribution Amount for such Distribution Date, until
the Certificate Principal Balance of the Class A-I-6 Certificates has been
reduced to zero; and
(ii) second, the amount remaining, as follows:
(a) first, to the Class A-I-1 Certificates, until the Certificate
Principal Balance thereof has been reduced to zero;
(b) second, to the Class A-I-2 Certificates, until the Certificate
Principal Balance thereof has been reduced to zero;
(c) third, to the Class A-I-3 Certificates, until the Certificate
Principal Balance thereof has been reduced to zero;
(d) fourth, to the Class A-I-4 Certificates, until the Certificate
Principal Balance thereof has been
reduced to zero;
(e) fifth, to the Class A-I-5 Certificates, until the Certificate
Principal Balance thereof has been reduced to zero; and
(f) sixth, to the Class A-I-6 Certificates, until the Certificate
Principal Balance thereof has been reduced to zero.
The 'CLASS A-I-6 LOCKOUT DISTRIBUTION AMOUNT' for any Distribution Date
will be the product of (i) the Class A-I-6 Lockout Percentage for such
Distribution Date and (ii) the Class A-I-6 Lockout Pro Rata Distribution Amount
for such Distribution Date.
The 'CLASS A-I-6 LOCKOUT PERCENTAGE' for each Distribution Date shall be as
follows:
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<TABLE>
<CAPTION>
LOCKOUT
PAYMENT DATES PERCENTAGE
- ----------------------------------------------------------------------- -----------
<S> <C>
December 1997 through November 2000.................................... 0%
December 2000 through November 2002.................................... 45
December 2002 through November 2003.................................... 80
December 2003 through November 2004.................................... 100
December 2004 and thereafter........................................... 300
</TABLE>
In no event shall the Class A-I-6 Lockout Distribution Amount for a
Distribution Amount for a Distribution Date exceed the Principal Distribution
Amount for Loan Group I for such Distribution Date.
The 'CLASS A-I-6 LOCKOUT PRO RATA DISTRIBUTION AMOUNT' for any Distribution
Date will be an amount equal to the product of (x) a fraction, the numerator of
which is the Certificate Principal Balance of the Class A-I-6 Certificates
immediately prior to such Distribution Date and the denominator of which is the
aggregate Certificate Principle Balance of the Class A-I Certificates
immediately prior to such Distribution Date and (y) the Principal Distribution
Amount with respect to Loan Group I for such Distribution Date.
The Principal Distribution Amount with respect to Loan Group II will be
distributed on each Distribution Date concurrently to the Class A-II-1
Certificates and Class A-II-2 Certificates on a pro rata basis in accordance
with the percentage of the amounts described in clauses (b)(i) - (iii) of the
definition of Principal Distribution Amount derived from the related Sub-Group
of Loan Group II, in each case until the Certificate Principal Balance of either
such class has been reduced to zero and thereafter shall be distributed to the
remaining class of Class A-II Certificates until the Certificate Principal
Balance thereof has been reduced to zero.
The Sub-Group of Group II Loans ('SUB-GROUP II-A')corresponding to the
Class A-II-1 Certificates shall consist of the Group II Loans that do not
correspond to the Class A-II-2 Certificates. The Sub-Group of Group II Loans
('SUB-GROUP II-B') corresponding to the Class A-II-2 Certificates shall consist
of the Group II Loans described in the table entitled 'Sub-Group II-B Loans' set
forth herein under 'Description of the Mortgage Pool -- Group II Loans.'
Sub-Group II-A and Sub-Group II-B are each referred to herein as a 'SUB-GROUP.'
On each Distribution Date, the Insurer shall be entitled to receive, (i)
after payment to the Class A-I Certificateholders of the Interest Distribution
Amount and the Principal Distribution Amount for such Certificates for such
Distribution Date (but before application of any Subordination Increase Amount),
from the Loan Group I Excess Cash Flow and Loan Group II to the extent available
therefor, the aggregate of any payment made with respect to the Class A-I
Certificates ('GROUP I CUMULATIVE INSURANCE PAYMENTS') by the Insurer under the
Policy to the extent not previously reimbursed, plus interest thereon and (ii)
after payment to the Class A-II Certificateholders of the Interest Distribution
Amount and the Principal Distribution Amount for such Certificates for such
Distribution Date (but before application of any Subordination Increase Amount),
from the Loan Group II Excess Cash Flow, and Loan Group I, Excess Cash Flow from
the other Loan Group to the extent available therefor, the aggregate of any
payment made with respect to the Class A-II Certificates ('GROUP II CUMULATIVE
INSURANCE PAYMENTS') by the Insurer under the Policy to the extent not
previously reimbursed, plus interest thereon.
OVERCOLLATERALIZATION PROVISIONS
Loan Group I. The Pooling and Servicing Agreement requires that, on each
Distribution Date, Loan Group I Excess Cash Flow, if any, be applied on such
Distribution Date as an accelerated payment of principal on the Class A-I
Certificates, but only in the manner and to the extent hereafter described.
'LOAN GROUP I EXCESS CASH FLOW' for a Distribution Date is equal to the excess
of (x) the Available Distribution Amount for the Group I Loans for such
Distribution Date over (y) the sum of (i) the Class A-I Interest Distribution
Amount for such Distribution Date and (ii) the sum of the amounts relating to
the Group I Loans described in clauses (b)(i)-(iii) of the definition of
Principal Distribution Amount. The Loan Group I Excess Cash Flow for any
Distribution Date will derive primarily from the amount of interest accrued on
the Group I Loans in excess of the sum of (a) interest at the related
Pass-Through Rates on the Certificate Principal Balances of the Class A-I
Certificates, (b) the premium payable on the Policy in respect of the Group I
Loans and (c) accrued Servicing Fees in respect of the Group I Loans, in each
case in respect of such Distribution Date. Loan Group I Excess Cash Flow will be
applied on any Distribution Date first, to pay to the holders of the Class A-I
Certificates the principal portion of Realized Losses incurred on the Group I
Loans for the preceding calendar month; second, to
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pay to the holders of the Class A-II Certificates the principal portion of any
Realized Losses on the Group II Loans for the preceding calendar month to the
extent not covered by the Loan Group II Excess Cash Flow (in the case of the
first and second clauses, subject to the limitations with respect to Special
Hazard Losses, Fraud Losses, Bankruptcy Losses and Extraordinary Losses as
described herein); third, to pay to the Insurer any Group I Cumulative Insurance
Payments; fourth, to pay to the Insurer any Group II Cumulative Insurance
Payments (to the extent not covered by the Loan Group II Excess Cash Flow);
fifth, to pay any Subordination Increase Amount with respect to Loan Group I;
sixth, to pay the holders of the Class A-I Certificates the amount of any
Prepayment Interest Shortfalls allocated thereto with respect to the Group I
Loans, to the extent not covered by Eligible Master Servicing Compensation on
such Distribution Date; seventh, to pay to the holders of the Class A-II
Certificates the amount of any Prepayment Interest Shortfalls allocated thereto
with respect to the Group II Loans, to the extent not covered by Eligible Master
Servicing Compensation and Loan Group II Excess Cash Flow on such Distribution
Date; eighth, to pay the holders of the Class A-I Certificates any Group I
Prepayment Interest Shortfalls remaining unpaid from prior Distribution Dates
together with interest thereon; ninth, to pay the Class A-II Certificates any
Group II Prepayment Interest Shortfalls remaining unpaid from prior Distribution
Dates together with interest thereon (to the extent not covered by the Loan
Group II Excess Cash Flow); tenth, to pay to the holders of the Class A-II
Certificates the amount of any Class A-II Basis Risk Shortfalls remaining unpaid
with respect to prior Distribution Dates, together with interest thereon to the
extent not covered by Loan Group II Excess Cash Flow, and eleventh, to pay to
the holders of the Class SB Certificates and Class R Certificates any balance
remaining, in accordance with the terms of the Pooling and Servicing Agreement.
The application of Loan Group I Excess Cash Flow to the payment of principal on
the Class A-I Certificates has the effect of accelerating the amortization of
the Class A-I Certificates relative to the amortization of the Group I Loans.
With respect to any Distribution Date, the excess, if any, of (a) the
aggregate Stated Principal Balances of the Group I Loans after giving effect to
distributions of principal to be made on such Distribution Date over (b) the
Certificate Principal Balance of the Class A-I Certificates as of such date
(after taking into account the payment to the Class A-I Certificates of the
amounts described in clauses (b)(i)-(iv) of the definition of Principal
Distribution Amount on such Distribution Date) is the 'SUBORDINATED AMOUNT' for
Loan Group I as of such Distribution Date. The Pooling and Servicing Agreement
requires that the Loan Group I Excess Cash Flow, to the extent available
therefor as described above, will be applied as an accelerated payment of
principal on the Class A-I Certificates to the extent that the Targeted
Subordinated Amount for Loan Group I exceeds the applicable Subordinated Amount
as of such Distribution Date. Any amount of Loan Group I Excess Cash Flow
actually applied as an accelerated payment of principal on the Class A-I
Certificates is a 'SUBORDINATION INCREASE AMOUNT' for Loan Group I. The required
level of the Subordinated Amount for Loan Group I with respect to a Distribution
Date is the 'TARGETED SUBORDINATED AMOUNT' for Loan Group I with respect to such
Distribution Date. The Targeted Subordinated Amount for Loan Group I will be
equal to approximately 1.00% of the initial Stated Principal Balance of the
Group I Loans as of the Cut-off Date until the later to occur of (a) the
Distribution Date in May 2000 and (b) the first Distribution Date on which the
Stated Principal Balance of the Group I Loans is equal to or less than 50% of
the Stated Principal Balance of the Group I Loans as of the Cut-off Date.
Thereafter, subject to certain loss and delinquency triggers relating to the
performance of the Mortgage Pool and reimbursements of Group I Cumulative
Insurance Payments and Group II Cumulative Insurance Payments to the Insurer,
the Targeted Subordinated Amount for Loan Group I with respect to a Distribution
Date will be the greater of (a) as set forth in the Pooling and Servicing
Agreement, at least 2.00% of the Stated Principal Balance of the Group I Loans
immediately preceding such Distribution Date, and (b) the minimum amount
specified in the Pooling and Servicing Agreement.
Loan Group II. The Pooling and Servicing Agreement requires that, on each
Distribution Date, Loan Group II Excess Cash Flow, if any, be applied on such
Distribution Date as an accelerated payment of principal on the Class A-II
Certificates, but only in the manner and to the extent hereafter described.
'LOAN GROUP II EXCESS CASH FLOW' for a Distribution Date is equal to the excess
of (x) the Available Distribution Amount for the Group II Loans for such
Distribution Date over (y) the sum of (i) the Class A-II Interest Distribution
Amount for such Distribution Date and (ii) the sum of the amounts relating to
the Group II Loans described in clauses (b)(i)-(iii) of the definition of
Principal Distribution Amount. The Loan Group II Excess Cash Flow for any
Distribution Date will derive primarily from the amount of interest accrued on
the Group II Loans in excess of the sum of (a) interest at the related
Pass-Through Rates on the Certificate Principal Balances of the Class A-II
Certificates, (b) the premium payable on the Policy in respect of the Group II
Loans and (c) accrued Servicing
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Fees in respect of the Group II Loans, in each case in respect of such
Distribution Date. Loan Group II Excess Cash Flow will be applied on any
Distribution Date first, to pay to the holders of the Class A-II Certificates
the principal portion of Realized Losses incurred on the Group II Loans for the
preceding calendar month; second, to pay to the holders of the Class A-I
Certificates the principal portion of any Realized Losses on the Group I Loans
for the preceding calendar month to the extent not covered by the Loan Group I
Excess Cash Flow (in the case of the first and second clauses, subject to the
limitations with respect to Special Hazard Losses, Fraud Losses, Bankruptcy
Losses and Extraordinary Losses as described herein); third, to pay to the
Insurer any Group II Cumulative Insurance Payments; fourth, to pay to the
Insurer any Group I Cumulative Insurance Payments (to the extent not covered by
the Loan Group I Excess Cash Flow); fifth, to pay any Subordination Increase
Amount with respect to Loan Group II; sixth, to pay the holders of the Class
A-II Certificates the amount of any Prepayment Interest Shortfalls allocated
thereto with respect to the Group II Loans, to the extent not covered by
Eligible Master Servicing Compensation on such Distribution Date; seventh, to
pay to the holders of the Class A-I Certificates the amount of any Prepayment
Interest Shortfalls allocated thereto with respect to the Group I Loans, to the
extent not covered by Eligible Master Servicing Compensation and Loan Group I
Excess Cash Flow on such Distribution Date; eighth, to pay the holders of the
Class A-II Certificates any Group II Prepayment Interest Shortfalls remaining
unpaid from prior Distribution Dates together with interest thereon; ninth, to
pay the Class A-I Certificates any Group I Prepayment Interest Shortfalls
remaining unpaid from prior Distribution Dates together with interest thereon
(to the extent not covered by the Loan Group I Excess Cash Flow); tenth, to pay
to the holders of the Class A-II Certificates the amount of any Class A-II Basis
Risk Shortfalls remaining unpaid with respect to previous Distribution Dates,
together with interest thereon, and eleventh, to pay to the holders of the Class
SB Certificates and Class R Certificates any balance remaining, in accordance
with the terms of the Pooling and Servicing Agreement. The application of Loan
Group II Excess Cash Flow to the payment of principal on the Class A-II
Certificates has the effect of accelerating the amortization of the Class A-II
Certificates relative to the amortization of the Group II Loans.
With respect to any Distribution Date, the excess, if any, of (a) the
aggregate Stated Principal Balances of the Group II Loans after giving effect to
distributions of principal to be made on such Distribution Date over (b) the
Certificate Principal Balance of the Class A-II Certificates as of such date
(after taking into account the payment to the Class A-II Certificates of the
amounts described in clauses (b)(i)-(iv) of the definition of Principal
Distribution Amount on such Distribution Date) is the 'SUBORDINATED AMOUNT' for
Loan Group II as of such Distribution Date. The Pooling and Servicing Agreement
requires that the Loan Group II Excess Cash Flow, to the extent available
therefor as described above, will be applied as an accelerated payment of
principal on the Class A-II Certificates to the extent that the Targeted
Subordinated Amount for Loan Group II exceeds the applicable Subordinated Amount
as of such Distribution Date. Any amount of Loan Group II Excess Cash Flow
actually applied as an accelerated payment of principal on the Class A-II
Certificates is a 'SUBORDINATION INCREASE AMOUNT' for Loan Group II. The
required level of the Subordinated Amount for Loan Group II with respect to a
Distribution Date is the 'TARGETED SUBORDINATED AMOUNT' for Loan Group II with
respect to such Distribution Date. The Targeted Subordinated Amount for Loan
Group II will be equal to approximately 2.00% of the initial Stated Principal
Balance of the Group II Loans as of the Cut-off Date until the later to occur of
(a) the Distribution Date in May 2000 and (b) the first Distribution Date on
which the Stated Principal Balance of the Group II Loans is equal to or less
than 50% of the Stated Principal Balance of the Group II Loans as of the Cut-off
Date. Thereafter, subject to certain loss and delinquency triggers relating to
the performance of the Mortgage Pool and reimbursements of Group I Cumulative
Insurance Payments and Group II Cumulative Insurance Payments to the Insurer,
the Targeted Subordinated Amount for Loan Group II with respect to a
Distribution Date will be equal to the greater of (a) as set forth in the
Pooling and Servicing Agreement, at least 4.00% of the Stated Principal Balance
of the Group II Loans immediately preceding such Distribution Date, and (b) the
minimum amount specified in the Pooling and Servicing Agreement.
Subordination Reduction Amount. In the event that the Targeted Subordinated
Amount for a Loan Group is permitted to decrease or 'step down' on a
Distribution Date in the future, a portion of the principal that would otherwise
be distributed to the holders of the related class or classes of Class A
Certificates on such Distribution Date shall not be distributed to the holders
of the Class A Certificates on such Distribution Date. This has the effect of
decelerating principal distributions to the applicable Class A Certificates
relative to the amortization of the Mortgage Loans in the related Loan Group,
and of reducing the applicable Subordinated Amount. With respect to any
Distribution Date and a Loan Group, the excess, if any, of (a) the Subordinated
Amount on such Distribution Date for a Loan Group over (b) the Targeted
Subordinated Amount for the Loan Group is the
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'EXCESS SUBORDINATED AMOUNT' with respect to such Distribution Date. If, on any
Distribution Date, the Excess Subordinated Amount for a Loan Group is, or, after
taking into account all other distributions to be made on such Distribution Date
would be, greater than zero (i.e., the Subordinated Amount is or would be
greater than the related Targeted Subordinated Amount), then any amounts
relating to principal which would otherwise be distributed to the holders of the
related class or classes of Class A Certificates on such Distribution Date shall
instead be distributed to the holders of the related Class SB Certificates in an
amount equal to the lesser of (x) the related Excess Subordinated Amount and (y)
the amount available for distribution specified in clauses (b)(i)-(iii) of the
definition of Principal Distribution Amount on such Distribution Date; such
amount being the 'SUBORDINATION REDUCTION AMOUNT' for such Distribution Date for
the related Loan Group.
CERTIFICATE GUARANTY INSURANCE POLICY
The following summary of the terms of the Policy does not purport to be
complete and is qualified in its entirety by reference to the Policy. The
following information regarding the Policy has been supplied by the Insurer for
inclusion herein.
The Insurer, in consideration of the payment of the premium and subject to
the terms of the Policy, thereby unconditionally and irrevocably guarantees to
any Holder (as defined below) that an amount equal to each full and complete
Insured Amount will be paid to the Trustee or its successor, as trustee for the
Holders. The Insurer's obligations under the Policy with respect to a particular
Insured Amount shall be discharged to the extent funds equal to the applicable
Insured Amount are received by the Trustee, whether or not such funds are
properly applied by the Trustee. Insured Amounts shall be paid only at the time
set forth in the Policy, and no accelerated Insured Amounts shall be paid
regardless of any acceleration of the Class A Certificates, unless such
acceleration is at the sole option of the Insurer. The Policy does not cover any
interest shortfalls relating to the Relief Act, Group I Prepayment Interest
Shortfalls, Group II Prepayment Interest Shortfalls or Class A-II Basis Risk
Shortfalls.
Notwithstanding the foregoing paragraph, the Policy does not cover
shortfalls, if any, attributable to the liability of the Trust Fund, any REMIC
or the Trustee for withholding taxes, if any (including interest and penalties
in respect of any such liability).
The Insurer will pay any amounts payable under the Policy no later than
12:00 noon, New York City time, on the later of the Distribution Date on which
the related Deficiency Amount (as defined below) is due or the Business Day
following receipt in New York, New York on a Business Day of a Notice (as
described below); provided that if such Notice is received after 12:00 noon, New
York City time, on such Business Day, it will be deemed to be received on the
following Business Day. If any such Notice received is not in proper form or is
otherwise insufficient for the purpose of making a claim under the Policy it
shall be deemed not to have been received for purposes of this paragraph, and
the Insurer shall promptly so advise the Trustee and the Trustee may submit an
amended Notice.
Insured Amounts due under the Policy, unless otherwise stated therein, are
to be disbursed by the Insurer to the Trustee on behalf of the Holders by wire
transfer of immediately available funds in the amount of the Insured Amount.
As used in this section and in the Policy, the following terms shall have
the following meanings:
'AGREEMENT' means the Pooling and Servicing Agreement, dated as of November
1, 1997, among the Company, Residential Funding and the Trustee, without regard
to any amendment or supplement thereto unless such amendment or supplement has
been approved in writing by the Insurer.
'BUSINESS DAY' means any day other than a Saturday, a Sunday or a day on
which banking institutions in New York City or in the city in which the
corporate trust office of the Trustee under the Agreement or the Insurer is
located are authorized or obligated by law or executive order to close.
'DEFICIENCY AMOUNT' means, with respect to the Class A Certificates as of
any Distribution Date, (i) any shortfall in amounts available in the Certificate
Account to pay interest accrued during the related Interest Accrual Period on
the Certificate Principal Balance of the Class A Certificates at the applicable
Pass-Through Rate, net of any interest shortfalls relating to the Relief Act and
any Group I Prepayment Interest Shortfalls, Class A-II Basis Risk Shortfalls and
Group II Prepayment Interest Shortfalls allocated to the Class A Certificates,
(ii) the principal portion of any Realized Loss allocated to the Class A
Certificates and (iii) the
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Certificate Principal Balance of the Class A Certificates to the extent unpaid
on the final Distribution Date or earlier termination of the Trust Fund pursuant
to the terms of the Agreement.
'HOLDER' means any person who is the registered or beneficial owner of any
Class A Certificate and who, on the applicable Distribution Date, is entitled
under the terms of the Class A Certificates to payment thereunder.
'INSURED AMOUNT' means, as of any Distribution Date, any Deficiency Amount.
'NOTICE' means the telephonic or telegraphic notice, promptly confirmed in
writing by telecopy substantially in the form of Exhibit A attached to the
Policy, the original of which is subsequently delivered by registered or
certified mail from the Trustee specifying the Insured Amount which shall be due
and owing on the applicable Distribution Date.
Capitalized terms used in the Policy and not otherwise defined in the
Policy shall have the respective meanings set forth in the Agreement as of the
date of execution of the Policy, without giving effect to any subsequent
amendment to or modification of the Agreement unless such amendment or
modification has been approved in writing by the Insurer.
The Policy is being issued under and pursuant to and shall be construed
under, the laws of the State of Illinois, without giving effect to the conflict
of laws principles thereof.
The insurance provided by the Policy is not covered by the
Property/Casualty Insurance Security Fund specified in Article 76 of the New
York Insurance Law.
The Policy is not cancelable for any reason. The premium on the Policy is
not refundable for any reason including payment, or provision being made for
payment, prior to maturity of the Class A Certificates.
ALLOCATION OF LOSSES; SUBORDINATION
Subject to the terms of the Policy, the Policy will cover all Realized
Losses allocated to the Class A Certificates. Notwithstanding the foregoing, if
payments are not made as required under the Policy, Realized Losses will be
allocable to the Class A Certificates based on the following priorities.
The Subordination provided to (i) the related Class A Certificates by the
related Class SB Certificates will cover Realized Losses on the Mortgage Loans
that are Defaulted Mortgage Losses, Fraud Losses, Bankruptcy Losses (each as
defined in the Prospectus) and Special Hazard Losses (as defined herein),
subject to the limitations set forth below and in the Pooling and Servicing
Agreement. Any Realized Losses that are not Excess Special Hazard Losses, Excess
Fraud Losses, Excess Bankruptcy Losses or Extraordinary Losses will be
allocated, first, to the Loan Group I Excess Cash Flow for the related
Distribution Date in the case of Realized Losses on Group I Loans and to the
Loan Group II Excess Cash Flow for the related Distribution Date in the case of
Realized Losses on Group II Loans; second, to the Loan Group II Excess Cash Flow
(to the extent remaining after covering Realized Losses on the Group II Loans)
for the related Distribution Date in the case of Realized Losses on Group I
Loans and to the Loan Group I Excess Cash Flow (to the extent remaining after
covering Realized Losses on the Group I Loans) for the related Distribution Date
in the case of Realized Losses on Group II Loans; third, to the Class SB
Certificates up to an amount equal to the excess, if any, of (x) the then
aggregate Stated Principal Balance of the Mortgage Loans over (y) the then
aggregate Certificate Principal Balance of the Class A Certificates; provided
that the allocation of Realized Losses to Excess Cash Flow and the Class SB
Certificates as described in clauses first, second, and third above is subject
to the limitations set forth in the Pooling and Servicing Agreement; and fourth,
in the case of a Realized Loss on a Group I Loan, among all the Class A-I
Certificates (on a pro rata basis), and in the case of a Realized Loss on a
Group II Loan, between the Class A-II Certificates (on a pro rata basis). The
interest portion of any such Realized Loss will be allocated on any Distribution
Date among the related Class A Certificates on a pro rata basis in accordance
with the amount of Accrued Certificate Interest payable from the related Loan
Group for such Distribution Date. The principal portion of such a Realized Loss
will be allocated on any Distribution Date among the related classes of Class A
Certificates on a pro rata basis in accordance with their respective outstanding
Certificate Principal Balances prior to giving effect to distributions to be
made on such Distribution Date.
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, in each
case until the Certificate Principal Balance of such class has been reduced to
zero, and the Accrued
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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 may be made by
operation of the payment priority to the Senior Certificates set forth under
' -- Principal Distributions on the Class A 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. As
used herein, 'SPECIAL HAZARD LOSSES' has the same meaning set forth in the
Prospectus, except that Special Hazard Losses will not include Extraordinary
Losses, and Special Hazard Losses will not exceed the lesser of the cost of
repair or replacement of the related Mortgaged Properties.
As described in the Prospectus, under certain circumstances the Master
Servicer may permit the modification of a defaulted Mortgage Loan to reduce the
applicable Mortgage Rate or to reduce the outstanding principal amount thereof
(a 'SERVICING MODIFICATION'). Any such principal reduction shall constitute a
Realized Loss at the time of such reduction, and the amount by which each
Monthly Payment is reduced by any such Mortgage Rate reduction shall constitute
a Realized Loss in the month in which each such reduced Monthly Payment is due.
Servicing Modification reductions shall be allocated when incurred (as provided
above) in the same manner as other Realized Losses as described herein. Any
Advances made on any Mortgage Loan will be reduced to reflect any related
Servicing Modifications previously made. As used herein, the Mortgage Rate,
Maximum Net Mortgage Rate and Net Mortgage as to any Mortgage Loan will not be
reduced by any Servicing Modification.
Any Excess Special Hazard Losses, Excess Fraud Losses, Excess Bankruptcy
Losses, Extraordinary Losses or other losses of a type not covered by
Subordination (collectively, 'EXCESS LOSSES') with respect to each Loan Group
will be allocated to the related Class A Certificates on a pro rata basis and in
an aggregate amount equal to the percentage of such loss equal to the then
aggregate Certificate Principal Balance of the related Class A Certificates
divided by the then aggregate Stated Principal Balance of the Mortgage Loans in
the related Loan Group, in each case subject to the limitations set forth in the
Pooling and Servicing Agreement, and the remainder of such Realized Losses will
be allocated to the related Class SB Certificates. 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 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
date of liquidation, after application of all amounts recovered (net of amounts
reimbursable to the Master Servicer or the Sub-Servicer for Advances and
expenses, including attorneys' fees) towards interest and principal owing on the
Mortgage Loan. Such amount of loss realized and any Special Hazard Losses, Fraud
Losses, Bankruptcy Losses (except for Bankruptcy Losses that result from an
extension of the maturity of a Mortgage Loan) and Extraordinary Losses are
referred to herein as 'REALIZED LOSSES.'
In order to maximize the likelihood of distribution in full of amounts of
interest and principal to be distributed to holders of the Class A Certificates
on each applicable Distribution Date, holders of Class A Certificates have a
right to distributions of the related Available Distribution Amount that is
prior to the rights of the holders of the related Class SB and Class R
Certificates. In addition, the overcollateralization, together with the limited
availability of the Loan Group I Excess Cash Flow to cover the principal portion
of current Realized Losses on Group II Loans and of the Loan Group II Excess
Cash Flow to cover the principal portion of current Realized Losses on Group I
Loans will also increase the likelihood of distribution of full amounts of
interest and principal to the Class A Certificates on each Distribution Date.
With respect to Loan Group I and Loan Group II, the aggregate amount of
Realized Losses that may be allocated to the related Class SB Certificates or
covered by Loan Group I Excess Cash Flow and Loan Group II
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Excess Cash Flow otherwise distributable to the related Class SB
Certificateholders in connection with Special Hazard Losses (with respect to
each Loan Group, the 'SPECIAL HAZARD AMOUNT') through Subordination shall
initially be equal to $2,000,558 and $4,000,805 respectively. As of any date of
determination following the Cut-off Date and with respect to Loan Group I and
Loan Group II, the Special Hazard Amount shall equal $2,000,558 and $4,000,805,
respectively, in each case less the sum of (A) any amounts allocated through
Subordination in respect of Special Hazard Losses with respect to such Loan
Group and (B) the related Adjustment Amount. The Adjustment Amount with respect
to each Loan Group 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 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.
With respect to Loan Group I and Loan Group II, the aggregate amount of
Realized Losses that may be allocated to the related Class SB Certificates or
covered by Loan Group I Excess Cash Flow and Loan Group II Excess Cash Flow
otherwise distributable to the related Class SB Certificateholders in connection
with Fraud Losses (with respect to each Loan Group, the 'FRAUD AMOUNT') through
Subordination shall initially be equal to $6,001,673 and $12,002,415,
respectively. As of any date of determination after the Cut-off Date and with
respect to Loan Group I and Loan Group II, the related Fraud Amount shall equal
(X) prior to the first anniversary of the Cut-off Date an amount equal to 3.00%
of the aggregate principal balance of all of the Mortgage Loans in the related
Loan Group as of the Cut-off Date minus the aggregate amounts allocated through
Subordination with respect to Fraud Losses with respect to such Loan Group up to
such date of determination; (Y) from the first to the second anniversary of the
Cut-off Date, an amount equal to (1) the lesser of (a) the Fraud Amount for such
Loan Group as of the most recent anniversary of the Cut-off Date and (b) 2.00%
of the aggregate principal balance of all of the Mortgage Loans in the related
Loan Group as of the most recent anniversary of the Cut-off Date minus (2) the
aggregate amount allocated through Subordination with respect to Fraud Losses
with respect to such Loan Group since the most recent anniversary of the Cut-off
Date up to such date of determination; and (Z) from the second to the fifth
anniversary of the Cut-off Date, an amount equal to (1) the lesser of (a) the
Fraud Amount for such Loan Group as of the most recent anniversary of the
Cut-off Date and (b) 1.00% of the aggregate principal balance of all of the
Mortgage Loans in the related Loan Group as of the most recent anniversary of
the Cut-off Date minus (2) the aggregate amount allocated through Subordination
with respect to Fraud Losses with respect to such Loan Group since the most
recent anniversary of the Cut-off Date up to such date of determination. On and
after the fifth anniversary of the Cut-off Date each Fraud Amount shall be zero
and Fraud Losses shall not be allocated through Subordination.
With respect to Loan Group I and Loan Group II, the aggregate amount of
Realized Losses that may be allocated to the related Class SB Certificates or
covered by Loan Group I Excess Cash Flow and Loan Group II Excess Cash Flow
otherwise distributable to the related Class SB Certificateholders in connection
with Bankruptcy Losses (with respect to each Loan Group, the 'BANKRUPTCY
AMOUNT') through Subordination will initially be equal to $100,000 and $168,119,
respectively. As of any date of determination and with respect to Loan Group I
and Loan Group II, the related Bankruptcy Amount shall equal $100,000 or
$168,119, respectively, in each case less the sum of any amounts allocated
through Subordination for such losses with respect to the related Loan Group up
to such date of determination.
Notwithstanding the foregoing, the provisions relating to Subordination
will not be applicable in connection with a Bankruptcy Loss so long as the
Master Servicer has notified the Trustee in writing that the Master Servicer is
diligently pursuing any remedies that may exist in connection with the
representations and warranties made regarding the related Mortgage Loan and
either (A) the related Mortgage Loan is not in default with regard to payments
due thereunder or (B) delinquent payments of principal and interest under the
related Mortgage Loan and any premiums on any applicable primary hazard
insurance policy and any related escrow payments in respect of such Mortgage
Loan are being advanced on a current basis by the Master Servicer or a
Sub-Servicer.
Each Special Hazard Amount, Fraud Amount and Bankruptcy Amount are subject
to further reduction as described in the Prospectus under 'Subordination.' The
Special Hazard Amount, Fraud Loss Amount and Bankruptcy Amount are determined
separately for each Loan Group.
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ADVANCES
Prior to each Distribution Date, the Master Servicer is required to make
Advances (out of its own funds, advances made by a Sub-Servicer, or funds held
in the Custodial Account (as described in the Prospectus under 'Description of
the Certificates -- Withdrawals from the Custodial Account') for future
distribution or withdrawal) with respect to any payments of principal and
interest (net of the related Servicing Fees) that were due on the Mortgage Loans
in any Loan Group during the immediately preceding Due Period 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 to be recoverable from related late collections, Insurance
Proceeds, or Liquidation Proceeds. 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 will not be required to make any
Advances with respect to reductions in the amount of the monthly payments on the
Mortgage Loans due to Debt Service Reductions or the application of the Relief
Act or similar legislation or regulations. Any failure by the Master Servicer 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, 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 on a first
priority basis from either late collections, Insurance Proceeds or Liquidation
Proceeds from the Mortgage Loan as to which such unreimbursed Advance was made.
In addition, any Advances previously made which are deemed by the Master
Servicer to be nonrecoverable from related late collections, Insurance Proceeds
and Liquidation Proceeds may be reimbursed to the Master Servicer out of any
funds in the Custodial Account prior to distributions on the Class A
Certificates.
THE INSURER
The following information has been supplied by the Insurer for inclusion in
this Prospectus Supplement. No representation is made by the Company, the
Underwriter or any of their affiliates as to the accuracy or completeness of
such information.
The Insurer is a Wisconsin-domiciled stock insurance corporation regulated
by the Office of the Commissioner of Insurance of the State of Wisconsin and
licensed to do business in 50 states, the District of Columbia, the Commonwealth
of Puerto Rico and Guam. The Insurer primarily insures newly issued municipal
and structured finance obligations. The Insurer is a wholly owned subsidiary of
Ambac Financial Group, Inc. (formerly AMBAC Inc.), a 100% publicly-held company.
Moody's, Standard & Poor's and Fitch have each assigned a triple-A claims-paying
ability to the Insurer.
The consolidated financial statements of the Insurer and its subsidiaries
as of December 31, 1996 and December 31, 1995 and for the three years ended
December 31, 1996, prepared in accordance with generally accepted accounting
principles, included in the Current Report on Form 8-K of AMBAC Inc. (which was
filed with the Commission on March 12, 1997; Commission File Number 1-10777) and
the consolidated financial statements of the Insurer and its subsidiaries as of
September 30, 1997 and for the periods ending September 30, 1997 and September
30, 1996, included in the Quarterly Report on Form 10-Q of Ambac Financial
Group, Inc. for the period ended September 30, 1997 (which was filed with the
Commission on November 14, 1997) are hereby incorporated by reference into this
Prospectus Supplement and shall be deemed to be a part hereof. Any statement
contained in a document incorporated herein by reference shall be modified or
superseded for the purposes of this Prospectus Supplement to the extent that a
statement contained herein by reference herein also modifies or supersedes such
statement. Any statement so modified or superseded shall not be deemed, except
as so modified or superseded, to constitute a part of this Prospectus
Supplement.
All financial statements of the Insurer and its subsidiaries included in
documents filed by Ambac Financial Group, Inc. with the Commission pursuant to
Section 13(a), 13(c), 14 or 15(d) of the Securities Exchange Act of 1934, as
amended, subsequent to the date of this Prospectus Supplement and prior to the
termination of the offering of the Class A Certificates shall be deemed to be
incorporated by reference into this Prospectus Supplement and to be a part
hereof from the respective dates of filing such documents.
The following table sets forth the capitalization of the Insurer as of
December 31, 1994, December 31, 1995, December 31, 1996 and September 30, 1997,
respectively, in conformity with generally accepted accounting principles. No
material adverse change in the capitalization of the Insurer has occurred since
September 30, 1997.
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AMBAC ASSURANCE CORPORATION
CONSOLIDATED CAPITALIZATION TABLE
(DOLLARS IN MILLIONS)
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31, DECEMBER 31, SEPTEMBER 30,
1994 1995 1996 1997
------------ ------------ ------------ -------------
(UNAUDITED)
<S> <C> <C> <C> <C>
Unearned premiums......................................... $ 840 $ 906 $ 995 $ 1,047
Other liabilities......................................... 136 295 259 311
------------ ------------ ------------ -------------
Total liabilities......................................... 976 1,201 1,254 1,358
------------ ------------ ------------ -------------
Stockholder's equity:
Common stock......................................... 82 82 82 82
Additional paid-in capital........................... 444 481 515 521
Unrealized gains (losses) on investments, net of
tax................................................ (46) 87 66 89
Retained earnings.................................... 782 907 992 1,130
------------ ------------ ------------ -------------
Total stockholder's equity................................ 1,262 1,557 1,655 1,822
------------ ------------ ------------ -------------
Total liabilities and stockholder's equity................ $2,238 $2,758 $2,909 $ 3,180
------------ ------------ ------------ -------------
------------ ------------ ------------ -------------
</TABLE>
Copies of the financial statements of the Insurer incorporated herein by
reference and copies of the Insurer's annual statement for the year ended
December 31, 1996 prepared in accordance with statutory accounting standards are
available, without charge, from the Insurer. The address of the Insurer's
administrative offices and its telephone number are One State Street Plaza, 17th
Floor, New York, NY 10004 and (212) 668-0340.
THE CERTIFICATE GUARANTY INSURANCE POLICY IS NOT COVERED BY THE
PROPERTY/CASUALTY INSURANCE SECURITY FUND SPECIFIED IN ARTICLE 76 OF THE NEW
YORK INSURANCE LAW.
The Insurer makes no representation regarding the Certificates or the
advisability of investing in the Certificates and makes no representation
regarding, nor has it participated in the preparation of, this Prospectus
Supplement other than the information supplied by the Insurer and presented
under the headings 'Description of the Certificates -- The Certificate Guaranty
Insurance Policy' and 'The Insurer' herein.
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CERTAIN YIELD AND PREPAYMENT CONSIDERATIONS
GENERAL
The yield to maturity and the aggregate amount of distributions on the
Class A Certificates will be affected by the rate and timing of principal
payments on the Mortgage Loans, the amount and timing of Mortgagor defaults
resulting in Realized Losses and by adjustments to the Mortgage Rates. 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, liquidations of defaulted Mortgage Loans
and purchases of Mortgage Loans due to certain breaches of representations and
warranties. The timing of changes in the rate of prepayments, liquidations and
repurchases of the Mortgage Loans 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 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 Class A Certificates.
The Class A-I Certificates and Class A-II Certificates will receive
distributions with respect to principal and interest primarily from collections
on the Group I Loans and Group II Loans, respectively. In certain situations,
(i) the Loan Group I Excess Cash Flow will be available to make payments to
holders of Class A-II Certificates in respect of Realized Losses incurred on the
Group II Loans, Prepayment Interest Shortfalls related to the Group II Loans (to
the extent not covered by Eligible Master Servicing Compensation) and Class A-II
Basis Risk Shortfalls and (ii) the Loan Group II Excess Cash Flow will be
available to make payments to holders of Class A-I Certificates in respect of
Realized Losses incurred on the Group I Loans and Prepayment Interest Shortfalls
related to the Group I Loans (to the extent not covered by Eligible Master
Servicing Compensation). Except as described in the preceding sentence, the
Class A-I Certificates and Class A-II Certificates will receive distributions
with respect to principal and interest solely from collections on the Mortgage
Loans in the related Loan Group.
Investors in the Class A-I-5 Certificates should be aware that the
prepayment of Group I Loans with higher Net Mortgage Rates may result in a lower
Maximum Class A-I-5 Rate. Investors in the Class A-II Certificates should be
aware that the prepayment of the Group II Loans with higher Maximum Net Mortgage
Rates may result in a lower Maximum Group II Rate.
The Group II Loans adjust annually or semi-annually based upon the related
Index, whereas the Pass-Through Rate on the Class A-II Certificates adjusts
monthly based upon One-Month LIBOR as described under 'Description of the
Certificates -- Determination of One-Month LIBOR' herein, subject to the Maximum
Group II Rate. Consequently, the interest that becomes due on the Group II Loans
during the related Due Period may not equal the amount of interest that would
accrue at One-Month LIBOR plus the Applicable Group II Spread on the Class A-II
Certificates during the related Interest Accrual Period. In particular, because
the Pass-Through Rate on the Class A-II Certificates will adjust monthly, while
the interest rates of the Group II Loans will adjust semi-annually or annually
(and in some cases, only after the expiration of the related fixed rate period),
subject to any applicable Periodic Cap, Maximum Mortgage Rate or Minimum
Mortgage Rate, in a rising interest rate environment, the Accrued Certificate
Interest on the Class A-II Certificates may be greater than an amount equal to
(a) one-twelfth of the aggregate Stated Principal Balance of the Group II Loans
multiplied by (b) the weighted average of the Net Mortgage Rates on the Group II
Loans as of the first day of the calendar month in which the Interest Accrual
Period begins, possibly resulting in Class A-II Basis Risk Shortfalls to holders
of the Class A-II Certificates. Any Class A-II Basis Risk Shortfalls are payable
only to the extent of Eligible Master Servicing Compensation, Loan Group II
Excess Cash Flow and Loan Group I Excess Cash Flow (in each case to the extent
available therefor) and may remain unpaid on the final Distribution Date. In
addition, each of the Indices and One-Month LIBOR may respond to different
economic and market factors, and there is not necessarily a correlation between
any of the Indices and One-Month LIBOR. Thus, it is possible, for example, that
One-Month LIBOR may rise during periods in which the Indices are stable or are
falling or that, even if One-Month LIBOR and the Indices rise during the same
period, One-Month LIBOR may rise more rapidly than the Indices, potentially
resulting in the Maximum Group II Rate being lower than One-Month LIBOR plus the
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Applicable Group II Spread on the Class A-II Certificates during the related
Interest Accrual Period, resulting in shortfalls that are not due to be paid on
subsequent Distribution Dates.
The amount of Loan Group I Excess Cash Flow may be adversely affected by
the prepayment of Mortgage Loans with higher Mortgage Rates and the reduction of
the Mortgage Rates on the Equity Lending Mortgage Loans. Any such reduction will
reduce the amount of Loan Group I Excess Cash Flow that is available to cover
Realized Losses, increase overcollateralization on the Class A-I Certificates
and cover Group I Prepayment Interest Shortfalls, Group II Prepayment Interest
Shortfalls and Class A-II Basis Risk Shortfalls, in each case to the extent and
in the manner described herein. See 'Description of the Mortgage
Pool -- General -- Group I Loans,' 'Description of the
Certificates -- Overcollateralization Provisions' and ' -- Allocation of
Realized Losses' herein.
The Mortgage Loans generally may be prepaid in full or in part at any time,
although a substantial portion of the Mortgage Loans provide for payment of a
prepayment charge, which may have a substantial effect on the rate of
prepayment. See 'Description of the Mortgage Pool -- Mortgage Pool
Characteristics.' Investors in the Class A-I Certificates should be aware that
3.3% of the Group I Loans will be Junior Group I Loans, which are secured by
junior liens on the related Mortgaged Properties. Generally, junior mortgage
loans are not viewed by Mortgagors as permanent financing. Accordingly, such
Junior Group I Loans may experience a higher rate of prepayment than first lien
mortgage loans. The Group II Loans generally are assumable under certain
circumstances if, in the sole judgment of the Master Servicer or Sub-Servicer,
the prospective purchaser of a Mortgaged Property is creditworthy and the
security for such Mortgage Loan is not impaired by the assumption. In the event
the Master Servicer or Sub-Servicer does not approve an assumption, the related
Mortgaged Property will be due-on-sale. The Master Servicer shall enforce any
due-on-sale clause contained in any Mortgage Note or Mortgage, to the extent
permitted under applicable law and governmental regulations; provided, however,
if the Master Servicer determines that it is reasonably likely that the
Mortgagor will bring, or if any Mortgagor does bring, legal action to declare
invalid or otherwise avoid enforcement of a due-on-sale clause contained in any
Mortgage Note or Mortgage, the Master Servicer shall not be required to enforce
the due-on-sale clause or to contest such action. The extent to which the
Mortgage 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 Class A
Certificates and may result in a prepayment experience on the Mortgage Loans
that differs from that on other conventional mortgage loans. See 'Maturity and
Prepayment Considerations' in the Prospectus. Prepayments, liquidations and
purchases of the Mortgage Loans will result in distributions to holders of the
Class A Certificates of principal amounts which would otherwise be distributed
over the remaining terms of the Mortgage Loans. Factors affecting prepayment
(including defaults and liquidations) 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 and servicing decisions. In addition, if
prevailing mortgage rates fell 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 rose
significantly above the Mortgage Rates on the Mortgage Loans, the rate of
prepayments on the Mortgage Loans would be expected to decrease.
The rate of prepayments and defaults on the Group II Loans will differ from
the rate of prepayments and defaults on the Group I Loans and may increase
during periods near their Adjustment Dates, to the extent that the formula for
determining the new Mortgage Rate after the Adjustment Date results in an above
market interest rate.
The rate of defaults on the Mortgage Loans will also affect the rate and
timing of principal payments on the Mortgage Loans. In general, defaults on
mortgage loans are expected to occur with greater frequency in their early
years, especially with respect to the Group II Loans as increases in the monthly
payments to an amount in excess of the monthly payment required at the time of
origination may result in a default rate higher than that on level payment
mortgage loans, particularly since the Mortgagor under each Group II Loan was
qualified on the basis of the Mortgage Rate in effect at origination. The
repayment of such Group II Loans will be dependent on the ability of the
Mortgagor to make larger monthly payments as the Mortgage Rate increases. With
respect to the Group I Loans, the Junior Group I Loans are subordinate to the
rights of the mortgagee under the related senior mortgage or mortgages and,
therefore, the holder of a Junior Group I 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
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<PAGE>
encumbrances survive such a foreclosure. Investors should be aware that any
liquidation, insurance or condemnation proceeds received in respect of such
Junior Group I 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. See 'Risk
Factors' herein and in the Prospectus and 'Certain Legal Aspects of the Mortgage
Loans and Contracts -- The Mortgage Loans -- Foreclosure on Mortgage Loans' in
the Prospectus. Furthermore, the rate of default on Mortgage Loans that are
refinance or limited documentation mortgage loans, and on Mortgage Loans with
high Loan-to-Value Ratios, may be higher than for other types of Mortgage Loans.
As a result of the underwriting standards applicable to the Mortgage Loans, the
Mortgage Loans are likely to experience rates of delinquency, foreclosure,
bankruptcy and loss that are higher, and that may be substantially higher, than
those experienced by mortgage loans underwritten in accordance with the
standards applied by Fannie Mae and Freddie Mac first or junior mortgage loan
purchase programs, or by Residential Funding for the purpose of acquiring
mortgage loans to collateralize securities issued by Residential Funding
Mortgage Securities I, Inc. and Residential Accredit Loans, Inc. See
'Description of the Mortgage Pool -- Underwriting Standards.' In addition,
because of such underwriting criteria and their likely effect on the
delinquency, foreclosure, bankruptcy and loss experience of the Mortgage Loans,
the Mortgage Loans will generally be serviced in a manner intended to result in
a faster exercise of remedies, which may include foreclosure, in the event
Mortgage Loan delinquencies and defaults occur, than would be the case if the
Mortgage Loans were serviced in accordance with such other programs.
Furthermore, the rate and timing of prepayments, defaults and liquidations on
the Mortgage Loans 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. The
Master Servicer has a limited right, but not an obligation, to repurchase
certain defaulted Mortgage Loans at a price equal to the unpaid principal
balance thereof plus accrued and unpaid interest, resulting in a payment of
principal on the Class A Certificates earlier than might have been the case if
foreclosure proceedings had been commenced. See 'Maturity and Prepayment
Considerations' in the Prospectus.
Because principal distributions are paid to certain classes of Class A-I
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.
The yield to investors on the Class A Certificates may also be adversely
affected by the uncertainty of the availability of Eligible Master Servicing
Compensation, Loan Group I Excess Cash Flow and Loan Group II Excess Cash Flow,
as applicable and to the extent described herein, to cover any Prepayment
Interest Shortfalls and Class A-II Basis Risk Shortfalls, and such shortfalls
may remain unpaid on the final Distribution Date.
In addition, the yield to maturity of the Class A Certificates will depend
on, among other things, the price paid by the holders of the Class A
Certificates and the Pass-Through Rate. The extent to which the yield to
maturity of a Class A 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 A Certificate is purchased at a premium and principal
distributions thereon occur at a rate faster than assumed at the time of
purchase, the investor's actual yield to maturity will be lower than that
anticipated at the time of purchase. Conversely, if Class A Certificate 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 anticipated at the time of purchase.
Class A-I-1 Certificates and Class A-II Certificates: Because the Mortgage
Rates on the Mortgage Loans and the Pass-Through Rates on the Class A-I
Certificates (other than the Class A-I-1 Certificates) are fixed, such 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 Class A-I
Certificates (other than the Class A-I-1 Certificates) were to rise, the market
value of such Certificates may decline. The yield to investors on the Class
A-I-1 Certificates and Class A-II Certificates will be sensitive to fluctuations
in the level of One-Month LIBOR and, in the case of the Class A-II Certificates,
may be adversely affected by the application of the Maximum Group II Rate. The
prepayment of the Mortgage Loans with higher Mortgage Rates may result in a
lower Maximum Group II Rate. Investors in the Class A-II Certificates should
also be aware that although the Mortgage Rates on the Group II Loans will adjust
periodically, such increases and decreases will be limited by the applicable
Periodic Rate Caps, Maximum Mortgage Rates and Minimum Mortgage Rates thereon.
In addition, the Mortgage Rates on the Group II Loans will be based on the
related Index (which may not rise and fall consistently with prevailing
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<PAGE>
<PAGE>
mortgage rates) plus the related Note Margin (which may be different from the
prevailing margins on other mortgage loans). As a result, the Mortgage Rates on
the Group II Loans at any time may not equal the prevailing rates for other
adjustable rate mortgage loans and the rate of prepayment may be lower or higher
than would otherwise be anticipated.
Class A-II Certificates: Investors in the Class A-II Certificates should be
aware that the yield on such Certificates will depend on, among other things,
the rate and timing of principal payments (including prepayments, defaults,
liquidations and purchases of Mortgage Loans due to a breach of representation
and warranty) on the Sub-Group of Group II Loans to which such Class A-II
Certificates relate and the allocation thereof to reduce the Certificate
Principal Balance of such class. See 'Description of the Class A Certificates --
Principal Distributions on the Class A Certificates' herein.
Class A-I-6 Certificates: Investors in the Class A-I-6 Certificates should
be aware that because the Class A-I-6 Certificates do not receive any payments
of principal prior to the Distribution Date occurring in December 2000 and prior
to the Distribution Date occurring in December 2003 will receive a
disproportionately small portion of principal payments with respect to the
Mortgage Loans in Loan Group I (in each case, unless the Certificate Principal
Balances of the Class A-I Certificates (other than the Class A-I-6 Certificates)
have been reduced to zero), the weighted average life of the Class A-I-6
Certificates will be longer than would otherwise be the case, and the effect on
the market value of the Class A-I-6 Certificates of changes in market interest
rates or market yields for similar securities may be greater than for other
classes of Class A-I Certificates entitled to such distributions.
Assumed Final Distribution Date: The assumed final Distribution Date with
respect to the Class A Certificates and Residual Certificates is November 25,
2027, which date is the Distribution Date immediately following the latest
scheduled maturity date for any Mortgage Loan in the related Loan Group. 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. 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 Class A Certificates will be influenced by, among other things, the rate at
which principal of the Mortgage Loans in the applicable Loan Group is paid,
which may be in the form of scheduled amortization, prepayments or liquidations.
The prepayment model used in this Prospectus Supplement for the Group I
Loans (the 'GROUP I PREPAYMENT ASSUMPTION') represents an assumed rate of
prepayment each month relative to the then outstanding principal balance of a
pool of mortgage loans. A 100% Group I Prepayment Assumption assumes a Constant
Prepayment Rate ('CPR') of 4.0% 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 1.818182% per annum in each month thereafter until the
twelfth month. Beginning in the twelfth month and in each month thereafter
during the life of the mortgage loans, a 100% Group I Prepayment Assumption
assumes a CPR of 24% per annum. As used in the table below, a 50% Group I
Prepayment Assumption assumes prepayment rates equal to 50% of the Group I
Prepayment Assumption. Correspondingly, a 150% Group I Prepayment Assumption
assumes prepayment rates equal to 150% of the Group I Prepayment Assumption, and
so forth. The Group I Prepayment Assumption 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 Group I Loans.
The prepayment model used in this Prospectus Supplement for the Group II
Loans (the 'GROUP II PREPAYMENT ASSUMPTION,' and together with the Group I
Prepayment Assumption, the 'PREPAYMENT ASSUMPTION'), assumes that the
outstanding principal balance of a pool of mortgage loans prepays at a constant
annual rate of 26% CPR. In generating monthly cash flows, this rate is converted
to an equivalent constant monthly rate. To assume a 26% CPR or any other CPR
percentage is to assume that the stated percentage of the outstanding principal
balance of the pool is prepaid over the course of a year. No representation is
made that the Group II Loans will prepay at that or any other rate.
The table set forth below has been prepared on the basis of certain
assumptions as described below regarding the weighted average characteristics of
the Mortgage Loans that are expected to be included in the Trust Fund as
described under 'Description of the Mortgage Pool' herein and the performance
thereof. The
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<PAGE>
<PAGE>
table assumes, among other things, that: (i) as of the date of issuance of the
Class A Certificates, the Mortgage Loans have the following characteristics:
LOAN GROUP I
<TABLE>
<CAPTION>
GROUP I LOANS WITH
TERMS TO MATURITY GROUP I LOANS WITH
GREATER THAN 15 YEARS TERMS TO MATURITY
AND LESS THAN OR OF NOT MORE THAN BALLOON
EQUAL TO 30 YEARS 15 YEARS(1) MORTGAGE LOANS(2)
--------------------- ------------------ -----------------
<S> <C> <C> <C>
Aggregate principal balance......................... $ 131,827,314 $ 21,743,913 $46,484,542
Mortgage rate....................................... 10.1445% 10.4477% 11.5121%
Aggregate Servicing Fee Rate and Policy Premium
Rate.............................................. 0.695% 0.695% 0.695%
Original term to maturity (months).................. 357 179 180
Remaining term to maturity (months)................. 353 175 174
</TABLE>
- ------------
(1) Other than the Balloon Mortgage Loans in Loan Group I.
(2) The original amortization term with respect to the Balloon Loans is 360
months and the remaining amortization term with respect to the Balloon Loans
is 354 months.
LOAN GROUP II
SUB-GROUP II-A
<TABLE>
<CAPTION>
ONE YEAR FIXED TWO YEAR FIXED THREE YEAR ONE YEAR FIXED
SIX MONTH LIBOR PERIOD LIBOR PERIOD LIBOR FIXED PERIOD PERIOD TREASURY
SUB-GROUP II-A SUB-GROUP II-A SUB-GROUP II-A LIBOR SUB-GROUP INDEX SUB-GROUP
LOANS LOANS LOANS II-A LOANS II-A LOANS
--------------- --------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C> <C>
Aggregate principal balance....... $ 7,410,728 $ 3,832,514 $ 116,258,063 $13,695,232 $26,225,076
Initial Mortgage Rate............. 9.3899% 9.2451% 10.0477% 10.0741% 9.4297%
Original term to maturity
(months)........................ 360 360 360 360 360
Remaining term to stated maturity
(months)........................ 357 356 357 357 356
Aggregate Servicing Fee Rate and
Policy Premium Rate............. 0.695% 0.695% 0.695% 0.695% 0.695%
Gross Margin...................... 5.9742% 5.5892% 6.0667% 5.6545% 5.6286%
Periodic Rate Cap................. 1.07% 1.00% 1.13% 1.00% 2.00%
Initial Interest Adjustment
Date............................ February 1998 July 1998 August 1999 August 2000 July 1998
Adjustment Frequency (months)..... 6 6 6 6 12
Assumed Index effective for the
Adjustment Date................. 5.9100% 5.9100% 5.9100% 5.9100% 5.4200%
<CAPTION>
THREE YEAR
FIXED PERIOD
TREASURY INDEX
SUB-GROUP II-A
LOANS
---------------
<S> <C>
Aggregate principal balance....... $32,638,507
Initial Mortgage Rate............. 10.2933%
Original term to maturity
(months)........................ 360
Remaining term to stated maturity
(months)........................ 354
Aggregate Servicing Fee Rate and
Policy Premium Rate............. 0.695%
Gross Margin...................... 5.9451%
Periodic Rate Cap................. 2.00%
Initial Interest Adjustment
Date............................ May 2000
Adjustment Frequency (months)..... 12
Assumed Index effective for the
Adjustment Date................. 5.4200%
</TABLE>
SUB-GROUP II-B
<TABLE>
<CAPTION>
ONE YEAR FIXED TWO YEAR FIXED THREE YEAR ONE YEAR FIXED
SIX MONTH LIBOR PERIOD LIBOR PERIOD LIBOR FIXED PERIOD PERIOD TREASURY
SUB-GROUP II-B SUB-GROUP II-A SUB-GROUP II-B LIBOR SUB-GROUP INDEX SUB-GROUP
LOANS LOANS LOANS II-B LOANS II-B LOANS
--------------- --------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C> <C>
Aggregate principal balance....... $25,166,400 $ 3,947,799 $82,197,111 $ 8,334,700 $62,779,324
Initial Mortgage Rate............. 9.5683% 9.3782% 9.9625% 10.1236% 9.7629%
Original term to maturity
(months)........................ 360 360 360 360 360
Remaining term to stated maturity
(months)........................ 357 356 358 358 357
Aggregate Servicing Fee Rate and
Policy Premium Rate............. 0.695% 0.695% 0.695% 0.695% 0.695%
Gross Margin...................... 5.9161% 5.4741% 5.9746% 5.5865% 5.9425%
Periodic Rate Cap................. 1.11% 1.00% 1.08% 1.00% 2.00%
Initial Interest Adjustment
Date............................ February 1998 July 1998 September 1999 September 2000 August 1998
Adjustment Frequency (months)..... 6 6 6 6 12
Assumed Index effective for the
Adjustment Date................. 5.9100% 5.9100% 5.9100% 5.9100% 5.4200%
<CAPTION>
THREE YEAR
FIXED PERIOD
TREASURY INDEX
SUB-GROUP II-B
LOANS
---------------
<S> <C>
Aggregate principal balance....... $17,595,050
Initial Mortgage Rate............. 10.3012%
Original term to maturity
(months)........................ 360
Remaining term to stated maturity
(months)........................ 354
Aggregate Servicing Fee Rate and
Policy Premium Rate............. 0.695%
Gross Margin...................... 5.7963%
Periodic Rate Cap................. 2.00%
Initial Interest Adjustment
Date............................ May 2000
Adjustment Frequency (months)..... 12
Assumed Index effective for the
Adjustment Date................. 5.4200%
</TABLE>
S-62
<PAGE>
<PAGE>
(ii) the value of one-month LIBOR will be 5.688% per annum; (iii) the
scheduled monthly payment for each Mortgage Loan has been based on its
outstanding balance, interest rate and remaining term to maturity, such
that the Mortgage Loan will amortize in amounts sufficient for repayment
thereof over its remaining term to maturity; (iv) none of the Unaffiliated
Sellers, the Master Servicer or the Company will repurchase any Mortgage
Loan, as described under 'The Trust Funds -- Representations with Respect
to Mortgage Collateral' and 'Description of the Certificates -- Assignment
of Mortgage Loans' in the Prospectus, and neither the Master Servicer nor
the Company exercises any option to purchase the Mortgage Loans and thereby
cause a termination of the Trust Fund; (v) all delinquencies of payments
due on or prior to the Cut-off Date are brought current, and thereafter
there are no delinquencies or Realized Losses 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 the
Prepayment Assumption, set forth in the table; (vi) there is no Prepayment
Interest Shortfall or any other interest shortfall in any month; (vii)
payments on the Certificates will be received on the 25th day of each
month, commencing in December 1997; (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 Certificates will
be purchased on November 25, 1997 (collectively, the 'STRUCTURING
ASSUMPTIONS').
The actual characteristics and performance of the Mortgage Loans will
differ from the 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 percentage of the Prepayment Assumption until maturity or that all of
the Mortgage Loans will prepay at the same rate of prepayment. Moreover, the
diverse remaining terms to stated maturity and Mortgage Rates of the Mortgage
Loans could produce slower or faster principal distributions than indicated in
the table at the various constant percentages of the Prepayment Assumption
specified, even if the weighted average remaining term to stated maturity and
weighted average Mortgage Rate of the Mortgage Loans are as assumed. Any
difference between such assumptions and the actual characteristics and
performance of the Mortgage Loans, or actual prepayment experience, will affect
the percentages of initial Certificate Principal Balances outstanding over time
and the weighted average life of the Class A Certificates.
Subject to the foregoing discussion and assumptions, the following tables
indicate the weighted average life of the Class A Certificates, and sets forth
the percentages of the initial Certificate Principal Balance of the Class A
Certificates that would be outstanding after each of the dates shown at various
percentages of the applicable Prepayment Assumption.
S-63
<PAGE>
<PAGE>
PERCENT OF INITIAL CERTIFICATE PRINCIPAL BALANCE OUTSTANDING OF THE GROUP I
CERTIFICATES
AT THE FOLLOWING PERCENTAGES OF THE GROUP I PREPAYMENT ASSUMPTION
<TABLE>
<CAPTION>
CLASS A-I-1 CLASS A-I-2
--------------------------------------------- ---------------------------------------------
DISTRIBUTION DATE 0% 50% 75% 100% 125% 150% 0% 50% 75% 100% 125% 150%
- ----------------- ----- ---- ---- ---- ---- ---- ----- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Initial Percentage.. 100 100 100 100 100 100 100 100 100 100 100 100
November 1998....... 95 70 58 45 32 19 100 100 100 100 100 100
November 1999....... 93 42 18 0 0 0 100 100 100 79 0 0
November 2000....... 91 17 0 0 0 0 100 100 25 0 0 0
November 2001....... 88 0 0 0 0 0 100 79 0 0 0 0
November 2002....... 85 0 0 0 0 0 100 0 0 0 0 0
November 2003....... 82 0 0 0 0 0 100 0 0 0 0 0
November 2004....... 79 0 0 0 0 0 100 0 0 0 0 0
November 2005....... 76 0 0 0 0 0 100 0 0 0 0 0
November 2006....... 72 0 0 0 0 0 100 0 0 0 0 0
November 2007....... 69 0 0 0 0 0 100 0 0 0 0 0
November 2008....... 64 0 0 0 0 0 100 0 0 0 0 0
November 2009....... 60 0 0 0 0 0 100 0 0 0 0 0
November 2010....... 54 0 0 0 0 0 100 0 0 0 0 0
November 2011....... 48 0 0 0 0 0 100 0 0 0 0 0
November 2012....... 3 0 0 0 0 0 100 0 0 0 0 0
November 2013....... 0 0 0 0 0 0 95 0 0 0 0 0
November 2014....... 0 0 0 0 0 0 71 0 0 0 0 0
November 2015....... 0 0 0 0 0 0 45 0 0 0 0 0
November 2016....... 0 0 0 0 0 0 16 0 0 0 0 0
November 2017....... 0 0 0 0 0 0 0 0 0 0 0 0
November 2018....... 0 0 0 0 0 0 0 0 0 0 0 0
November 2019....... 0 0 0 0 0 0 0 0 0 0 0 0
November 2020....... 0 0 0 0 0 0 0 0 0 0 0 0
November 2021....... 0 0 0 0 0 0 0 0 0 0 0 0
November 2022....... 0 0 0 0 0 0 0 0 0 0 0 0
November 2023....... 0 0 0 0 0 0 0 0 0 0 0 0
November 2024....... 0 0 0 0 0 0 0 0 0 0 0 0
November 2025....... 0 0 0 0 0 0 0 0 0 0 0 0
November 2026....... 0 0 0 0 0 0 0 0 0 0 0 0
November 2027....... 0 0 0 0 0 0 0 0 0 0 0 0
Weighted Average
Life In Years**... 11.11 1.81 1.26 0.97 0.80 0.68 17.80 4.33 2.88 2.17 1.74 1.45
<CAPTION>
CLASS A-I-3
------------------------------------------
DISTRIBUTION DATE 0% 50% 75% 100% 125% 150%
- ----------------- ---- --- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Initial Percentage.. 100 100 100 100 100 100
November 1998....... 100 100 100 100 100 100
November 1999....... 100 100 100 100 85 38
November 2000....... 100 100 100 45 0 0
November 2001....... 100 100 52 0 0 0
November 2002....... 100 92 5 0 0 0
November 2003....... 100 56 0 0 0 0
November 2004....... 100 26 0 0 0 0
November 2005....... 100 10 0 0 0 0
November 2006....... 100 0 0 0 0 0
November 2007....... 100 0 0 0 0 0
November 2008....... 100 0 0 0 0 0
November 2009....... 100 0 0 0 0 0
November 2010....... 100 0 0 0 0 0
November 2011....... 100 0 0 0 0 0
November 2012....... 100 0 0 0 0 0
November 2013....... 100 0 0 0 0 0
November 2014....... 100 0 0 0 0 0
November 2015....... 100 0 0 0 0 0
November 2016....... 100 0 0 0 0 0
November 2017....... 92 0 0 0 0 0
November 2018....... 75 0 0 0 0 0
November 2019....... 56 0 0 0 0 0
November 2020....... 35 0 0 0 0 0
November 2021....... 12 0 0 0 0 0
November 2022....... 0 0 0 0 0 0
November 2023....... 0 0 0 0 0 0
November 2024....... 0 0 0 0 0 0
November 2025....... 0 0 0 0 0 0
November 2026....... 0 0 0 0 0 0
November 2027....... 0 0 0 0 0 0
Weighted Average
Life In Years**... 22.24 6.39 4.12 3.02 2.38 1.96
</TABLE>
- ------------
* Indicates a number that is greater than zero but less than 0.5%.
** The weighted average life of a Certificate is determined by (i) multiplying
the net reduction, if any, of the 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 reductions of the Certificate Principal Balance
Described in (i) above.
THIS TABLE HAS BEEN PREPARED BASED ON THE STRUCTURING 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.
(Table continued on next page)
S-64
<PAGE>
<PAGE>
PERCENT OF INITIAL CERTIFICATE PRINCIPAL BALANCE OUTSTANDING OF THE GROUP I
CERTIFICATES
AT THE FOLLOWING PERCENTAGES OF THE GROUP I PREPAYMENT ASSUMPTION
<TABLE>
<CAPTION>
CLASS A-I-4 CLASS A-I-5
---------------------------------------------- -----------------------------------------------
DISTRIBUTION DATE 0% 50% 75% 100% 125% 150% 0% 50% 75% 100% 125% 150%
- ----------------- ----- ----- ---- ---- ---- ---- ----- ----- ----- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Initial Percentage.. 100 100 100 100 100 100 100 100 100 100 100 100
November 1998....... 100 100 100 100 100 100 100 100 100 100 100 100
November 1999....... 100 100 100 100 100 100 100 100 100 100 100 100
November 2000....... 100 100 100 100 88 36 100 100 100 100 100 100
November 2001....... 100 100 100 84 26 0 100 100 100 100 100 76
November 2002....... 100 100 100 36 0 0 100 100 100 100 80 34
November 2003....... 100 100 68 4 0 0 100 100 100 100 51 17
November 2004....... 100 100 40 0 0 0 100 100 100 78 35 10
November 2005....... 100 100 27 0 0 0 100 100 100 71 33 10
November 2006....... 100 91 12 0 0 0 100 100 100 57 26 9
November 2007....... 100 71 0 0 0 0 100 100 95 44 17 5
November 2008....... 100 52 0 0 0 0 100 100 77 32 11 1
November 2009....... 100 35 0 0 0 0 100 100 61 23 6 0
November 2010....... 100 18 0 0 0 0 100 100 48 16 3 0
November 2011....... 100 4 0 0 0 0 100 100 37 10 * 0
November 2012....... 100 0 0 0 0 0 100 64 20 4 0 0
November 2013....... 100 0 0 0 0 0 100 54 15 1 0 0
November 2014....... 100 0 0 0 0 0 100 45 11 0 0 0
November 2015....... 100 0 0 0 0 0 100 38 8 0 0 0
November 2016....... 100 0 0 0 0 0 100 31 5 0 0 0
November 2017....... 100 0 0 0 0 0 100 25 3 0 0 0
November 2018....... 100 0 0 0 0 0 100 20 1 0 0 0
November 2019....... 100 0 0 0 0 0 100 15 0 0 0 0
November 2020....... 100 0 0 0 0 0 100 11 0 0 0 0
November 2021....... 100 0 0 0 0 0 100 8 0 0 0 0
November 2022....... 85 0 0 0 0 0 100 5 0 0 0 0
November 2023....... 54 0 0 0 0 0 100 2 0 0 0 0
November 2024....... 19 0 0 0 0 0 100 0 0 0 0 0
November 2025....... 0 0 0 0 0 0 75 0 0 0 0 0
November 2026....... 0 0 0 0 0 0 20 0 0 0 0 0
November 2027....... 0 0 0 0 0 0 0 0 0 0 0 0
Weighted Average
Life in Years**... 26.12 11.26 7.02 4.80 3.66 2.92 28.50 17.71 13.35 9.92 7.21 5.22
<CAPTION>
CLASS A-I-6
------------------------------------------
DISTRIBUTION DATE 0% 50% 75% 100% 125% 150%
- ----------------- ----- --- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Initial Percentage. 100 100 100 100 100 100
November 1998...... 100 100 100 100 100 100
November 1999...... 100 100 100 100 100 100
November 2000...... 100 100 100 100 100 100
November 2001...... 99 94 91 88 85 81
November 2002...... 99 88 83 77 72 66
November 2003...... 98 78 70 61 53 45
November 2004...... 96 68 56 45 36 27
November 2005...... 91 44 29 18 12 10
November 2006...... 85 28 14 7 3 2
November 2007...... 79 17 7 2 1 *
November 2008...... 73 11 3 1 * *
November 2009...... 67 7 2 * * 0
November 2010...... 60 4 1 * * 0
November 2011...... 53 2 * * 0 0
November 2012...... 8 * * 0 0 0
November 2013...... 8 * * 0 0 0
November 2014...... 7 * * 0 0 0
November 2015...... 6 * * 0 0 0
November 2016...... 5 * * 0 0 0
November 2017...... 4 * 0 0 0 0
November 2018...... 4 * 0 0 0 0
November 2019...... 3 * 0 0 0 0
November 2020...... 2 * 0 0 0 0
November 2021...... 1 * 0 0 0 0
November 2022...... 1 * 0 0 0 0
November 2023...... * * 0 0 0 0
November 2024...... * 0 0 0 0 0
November 2025...... * 0 0 0 0 0
November 2026...... 0 0 0 0 0 0
November 2027...... 0 0 0 0 0 0
Weighted Average
Life in Years**.. 13.02 7.9 7.06 6.50 6.11 5.81
</TABLE>
- ------------
* Indicates a number that is greater than zero but less than 0.5%.
** The weighted average life of a Certificate is determined by (i) multiplying
the net reduction, if any, of the 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 reductions of the Certificate Principal Balance
Described in (i) above.
THIS TABLE HAS BEEN PREPARED BASED ON THE STRUCTURING 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.
(Table continued on next page)
S-65
<PAGE>
<PAGE>
PERCENT OF INITIAL CERTIFICATE PRINCIPAL BALANCE OUTSTANDING OF THE GROUP II
CERTIFICATES AT THE FOLLOWING PERCENTAGES OF CPR
<TABLE>
<CAPTION>
CLASS A-II-1 CLASS A-II-2
--------------------------------------------- ---------------------------------------------
DISTRIBUTION DATE 0% 18% 20% 26% 30% 35% 0% 18% 20% 26% 30% 35%
- -------------------------------- ----- ---- ---- ---- ---- ---- ----- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Initial Percentage.............. 100 100 100 100 100 100 100 100 100 100 100 100
November 1998................... 97 80 78 72 68 63 97 80 78 72 68 63
November 1999................... 97 64 61 52 46 40 97 65 61 52 46 40
November 2000................... 96 52 48 38 32 26 96 52 48 38 32 26
November 2001................... 96 42 38 28 23 17 96 42 38 28 23 17
November 2002................... 95 35 31 21 16 11 95 35 31 21 16 11
November 2003................... 94 28 24 15 11 7 94 28 24 15 11 7
November 2004................... 94 23 19 11 7 4 94 23 19 11 7 4
November 2005................... 93 19 15 8 5 3 93 19 15 8 5 3
November 2006................... 92 15 12 6 3 1 92 15 12 6 3 1
November 2007................... 91 12 9 4 2 1 91 12 9 4 2 1
November 2008................... 89 10 7 3 1 * 89 10 7 3 1 *
November 2009................... 88 8 6 2 1 * 88 8 6 2 1 *
November 2010................... 86 6 4 1 * 0 86 6 4 1 * 0
November 2011................... 84 5 3 1 * 0 84 5 3 1 * 0
November 2012................... 82 4 2 * 0 0 82 4 2 * 0 0
November 2013................... 80 3 2 * 0 0 80 3 2 * 0 0
November 2014................... 77 2 1 0 0 0 77 2 1 0 0 0
November 2015................... 75 2 1 0 0 0 75 2 1 0 0 0
November 2016................... 71 1 1 0 0 0 71 1 1 0 0 0
November 2017................... 68 1 * 0 0 0 68 1 * 0 0 0
November 2018................... 64 1 * 0 0 0 64 1 * 0 0 0
November 2019................... 59 * 0 0 0 0 59 * 0 0 0 0
November 2020................... 54 * 0 0 0 0 54 * 0 0 0 0
November 2021................... 48 0 0 0 0 0 48 0 0 0 0 0
November 2022................... 42 0 0 0 0 0 42 0 0 0 0 0
November 2023................... 35 0 0 0 0 0 35 0 0 0 0 0
November 2024................... 27 0 0 0 0 0 27 0 0 0 0 0
November 2025................... 18 0 0 0 0 0 18 0 0 0 0 0
November 2026................... 8 0 0 0 0 0 8 0 0 0 0 0
November 2027................... 0 0 0 0 0 0 0 0 0 0 0 0
Weighted Average
Life in Years**............... 21.51 4.64 4.16 3.13 2.66 2.22 21.55 4.64 4.16 3.13 2.66 2.22
</TABLE>
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* Indicates a number that is greater than zero but less than 0.5%.
** The weighted average life of a Certificate is determined by (i) multiplying
the net reduction, if any, of the 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 reductions of the Certificate Principal Balance
Described in (i) above.
THIS TABLE HAS BEEN PREPARED BASED ON THE STRUCTURING 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.
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POOLING AND SERVICING AGREEMENT
GENERAL
The Certificates will be issued pursuant to the Pooling and Servicing
Agreement dated as of November 1, 1997, among the Company, the Master Servicer,
and The First National Bank of Chicago, 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 Pooling and Servicing Agreement and
the Class A Certificates. The Trustee, or any of its affiliates, in its
individual or any other capacity, may become the owner or pledgee of
Certificates with the same rights as it would have if it were not Trustee. The
Trustee will appoint Norwest Bank Minnesota, National Association to serve as
Custodian in connection with the Certificates. The Class A 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 President, Residential Asset Securities
Corporation, 8400 Normandale Lake Boulevard, Suite 700, Minneapolis, Minnesota
55437. 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 MASTER SERVICER
Residential Funding, an indirect wholly-owned subsidiary of GMAC Mortgage
Group, Inc. 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 Residential Funding and its activities, see 'Residential Funding
Corporation' in the Prospectus and 'The Mortgage Pool -- Residential Funding'
herein.
The following table sets forth certain information concerning the
delinquency experience (including pending foreclosures) on one- to four-family
residential mortgage loans that generally complied with Residential Funding's
Alter Net Mortgage Program at the time of purchase by Residential Funding and
were being master serviced by Residential Funding on December 31, 1995, December
31, 1996 and September 30, 1997. The indicated periods of delinquency are based
on the number of days past due on a contractual basis. No mortgage loan is
considered delinquent for these purposes until, in general, it is one month past
due on a contractual basis. Because the Alter Net Program is relatively new, the
loss experience with respect to these mortgage loans is limited and is not
sufficient to provide meaningful disclosure with respect to losses.
EXPANDED CREDIT MORTGAGE PROGRAM DELINQUENCY EXPERIENCE
<TABLE>
<CAPTION>
AT DECEMBER 31, 1995 AT DECEMBER 31, 1996 AT SEPTEMBER 30, 1997
------------------------ -------------------- ------------------------
BY NO. BY DOLLAR BY NO. BY DOLLAR BY NO. BY DOLLAR
OF AMOUNT OF AMOUNT OF AMOUNT
LOANS OF LOANS LOANS OF LOANS LOANS OF LOANS
--------- ----------- ------ ---------- --------- -----------
(DOLLAR AMOUNTS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Total Loan Portfolio................. 4,901 $ 565,845 10,986 $1,266,378 22,409 $ 2,426,298
Period of Delinquency
31 to 59 days................... 448 51,628 807 95,551 1,950 209,305
60 to 89 days................... 77 10,001 154 18,722 381 43,161
90 days or more(1).............. 47 4,288 61 6,665 181 17,102
Foreclosures pending................. 130 13,080 254 32,584 483 57,573
--------- ----------- ------ ---------- --------- -----------
Total Delinquent Loans............... 702 $ 78,997 1,276 $ 153,522 2,995 $ 327,141
--------- ----------- ------ ---------- --------- -----------
--------- ----------- ------ ---------- --------- -----------
14.32% 13.96% 11.61% 12.12% 13.37% 13.48%
</TABLE>
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(1) Does not include foreclosures pending.
SERVICING AND OTHER COMPENSATION AND PAYMENT OF EXPENSES
The Servicing Fee for each Mortgage Loan is payable out of the interest
payments on such Mortgage Loan. The Servicing Fee Rate in respect of each
Mortgage Loan will be at least 0.58% per annum and not more than
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0.83% per annum of the outstanding principal balance of such Mortgage Loan. The
Servicing Fee consists of (a) servicing compensation payable to the Master
Servicer in respect of its master servicing activities, and (b) subservicing and
other related compensation payable to the Sub-Servicer (including such
compensation paid to the Master Servicer as the direct servicer of a Mortgage
Loan for which there is no Sub-Servicer). The primary compensation to be paid to
the Master Servicer in respect of its master servicing activities will be 0.08%
per annum of the outstanding principal balance of each Mortgage Loan. The
Sub-Servicer is entitled to servicing compensation in a minimum amount equal to
at least 0.50% per annum and not more than 0.75% per annum of the outstanding
principal balance of each Mortgage Loan serviced by it. As of the Cut-off Date,
the weighted average of the Servicing Fee Rates for the Mortgage Loans is
approximately 0.58% per annum. The Master Servicer is obligated to pay certain
ongoing expenses associated with the Trust Fund and incurred by the Master
Servicer in connection with its responsibilities under the Pooling and Servicing
Agreement. See 'Description of the Certificates -- Spread' and ' -- Withdrawals
from the Custodial Account' in the Prospectus for information regarding other
possible compensation to the Master Servicer and the Sub-Servicer and for
information regarding expenses payable by the Master Servicer.
VOTING RIGHTS
Certain actions specified in the Prospectus that may be taken by holders of
Certificates 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. 97% of all Voting Rights will be allocated
among all holders of the Class A Certificates in proportion to their then
outstanding Certificate Principal Balances, 1% and 1%, respectively, of all
Voting Rights will be allocated among the holders of the Class SB-I Certificates
and Class SB-II Certificates, and 1% of all Voting Rights will be allocated
among holders of the Residual Certificates, in each case in proportion to the
Percentage Interests (as defined in the Prospectus) evidenced by their
respective Certificates. So long as there does not exist a failure by the
Insurer to make a required payment under the Policy (such event, a 'CERTIFICATE
INSURER DEFAULT'), the Insurer shall have the right to exercise all rights of
the holders of the Class A Certificates under the Pooling and Servicing
Agreement without any consent of such holders, and such holders may exercise
such rights only with the prior written consent of the Insurer except as
provided in the Pooling and Servicing Agreement.
TERMINATION
The circumstances under which the obligations created by the Pooling and
Servicing Agreement will terminate in respect of the Class A Certificates are
described in 'The Pooling and Servicing Agreement -- Termination; Retirement of
Certificates' in the Prospectus. The Master Servicer or the Company will have
the option on any Distribution Date on or after the Loan Group I Optional
Termination Date or Loan Group II Optional Termination Date, as applicable, (i)
to purchase all remaining Group I Loans or Group II Loans, as applicable, and
other assets in the Trust Fund related thereto (except for the Policy), thereby
effecting early retirement of the Class A-I Certificates or Class A-II
Certificates, as applicable, or (ii) to purchase in whole, but not in part, the
Class A-I Certificates or Class A-II Certificates; provided, however, in each
case, that no such early termination of the Trust Fund will be permitted if it
would result in a draw under the Policy unless the Insurer consents to such
termination. Any such purchase of Group I Loans or Group II Loans and other
assets of the Trust Fund related thereto shall be made at a price equal to the
sum of (a) 100% of the unpaid principal balance of each Group I Loan or Group II
Loan, as applicable, (or, if less than such unpaid principal balance, the fair
market value of the related underlying Mortgaged Properties with respect to
Group I Loans or Group II Loans, as applicable, as to which title to such
underlying Mortgaged Properties has been acquired) (net of any unreimbursed
Advance attributable to principal) as of the date of repurchase, (b) accrued
interest thereon at the Net Mortgage Rate plus the Policy Premium Rate to, but
not including, the first day of the month in which such repurchase price is
distributed, (c) any amounts due to the Insurer pursuant to the Insurance
Agreement and (d) any unpaid Prepayment Interest Shortfalls or Class A-II Basis
Risk Shortfalls, as applicable, together with interest thereon. Distributions
on the Class A-I Certificates in respect of any such optional termination will
be paid, first, to the related Class A Certificates, second, except as set forth
in the Pooling and Servicing Agreement, to the related Class SB and Class R
Certificates. The proceeds of any such distribution may not be sufficient to
distribute the full amount to the Class A Certificates if the purchase price
is based in part on the fair market value of any underlying Mortgaged Property
in the related Loan Group and such fair market value is less
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than 100% of the unpaid principal balance of the related Mortgage Loan;
provided, however, with respect to the Class A Certificates, if such amount is
an Insured Amount, such amount will be paid under the Policy. Any such purchase
of Mortgage Loans and termination of the Trust Fund requires the consent of the
Insurer if it would result in a draw on the Policy, subject to the terms
thereof.
Any such purchase of the Class A-I Certificates or Class A-II Certificates
as discussed above, will be made at a price equal to 100% of the Certificate
Principal Balance thereof plus the sum of interest accrued thereon at the
applicable Pass-Through Rate (including any unpaid Prepayment Interest
Shortfalls, unpaid Class A-II Basis Risk Shortfalls and interest thereon) and
any previously accrued and unpaid interest. Upon the purchase of the Class A-I
Certificates or Class A-II Certificates, as applicable, or at any time
thereafter, at the option of the Master Servicer or the Company, the Group I
Loans or the Group II Loans, as applicable, may be sold, thereby effecting a
retirement of the Class A-I Certificates or Class A-II Certificates and the
termination of the related Loan Group from the Trust Fund, or the Class A-I
Certificates or Class A-II Certificates so purchased may be held or resold by
the Master Servicer or the Company. Upon presentation and surrender of the Class
A-I Certificates or Class A-II Certificates, as applicable, in connection with a
purchase thereof, the holders of the Class A-I Certificates or Class A-II
Certificates, as applicable, will receive an amount equal to the Certificate
Principal Balance of such class plus interest accrued thereon at the related
Pass-Through Rate plus any previously accrued and unpaid interest.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
Three separate REMIC elections will be made with respect to the Trust Fund
for federal income tax purposes (the REMICs formed thereby being referred to as
'REMIC I', 'REMIC II' and 'REMIC III', respectively). Upon the issuance of the
Offered Certificates, Orrick, Herrington & Sutcliffe LLP, 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, REMIC I, REMIC II and REMIC III will each qualify
as a REMIC under Sections 860A through 860G of the Code.
The assets of REMIC I will consist of the Group I Loans, any Mortgaged
Properties relating to an REO Mortgage Loan in Group I, such assets as from time
to time are deposited in the Custodial Account or the Certificate Account with
respect to the Group I Loans and Mortgaged Properties relating to REO Mortgage
Loans, any hazard or other insurance policies with respect to the Group I Loans
and any proceeds of such policies, but will not include any proceeds of the
Policy. The assets of REMIC II will consist of the Group II Loans, any Mortgaged
Properties relating to an REO Mortgage Loan in Group I, such assets as from time
to time are deposited in the Custodial Account or the Certificate Account with
respect to the Group II Loans and Mortgaged Properties relating to REO Mortgage
Loans in Group II, any hazard or other insurance policies with respect to the
Group II Loans and any proceeds of such policies, but will not include any
proceeds of the Policy.
For federal income tax purposes, (a) the Class R-I Certificates will be the
sole class of 'residual interests' in REMIC I; (b) the Class R-II Certificates
will be the sole class of 'residual interests' in REMIC II; and (c) the separate
non-certificated regular interests in REMIC I and REMIC II will be the 'regular
interests' in REMIC I and REMIC II, respectively, and will constitute the assets
of REMIC III. Each class of Class A Certificates and Class SB Certificates will
represent ownership of 'regular interests' in REMIC III and will generally be
treated as representing ownership of debt instruments of REMIC III (except that
the Class A-I-1 Certificates may be treated as representing ownership of an
interest in a regular interest in a REMIC and, to the extent of its right to
receive payments of Class A-I-1 Basis Risk Shortfalls under the Policy that are
not reimbursed from amounts collected on the Mortgage Loans, an interest in a
cap contract -- the Servicer and REMIC Administrator do not intend to allocate
any basis to the cap contract component of the Policy in determining the basis
of REMIC III in the Mortgage Loans), and the Class R-III Certificates will
constitute the sole class of 'residual interests' in REMIC III.
For federal income tax reporting purposes, the Offered Certificates will
not be treated as having been issued with original issue discount. 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 will prepay at a rate equal to 100% of the
Group I Prepayment Assumption (with respect to the Group I Loans) and 26% CPR
(with respect to the Group II Loans). No representation is made that the
Mortgage Loans will prepay at that rate or at
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<PAGE>
any other rate. See 'Certain Federal Income Tax Consequences -- REMICs --
Taxation of Owners of REMIC Regular Certificates -- Original Issue Discount'
in the Prospectus.
The Internal Revenue Service (the 'IRS') has issued regulations (the 'OID
REGULATIONS') under sections 1271 to 1275 of the Code generally addressing the
treatment of debt instruments issued with original issue discount. Purchasers of
the Offered Certificates should be aware that Section 1272(a)(6) of the Code and
the OID Regulations do not adequately address certain issues relevant to, or
applicable to, prepayable securities bearing a variable rate of interest such as
the Class A-I-1 Certificates and Class A-II Certificates. In the absence of
other authority, the Master Servicer intends to be guided by certain principles
of the OID Regulations applicable to variable rate debt instruments in
determining whether such Certificates should be treated as issued with original
issue discount and in adapting the provisions of Section 1272(a)(6) of the Code
to such Certificates for the purpose of preparing reports furnished to
Certificateholders and the IRS. Because of the uncertainties concerning the
application of Section 1272(a)(6) of the Code to such Certificates and because
the rules relating to debt instruments having a variable rate of interest are
limited in their application in ways that could preclude their application to
such Certificates even in the absence of Section 1272(a)(6) of the Code, the IRS
could assert that the Class A-I-1 Certificates and Class A-II Certificates
should be governed by some other method not yet set forth in regulations or
should be treated as having been issued with original issue discount.
Prospective purchasers of the Class A-I-1 Certificates and Class A-II
Certificates are advised to consult their tax advisors concerning the tax
treatment of such Certificates.
The Master Servicer believes that, if the Class A-I-1 or Class A-II
Certificates were determined to have been issued with original issue discount, a
reasonable application of the principles of the OID Regulations to the Class
A-I-1 or Class A-II Certificates generally would be to report all income with
respect to such Certificates as original issue discount for each period,
computing such original issue discount (i) by assuming that the value of the
applicable index will remain constant for purposes of determining the original
yield to maturity of each such class of Certificates and projecting future
distributions on such Certificates, thereby treating such Certificates as fixed
rate instruments to which the original issue discount computation rules
described in the Prospectus can be applied, and (ii) by accounting for any
positive or negative variation in the actual value of the applicable index in
any period from its assumed value as a current adjustment to original issue
discount with respect to such period. See 'Certain Federal Income Tax
Consequences -- REMICs -- Taxation of Owners of REMIC Regular
Certificates -- Original Issue Discount' in the Prospectus.
In certain circumstances the OID Regulations permit the holder of a debt
instrument to recognize original issue discount under a method that differs from
that used by the issuer. Accordingly, the holder of an Offered Certificate may
be able to select a method for recognizing original issue discount that differs
from that used by the Master Servicer in preparing reports to the
Certificateholders and the IRS.
The Offered Certificates (other than the Class A-I-1 Certificates to the
extent of the component thereof which represents ownership of an interest in a
cap contract (see above)) will be treated as assets described in Section
7701(a)(19)(C) of the Code and 'real estate assets' under Section 856(c)(4)(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 (except
in the case of the Class A-I-1 Certificates, for payments received under the
Policy for Class A-I-1 Basis Risk Shortfalls that are not ultimately reimbursed
from payments collected on the Mortgage Loans) 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)(4)(A) of the Code. Moreover, the
Offered Certificates (other than the Class A-I-1 Certificates to the extent of
the cap contract component thereof described above) will be 'qualified
mortgages' within the meaning of Section 860G(a)(3) of the Code if transferred
to another REMIC on its startup day in exchange for a regular or residual
interest therein. 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 (i) notwithstanding such treatment, any repurchase of such a
Certificate pursuant to the right of the Master Servicer 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, and (ii) payments received on the Class
A-I-1 Certificates attributable to payments under the Policy for Class A-I-1
Basis Risk Shortfalls that are not ultimately reimbursed from payments collected
on the Mortgage Loans may be treated as 'income from nonpermitted assets' which
would be subject to 100% Prohibited Transaction Tax when received by any REMIC
owning Class A-I-1 Certificates. Recently enacted legislation
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repealed the provisions of Section 593(d) of the Code allowing thrift
institutions to use a reserve method of accounting for bad debts, effective for
taxable years beginning after December 31, 1995. 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 federal income tax consequences of
investing in the Offered Certificates, see 'Certain Federal Income Tax
Consequences -- REMICs' in the Prospectus.
METHOD OF DISTRIBUTION
Subject to the terms and conditions set forth in an Underwriting Agreement
(the 'UNDERWRITING AGREEMENT'), dated November 20, 1997, the Underwriter has
agreed to offer the Class A Certificates on a best efforts basis and the Company
has agreed to sell to the Underwriter such Class A Certificates when and if sold
by the Underwriter. The Underwriter is an indirect wholly-owned subsidiary of
Residential Funding. The termination date of the offering of the Class A
Certificates is the earlier to occur of November 20, 1998, or the date on which
all of such Class A Certificates have been sold. Proceeds of the offering of the
Class A Certificates will not be placed in any escrow, trust or similar
arrangement.
It is expected that delivery of the Class A Certificates will be made only
in book-entry form through the Same Day Funds Settlement System of DTC, and that
the delivery of the Residual Certificates will be made at the offices of Orrick,
Herrington & Sutcliffe LLP, New York, New York, on or about November 25, 1997,
against payment therefor in immediately available funds.
The Underwriter is offering the Class A Certificates on a best efforts
basis and will only be obligated to pay for and accept delivery of any of the
Class A Certificates at such time as it sells such Class A Certificates.
In addition, the Underwriting Agreement provides that the obligation of the
Underwriter to pay for and accept delivery of the Class A 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 Class A Certificates will be offered by the Underwriter, on a best
efforts basis, from time to time to the public, directly or through dealers, in
one or more negotiated transactions, or otherwise, at varying prices to be
determined at the time of sale. The proceeds to the Company from any sale of the
Class A 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 the Underwriter and any such dealer. The Underwriter may effect such
transactions by selling the Class A Certificates to or through dealers, and such
dealers may receive compensation in the form of underwriting discounts,
concessions or commissions from the Underwriter. In connection with the sale of
the Class A Certificates, the Underwriter may be deemed to have received
compensation from the Company in the form of underwriting compensation. The
Underwriter and any dealers that participate with the Underwriter in the
distribution of Class A Certificates may be deemed to be underwriters and any
profit on the resale of the Class A Certificates positioned by them may be
deemed to be underwriting discounts and commissions under the Securities Act of
1933.
The Underwriting Agreement provides that the Company will indemnify the
Underwriter, 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 is currently no secondary market for the Class A Certificates.
Neither the Company, the Underwriter nor any other person or entity intends to
create a secondary market in the Class A Certificates. There can be no assurance
that a secondary market for the Class A Certificates will develop or, if it does
develop, that it will continue. The primary source of information available to
investors concerning the Class A Certificates will be the monthly statements as
discussed in the Prospectus under 'Description of the Certificates -- Reports to
Certificateholders,' which will include information as to the outstanding
principal balance of the Class A Certificates and the status of the applicable
form of credit enhancement. There can be no assurance that any additional
information regarding the Class A Certificates will be available through any
other source. In addition, the Company is not aware of any source through which
price information about the Class A Certificates will be generally available on
an ongoing basis. The limited nature of such information regarding the Class A
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Certificates may adversely affect the liquidity of the Class A Certificates,
even if a secondary market for the Class A Certificates becomes available.
LEGAL OPINIONS
Certain legal matters relating to the Certificates will be passed upon for
the Company and RFSC by Orrick, Herrington & Sutcliffe LLP, New York, New York.
EXPERTS
The consolidated financial statements of Ambac Assurance Corporation, as of
December 31, 1996 and 1995 and for each of the years in the three-year period
ended December 31, 1996 are incorporated by reference herein and in the
registration statement in reliance upon the report of KPMG Peat Marwick LLP,
independent certified public accountants, incorporated by reference herein, and
upon the authority of said firm as experts in accounting and auditing.
RATINGS
It is a condition of the issuance of the Class A Certificates that they be
rated 'AAA' by each of Standard & Poor's and Fitch and 'Aaa' by Moody's.
Standard & Poor's ratings on mortgage pass-through certificates address the
likelihood of the receipt by Certificateholders of payments required under the
Pooling and Servicing Agreement. Standard & Poor's 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. Standard & Poor's rating on the Class A Certificates is based on
the claims-paying ability of the Insurer. Standard & Poor's rating on the Class
A Certificates does not, however, constitute a statement regarding frequency of
prepayments on the mortgages. See 'Certain Yield and Prepayment Considerations'
herein. In addition, the ratings do not address the likelihood of the receipt of
any amounts in respect of Prepayment Interest Shortfalls.
The ratings assigned by Fitch to mortgage pass-through certificates also
address the likelihood of the receipt by Certificateholders of all distributions
to which such Certificateholders are entitled. The rating process addresses the
structural and legal aspects associated with the Certificates, including the
nature of the underlying mortgage loans. The ratings assigned to mortgage
pass-through certificates do not represent any assessment of the likelihood or
rate of principal prepayments. The ratings do not address the possibility that
Certificateholders might suffer a lower than anticipated yield. In addition, the
ratings do not address the likelihood of the receipt of any amounts in respect
of Prepayment Interest Shortfalls.
The rating assigned by Moody's to the Class A Certificates is based on the
claims-paying ability of the Insurer. Ratings by Moody's address the structural,
legal and issuer-related aspects associated with the Certificates, including the
nature and quality of the underlying mortgage loans. Such ratings do not
represent any assessment of the likelihood of principal prepayments by
mortgagors or of the degree by which such prepayments might differ from those
originally anticipated. In addition, the ratings do not address the likelihood
of the receipt of any amounts in respect of Prepayment Interest Shortfalls.
The ratings on the Class A Certificates also do not address the likelihood
of the receipt of any amounts in respect of Class A-II Basis Risk Shortfalls.
The Company has not requested a rating on the Class A Certificates by any
rating agency other than Standard & Poor's, Moody's and Fitch. However, there
can be no assurance as to whether any other rating agency will rate the Class A
Certificates, or, if it does, what rating would be assigned by any such other
rating agency. A rating on the Class A Certificates by another rating agency, if
assigned at all, may be lower than the ratings assigned to the Class A
Certificates by Standard & Poor's, Moody's and Fitch.
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. In the event that the ratings initially assigned to the
Class A Certificates are subsequently lowered for any reason, no person or
entity is obligated to provide any additional support or credit enhancement with
respect to the Class A Certificates.
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LEGAL INVESTMENT
The Class A Certificates will not constitute 'mortgage related securities'
for purposes of SMMEA.
The Company makes no representations as to the proper characterization of
the Class A Certificates for legal investment or other purposes, or as to the
ability of particular investors to purchase the Class A Certificates under
applicable legal investment restrictions. These uncertainties may adversely
affect the liquidity of the Class A 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 an investment in the Class A Certificates constitutes a legal investment
or is subject to investment, capital or other restrictions.
See 'Legal Investment Matters' in the Prospectus.
ERISA CONSIDERATIONS
A fiduciary of any employee benefit plan or other plan or arrangement
subject to ERISA or Section 4975 of the Code (a 'PLAN'), any insurance company
(whether through its general or separate accounts) or any other person investing
'Plan Assets' of any Plan, as defined under 'ERISA Considerations -- Plan Asset
Regulations' in the Prospectus, should carefully review with its legal advisors
whether the purchase or holding of Class A Certificates could give rise to a
transaction prohibited or not otherwise permissible under ERISA or Section 4975
of the Code. The purchase or holding of the Class A Certificates by or on behalf
of, or with 'Plan Assets' of, a Plan may qualify for exemptive relief under the
Exemption, as described under 'ERISA Considerations -- Prohibited Transaction
Exemptions' in the Prospectus. However, the Exemption contains a number of
conditions which must be met for the Exemption to apply, 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.
The Small Business Job Protection Act of 1996 added a new Section 401(c) to
ERISA, which provides certain exemptive relief from the provisions of Part 4 of
Title I of ERISA and Section 4975 of the Code, including the prohibited
transaction restrictions imposed by ERISA and the related excise taxes imposed
by Section 4975 of the Code, for transactions involving an insurance company
general account. Pursuant to Section 401(c) of ERISA, the DOL is required to
issue final regulations (the '401(C) REGULATIONS') no later than December 31,
1997 which are to provide guidance for purposes of determining, in cases where
insurance policies or annuity contracts supported by an insurer's general
account are issued to or for the benefit of a Plan on or before December 31,
1998, which general account assets constitute Plan Assets. Section 401(c) of
ERISA generally provides that, until the date which is 18 months after the
401(c) Regulations become final, no person shall be subject to liability under
Part 4 of Title I of ERISA and Section 4975 of the Code on the basis of a claim
that the assets of an insurance company general account constitute Plan Assets,
unless (i) as otherwise provided by the Secretary of Labor in the 401(c)
Regulations to prevent avoidance of the regulations or (ii) an action is brought
by the Secretary of Labor for certain breaches of fiduciary duty which would
also constitute a violation of federal or state criminal law. Any assets of an
insurance company general account which support insurance policies or annuity
contracts issued to a Plan after December 31, 1998 or issued to Plans on or
before December 31, 1998 for which the insurance company does not comply with
the 401(c) Regulations may be treated as Plan Assets. In addition, because
Section 401(c) does not relate to insurance company separate accounts, separate
account assets are still treated as Plan Assets of any Plan invested in such
separate account. Insurance companies contemplating the investment of general
account assets in the Class A Certificates should consult with their legal
advisors with respect to the availability of exemptive relief under the
Exemption and the applicability of Section 401(c) of ERISA, including the
general account's ability to continue to hold the Class A Certificates after the
date which is 18 months after the date the 401(c) Regulations become final.
Any fiduciary or other investor of Plan Assets that proposes to acquire or
hold the Class A 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 Section 4975 of the Code to the proposed investment. See
'ERISA Considerations' in the Prospectus.
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PROSPECTUS
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 9.
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
GROUP, INC. ('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 August 22, 1997.
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ADDITIONAL INFORMATION
The Company has filed with the Securities and Exchange Commission (the
'COMMISSION') a Registration Statement under the Securities Act of 1933, as
amended, with respect to the Certificates (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 Northeast Regional Office, 7 World
Trade Center, Suite 1300, New York, New York 10048, at prescribed rates and
electronically through the Commission's Electronic Data Gathering, Analysis and
Retrieval system at the Commission's Web site (http://www.sec.gov).
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.' Any reports forwarded to holders will contain financial
information that has not been examined or reported upon by an independent
certified public accountant. 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 reports 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 600, Minneapolis,
Minnesota 55437, or by telephone at (612) 832-7000.
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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
<TABLE>
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ADDITIONAL INFORMATION........................... 2
REPORTS TO CERTIFICATEHOLDERS.................... 2
INCORPORATION OF CERTAIN INFORMATION BY
REFERENCE...................................... 2
SUMMARY OF PROSPECTUS............................ 4
RISK FACTORS..................................... 9
Risks Associated with the Mortgage
Collateral................................. 9
Yield and Prepayment Considerations.......... 11
Limited Representations and Warranties....... 11
Limited Liquidity............................ 11
Limited Obligations.......................... 11
Limitations, Reduction and Substitution of
Credit Enhancement......................... 12
THE TRUST FUNDS.................................. 12
General...................................... 12
The Mortgage Loans........................... 13
The Contracts................................ 19
The Agency Securities........................ 20
Mortgage Collateral Sellers.................. 21
Representations with Respect to Mortgage
Collateral................................. 21
Repurchases of Mortgage Collateral........... 23
Limited Right of Substitution................ 24
DESCRIPTION OF THE CERTIFICATES.................. 25
General...................................... 25
Form of Certificates......................... 25
Assignment of Mortgage Loans................. 27
Assignment of Contracts...................... 28
Review of Mortgage Loan or Contract
Documents.................................. 29
Assignment of Agency Securities.............. 29
Spread....................................... 29
Payments on Mortgage Collateral.............. 29
Withdrawals from the Custodial Account....... 32
Distributions................................ 32
Advances..................................... 35
Prepayment Interest Shortfalls............... 36
Reports to Certificateholders................ 36
Servicing and Administration of Mortgage
Collateral................................. 37
Realization Upon Defaulted Property.......... 41
SUBORDINATION.................................... 42
DESCRIPTION OF CREDIT ENHANCEMENT................ 44
General...................................... 44
Letters of Credit............................ 45
Mortgage Pool Insurance Policies............. 45
Special Hazard Insurance Policies............ 47
Bankruptcy Bonds............................. 47
Reserve Funds................................ 48
Certificate Insurance Policies............... 48
Surety Bonds................................. 48
Maintenance of Credit Enhancement............ 49
Reduction or Substitution of Credit
Enhancement................................ 49
PURCHASE OBLIGATIONS............................. 50
INSURANCE POLICIES ON MORTGAGE LOANS OR
CONTRACTS...................................... 50
Primary Mortgage Insurance Policies.......... 50
Standard Hazard Insurance on Mortgaged
Properties................................. 51
Standard Hazard Insurance on Manufactured
Homes...................................... 52
FHA Mortgage Insurance....................... 52
VA Mortgage Guaranty......................... 53
THE COMPANY...................................... 53
RESIDENTIAL FUNDING CORPORATION.................. 54
THE POOLING AND SERVICING AGREEMENT.............. 55
Servicing and Administration................. 55
Events of Default............................ 55
Rights Upon Event of Default................. 55
Amendment.................................... 56
Termination; Retirement of Certificates...... 57
The Trustee.................................. 57
YIELD CONSIDERATIONS............................. 58
MATURITY AND PREPAYMENT CONSIDERATIONS........... 61
CERTAIN LEGAL ASPECTS OF MORTGAGE LOANS AND
CONTRACTS...................................... 63
The Mortgage Loans........................... 63
The Contracts................................ 71
Environmental Legislation.................... 73
Soldiers' and Sailors' Civil Relief Act of
1940....................................... 74
Default Interest and Limitations on
Prepayments................................ 74
Forfeitures in Drug and RICO Proceedings..... 74
CERTAIN FEDERAL INCOME TAX CONSEQUENCES.......... 75
General...................................... 75
REMICs....................................... 75
STATE AND OTHER TAX CONSEQUENCES................. 90
ERISA CONSIDERATIONS............................. 90
Plan Asset Regulations....................... 91
Prohibited Transaction Exemption............. 91
Insurance Company General Accounts........... 93
Representation from Investing Plans.......... 94
Tax-Exempt Investors......................... 94
Consultation with Counsel.................... 94
LEGAL INVESTMENT MATTERS......................... 95
USE OF PROCEEDS.................................. 96
METHODS OF DISTRIBUTION.......................... 96
LEGAL MATTERS.................................... 97
FINANCIAL INFORMATION............................ 97
INDEX OF PRINCIPAL DEFINITIONS................... 98
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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.
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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
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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
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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 HomeComings Financial Network, Inc.,
Residential Money Centers, Inc. and GMAC Mortgage Corporation, 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
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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.'
</TABLE>
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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, bank collective investment
funds, insurance company general and separate accounts and certain
other entities 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.
</TABLE>
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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, the absence of
primary mortgage insurance, 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
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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 or if the value of the related Mortgaged Property has declined. 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.
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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,
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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.'
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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 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 under Residential Funding's mortgage loan origination program for
sub-prime mortgage loans (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'),
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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 the reduction of the interest
rate based on the payment performance of the Mortgage Loans, 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
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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
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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. 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
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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 aspects of the
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
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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. Some borrowers may have filed bankruptcy within
a few years of the time of origination of the related Mortgage Loan. In
addition, certain Mortgage Loans with Loan-to-Value Ratios over 80% will not be
required to have the benefit of primary mortgage insurance. 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
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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. SS 5402(6) which are treated as 'single
family residences' for the purposes of the REMIC provisions of the Code.
Accordingly, a Manufactured Home will be a structure built on a permanent
chassis, which is transportable in one or more sections and customarily used at
a fixed location, has a minimum of 400 square feet of living space and minimum
width in excess of 8 1/2 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.
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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.
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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. SS 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 Corporation and 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, HomeComings
Financial Network, Inc. and Residential Money Centers, Inc., each an affiliate
of the Company, will be AlterNet Program Sellers. Each AlterNet Program Seller
generally will have been a HUD-approved mortgagee or a financial institution
supervised by a federal or state authority and will have demonstrated, in the
judgment of the Company, sufficient 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
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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 or more months
delinquent in payment of principal and interest as of the related 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)
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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
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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.
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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
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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 the 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.
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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
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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
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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 an
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.
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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
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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.
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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
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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 accrue during each calendar month
and will be payable on the Distribution Date in the following calendar month.
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 amount to be distributed to such class for such Distribution Date in respect
of principal, plus, if such class is entitled to payments of interest on such
Distribution Date, interest accrued during the related interest accrual period
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.
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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 May 1997:
<TABLE>
<CAPTION>
DATE NOTE DESCRIPTION
- ---------------------------------- ----- ---------------------------------------------------------
<S> <C> <C>
May 1............................. (A) Cut-off Date.
May 2-31.......................... (B) The Servicers or the Sub-Servicers, as applicable,
receive any Principal Prepayments and applicable
interest on such Principal Prepayments.
May 30............................ (C) Record Date.
May 2-June 1...................... (D) The dates on which scheduled payments and Mortgage Loans
or Contracts are due (each, a 'DUE DATE' and
collectively, the 'DUE PERIOD').
June 18........................... (E) The Servicers or the Sub-Servicers, as applicable, remit
to the Master Servicer or the Servicer, as applicable,
scheduled payments of principal and interest due during
the related Due Period and received or advanced by
them.
June 20........................... (F) Determination Date.
June 25........................... (G) Distribution Date.
</TABLE>
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 Periods, 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 May 1, 1997, after deducting principal payments due on
or before such date. Those principal payments due on or before May 1, and
the accompanying interest payments, and any Principal Prepayments received
as of the close of business on May 1, 1997 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 for a
Mortgage Loan 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 June 25 will be made to Certificateholders of record at
the close of business on May 31.
(D) Scheduled principal and interest payments are due from Mortgagors.
(E) Payments due from Mortgagors during the related Due Period 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 May balances (with the exception of interest
from the date of prepayment of any Mortgage Loan or Contract prepaid in
full during May and interest on the amount of partial Principal Prepayments
in May). 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 June 18 together with any required
Advances by the Servicer or the Sub-Servicers (except that Principal
Prepayments in full and certain Principal Prepayments in part received by
Sub-Servicers during the month of April will have been remitted to the
Master Servicer or the Servicer, as applicable, within five business days
of receipt).
(footnotes continued on next page)
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(footnotes continued from previous page)
(F) On June 20, the Master Servicer or the Certificate Administrator, if any,
will determine the amounts of principal and interest which will be passed
through on June 25 to the holders of each class of Certificates. The Master
Servicer or the Certificate Administrator, if any, will be obligated to
distribute those payments due during the related Due Period which have been
received from Servicers or Sub-Servicers prior to and including June 18, as
well as all Principal Prepayments received on Mortgage Loans in May (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 June 25 may include certain amounts otherwise distributable to the
holders of the related Subordinate Certificates, amounts withdrawn from any
Reserve Fund and amounts advanced by the Master Servicer or the Servicer
under the circumstances described in 'Subordination' and ' -- Advances.'
(G) On June 25, the amounts determined on June 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
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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;
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(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 of
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.
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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 Prospectus 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 payment 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,
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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 unless each Rating Agency has confirmed in
writing that the resignation will not qualify, reduce or cause to be withdrawn
the then current ratings on the Certificates 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
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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 or Servicer may
also waive or modify any term of a Mortgage Loan so long as the Master Servicer
or Servicer has determined that such waiver or modification is not materially
adverse to any Certificateholders, taking into account any estimated loss that
may result absent such action.
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
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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.
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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. 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
amount of the Realized Loss that was allocated to such class. 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
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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
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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
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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
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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
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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
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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
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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
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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.
PURCHASE OBLIGATIONS
Certain types of Mortgage Collateral and certain classes of Certificates of
any series, as specified in the related Prospectus Supplement, may be subject to
a purchase obligation (a 'PURCHASE OBLIGATION') that would become applicable on
one or more specified dates, or upon the occurrence of one or more specified
events, or on demand made by or on behalf of the applicable Certificateholders.
A Purchase Obligation may be in the form of a conditional or unconditional
purchase commitment, liquidity facility, maturity guaranty, put option or demand
feature. The terms and conditions of each Purchase Obligation, including the
purchase price, timing and payment procedure, will be described in the related
Prospectus Supplement. A Purchase Obligation with respect to Mortgage Collateral
may apply to that Mortgage Collateral or to the related Certificates. Each
Purchase Obligation may be a secured or unsecured obligation of the provider
thereof, which may include a bank or other financial institution or an insurance
company. Each Purchase Obligation will be evidenced by an instrument delivered
to the Trustee for the benefit of the applicable Certificateholders of the
related series. Each Purchase Obligation with respect to Mortgage Collateral
will be payable solely to the Trustee for the benefit of the Certificateholders
of the related series. Other Purchase Obligations may be payable to the Trustee
or directly to the holders of the Certificates to which such obligations relate.
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
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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, to the extent that coverage is available and for so long as a Primary
Insurance Policy is required to be maintained, the Master Servicer or Servicer
shall 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 and the
Master Servicer or Servicer had knowledge of such Primary Insurance Policy.
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
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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
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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.
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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 600, 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 600, 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
March 31, 1997, Residential Funding was master servicing a first lien loan
portfolio of approximately $34.8 billion and a second lien loan portfolio of
approximately $1.8 billion.
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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
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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 modify the provisions regarding the
transferability 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
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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
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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.
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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
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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
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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
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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
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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
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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
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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
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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
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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
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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
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'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
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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.
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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 Home
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.
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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.
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'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.
The Asset Conservation, Lender Liability and Deposit Insurance Act of 1996
(the 'CONSERVATION ACT') amended, among other things, the provisions of CERCLA
with respect to lender liability and the secured creditor exemption. The
Conservation Act offers substantial protection to lenders by defining the
activities in which a lender can engage and still have the benefit of the
secured creditor exemption. In order for a lender to be deemed to have
participated in the management of a mortgaged property, the lender must actually
participate in the operational affairs of the mortgaged property. The
Conservation Act provides that 'merely having the capacity to influence, or
unexercised right to control' operations does not constitute participation in
management. A lender will lose the protection of the secured creditor exemption
only if it exercises decision-making control over the mortgagor's environmental
compliance and hazardous substance handling and disposal practices, or assumes
day-to-day management of substantially all of the operational functions of the
mortgaged property. The Conservation Act also provides that a lender will
continue to have the benefit of the secured creditor exemption even if it
forecloses on a mortgaged property, purchases it at a foreclosure sale or
accepts a
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deed-in-lieu of foreclosure provided that the lender seeks to sell the mortgaged
property at the earliest practicable commercially reasonable time on
commercially reasonable terms.
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
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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 LLP 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 LLP 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
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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 '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 Section 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 LLP 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.
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Solely for purposes of determining whether the REMIC Certificates will be
'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. The Small Business Job Protection Act of 1996 repealed the application of
Section 593(d) of the Code to any taxable year after December, 1995.
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').
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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
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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 (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 plus (ii) the daily portions of original issue discount for all days
during such accrual period prior to such day minus (iii) any principal payments
made during such accrual period prior to such day with respect to such
certificates.
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 may not be revoked without the consent
of the IRS.
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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 may
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.
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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.
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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' 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.
A 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.
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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 Residual 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.
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Excess Inclusions. Any 'excess inclusions' with respect to a REMIC Residual
Certificate will 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, brokers and underwriters) at which a substantial
amount of the REMIC Residual Certificates were sold. If less than a substantial
amount of a particular class of REMIC Residual Certificates is sold for cash on
or prior to the Closing Date, the issue price of such class will be treated as
the fair market value of such class on the Closing Date. 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. Furthermore, for purposes of the
alternative minimum tax, (i) excess inclusions will not be permitted to be
offset by the alternative tax net operating loss deduction and (ii) alternative
minimum taxable income may not be less than the taxpayer's excess inclusions;
provided, however, that for purposes of (ii), alternative minimum taxable income
is determined without regard to the special rule that taxable income cannot be
less than excess inclusions. The latter rule has the effect of preventing
nonrefundable tax credits from reducing the taxpayer's income tax to an amount
lower than the alternative minimum tax on excess inclusions.
Although it has not done so, the Treasury 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 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.
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
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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 24, 1996, the IRS released final
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 REMIC Residual Certificate acquired on or after
January 4, 1995 is not treated as a security and thus 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
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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.
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.
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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
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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 taxable years beginning after
December 31, 1997, notwithstanding the preceding two sentences, in the case of a
REMIC Residual Certificate held by an 'electing large partnership,' all
interests in such partnership shall be treated as held by disqualified
organizations (without regard to whether the record holders of the partnership
furnish statements described in the preceding sentence) and the amount that is
subject to tax under the second preceding sentence is excluded from the gross
income of the partnership allocated to the partners (in lieu of allocating to
the partners a deduction for such tax paid by the partners).
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
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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
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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 (except in the case of a Partnership, to the
extent provided in the Regulations), or an estate whose income is subject to
United States federal income tax regardless of its source, or a trust if a court
within the United States is able to exercise primary supervision over the
administration of the trust and one or more United States fiduciaries have the
authority to control all substantial decisions of the trust. To the extent
prescribed in regulations by the Secretary of the Treasury, which regulations
have not yet been issued, a trust which was in existence on August 20, 1996
(other than a trust treated as owned by the grantor under subpart E of part I of
subchapter J of chapter 1 of the Code), and which was treated as a United States
person on August 19, 1996, may elect to continue to be treated as a United
States person notwithstanding the previous sentence. 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
Sections 404 and 406 of ERISA impose certain fiduciary and prohibited
transaction restrictions on employee pension and welfare benefit plans subject
to ERISA ('ERISA PLANS') and on certain other retirement plans and arrangements,
including individual retirement accounts and annuities, Keogh plans, bank
collective investment funds and insurance company general and separate accounts
in which such ERISA Plans are invested. Section 4975 of the Code imposes
essentially the same prohibited transaction restrictions on tax-qualified
retirement plans described in Section 401(a) of the Code and on individual
retirement accounts 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) and, if no election has been made under Section 410(d)
of the Code, church plans (as defined in Section 3(33) 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 tax-qualified 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
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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, collectively, 'PARTIES IN
INTEREST') who have certain specified relationships to the Plans, unless a
statutory or administrative exemption is available. Certain Parties in Interest
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 with respect
to any such transaction.
PLAN ASSET REGULATIONS
An investment of Plan Assets in Certificates may cause the underlying
Mortgage Loans, Contracts and Agency Securities included in a Trust Fund to be
deemed 'plan assets' of such Plan. The U.S. Department of Labor (the 'DOL') has
promulgated regulations at 29 C.F.R. Section 2510.3-101 (the 'DOL REGULATIONS')
concerning whether or not a Plan's assets would be deemed to include an interest
in the underlying assets of an entity (such as a Trust Fund) for purposes of
applying the general fiduciary responsibility provisions of ERISA and the
prohibited transaction provisions of ERISA and 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 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, a Trust Fund, including the Mortgage Loans, Contracts or
Agency Securities or any other assets held in such 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 or any other assets in a Trust Fund were to constitute Plan
Assets, then any party exercising management or discretionary control with
respect to 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 or any
other assets in a Trust Fund were to constitute Plan Assets, then the
acquisition or holding of Certificates by, or on behalf of a Plan or with Plan
Assets, as well as the operation of such Trust Fund, may constitute or involve a
prohibited transaction under ERISA and the Code.
PROHIBITED TRANSACTION EXEMPTION
The DOL issued an individual exemption, Prohibited Transaction Exemption
94-29, (59 Fed. Reg. 14, 674, March 29, 1994) (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
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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,
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 Credit Rating Co. or Fitch Investors
Service, L.P. (collectively, the 'EXEMPTION RATING AGENCIES'). 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.
The Exemption also requires that each Trust Fund meet the following
requirements: (i) the Trust Fund must consist solely of assets of the type that
have been included in other investment pools; (ii) certificates evidencing
interests in such other investment pools must have been rated in one of the
three highest categories of one of the Exemption Rating Agencies for at least
one year prior to the acquisition of Certificates by or on behalf of a Plan or
with Plan Assets; and (iii) certificates in such other investment pools must
have been purchased by investors other than Plans for at least one year prior to
any acquisition of Certificates by or on behalf of a Plan or with Plan Assets.
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(a)
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.
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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, as well as 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(a) of ERISA, as well as 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, as well as 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 with respect to an investing Plan (or
the investing entity holding Plan Assets) by virtue of providing services to the
Plan (or by virtue of having certain specified relationships to such a person)
solely as a result of the Plan's ownership of Certificates.
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 or second Mortgage Loans,
Contracts 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 other class exemptions granted by the DOL, which
provide relief from certain of the prohibited transaction provisions of ERISA
and the related excise tax provisions of Section 4975 of the Code, including
Section III of PTCE 95-60, regarding transactions by insurance company general
accounts. The respective Prospectus Supplement may contain additional
information regarding the application of the Exemption, PTCE 83-1, PTCE 95-60 or
other DOL class exemptions 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.
INSURANCE COMPANY GENERAL ACCOUNTS
In addition to any exemption that may be available under PTCE 95-60 for the
purchase and holding of the Certificates by an insurance company general
account, the Small Business Job Protection Act of 1996 added a
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new Section 401(c) to ERISA, which provides certain exemptive relief from the
provisions of Part 4 of Title I of ERISA and Section 4975 of the Code, including
the prohibited transaction restrictions imposed by ERISA and the related excise
taxes imposed by Section 4975 of the Code, for transactions involving an
insurance company general account. Pursuant to Section 401(c) of ERISA, the DOL
is required to issue final regulations ('401(C) REGULATIONS') no later than
December 31, 1997 which are to provide guidance for the purpose of determining,
in cases where insurance policies supported by an insurer's general account are
issued to or for the benefit of a Plan on or before December 31, 1998, which
general account assets constitute Plan Assets. Section 401(c) of ERISA generally
provides that, until the date which is 18 months after the 401(c) Regulations
become final, no person shall be subject to liability under Part 4 of Title I of
ERISA and Section 4975 of the Code on the basis of a claim that the assets of an
insurance company general account constitute Plan Assets, unless (i) as
otherwise provided by the Secretary of Labor in the 401(c) Regulations to
prevent avoidance of the regulations or (ii) an action is brought by the
Secretary of Labor for certain breaches of fiduciary duty which would also
constitute a violation of federal or state criminal law. Any assets of an
insurance company general account which support insurance policies issued to a
Plan after December 31, 1998 or issued to Plans on or before December 31, 1998
for which the insurance company does not comply with the 401(c) Regulations may
be treated as Plan Assets. In addition, because Section 401(c) does not relate
to insurance company separate accounts, separate account assets are still
treated as Plan Assets of any Plan invested in such separate account. Insurance
companies contemplating the investment of general account assets in the
Certificates should consult with their legal counsel with respect to the
applicability of Sections I and III of PTCE 95-60 and Section 401(c) of ERISA,
including the general account's ability to continue to hold the Certificates
after the date which is 18 months after the date the 401(c) Regulations become
final.
REPRESENTATION FROM INVESTING PLANS
The exemptive relief afforded by the Exemption will not apply to the
purchase, sale or holding of any class of Subordinate Certificates. To the
extent Certificates are Subordinate Certificates, transfers of such Certificates
to a Plan, to a trustee or other person acting on behalf of any Plan, or to any
other person using Plan Assets to effect such acquisition will not be registered
by the Trustee unless the transferee provides the Company, the Trustee and the
Master Servicer with an opinion of counsel satisfactory to the Company, the
Trustee and the Master Servicer, which opinion will not be at the expense of the
Company, the Trustee or the Master Servicer, that the purchase of such
Certificates by or on behalf of such Plan is permissible under applicable law,
will not constitute or result in any non-exempt prohibited transaction under
ERISA or Section 4975 of the Code and will not subject the Company, the Trustee
and the Master Servicer to any obligation in addition to those undertaken in the
Pooling and Servicing Agreement. In lieu of such opinion of counsel, the
transferee may provide a certification of facts substantially to the effect that
the purchase of such Certificates by or on behalf of such Plan is permissible
under applicable law, will not constitute or result in a non-exempt prohibited
transaction under ERISA or Section 4975 of the Code, will not subject the
Company, the Trustee or the Master to any obligation in addition to those
undertaken in the Pooling and Servicing Agreement, and the following conditions
are met: (a) the source of funds used to purchase such Certificates is an
'insurance company general account' (as such term is defined in PTCE 95-60), and
(b) the conditions set forth in Sections I and III of PTCE 95-60 have been
satisfied as of the date of the acquisition of such Certificates.
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
There can be no assurance that the Exemption or any other DOL exemption
will apply with respect to any particular Plan that acquires the Certificates
or, even if all of the conditions specified therein were satisfied, that the
exemption would apply to transactions involving a Trust Fund. Prospective Plan
investors should consult
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with their legal counsel concerning the impact of ERISA and the Code and the
potential consequences to their specific circumstances prior to making an
investment in the Certificates.
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 Section 4975 of the Code to the proposed investment and the Exemption,
the availability of exemptive relief under the PTCE 83-1 Section III of PTCE
95-60 or any other DOL class 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. SS24 (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
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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
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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 LLP, 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.
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INDEX OF PRINCIPAL DEFINITIONS
<TABLE>
<CAPTION>
PAGE
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<S> <C>
401(c) Regulations............................. 93
Accrual Certificates........................... 5
Advance........................................ 35
Affiliated Seller.............................. 21
Agency Securities.............................. 7
Agency Securities Pool......................... 13
AlterNet Loans................................. 13
AlterNet Mortgage Program...................... 13
AlterNet Program Seller........................ 21
AlterNet Seller Guide.......................... 18
Appraised Value................................ 15
ARM Loans...................................... 15
Balloon Amount................................. 14
Balloon Loans.................................. 14
Bankruptcy Amount.............................. 43
Bankruptcy Losses.............................. 44
Beneficial Owner............................... 26
Bi-Weekly Loans................................ 14
Book-Entry Certificates........................ 25
Buy-Down Funds................................. 16
Buy-Down Loans................................. 13
Buy-Down Period................................ 16
CEDEL.......................................... 25
CEDEL Participants............................. 26
Certificate Account............................ 12
Certificate Administrator...................... 1
Certificate Insurance Policy................... 48
Certificate Registrar.......................... 25
Certificateholder.............................. 25
Certificates................................... 1
Closing Date................................... 77
Code........................................... 8
Combined Loan-to-Value Ratio................... 15
Commission..................................... 2
Committee Report............................... 77
Company........................................ 1
Compensating Interest.......................... 36
Conservation Act............................... 73
Contract Pool.................................. 7
Contract Pool Insurance Policy................. 47
Contracts...................................... 1
Contributions Tax.............................. 87
Conventional Loans............................. 13
Convertible Mortgage Loan...................... 16
Cooperative.................................... 27
Cooperative Dwellings.......................... 14
Cooperative Loans.............................. 7
Cooperative Note............................... 64
Cooperatives................................... 14
Crime Control Act.............................. 75
Custodial Account.............................. 12
Custodian...................................... 13
Cut-off Date................................... 13
Debt Service Reduction......................... 48
<CAPTION>
PAGE
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<S> <C>
Defaulted Mortgage Losses...................... 44
Deferred Interest.............................. 16
Deficient Valuation............................ 48
Depositaries................................... 26
Determination Date............................. 33
Disqualified Persons........................... 90
Distribution Amount............................ 33
Distribution Date.............................. 5
DOL............................................ 91
DOL Regulations................................ 91
DTC............................................ 25
DTC Participants............................... 26
Due Date....................................... 34
Due Period..................................... 34
Eligible Account............................... 31
ERISA.......................................... 8
ERISA Plans.................................... 90
Escrow Account................................. 38
Euroclear...................................... 25
Euroclear Operator............................. 27
Euroclear Participants......................... 27
Exchange Act................................... 2
Excluded Plan.................................. 92
Exemption...................................... 91
Exemption Rating Agencies...................... 92
Extraordinary Losses........................... 44
Fannie Mae..................................... 12
Fannie Mae Securities.......................... 12
FDIC........................................... 21
FHA............................................ 13
FHA Contracts.................................. 19
FHA Loans...................................... 13
Form 8-K....................................... 13
Fraud Loss Amount.............................. 43
Fraud Losses................................... 44
Freddie Mac.................................... 12
Freddie Mac Act................................ 20
Freddie Mac Securities......................... 12
Garn-St Germain Act............................ 68
Ginnie Mae..................................... 12
Ginnie Mae Securities.......................... 12
GMAC Mortgage.................................. 1
GPM Loans...................................... 13
Gross Margin................................... 15
High Cost Loans................................ 68
Housing Act.................................... 20
HUD............................................ 13
Index.......................................... 15
Indirect Participants.......................... 26
Insurance Proceeds............................. 30
IRS............................................ 77
Issue Premium.................................. 82
Junior Mortgage Loans.......................... 9
Junior Mortgage Ratio.......................... 15
</TABLE>
98
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<S> <C>
Letter of Credit............................... 45
Letter of Credit Bank.......................... 45
Liquidated Contract............................ 41
Liquidated Mortgage Loan....................... 41
Liquidation Proceeds........................... 30
Loan-to-Value Ratio............................ 14
Manufactured Home.............................. 7
Mark-to-Market Regulations..................... 85
Master Commitments............................. 18
Master Servicer................................ 1
Maximum Mortgage Rate.......................... 15
Mezzanine Certificates......................... 5
Minimum Mortgage Rate.......................... 15
Modified Mortgage Loan......................... 14
Mortgage Collateral............................ 1
Mortgage Collateral Seller..................... 6
Mortgage Loans................................. 1
Mortgage Note.................................. 28
Mortgage Pool.................................. 6
Mortgage Pool Insurance Policy................. 45
Mortgage Rates................................. 13
Mortgaged Property............................. 6
Mortgages...................................... 14
Mortgagors..................................... 9
Neg-Am ARM Loans............................... 15
Net Mortgage Rate.............................. 59
Nonrecoverable Advance......................... 32
OID Regulations................................ 75
OTS............................................ 95
Participants................................... 26
Parties in Interest............................ 90
Pass-Through Rate.............................. 4
Paying Agent................................... 32
Percentage Interest............................ 33
Periodic Cap................................... 15
Permitted Investments.......................... 31
Plan Assets.................................... 91
Plans.......................................... 90
Policy Statement............................... 95
Pool Insurer................................... 45
Pooling and Servicing Agreement................ 1
Prepayment Interest Shortfall.................. 36
Primary Insurance Policy....................... 50
Primary Insurer................................ 51
Principal Prepayments.......................... 34
Prohibited Transactions Tax.................... 87
PTCE........................................... 93
PTCE 83-1...................................... 93
Purchase Obligation............................ 50
Purchase Price................................. 23
Qualified Insurer.............................. 49
Qualified Substitute Contract.................. 24
Qualified Substitute Mortgage Loan............. 24
Rating Agency.................................. 8
<CAPTION>
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<S> <C>
Realized Loss.................................. 43
Record Date.................................... 32
Registration Statement......................... 2
REMIC.......................................... 1
REMIC Certificates............................. 75
REMIC Provisions............................... 75
REMIC Regular Certificates..................... 76
REMIC Regulations.............................. 75
REMIC Residual Certificates.................... 76
REO Contract................................... 41
REO Mortgage Loan.............................. 41
Repurchased Contract........................... 24
Repurchased Mortgage Loan...................... 24
Reserve Fund................................... 48
Residential Funding............................ 4
Restricted Group............................... 92
RICO........................................... 74
Senior Certificates............................ 5
Senior Percentage.............................. 43
Senior/Subordinate Series...................... 25
Servicer....................................... 1
Servicing Advances............................. 32
Servicing Fee.................................. 38
Single Certificate............................. 37
SMMEA.......................................... 8
Special Hazard Amount.......................... 43
Special Hazard Insurance Policy................ 47
Special Hazard Insurer......................... 47
Special Hazard Losses.......................... 44
Special Servicer............................... 40
Spread......................................... 29
Stated Principal Balance....................... 43
Strip Certificate.............................. 4
Sub-Servicer................................... 37
Sub-Servicing Agreement........................ 37
Subordinate Certificates....................... 5
Surety Bond.................................... 48
Tax-Exempt Investor............................ 94
Tax-Favored Plans.............................. 90
Terms and Conditions........................... 27
Tiered REMICs.................................. 76
Title V........................................ 69
Title VIII..................................... 70
Trust Agreement................................ 1
Trust Fund..................................... 1
Trustee........................................ 13
UBTI........................................... 94
UCC............................................ 66
Unaffiliated Seller............................ 21
Underwriter.................................... 91
VA............................................. 13
VA Contracts................................... 19
VA Loans....................................... 13
</TABLE>
99
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================================== ====================================
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 REPRESENTATION 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
<TABLE>
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<S> <C>
Summary............................................. S-1
Risk Factors........................................ S-14
Description of the Mortgage Pool.................... S-16
Description of the Certificates..................... S-42
The Insurer......................................... S-56
Certain Yield and Prepayment Considerations......... S-58
Pooling and Servicing Agreement..................... S-67
Certain Federal Income Tax Consequences............. S-69
Method of Distribution.............................. S-71
Legal Opinions...................................... S-72
Experts............................................. S-72
Ratings............................................. S-72
Legal Investment.................................... S-73
ERISA Considerations................................ S-73
PROSPECTUS
Additional Information.............................. 2
Reports to Certificateholders....................... 2
Incorporation of Certain Information by Reference... 2
Summary of Prospectus............................... 4
Risk Factors........................................ 9
The Trust Funds..................................... 12
Description of the Certificates..................... 25
Subordination....................................... 42
Description of Credit Enhancement................... 44
Purchase Obligations................................ 50
Insurance Policies on Mortgage Loans or Contracts... 50
The Company......................................... 53
Residential Funding Corporation..................... 54
The Pooling and Servicing Agreement................. 55
Yield Considerations................................ 58
Maturity and Prepayment Considerations.............. 61
Certain Legal Aspects of Mortgage Loans and
Contracts......................................... 63
Certain Federal Income Tax Consequences............. 75
State and Other Tax Consequences.................... 90
ERISA Considerations................................ 90
Legal Investment Matters............................ 95
Use of Proceeds..................................... 96
Methods of Distribution............................. 96
Legal Matters....................................... 97
Financial Information............................... 97
Index of Principal Definitions...................... 98
</TABLE>
$600,135,000
RESIDENTIAL ASSET SECURITIES
CORPORATION
COMPANY
RESIDENTIAL FUNDING CORPORATION
MASTER SERVICER
MORTGAGE PASS-THROUGH
CERTIFICATES, SERIES 1997-KS4
<TABLE>
<S> <C> <C> <C>
Class A-I-1 Certificates Variable Rate $ 79,798,000
Class A-I-2 Certificates 6.46% $ 15,000,000
Class A-I-3 Certificates 6.56% $ 32,000,000
Class A-I-4 Certificates 6.72% $ 30,000,000
Class A-I-5 Certificates 6.98% $ 23,257,000
Class A-I-6 Certificates 6.68% $ 20,000,000
Class A-II-1 Certificates Variable Rate $200,060,000
Class A-II-2 Certificates Variable Rate $200,020,000
</TABLE>
RESIDENTIAL FUNDING SECURITIES
CORPORATION
PROSPECTUS SUPPLEMENT
NOVEMBER 20, 1997
================================== ====================================
