The information in this prospectus supplement is not complete and may be
changed. We may not sell these securities until the registration statement filed
with the Securities and Exchange commission is effective. This prospectus
supplement is not an offer to sell these securities and it is not soliciting an
offer to buy these securities in any state where the offer or sale is not
permitted.
SUBJECT TO COMPLETION
PRELIMINARY PROSPECTUS SUPPLEMENT DATED ________________, 2000
Prospectus supplement dated ________,__________ (to prospectus dated ________ ,
____)
$_______________
RASC Series -KS Trust
Issuer
Residential Asset Securities Corporation
Depositor
Residential Funding Corporation
Master Servicer
Mortgage Asset-Backed Pass-Through Certificates,
Series ____-KS___
The Trust
The trust will hold a pool of one- to four-family residential first [and
mixed-use] mortgage loans and junior mortgage loans.
Offered Certificates
The trust will issue these classes of certificates that are offered under this
prospectus supplement:
o [3] classes of Class A Certificates
Credit Enhancement
Credit enhancement for all of these certificates will be provided by excess
interest payments on the mortgage loans, overcollateralization represented by
the excess of the balance of the mortgage loans over the balance of the Class A
Certificates, and a certificate guaranty insurance policy issued by
_______________.
You should consider carefully the risk factors beginning on page S-___ in this
prospectus supplement.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of the offered certificates or determined
that this prospectus supplement or the prospectus is accurate or complete. Any
representation to the contrary is a criminal offense.
The Attorney General of the State of New York has not passed on or endorsed the
merits of this offering. Any representation to the contrary is unlawful.
_______ will offer the Class A Certificates to the public at varying prices to
be determined at the time of sale. The proceeds to the depositor from the sale
of the underwritten certificates will be approximately ___% of the principal
balance of the underwritten certificates plus accrued interest, before deducting
expenses.
There is no underwriting arrangement for the Class SB and Class R Certificates.
[Name of Underwriter]
Underwriter
<PAGE>
Important notice about information presented in this prospectus supplement and
the prospectus
We provide information to you about the offered certificates in two separate
documents that provide progressively more detail:
o the prospectus, which provides general information, some of which may not
apply to your series of certificates; and
o this prospectus supplement, which describes the specific terms of your
series of certificates.
If the description of your certificates in this prospectus supplement differs
from the related description in the prospectus, you should rely on the
information in this prospectus supplement.
The depositor's principal offices are located at 8400 Normandale Lake Boulevard,
Suite 600, Minneapolis, Minnesota 55437 and its telephone number is (952)
832-7000.
Table of Contents
Page
Summary..................................S-
Risk Factors.............................S-
Risk of Loss..........................S-
Limited Obligations...................S-
Liquidity Risks.......................S-
Special Yield and Prepayment
Consideration.........................S-
[Risks Particular to Mixed-Use
Properties] S-
Introduction.............................S-
Description of the Mortgage Pool.........S-
General...............................S-
Mortgage Pool Characteristics.........S-
Underwriting Standards................S-
The AlterNet Program..................S-
Residential Funding ..................S-
Servicing ............................S-
Primary Mortgage Insurance and Primary
Hazard Insurance...................S-
Additional Information................S-
Description of the Certificates..........S-
General...............................S-
Book-Entry Registration of Certain of the
Offered Certificates...............S-
Glossary of Terms.....................S-
Interest Distributions................S-
Determination of LIBOR................S-
Principal Distributions on the Class A
Certificates..........................S-
Overcollateralization Provisions......S-
Certificate Guaranty Insurance
Policy.............................S-
Page
Allocation of Losses; Subordination...S-
Advances..............................S-
The Certificate Insurer..................S-
Certain Yield and Prepayment
Considerations........................S-
General...............................S-
Pooling and Servicing Agreement..........S-
General..............................S-
The Master Servicer..................S-
Servicing and Other Compensation and
Payment of Expenses..............S-
Voting Rights........................S-
Termination..........................S-
Material Federal Income Tax Consequences.S-
Method of Distribution...................S-
Legal Opinions...........................S-
Experts..................................S-
Ratings..................................S-
Legal Investment.........................S-
ERISA Considerations.....................S-
Annex I..................................S-
S-2
<PAGE>
SUMMARY
The following summary is a very general overview of the offered
certificates and does not contain all of the information that you should
consider in making your investment decision. To understand all of the terms of
the offered certificates, you should read carefully this entire document and the
prospectus.
<TABLE>
<CAPTION>
Issuer RASC Series -KS Trust
<S> <C>
Title of securities Mortgage and Manufactured Housing Contract Pass-Through Certificates,
Series ___________-KS____.
Depositor Residential Asset Securities Corporation, an affiliate of Residential
Funding Corporation.
Master servicer Residential Funding Corporation.
Trustee __________________________________________.
Certificate insurer __________________________________________.
Mortgage pool adjustable rate mortgage loans with an
aggregate principal balance of approximately
$ as of the cut-off date, secured by first
liens and junior liens on one- to
four-family residential [and mixed-use]
properties.
Cut-off date _______________________ 1,___________.
Closing date On or about _______________,__________.
Distribution dates Beginning on ___________ 25,__________ and thereafter on the
25th of each month or, if the 25th is not a business day, on the
next business day.
Scheduled final distribution date Class A-1 Certificates:________ 25, ____.
Class A-2 Certificates:________ 25, ____.
Class A-3 Certificates:________ 25, ____.
The actual final distribution date could be
substantially earlier.
Form of certificates Book-entry.
See "Description of the Certificates--Form
of Certificates" in this prospectus
supplement.
S-3
</TABLE>
<PAGE>
Minimum denominations $25,000.
Legal investment When issued, the Class A
Certificates will not be "mortgage related
securities" for purposes of the Secondary
Mortgage Market Enhancement Act of 1984.
See "Legal Investment Matters" in this
prospectus supplement and the prospectus.
S-4
<PAGE>
<TABLE>
<CAPTION>
Offered Certificates
-------------------------------------------------------------------------------------------------
-------------------- ---------------- ------------------- ---------------- ----------------------
Initial Initial Rating
Pass-Through Certificate
Class Rate Principal Balance (_____/_____) Designations
-------------------------------------------------------------------------------------------------
Class A Certificates:
-------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
[A-1 Adjustable Rate $ AAA/AAA Senior/Adjustable
-----------
Rate]
-------------------- ---------------- ------------------- ---------------- ----------------------
[A-2 % $ AAA/AAA Senior/Fixed Rate]
-------- -----------
-------------------- ---------------- ------------------- ---------------- ----------------------
[A-3 % $ AAA/AAA Senior Lockout/Fixed
-------- -----------
Rate]
-------------------------------------------------------------------------------------------------
Total Class A Certificates: $______________
-------------------------------------------------------------------------------------------------
Non-Offered Certificates
-------------------------------------------------------------------------------------------------
Class SB and Class R Certificates:
-------------------------------------------------------------------------------------------------
SB NA $ NA Subordinate
-----------
--------------------- --------------- ------------------- ---------------- ----------------------
R NA $ 0 NA Subordinate
-------------------------------------------------------------------------------------------------
Total Class SB and Class R Certificates: $_______________
-------------------------------------------------------------------------------------------------
Total offered and non-offered certificates: $_______________
-------------------------------------------------------------------------------------------------
Other Information:
Class A-1:
Adjustable Rate: Initial Formula Maximum Minimum
Class A-1: _______________ % One-Month LIBOR + ________ % _________%
_______________%
</TABLE>
S-5
<PAGE>
The Trust
The depositor will establish a trust with respect to the Series ____ -KS___
Certificates under a pooling and servicing agreement. On the closing date, the
depositor will deposit the pool of mortgage loans described in this prospectus
supplement into the trust. Each certificate will represent a partial ownership
interest in the trust.
The trust will also include credit enhancement for the Class A Certificates in
the form of a certificate guaranty insurance policy provided by _____________.
The Mortgage Pool
The mortgage loans to be deposited into the trust have the following
characteristics as of the cut-off date:
[insert table]
The interest rate on the mortgage loans will adjust on each adjustment date to
equal the sum of Six-Month LIBOR and the note margin on the mortgage, subject to
a maximum and minimum interest rate.
The mortgage loans were originated using less restrictive underwriting standards
than the underwriting standards applied by some other first and junior mortgage
loan purchase programs, including the programs of Fannie Mac, Freddie Mac or the
depositor's affiliate, Residential Funding Mortgage Securities I, Inc.
For additional information regarding the mortgage pool see "Description of the
Mortgage Pool" in this prospectus supplement.
Distributions on the Offered Certificates
Amount available for monthly distribution. On each monthly distribution date,
the trustee will make distributions to investors. The amount available for
distribution will include:
o collections of monthly payments on the mortgage loans, including
prepayments and other unscheduled collections plus
o advances for delinquent payments minus
o the fees and expenses of the subservicers and the master servicer,
including reimbursement for advances minus
o the premium paid to the certificate insurer.
See "Description of the Certificates--Glossary of Terms--Available Distribution
Amount" in this prospectus supplement.
Priority of distributions. Distributions on the offered certificates will be
made from available amounts as follows:
o Distribution of interest to the interest-bearing Class A Certificates
o Distributions of principal to the Class A Certificates entitled to
principal
o Payment to master servicer for certain unreimbursed advances
o Reimbursement to the certificate insurer for payments made by the
certificate insurer to the Class A Certificates
o Payments of excess interest payments on the mortgage loans to make principal
payments on the Class A Certificates, until the amount of
overcollateralization reaches the required amount
o Distributions of interest in respect of prepayment interest shortfalls on
the Class A Certificates
o Distribution of remaining funds to the Class SB and Class R certificates
Interest distributions. The amount of interest owed to each class of
interest-bearing certificates on each distribution date will equal:
o the pass-through rate for that class of certificates multiplied by
S-6
<PAGE>
o the principal balance of that class of certificates as of the day
immediately prior to the related distribution date multiplied by
o 1/12, in the case of the fixed-rate certificates or the actual number of
days in the interest accrual period divided by 360, in the case of the
adjustable rate certificates minus
o the share of some types of interest shortfalls allocated to that class.
See "Description of the Certificates--Interest Distributions" in this prospectus
supplement.
Allocations of principal. Principal distributions on the certificates will be
allocated among the various classes of offered certificates as described in this
prospectus supplement. Until the required amount of overcollateralization is
reached, all principal payments on the mortgage loans will be distributed among
the Class A Certificates, unless the Class A Certificates are no longer
outstanding. Not all outstanding Class A Certificates will receive principal on
each distribution date.
In addition, the Class A Certificates will receive a distribution in respect of
principal, to the extent of any excess interest payments on the mortgage loans
available to cover losses and then to increase the amount of
overcollateralization until the required amount of overcollateralization is
reached. In addition, the Class A Certificates will receive a distribution of
principal from the certificate guaranty insurance policy to cover losses on the
mortgage loans allocated to the Class A Certificates.
See "Description of the Certificates--Principal Distributions on the Class A
Certificates" in this prospectus supplement.
Credit Enhancement
Allocation of losses. Losses on the mortgage loans will be covered by excess
interest payments on the mortgage loans, overcollateralization and the
certificate guaranty insurance policy as follows:
First, losses will be covered by a distribution of any excess interest
payments on the mortgage loans to the Class A Certificates as a
distribution of principal,
Second, losses will result in a decrease in the level of
overcollateralization, until the level of overcollateralization is
reduced to zero, and
Third, losses will be allocated to the Class A Certificates, to reduce
their certificate principal balance; these losses will be covered by the
certificate guaranty insurance policy.
Not all losses will be allocated in the priority described in the preceding
paragraph. Losses due to natural disasters such as floods and earthquakes, fraud
by a mortgagor, or bankruptcy of a mortgagor will be so allocated as described
only up to specified amounts. Losses of these types in excess of the specified
amount and losses due to other extraordinary events will be allocated to the
Class A Certificates and Class SB certificates in proportion to their respective
certificate principal balances; any such loss allocated to the Class A
Certificates will be covered by the certificate guaranty insurance policy.
See "Description of the Certificates--Allocation of Losses; Subordination" in
this prospectus supplement.
The Certificate Guaranty Insurance Policy
_____________ will issue a certificate guaranty insurance policy as a means of
providing additional credit enhancement for the Class A Certificates. Under the
policy, the certificate insurer will pay an amount that will cover any
shortfalls in amounts available to pay the interest distribution amount for the
Class A Certificates on any distribution date, the principal portion of any
losses on the mortgage loans allocated to the Class A Certificates and any
unpaid certificate principal balance of the Class A Certificates on the final
distribution date. The certificate guaranty insurance policy will not provide
coverage for prepayment interest shortfalls.
S-7
<PAGE>
See "Description of the Certificates--Certificate Guaranty Insurance Policy" and
"The Certificate Insurer" in this prospectus supplement.
Advances
For any month, if the master servicer does not receive the full scheduled
payment on a mortgage loan, the master servicer will advance funds to cover the
amount of the scheduled payment that was not made. However, the master servicer
will advance funds only if it determines that the advance will be recoverable
from future payments or collections on that mortgage loan.
See "Description of the Certificates--Advances" in this prospectus supplement.
Optional Termination
On any distribution date on which the principal balances of the mortgage loans
is less than 10% of their principal balances as of the cut-off date, the master
servicer or the depositor will have the option to:
o purchase from the trust all remaining mortgage loans, causing an early
retirement of the certificates; or
o purchase all the certificates.
Under either type of optional purchase, holders of the outstanding certificates
will receive the outstanding principal balance of the certificates in full with
accrued interest. However, no purchase of the mortgage loans or certificates
will be permitted if it would result in a draw under the policy unless the
certificate insurer consents to the termination. In either case, there will be
no reimbursement of principal reductions or related interest that resulted from
losses allocated to the certificates.
See "Pooling and Servicing Agreement--Termination" in this prospectus supplement
and "The Pooling and Servicing Agreement--Termination; Retirement of
Certificates" in the prospectus.
Ratings
When issued, the offered certificates will receive ratings which are not lower
than those listed in the table on page S- of this prospectus supplement. The
ratings on the offered certificates address the likelihood that holders of the
offered certificates will receive all distributions on the underlying mortgage
loans to which they are entitled. A security rating is not a recommendation to
buy, sell or hold a security and may be changed or withdrawn at any time by the
assigning rating agency. The ratings also do not address the rate of principal
prepayments on the mortgage loans. For example, the rate of prepayments, if
different than originally anticipated, could adversely affect the yield realized
by holders of the offered certificates.
See "Ratings" in this prospectus supplement.
Legal Investment
When issued, the Class A Certificates will not be "mortgage related securities"
for purposes of SMMEA. You should consult your legal advisors in determining
whether and to what extent the offered certificates constitute legal investments
for you.
See "Legal Investment" in this prospectus supplement for important information
concerning possible restrictions on ownership of the offered certificates by
regulated institutions.
ERISA Considerations
The Class A Certificates may be considered eligible for purchase by persons
investing assets of employee benefit plans or individual retirement accounts.
See "ERISA Considerations" in this prospectus supplement and in the prospectus.
Tax Status
S-8
<PAGE>
For federal income tax purposes, the depositor will elect to treat the trust as
two real estate mortgage investment conduits. The certificates, other than the
Class R Certificates, will represent ownership of regular interests in the trust
and will be treated as representing ownership of debt for federal income tax
purposes. You will be required to include in income all interest and original
issue discount, if any, on such certificates in accordance with the accrual
method of accounting regardless of your usual methods of accounting. For federal
income tax purposes, each of the Class R Certificates will be the sole residual
interest in one of the two real estate mortgage investment conduits.
For further information regarding the federal income tax consequences of
investing in the offered certificates, including important information regarding
the tax treatment of the Class R Certificates, see "Material Federal Income Tax
Consequences" in this prospectus supplement and in the prospectus.
S-9
<PAGE>
RISK FACTORS
The offered certificates are not suitable investments for all investors.
In particular, you should not purchase any class of offered certificates unless
you understand the prepayment, credit, liquidity and market risks associated
with that class.
The offered certificates are complex securities. You should possess,
either alone or together with an investment advisor, the expertise necessary to
evaluate the information contained in this prospectus supplement and the
prospectus in the context of your financial situation and tolerance for risk.
You should carefully consider, among other things, the following factors
in connection with the purchase of the offered certificates:
Risk of Loss
The return on your certificates may be affected by losses on the mortgage loans,
which could occur due to a variety of causes.
Losses on the mortgage loans may occur due to a wide variety of
causes, including a decline in real estate values, and adverse changes
in the borrower's financial condition. A decline in real estate values
or economic conditions nationally or in the regions where the
mortgaged properties are located may increase the risk of losses on
the mortgage loans. [Special risks for specific loan types, such as
negative amortization or escalating payments, will be disclosed if
material to an individual offering.]
Underwriting standards may affect risk of loss on the mortgage loans.
The mortgage loans have been originated using underwriting standards
that are less restrictive than the underwriting standards applied by
some other first or junior mortgage purchase programs of Fannie Mae,
Freddie Mac or the depositor's affiliate, Residential Funding Mortgage
Securities I, Inc. Applying less restrictive underwriting standards
creates additional risks that losses on the mortgage loans will be
allocated to certificateholders.
Examples include:
o mortgage loans made to borrowers having imperfect
credit histories;
o mortgage loans with relatively high loan-to-value
ratios (i.e., the amount of the loan at origination is
80% or more of the value of the mortgaged property);
o mortgage loans made to borrowers with low credit
scores;
o mortgage loans made to borrowers who have high
debt-to-income ratios (i.e., the amount of other debt
the borrower owes represents a large portion of his or
her income); and
S-10
<PAGE>
o mortgage loans made to borrowers whose income is not
required to be disclosed or verified.
The foregoing characteristics of the mortgage loans may adversely
affect the performance of the mortgage pool and the value of the Class
A Certificates as compared to other mortgage pools and other series of
mortgage pass-through certificates issued by the depositor and its
affiliates.
Investors should note that _____% of the mortgage loans were made to
borrowers that had credit scores of less than 600, excluding credit
scores that were not available. The loans with higher loan-to-value
ratios may also present a greater risk of loss. ______% of the
mortgage loans are mortgage loans with loan-to-value ratios at
origination in excess of 80% and are not insured by a primary mortgage
insurance policy.
Some of the mortgage loans included in the trust are either currently delinquent
or have been delinquent in the past, which may increase the risk of loss on the
mortgage loans.
As of the cut-off date, ___% of the mortgage loan are 30 to 59 days
delinquent in payment of principal and interest. Other mortgage loans
may have been delinquent in the past. Mortgage loans with a history of
delinquencies are more likely to experience delinquencies in the
future, even if the mortgage loans are current as of the cut-off date.
See "Description of the Mortgage Pool--Mortgage Pool Characteristics"
and --Underwriting Standards" in this prospectus supplement. For a
description of the methodology used to categorize mortgage loans as
delinquent, see "Pooling and Servicing Agreement--The Master Servicer"
in this prospectus supplement.
Origination disclosure practices for the mortgage loans could create liabilities
that may affect the return on your certificates.
[ ]% of the mortgage loans included in the mortgage pool are subject
to special rules, disclosure requirements and other regulatory
provisions because they are high cost loans. Purchasers or assignees
of these high cost loans, could be exposed to all claims and defenses
that the mortgagors could assert against the originators of the
mortgage loans. Remedies available to the mortgagor include monetary
penalties, as well as recission rights if the appropriate disclosures
were not given as required. See "Certain Legal Aspects of Mortgage
Loans and Contracts--The Mortgage Loans--Anti-Deficiency Legislation
and Other Limitations on Lenders" in the prospectus.
S-11
<PAGE>
<TABLE>
<S> <C>
The return on your One risk of investing in mortgage-backed securities is created by
certificates may be any concentration of the related properties in one or more
particularly sensitive to geographic regions. Approximately _______% of the cut-off date
changes in real estate principal balance of the mortgage loans are located in
markets in specific areas. [California]. If the regional economy or housing market weakens
in [California], or in any other region having a
significant concentration of properties underlying
the mortgage loans, the mortgage loans in that
region may experience high rates of loss and
delinquency, resulting in losses to Class A
certificateholders. A region's economic condition
and housing market may be adversely affected by a
variety of events, including natural disasters
such as earthquakes, hurricanes, floods and
eruptions, and civil disturbances, including
riots. [Concentrations material to an individual
offering will be disclosed.]
Some of the mortgage loans Approximately ___% of the mortgage loans (based on principal
provide for large payments balances) are not fully amortizing over their terms to maturity
at maturity. and, thus, will require substantial principal payments (i.e., a
balloon amount) at their stated maturity. Mortgage
loans which require payment of a balloon amount
involve greater degree of risk because the ability
of a mortgagor to pay a balloon amount typically
will depend upon the mortgagor's ability to either
to timely refinance the loan or to sell the
related mortgaged property.
See "Description of the Mortgage Pool" in this prospectus
supplement.
Some of the mortgage loans Approximately ___% of the mortgage loans (based on principal
are secured by junior loans. balances) are junior in priority to other loans which are not
included in the trust. If a property is liquidated
after default by a borrower, there may not be
enough proceeds to pay the first mortgage and the
junior mortgage . In that case, the trust, as
holder of the junior mortgage , would suffer a
loss.
The return on your The only credit enhancement for the Class A Certificates will be:
certificates will be o the excess interest payments on the mortgage loans;
reduced if losses exceed o overcollateralization represented by the excess of the
the credit enhancement balance of the mortgage loans over the balance of the Class A
available to your Certificates; and
certificates. o a certificate guaranty insurance policy issued by
____________________.
</TABLE>
S-12
<PAGE>
The value of your certificates may be reduced if losses are higher than
expected.
If the performance of the mortgage loans is substantially worse than
assumed by the rating agencies, the ratings of any class of the
certificates may be lowered in the future. This would expected
probably reduce the value of those certificates. Neither the
depositor, the master servicer nor any other entity will have any
obligation to supplement any credit enhancement, or to take any other
action to maintain any rating of the certificates.
See "Summary-- Credit Enhancement" and "Description of the
Certificates-- Allocation of Losses; Subordination" in this prospectus
supplement.
Limited Obligations
<TABLE>
<S> <C>
Payments on the mortgage The certificates represent interests only in the RASC Series
loans are the primary _______-KS___ Trust. The certificates do not represent an
source of payments on your interest in or obligation of the depositor, the master servicer
certificates. or any of their affiliates. If proceeds from the assets of the
RASC Series -KS Trust are not sufficient to make
all payments provided for under the pooling and
servicing agreement, investors will have no
recourse to the depositor, the master servicer or
any of its affiliates.
Liquidity Risks
You may have to hold your A secondary market for your certificates may not develop. Even
certificates to maturity if if a secondary market does develop, it may not continue or it may
their marketability is be illiquid. Neither the underwriter nor any other person will
limited. have any obligation to make a secondary market in your
certificates. Illiquidity means you may not be
able to find a buyer to buy your securities
readily or at prices that will enable you to
realize a desired yield. Illiquidity can have a
severe adverse effect on the market value of your
certificates.
Any class of offered certificates may experience
illiquidity, although typically illiquidity is
more likely for classes that are especially
sensitive to prepayment, credit or interest rate
risk, or that have been structured to meet the
investment requirements of limited categories of
investors.
Special Yield and
Prepayment Considerations
s-13
<PAGE>
The yield on your The yield to maturity on each class of offered certificates will
certificates will vary depend on a variety of factors, including:
depending on the rate of
prepayments. o the rate and timing of principal payments on the mortgage
loans, including prepayments, defaults and liquidations, and
repurchases due to breaches of representations or warranties;
o the pass-through rate for that class;
o interest shortfalls due to mortgagor prepayments; and
o the purchase price of that class.
The rate of prepayments is one of the most
important and least predictable of these factors.
In general, if you purchase a certificate at a
price higher than its outstanding principal
balance and principal distributions on your
certificate occur faster than you assumed at the
time of purchase, your yield will be lower than
you anticipated. Conversely, if you purchase a
certificate at a price lower than its outstanding
principal balance and principal distributions on
that class occur more slowly than you assumed at
the time of purchase, your yield will be lower
than you anticipated.
The rate of prepayments on the mortgage loans will vary depending on future
market conditions, and other factors.
Because mortgagors can typically prepay their mortgage loans at any
time, the rate and timing of principal distributions on the offered
certificates are highly uncertain. Typically, when market interest
rates increase, borrowers are less likely to prepay their mortgage
loans . This could result in a slower return of principal to you at a
time when you might have been able to reinvest your funds at a higher
rate of interest than the pass-through rate on your class of
certificates. On the other hand, when market interest rates decrease,
borrowers are typically more likely to prepay their mortgage loans.
This could result in a faster return of principal to you at a time
when you might not be able to reinvest your funds at an interest rate
as high as the pass-through rate on your class of certificates.
Approximately ___% of the mortgage loans permit the mortgagor to
convert the adjustable rate on the mortgage loan to a fixed rate. Upon
the conversion, the subservicer or the master servicer will repurchase
the mortgage loan, which will have the same effect as a prepayment in
full. Mortgagors may be more likely to exercise their conversion
options when interest rates are rising. As a result, the certificates
may receive greater prepayments at a time when prepayments would not
normally be expected.
</TABLE>
S-14
<PAGE>
Refinancing programs, which may involve soliciting all or some of the
mortgagors to refinance their mortgage loans, may increase the rate of
prepayments on the mortgage loans . These refinancing programs may be
offered by the master servicer, any subservicer or their affiliates,
and may include streamlined documentation programs as well as programs
under which a mortgage loan is modified to reduce the interest rate.
See "Maturity and Prepayment Considerations" in the prospectus.
The yield on your certificates will be affected by the specific forms that apply
to that class, discussed below.
The offered certificates of each class have different yield
considerations and different sensitivities to the rate and timing of
principal distributions. The following is a general discussion of
yield considerations and prepayment sensitivities class.
See "Certain Yield and Prepayment Considerations" in this prospectus
supplement.
Class A Certificates
The Class A Certificates are subject to various priorities for payment
of principal. Distributions of principal on the Class A Certificates
with an earlier priority of payment will be affected by the rates of
prepayment of the mortgage loans early in the life of the mortgage
pool. Those classes of Class A Certificates with a later priority of
payment will be affected by the rates of prepayment of the mortgage
loans experienced both before and after the commencement of principal
distributions on those classes.
See "Description of the Certificates--Principal Distributions on the
Class A Certificates" in this prospectus supplement.
[Class A-1 Certificates
The interest rate on the Class A-1 certificates will vary with
One-Month LIBOR. Therefore, the yield to investors on the Class A-1
certificates will be sensitive to fluctuations in the level of LIBOR.
Investors should consider whether this volatility is suitable to their
investment needs.]
The Class A-1 certificates may not always receive interest at a rate
equal to One-Month LIBOR plus the applicable margin. If the weighted
average of the net mortgage rates on the mortgage loans is less than
One-Month LIBOR plus the applicable margin, the interest rate on the
Class A-1 certificates will be reduced to that weighted average rate.
Thus, the yield to investors in the Class A-1 certificates will be
sensitive to fluctuations in the level of One-Month LIBOR and may be
adversely affected by the application of the weighted average net
mortgage rate on the related mortgage loans . The prepayment of the
mortgage loans with higher net mortgage rates may result in a lower
weighted average net rate. If on
S-15
<PAGE>
any distribution date the application of the weighted average net rate
results in an interest payment lower than One-Month LIBOR plus the
applicable margin on the Class A-1 certificates during the related
interest accrual period, the value of those certificates may be
temporarily or permanently reduced
In a rising interest rate environment, the Class A-1 certificates may
receive interest at the weighted average net rate for a protracted
period of time. In addition, in such a situation, there would be less
excess interest payments on the mortgage loans to cover losses and to
create additional overcollateralization.
[Class A-3 Certificates
It is not expected that the Class A-3 certificates will receive any
distributions of principal until the distribution date in . Until the
distribution date in , the Class A-3 certificates may receive a
portion of principal prepayments that is smaller than its pro rata
share of principal prepayments.]
[Risks Particular to
Mixed-Use Properties:]
[Reductions in occupancy and rent levels on mixed-use properties could adversely
affect their value and cash flow
__ mortgaged properties, securing mortgage loans that represent ___%
of the initial pool balance, are mixed-use properties. A decrease in
occupancy or rent levels could result in realized losses on the
mortgage loans. Occupancy and rent levels on mixed-use properties may
be adversely affected by:
o local, regional or national economic conditions, which may limit
the amount that can be charged for commercial leases or
residential rental units or result in a reduction in timely
payments;
o the level of mortgage interest rates, which may encourage
residential tenants in mixed-use properties to purchase housing;
o state and local regulations; and
o the ability of management to provide adequate maintenance and
insurance.]
[Losses may be caused by the expiration of or tenant defaults on leases.
The income from and market value of mixed-use properties would decline
if leases on the commercial or residential units expired or
terminated, or tenants defaulted and the borrowers were unable to
renew the leases or relet the units on comparable terms.
If units are not renewed at all or are not renewed on favorable terms,
the trust may experience realized losses on the mortgage loans that
may be allocated to your class of certificates.
S-16
<PAGE>
Even if borrowers successfully relet vacated units, the costs
associated with reletting, including tenant improvements, leasing
commissions and free rent, can exceed the amount of any reserves
maintained for that purpose and reduce cash flow from the mortgaged
properties.]
S-17
<PAGE>
INTRODUCTION
The Depositor will establish a trust with respect to Series -KS on the
closing date, under a pooling and servicing agreement among the depositor, the
master servicer and the trustee, dated as of the cut-off date. On the closing
date, the depositor will deposit into the trust a pool of mortgage loans that,
in the aggregate, will constitute a mortgage pool, and is secured by [one- to
four-family residential] [mixed-use] properties with terms to maturity of not
more than thirty years.
Some capitalized terms used in this prospectus supplement have the
meanings given below under "Description of the Certificates--Glossary of Terms"
or in the prospectus under "Glossary."
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 the cut-off date, of $________________. The mortgage loans
are secured by first and junior liens on fee simple interests in one- to
four-family residential [and mixed-use] real properties [and, in the case of
____ mortgage loans, an interest in shares issued by a cooperative apartment
corporation and the related proprietary lease]. [___% of the mortgage loans have
a due date other than the first day of each month]. In each case, the property
securing the mortgage loan is referred to as the mortgaged property. The
mortgage pool will consist of adjustable-rate mortgage loans with terms to
maturity of not more than 30 years from the date of origination or modification,
or, in the case of approximately __% of the mortgage loans, not more than 15
years. With respect to mortgage loans which have been modified, references in
this prospectus supplement to the date of origination shall be deemed to be the
date of the most recent modification. Approximately __% of the mortgage loans
are secured by second liens on the mortgaged properties, and __% of the mortgage
loans are secured by third or more junior liens on the mortgaged properties. All
percentages of the mortgage loans described in this prospectus supplement are
approximate percentages by aggregate principal balance as of the cut-off date
unless otherwise indicated.
All of the mortgage loans were purchased by the depositor through its
affiliate, Residential Funding, from unaffiliated sellers as described in this
prospectus supplement and in the prospectus, except in the case of ____% of the
mortgage loans , which were purchased by the depositor through its affiliate,
Residential Funding, from HomeComings Financial Network, Inc., a wholly-owned
subsidiary of the master servicer. ________% of the mortgage loans were
purchased from and are being subserviced by _________________ and ____% of the
mortgage loans were purchased from ________________, each an unaffiliated
seller. Except as described in the preceding two sentences, no unaffiliated
seller sold more than_____% of the mortgage loans to Residential Funding.
Under the terms of the pooling and servicing agreement, the depositor
will assign the representations and warranties made by the related sellers of
S-18
the mortgage loans to the trustee for the benefit of the certificateholders and
will also make limited representations and warranties regarding the mortgage
loans as of the date of issuance of the certificates. To the best of the
depositor's knowledge, none of the mortgage loans were sold to Residential
Funding by unaffiliated sellers that are institutions which are currently in
receivership or conservatorship or involved in other insolvency or bankruptcy
proceedings, or are no longer in existence.
To the extent that any seller of the mortgage loans does not repurchase
a mortgage loan in the event of a breach of its representations and warranties
with respect to that mortgage loan, neither the depositor nor Residential
Funding will be required to repurchase the mortgage loan unless:
o the breach also constitutes a breach of one of the depositor's or
Residential Funding's representations and warranties with respect
to that mortgage loan and
o the breach materially and adversely affects the interests of the
certificateholders in any such mortgage loan.
In addition, neither the depositor nor Residential Funding will be
required to repurchase any mortgage loan in the event of a breach of its
representations and warranties with respect to that mortgage loan if the
substance of any such breach also constitutes fraud in the origination of the
affected mortgage loan.
Mortgage Pool Characteristics
None of the mortgage loans will have been originated prior to _____,____ or
will have a maturity date later than _________ 1, 20__. No mortgage loan will
have a remaining term to maturity as of the cut-off date of less than ____
months. The weighted average remaining term to maturity of the mortgage loans as
of the cut-off date will be approximately months. The weighted average original
term to maturity of the mortgage loans as of the cut-off date will be
approximately months. As used in this prospectus supplement the remaining term
to maturity means, as of any date of determination and with respect to any
mortgage loan, the number of months equaling the number of scheduled monthly
payments necessary to reduce the then-current Stated Principal Balance of that
mortgage loan to zero, assuming the related mortgagor will make all scheduled
monthly payments but no prepayments, on the mortgage loan thereafter.
As of the cut-off date, ____% of the mortgage loans are 30 to 59 days
delinquent in payment of principal and interest. As of the cut-off date, none of
the mortgage loans will be 60 or more days delinquent in payment of principal
and interest. For a description of the methodology used to categorize mortgage
loans as delinquent, see "Pooling and Servicing Agreement--The Master Servicer"
in this prospectus supplement.
Approximately_____% of the mortgage loans will be Buy-Down Mortgage Loans.
No mortgage loan provides for deferred interest or negative
amortization.
As of the cut-off date, approximately ______% of the mortgage loans will be
High Cost Loans. Purchasers or assignees of any High Cost Loan, including the
trust, could be liable for all claims and subject to all defenses that the
S-19
<PAGE>
borrower could assert against the originator of the High Cost Loan. Remedies
available to the borrower include monetary penalties, as well as recission
rights if appropriate disclosures were not given as required. See "Risk Factors"
in this prospectus supplement and "Certain Legal Aspects of Mortgage Loans and
Contracts--The Mortgage Loans--Anti-Deficiency Legislation and Other Limitations
on Lenders" in the prospectus.
___% of the mortgage loans are secured by second liens.
Approximately ____% of the mortgage loans are Balloon Loans, which
require monthly payments of principal based on 30 year amortization schedules
and have scheduled maturity dates of approximately 15 years from the due date of
the first monthly payment, leaving a substantial portion of the original
principal amount, the Balloon Amount, due and payable on the respective
scheduled maturity date. The existence of a Balloon Amount typically will
require the related mortgagor to refinance the 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 depositor, the master servicer or the trustee is
obligated to refinance any Balloon Loan. Subject to the terms thereof, the
certificate guaranty insurance policy will provide coverage for any losses
incurred upon liquidation of a Balloon Loan arising out of or in connection with
the failure of a mortgagor to pay its Balloon Amount.
Approximately ___% of the mortgage loans are Convertible Mortgage Loans,
which provide that, at the option of the related mortgagor, the adjustable
interest rate on a mortgage loan may be converted to a fixed interest rate. Upon
conversion, the mortgage rate will be converted to a fixed interest rate
determined in accordance with the formula set forth in the related mortgage note
which formula is intended to result in a mortgage rate which is not less than
the then current market interest rates, subject to applicable usury laws. After
the conversion, the monthly payments of principal and interest will be adjusted
to provide for full amortization over the remaining term to scheduled maturity.
The master servicer will be obligated to repurchase any Convertible
Mortgage Loan following the conversion thereof at a price equal to the unpaid
principal balance thereof plus accrued interest to the first day of the month in
which the purchase price is to be distributed to the Class A Certificates. If
the master servicer fails to repurchase a Convertible Mortgage Loan following
the conversion thereof, it will not constitute an Event of Default under the
Pooling and Servicing Agreement and the mortgage loan will remain in the trust
fund as a fixed-rate loan.
Approximately ___% of the mortgage loans will have mortgage rates
calculated on the basis of the simple interest method.
_____% of the mortgage loans were underwritten under a streamlined
refinancing documentation program, which permits some mortgage loans to be
refinanced with only limited verification or updating of underwriting
information obtained at the time that the refinanced mortgage loan was
underwritten. See "The Trusts--The Mortgage Loans" in the prospectus.
S-20
<PAGE>
Mortgage Rate Adjustment: The mortgage rate on the mortgage loans will
adjust semi-annually commencing approximately six months after origination, 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 in this prospectus supplement.
The amount of the monthly payment on each mortgage loan will be adjusted
semi-annually 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 mortgage loan over its remaining term to stated maturity. As of
the cut-off date, ___% of the mortgage loans will have reached their first
adjustment date. The mortgage loans will have various adjustment dates, note
margins and limitations on the mortgage rate adjustments, as described below.
The mortgage rate on each loan may not increase or decrease on any
adjustment date by more than a specified percentage per annum. This periodic
rate cap is not more than ___%, except that the mortgage rate on some of the
mortgage loans may adjust up to ___% on the initial adjustment date.
The mortgage rate on a mortgage loan may not exceed the maximum mortgage
rate or be less than the minimum mortgage rate specified for such mortgage loan
in the related mortgage note. The minimum mortgage rate for each mortgage loan
will be equal to the note margin, except in the case of ____% of the mortgage
loans, which have a minimum mortgage rate greater than the note margin. The
minimum mortgage rates on the mortgage loans will range from ____% to ____%,
with a weighted average minimum mortgage rate as of the cut-off date of _____%.
The maximum mortgage rates on the mortgage loans will range from ____% to
______%, with a weighted average maximum mortgage rate as of the cut-off date of
____%. No mortgage loan provides for payment caps on any adjustment date that
would result in deferred interest or negative amortization.
Six-Month LIBOR. The reference date with respect to each mortgage loan
is the date as of which Six-Month LIBOR, as published by The Wall Street
Journal, is determined. The reference date with respect to each mortgage loan
is:
o the first business day of the month immediately preceding the month in
which the adjustment date occurs,
o the date forty-five days prior to the adjustment date,
o the date fifteen days prior to the adjustment date, or
o the 20th day of the month preceding the month in which the adjustment date
occurs;
except that the reference date with respect to ___ mortgage loans, representing
approximately ___% of the aggregate principal balance of the mortgage loans,
S-21
<PAGE>
will adjust with respect to 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.
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. The average yields for the
Class A Certificates 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.
SIX-MONTH LIBOR
Adjustment Date 1997 1998 1999 2000 2001
January 1...........................
February 1..........................
March 1.............................
April 1.............................
May 1...............................
June 1..............................
July 1..............................
August 1............................
September 1.........................
October 1...........................
November 1..........................
December 1..........................
The initial mortgage rate in effect on a mortgage loan typically will be
lower, and may be significantly lower, than the mortgage rate that would have
been in effect based on Six-Month LIBOR and the related note margin. Therefore,
unless Six-Month LIBOR declines after origination of a mortgage loan, the
related mortgage rate will typically increase on the first adjustment date
following origination of such mortgage loan, subject to the periodic rate cap.
The repayment of the mortgage loans will be dependent on the ability of the
mortgagors to make larger monthly payments following adjustments of the mortgage
rate. Mortgage loans that have the same initial mortgage rate may not always
bear interest at the same mortgage rate because such mortgage loans may have
different adjustment dates (and the mortgage rates therefore may reflect
different related Index values), note margins, maximum mortgage rates and
minimum mortgage rates. The net mortgage rate with respect to each mortgage loan
as of the cut-off date will be set forth in the mortgage loan schedule attached
to the Pooling and Servicing Agreement. The net mortgage rate on each mortgage
loan will be adjusted on each adjustment date to equal the servicing fee rate,
which is the mortgage rate on the mortgage loan minus the sum of (i) the rate
S-22
<PAGE>
per annum at which the related master servicing and subservicing fees accrue on
the mortgage loan and (ii) the policy premium rate, which is the amount of the
premium payable to the certificate insurer with respect to the certificate
guaranty insurance policy, subject to any periodic rate cap, but may not exceed
the maximum mortgage rate minus the maximum net mortgage rate, which is the sum
of the servicing fee rate and the policy premium rate, or be less than the
minimum net mortgage rate, which is the minimum mortgage rate minus the sum of
the servicing fee rate and the policy premium rate, for such mortgage loan. See
"Description of the Mortgage Pool--Mortgage Pool Characteristics" in this
prospectus supplement.
Mortgage Loan Characteristics. The mortgage loans will have the following
characteristics as of the cut-off date:
Number of mortgage loans %
Weighted Average of Net Mortgage Rates........................ %
Range of Net Mortgage Rates................................... %
Mortgage Rates:
Weighted Average.......................................... %
Range..................................................... %
Note Margins:
Weighted Average.......................................... %
Range..................................................... %
Minimum Mortgage Rates:
Weighted Average.......................................... %
Range..................................................... %
Minimum Net Mortgage Rates:
Weighted Average.......................................... %
Range..................................................... %
Maximum Mortgage Rates:
Weighted Average.......................................... %
Range..................................................... %
Maximum Net Mortgage Rates:
Weighted Average.......................................... %
Range..................................................... %
Weighted Average Months to next Adjustment Date after __________,
_______
S-23
<PAGE>
The mortgage loans are assumable pursuant to the terms of the related
mortgage note. See "Maturity and Prepayment Considerations" in the prospectus.
Included below is a table showing the Credit Scores for some mortgagors.
Credit Scores are obtained by many mortgage lenders in connection with mortgage
loan applications to help assess a borrower's credit-worthiness. In addition,
Credit Scores may be obtained by Residential Funding after the origination of a
mortgage loan if the seller does not provide to Residential Funding a Credit
Score. Credit Scores are obtained from credit reports provided by various credit
reporting organizations, each of which may employ differing computer models and
methodologies. The Credit Score is designed to assess a borrower's credit
history at a single point in time, using objective information currently on file
for the borrower at a particular credit reporting organization. Information
utilized to create a Credit Score may include, among other things, payment
history, delinquencies on accounts, levels of outstanding indebtedness, length
of credit history, types of credit, and bankruptcy experience. Credit Scores
range from approximately 350 to approximately 840, with higher scores indicating
an individual with a more favorable credit history compared to an individual
with a lower score. However, a Credit Score purports only to be a measurement of
the relative degree of risk a borrower represents to a lender, i.e., a borrower
with a higher score is statistically expected to be less likely to default in
payment than a borrower with a lower score. In addition, it should be noted that
Credit Scores were developed to indicate a level of default probability over a
two-year period, which does not correspond to the life of a mortgage loan.
Furthermore, Credit Scores were not developed specifically for use in connection
with mortgage loans , but for consumer loans in general, and assess only the
borrower's past credit history. Therefore, a Credit Score does not take into
consideration the differences between mortgage loans and consumer loans
generally, or the specific characteristics of the related mortgage loan, for
example, the loan-to-value ratio, or LTV ratio, the collateral for the mortgage
loan, or the debt to income ratio. There can be no assurance that the Credit
Scores of the mortgagors will be an accurate predictor of the likelihood of
repayment of the related mortgage loans or that any mortgagor's Credit Score
would not be lower if obtained as of the date of this prospectus supplement.
<TABLE>
<CAPTION>
Credit Score Distribution
Number of Mortgage Percent of Mortgage
Credit Score Range Loans Principal Balance Pool
------------------ ----- ----------------- ----
<S> <C> <C>
$ %
-------------------------
Not Available (1)
Subtotal with Credit
Score
Total Pool
__________________
(1) Mortgage loans indicated as having a Credit Score that is not available
include some mortgage loans where the Credit Score was not provided by
the related seller and mortgage loans where no credit history can be
obtained from the related mortgagor.
Set forth below is a description of some additional characteristics of
the mortgage loans as of the cut-off date unless otherwise indicated. All
S-24
<PAGE>
percentages of the mortgage loans are approximate percentages by aggregate
principal balance as of the cut-off date unless otherwise indicated. Unless
otherwise specified, all principal balances of the mortgage loans are as of the
cut-off date and are rounded to the nearest dollar.
Mortgage Rates
Number of Mortgage Percent of Mortgage
Mortgage Rates (%) Loans Principal Balance Pool
$ %
Total $ %
As of the cut-off date, the weighted average mortgage rate of the
mortgage loans will be approximately_______% per annum.
Original Mortgage Loan Principal Balances
Original Mortgage Number of Percentage of
Loan Balance Mortgage Loans Principal Balance Mortgage Pool
$ $ %
Total $ %
As of the cut-off date, the average unpaid principal balance of the
mortgage loans will be approximately $__________.
S-25
<PAGE>
Net Mortgage Rates of the Mortgage Loans
Number of Principal Percent of
Net Mortgage Rates (%) Mortgage Loans Balance Mortgage Loans
6.000-6.499.......................... $ %
6.500-6.999..........................
7.000-7.499..........................
7.500-7.999..........................
8.000-8.499..........................
8.500-8.999..........................
9.000-9.499..........................
9.500-9.999..........................
10.000-10.499.........................
11.000-11.499.........................
11.500-11.999.........................
12.000-12.499.........................
12.500-12.999.........................
13.000-13.499.........................
Total........................... $ %
===============================================================================================================
As of the cut-off date, the weighted average net mortgage rate of the
mortgage loans will be approximately _______% per annum.
Original Loan-to-Value Ratios
Original Loan Number of Percentage of
to Value Ratio (%) Mortgage Loans Principal Balance Mortgage Pool
Total $ %
The weighted average LTV ratio at origination of the mortgage loans will be
approximately ________%.
The method for calculating the LTV ratio is described below under the
caption "Underwriting Standards."
S-26
<PAGE>
Geographic Distributions of Mortgaged Properties
Number of Percentage of
State Mortgage Loans Principal Balance Mortgage Pool
California $ %
Connecticut
Illinois
New Jersey
New York
Other (1)
Total $ %
(1) Other includes states and the District of Columbia with under 3%
concentrations individually.
No more than _____% of the mortgage loans will be secured by mortgaged
properties located in any one zip code area in California and no more than
______% of the mortgage loans will be secured by mortgaged properties located in
any one zip code area outside California.
Mortgage Loan Purpose
Number of Percentage of
Loan Purpose Mortgage Loans Principal Balance Mortgage Pool
Purchase $ %
Rate/Term Refinance
Equity Refinance
Total $ %
The weighted average LTV ratio at origination of rate and term refinance
mortgage loans will be ______%. The weighted average LTV ratio at origination of
equity refinance mortgage loans will be ______________%.
S-27
<PAGE>
Mortgage Loan Documentation Types
Number of Percentage of
Documentation Type Mortgage Loans Principal Balance Mortgage Pool
Full $ %
Reduced
Total $ %
o For purposes of the above table, Reduced Documentation Type includes
mortgage loans which were underwritten under a no stated income program.
The weighted average LTV ratio at origination of the mortgage loans
which were underwritten under a reduced loan documentation program will be %. No
more than % of the reduced loan documentation mortgage loans will be secured by
mortgaged properties located in California.
Occupancy Types
Number of Percentage of
Occupancy Mortgage Loans Principal Balance Mortgage Pool
Primary Residence $ %
Second/Vacation
Non Owner-occupied
Total $ %
Mortgaged Property Types
Number of Percentage of
Property Type Mortgage Loans Principal Balance Mortgage Pool
Single-family detached $ %
Planned Unit
Developments (detached)
S-28
<PAGE>
Two- to four-family
units
Condo Low-Rise (less
than 5 stories)
Condo Mid-Rise (5 to 8
stories)
Condo High-Rise (9
stories or more)
Townhouse
Planned Unit
Developments (attached)
Cooperative Units
[Mixed-Use]
Leasehold
Total $ %
</TABLE>
[In connection with each mortgage loan that is secured by a leasehold
interest, the related seller shall have represented to the depositor that, among
other things:
o the use of leasehold estates for residential properties is an accepted
practice in the area where the related mortgaged property is located
o residential property in the area consisting of leasehold estates is readily
marketable
o the lease is recorded and no party is in any way in breach of any provision
of the lease
o the leasehold is in full force and effect and is not subject to any prior
lien or encumbrance by which the leasehold could be terminated or subject
to any charge or penalty; and
o the remaining term of the lease does not terminate less than ten years
after the maturity date of each such mortgage loan.]
[Some of the aspects of the Cooperative Loans included in the mortgage
pool differ from those of other types of mortgage loans. See "Certain Legal
Aspects of Mortgage Loans --The Mortgage Loans --Cooperative Loans" in the
prospectus.]
S-29
<PAGE>
A portion of the mortgage loans provide for payment of a prepayment
charge. In most cases, the prepayment provisions provide for payment of a
prepayment charge for partial prepayments and full prepayments, other than a
prepayment:
o occurring upon the sale of property securing a mortgage loan,
o made within five years following the origination of the mortgage loan, and
o In an amount equal to 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 prepayment, exceeds
twenty percent (20%) 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. See "Certain Legal Aspects of the Mortgage
Loans --Default Interest and Limitations on Prepayments" in the prospectus.
Underwriting Standards
Prior to assignment to the depositor, Residential Funding reviewed the
underwriting standards for the mortgage loans and purchased from mortgage
collateral sellers who participated in or whose loans were in substantial
conformity with Residential Funding's AlterNet Program or which are otherwise in
conformity with the risk categories described in this prospectus supplement.
All of the mortgage loans had features that distinguish them from the
more restrictive underwriting requirements used as standards for Fannie Mae and
Freddie Mac. 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 consisted of
analyzing the following standards applicable to the mortgage loans:
o the creditworthiness of a mortgagor,
o the income sufficiency of a mortgagor's projected family income, including
in some cases rental income from investment property, relative to the
mortgage payment and to other fixed obligations, as determined by means
including verification of employment and income, verification of deposits,
evaluation of statements of assets and liabilities and tax returns,
although in most cases, with respect to mortgaged property consisting of
vacation or second homes, no income derived from the property was
considered for underwriting purposes, and
o the adequacy of the mortgaged property, expressed in terms of LTV ratio, to
serve as the collateral for a mortgage loan, as determined by an appraisal.
S-30
<PAGE>
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 would have been required to
furnish information with respect to the mortgagor's 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 information may have been supplied solely in the loan application. 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, including 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.
Some of the mortgage loans have been originated under "limited
documentation" or "stated income" programs that require less documentation and
verification than do traditional "full documentation" programs. Typically, under
a "limited documentation" 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. Under a "stated income" program, certain
borrowers with acceptable payment histories will not be required to provide any
information regarding income and no other investigation regarding the borrower's
income will be undertaken. As used in this section, LTV ratio shall 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.
With respect to any mortgage loan secured by a second lien, the CLTV ratio will
be the ratio, expressed as a percentage, of the sum of (i) the cut-off date
principal balance of such mortgage loan and (ii) the principal balance of any
related mortgage loans that constitute liens senior to the lien of the junior
loan on the related mortgaged property, at the time of the origination of such
mortgage loan, or, in certain instances, at the time of an appraisal subsequent
to origination, to the lesser of (A) the appraised value of the related
mortgaged property determined in an appraisal used in the origination of the
junior loan, or, in certain instances, the value determined in an appraisal
obtained subsequent to origination, and (B) if applicable under the
S-31
corresponding program, the sales price of each mortgaged property. See "The
Trusts--The Mortgage Loans" in the prospectus.
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 sales of comparable properties and, when deemed applicable,
an analysis based on income generated from the property or replacement costs
analysis based on the current cost of constructing or purchasing a similar
property. In certain instances, the LTV ratio or CLTV ratio may have been based
on the appraised value as indicated on a review appraisal conducted by the
mortgage collateral seller or originator.
In most cases, 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. Exceptions to these standards are made, however, on a case by
case basis if it is determined, based on compensating factors, that an
underwriting exception is warranted. Compensating factors may include, but are
not limited to, a low LTV ratio or CLTV ratio, stable employment, a relatively
long period of time in the same residence, and a mortgagor's cash reserves and
savings.
The risk categories determined by Residential Funding as applicable to
all of the mortgage loans are expressed in this prospectus supplement as Risk
Categories 1A-1, 1A, 1, 2, 3 and 4.
Risk Category 1A-1: Under Risk Category 1A-1, the prospective mortgagor
may have minor repayment delinquencies related to installment or revolving debt.
No 30-day, 60-day or 90-day late payments are acceptable within the last 12
months on an existing mortgage loan. Minor derogatory items are allowed as to
non-mortgage credit provided, open collections and charge-offs in excess of $500
must be paid down to zero at closing unless they are 2 years or older and not
reflected in the title report or are related to medical expenses. 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
LTV ratio of 95% is permitted for a mortgage loan on a single family
owner-occupied property, or 85% for a mortgage loan originated under a stated
documentation program. A maximum LTV ratio of 90%, or 70% for mortgage loans
originated under a stated documentation program, is permitted for a mortgage
loan on a non-owner occupied property. The mortgagor's debt service-to-income
ratio is 45% or less which 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.
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Risk Category 1A: Under Risk Category 1A, the prospective mortgagor may
have minor repayment delinquencies related to installment or revolving debt. 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 must be paid down to zero at closing unless they are
2 years or older and not reflected in the title report or are related to medical
expenses. 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 LTV ratio of 90% is permitted for a mortgage loan on a
single family owner-occupied property, or 85% for a mortgage loan originated
under a limited documentation program. A maximum LTV ratio of 75% is permitted
for a mortgage loan on a non-owner occupied property, or 70% for mortgage loans
originated under the limited documentation program. The mortgagor's debt
service-to-income ratio is 45% or less which 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 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 $1,000 must be paid down
to zero at closing unless they are 2 years or older and not reflected in the
title report or are related to medical expenses. 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 LTV ratio of 90% is permitted for a mortgage loan on an owner-occupied
property, or 80% for mortgage loans originated under a limited documentation
program. A maximum LTV ratio of 75% is permitted for a mortgage loan on an
non-owner-occupied property, or 70% for mortgage loans originated under a
reduced documentation program, is permitted for a mortgage loan on a
non-owner-occupied property. The debt service-to-income ratio is 50% or less
which 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 $2,500 at closing unless they are 2
years or older and not reflected in the title report or are related to medical
expenses. 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 maximum LTV ratio of
85% is permitted for a mortgage loan on an owner-occupied property, or 80% for
mortgage loans originated under a limited documentation program. A maximum LTV
ratio of 75%, or 70% for mortgage loans originated under a reduced documentation
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program, is permitted for a mortgage loan on a non-owner-occupied property. The
debt service-to-income ratio is 50% or less which 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 $5,000 at closing
unless they are 2 years or older and not reflected in the title report or are
related to medical expenses. 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 LTV ratio of 75% is permitted for
mortgage loans on an owner-occupied property or 70% for mortgage loans
originated under a limited documentation program. A maximum LTV ratio of 65% is
permitted for mortgage loans originated under a full or reduced documentation
program on a non-owner-occupied property. The debt service-to-income ratio is
55% or less which 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 LTV ratio of 70% is
permitted for mortgage loans on an owner-occupied property, or 65% for mortgage
loans originated under a limited documentation program. A maximum LTV ratio of
60% is permitted for mortgage loans originated under a full or reduced
documentation program on a non-owner-occupied property. The debt
service-to-income ratio is 55% or less which 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, 1A, 1 and 2 may include debt service-to-income ratios up
to 5% higher for mortgage loans which have LTV ratios of 70% or less. An
additional 5% variance for mortgage loans which have LTV 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 LTV ratios less than
65%.
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In applying the standards described above to loans secured by second
liens, the CLTV ratio is used in lieu of the LTV ratio for all junior loans that
have CLTV ratios of up to 90%. Any loans secured by second liens with CLTV
ratios in excess of 90% would have been underwritten as an exception to the
general AlterNet underwriting standards based on compensating factors as
described above.
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 LTV ratios in excess of 80%.
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 above, 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.
[Insert underwriting standards for mixed-use mortgage loans]
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 Program have been selected by Residential
Funding on the basis of criteria set forth in Residential Funding's 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 consistent with the provisions of the AlterNet
Seller Guide. With limited exceptions, each AlterNet Program seller is 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. Residential Funding's responsibilities will include the receipt
of funds from subservicers, 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 subservicers
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.
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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 in this prospectus supplement. Residential Funding
serves as the master servicer for transactions backed by most of these 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 HomeComings Financial Network,
Inc., a wholly owned subsidiary of the master servicer, with respect to
approximately ___% of the mortgage loans. HomeComings Financial Network, Inc.'s
servicing operations are located at 9275 Sky Park Court, Third Floor, San Diego,
California 92123 and at 2711 North Haskell Avenue, Suite 900, Dallas, Texas
75204.
HomeComings Financial Network, Inc.'s San Diego location is a
participant in the master servicer's Asset Resolution Division. This division
specializes in the servicing of sub-prime mortgage loans, the acquisition and
management of sub-performing and non-performing mortgages and the real property
securing REO Mortgage Loans. Residential Funding's Asset Resolution Division is
an approved "Special Servicer" by Standard & Poor's Ratings Services, a division
of The McGraw-Hill Companies, Inc. and Fitch, Inc.
Primary Mortgage Insurance and Primary Hazard Insurance
Each mortgage loan is required to be covered by a standard hazard insurance
policy, which is referred to as a primary hazard insurance policy. In addition,
to the best of the depositor's knowledge, each mortgage loan with an LTV ratio
at origination in excess of ___% will be insured by a primary mortgage insurance
policy, which is referred to as a primary insurance policy, covering at
least____% of the principal balance of the mortgage loan at origination if the
LTV ratio is between___% and ___%, and at least___% of the principal balance of
the mortgage loan at origination if the LTV ratio is between ___% and ___%. An
additional ___% of the mortgage loans are mortgage loans with a LTV ratio, or
CLTV ratio in the case of the junior loans, at origination in excess of 80% that
are not insured by a primary insurance policy.
Substantially all of the primary insurance policies were issued by
General Electric Mortgage Insurance Corporation, Mortgage Guaranty Insurance
Corporation, United Guaranty Residential Insurance Company, PMI Mortgage
Insurance Company, Commonwealth Mortgage Assurance Company, Republic Mortgage
Insurance Company or Amerin Guaranty Corporation, which collectively are 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" in the prospectus.
Additional Information
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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 the cut-off date. Prior to the issuance of the offered
certificates, mortgage loans may be removed from the mortgage pool as a result
of incomplete documentation or otherwise, if the depositor deems that removal
necessary or appropriate. A limited number of other mortgage loans may be added
to the mortgage pool prior to the issuance of the offered certificates. The
depositor believes that the information in this prospectus supplement will be
substantially representative of the characteristics of the mortgage pool as it
will be constituted at the time the offered certificates are issued although the
range of mortgage rates and maturities and some other characteristics of the
mortgage loans in the mortgage pool may vary.
A current report on Form 8-K will be available to purchasers of the
offered certificates and will be filed, together with the pooling and servicing
agreement, with the commission within fifteen days after the initial issuance of
the offered certificates. In the event mortgage loans are removed from or added
to the mortgage pool as described in the preceding paragraph, that removal or
addition will be noted in the current report.
DESCRIPTION OF THE CERTIFICATES
General
The Series ____-KS___ Mortgage and Manufactured Housing Contract
Pass-Through Certificates will include the following three classes of Class A
Certificates:
o [Class A-1 Certificates, or the Adjustable Rate Certificates
o Class A-2 Certificates; and
o Class A-3 Certificates, or the Lockout Certificates; and together with the
Class A-2 Certificates, the Fixed Rate Certificates
In addition to the Class A Certificates, the Series -KS Mortgage and
Manufactured Housing Contract Pass-Through Certificates will also include two
classes of certificates which are designated as the Class SB Certificates and
Class R Certificates. Only the Class A Certificates are offered by this
prospectus supplement. See "Glossary" in the prospectus for the meanings of
capitalized terms and acronyms not otherwise defined in this prospectus
supplement.
The certificates will evidence the entire beneficial ownership interest
in the trust fund. The trust fund will consist of:
o the mortgage loans
o the assets as from time to time that 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
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o property acquired by foreclosure of the mortgage loans or deed in lieu of
foreclosure
o any applicable primary insurance policies and primary hazard insurance
policies
o the certificate guaranty insurance policy; and
o all proceeds of any of the foregoing.
The Class A Certificates will be available only in book-entry form
through facilities of The Depository Trust Company. 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 depositor has been informed by
DTC that DTC's nominee will be Cede & Co. No beneficial owner will be entitled
to receive a certificate of any class in fully registered form, 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
Clearstream, Luxembourg, formerly known as Cedelbank SA, or Euroclear in Europe.
Clearstream, Luxembourg and Euroclear will hold omnibus positions on behalf of
their participants through customers' securities accounts in Clearstream,
Luxembourg's and Euroclear's names on the books of their depositaries, which in
turn will hold those 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 in this prospectus supplement:
o 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
o all references in this prospectus supplement 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 of Certain of the Offered Certificates
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
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nominee of DTC. Beneficial owners will not be recognized by the trustee or the
master servicer as certificateholders, as the 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, DTC is required to make book-entry transfers of the Class A
Certificates among participants and to receive and transmit distributions of
principal of, and interest on, the Class A Certificates. Participants and
indirect participants with which beneficial owners have accounts with respect to
the Class A Certificates similarly are required to make book-entry transfers and
receive and transmit distributions on behalf of their respective beneficial
owners. Accordingly, although beneficial owners will not possess physical
certificates evidencing their interests in the Class A Certificates, DTC's 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.
None of the depositor, 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 described in the prospectus under
"Description of the Certificates--Form of Certificates."
Upon the occurrence of an event described in the prospectus in the third
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 the definitive
certificates as certificateholders under the pooling and servicing agreement.
For additional information regarding DTC and the DTC registered
certificates, see "Description of the Certificates--Form of Certificates" in the
prospectus.
Glossary of Terms
The following terms are given the meanings shown below to help describe
the cash flows on the certificates:
Accrued Certificate Interest - For any distribution date and class of
Class A Certificates, an amount equal to interest accrued during the
related Interest Accrual Period on the Certificate Principal Balance of
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the certificates of that class immediately prior to that distribution
date at the related pass-through rate less interest shortfalls, if any,
allocated thereto for that distribution date, to the extent not covered
with respect to the Class A Certificates by the subordination provided
by the Class SB Certificates, including:
o any Prepayment Interest Shortfall to the extent not covered by the master
servicer as described in this prospectus supplement under "Description of
the Certificates--Interest Distributions";
o the interest portions of Realized Losses, including Excess Special Hazard
Losses, Excess Fraud Losses, Excess Bankruptcy Losses, and Extraordinary
Losses not allocated through subordination;
o the interest portion of any Advances that were made with respect to
delinquencies that were ultimately determined to be Excess Special Hazard
Losses, Excess Fraud Losses, Excess Bankruptcy Losses or Extraordinary
Losses; and
o any other interest shortfalls not covered by subordination, including
interest shortfalls relating to the Soldiers' and Sailors' Civil Relief Act
of 1940, or Relief Act, or similar legislation or regulations, all
allocated as described below.
Any reductions will be allocated among the holders of all classes of
certificates in proportion to the respective amounts of Accrued Certificate
Interest that would have been payable on that distribution date absent these
reductions. Accrued Certificate Interest on each class of Class A Certificates
will be distributed on a pro rata basis. Accrued Certificate Interest on the
Class A-2 and Class A-3 Certificates is calculated on the basis of a 360-day
year consisting of twelve 30-day months. Accrued Certificate Interest on the
Class A-1 Certificates will be calculated on the basis of the actual number of
days in the Interest Accrual Period and a 360-day year.
Available Distribution Amount - For any distribution date, an amount
equal to:
o the aggregate amount of scheduled payments on the mortgage loans due on the
related due date and received on or prior to the related determination
date, after deduction of the related master servicing fees and any
subservicing fees, which are collectively referred to as the servicing
fees, and the premium payable on the certificate guaranty insurance policy
o all unscheduled payments, including mortgagor prepayments on the mortgage
loans , Insurance Proceeds, Liquidation Proceeds and proceeds from
repurchases of and substitutions for the mortgage loans occurring during
the preceding calendar month and
o all Advances made for that distribution date, in each case net of amounts
reimbursable therefrom to the master servicer and any subservicer.
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In addition to the foregoing amounts, with respect to unscheduled
collections, not including mortgagor prepayments, the master servicer may elect
to treat such amounts as included in the Available Distribution Amount for the
distribution date in the month of receipt, but is not obligated to do so. As
described in this prospectus supplement under "--Principal Distributions on the
Class A Certificates," any amount with respect to which such election is so made
shall be treated as having been received 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, the due date is the first day of the month in which that
distribution date occurs and the determination date is the 20th day of the month
in which that distribution date occurs or, if that day is not a business day,
the immediately succeeding business day.
On any distribution date, the policy premium rate is equal to
one-twelfth of the product of the percentage specified in the Insurance and
Indemnity Agreement, dated as of ______, ____ among the certificate insurer, the
depositor, the trustee and the master servicer, and the aggregate Certificate
Principal Balance of the Class A Certificates immediately prior to such
distribution date.
Certificate Principal Balance - For any Class A Certificate as of any
date of determination, an amount equal to the initial Certificate Principal
Balance of that certificate, reduced by the aggregate of (a) all amounts
allocable to principal previously distributed with respect to that certificate,
including amounts paid pursuant to the certificate guaranty insurance policy,
and (b) any reductions in the Certificate Principal Balance of that certificate
deemed to have occurred in connection with allocations of Realized Losses in the
manner described in this prospectus supplement, other than any amounts that have
been paid pursuant to the certificate guaranty insurance policy.
Cumulative Insurance Payments - The aggregate of any payments made with
respect to the Class A Certificates by the certificate insurer under the
certificate guaranty insurance policy.
Eligible Master Servicing Compensation-An amount equal to the lesser of
(a) one-twelfth of 0.125% of the Stated Principal Balance of the mortgage loans
immediately preceding any 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 on that distribution date.
Excess Bankruptcy Losses - Bankruptcy Losses in excess of the Bankruptcy
Amount.
Excess Cash Flow-On any distribution date, the excess of the Available
Distribution Amount over the sum of (a) the Interest Distribution Amount and (b)
the sum of the amounts described in clauses [ ] of the definition of Principal
Distribution Amount.
Excess Fraud Losses - Fraud Losses in excess of the Fraud Loss Amount.
Excess Special Hazard Losses - Special Hazard Losses in excess of the
Special Hazard Amount.
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Excess Subordinated Amount - On any distribution date, the excess, if
any, of (a) the Subordinated Amount on such distribution date over (b) the
Targeted Subordinated Amount.
Final Disposition - A Final Disposition is deemed to have occurred upon
a determination by the master servicer that it has received all Insurance
Proceeds, Liquidation Proceeds and other payments or cash recoveries which the
master servicer reasonably and in good faith expects to be finally recoverable
with respect to a defaulted mortgage loan.
Interest Accrual Period - For the Class A-2 and Class A-3 Certificates,
the calendar month preceding the month in which the distribution date occurs.
For the Class A-1 Certificates, (a) for the distribution date in __________,
___, the period commencing on the closing date and ending on the day preceding
the distribution date in ________ ___, and (b) with respect to any distribution
date after the distribution date in _________ ___, the period commencing on the
distribution date in the month immediately preceding the month in which the
distribution date occurs and ending on the day preceding the distribution date.
Interest Distribution Amount - The aggregate amount of Accrued
Certificate Interest to be distributed to the holders of the Class A
Certificates for that distribution date.
[Lockout Prepayment Percentage - For any distribution date occurring prior
to the distribution date in__________, 0%. For any distribution date occurring
after the first five years following the closing date, a percentage determined
as follows:
o for any distribution date during the sixth year after the closing date, 30%
o for any distribution date during the seventh year after the closing date,
40%
o for any distribution date during the eighth year after the closing date,
60%
o for any distribution date during the ninth year after the closing date,
80%; and
o for any distribution date thereafter, 100%.]
[Lockout Scheduled Percentage - For any distribution date occurring
prior to the distribution date in , 0% and for any distribution date thereafter,
100%.]
Principal Distribution Amount - On any distribution date, the lesser of
(a) the balance of the Available Distribution Amount remaining after the
Interest Distribution Amount has been distributed and (b) the sum of:
(i) the product of (A) the then-applicable Class A Percentage and
(B) the aggregate of the following amounts:
(1) the principal portion of all scheduled monthly
payments on the mortgage loans due on the related due
date, whether or not received on or prior to the related
determination date, less the principal portion of Debt
Service Reductions, which together with other Bankruptcy
Losses are in excess of the Bankruptcy Amount;
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(2) the principal portion of all proceeds of the repurchase
of a mortgage loan or, in the case of a substitution, amounts
representing a principal adjustment, as required by the pooling
and servicing agreement during the preceding calendar month;
(3) the principal portion of all other unscheduled
collections received during the preceding calendar month,
including full and partial mortgagor prepayments; and
(4) the amount of any Subordination Increase Amount, as
defined in this prospectus supplement, for such distribution
date;
minus
(5) the amount of any Subordination Reduction Amount, as
defined in this prospectus supplement, for such distribution
date.
(ii) in connection with the Final Disposition of a mortgage loan
(x) that occurred in the preceding calendar month and (y) that did not
result in any Excess Special Hazard Losses, Excess Fraud Losses, Excess
Bankruptcy Losses or Extraordinary Losses, an amount equal to the lesser
of:
(1)
(2)
(iii)
(iv) any Excess Subordinate Principal Amount for that
distribution date; and
(v)
Subordinated Amount - On any distribution date, the excess, if any, of
(a) the aggregate Stated Principal Balances of the mortgage 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 Certificates as of such
date, after taking into account the payment to the Class A Certificates of the
amounts described in clauses [ ] of the definition of Principal Distribution
Amount on such distribution date.
Subordination Increase Amount - On any Distribution Date, any amount of
Excess Cash Flow actually applied as an accelerated payment of principal on the
Class A Certificates.
Subordination Reduction Amount - On any Distribution Date, the lesser of
(a) the Excess Subordinated Amount and (b) the amount available for distribution
specified in clauses [ ] of the definition of Principal Distribution Amount.
Targeted Subordinated Amount - On any distribution date, the required
level of the Subordinated Amount, as set forth in the Pooling and Servicing
Agreement.
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Interest Distributions
Holders of each class of Class A Certificates will be entitled to
receive interest distributions in an amount equal to the Accrued Certificate
Interest on that class on each distribution date, to the extent of the Available
Distribution Amount for that distribution date, commencing on the first
distribution date in the case of all classes of Class A Certificates entitled to
interest distributions.
Prepayment Interest 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 these prepayments in part
are applied to reduce the outstanding principal balance of the related mortgage
loans as of the due date in the month of prepayment.
However, on any distribution date, any Prepayment Interest Shortfalls
resulting from prepayments in full during the preceding calendar month will be
offset by the master servicer, but only to the extent those Prepayment Interest
Shortfalls do not exceed an amount equal to the lesser of (a) one-twelfth of
0.125% of the Stated Principal Balance of the mortgage loans immediately
preceding that distribution date and (b) the sum of the master servicing fee
payable to the master servicer for its master servicing activities and
reinvestment income received by the master servicer on amounts payable on that
distribution date. Prepayment Interest Shortfalls resulting from partial
prepayments will not be offset by the master servicer from master servicing
compensation or otherwise. No assurance can be given that the master servicing
compensation available to cover Prepayment Interest Shortfalls will be
sufficient therefor. See "Pooling and Servicing Agreement--Servicing and Other
Compensation and Payment of Expenses" in this prospectus supplement.
If on any distribution date the Available Distribution Amount is less
than Accrued Certificate Interest on the Class A Certificates for that
distribution date, the shortfall will be allocated among the holders of all
classes of Class A Certificates in proportion to the respective amounts of
Accrued Certificate Interest for that distribution date. In addition, the amount
of any such interest shortfalls that are covered by subordination, specifically,
interest shortfalls not described in clauses (i) through (iv) in the third
preceding paragraph, will be unpaid Accrued Certificate Interest and will be
distributable to holders of the certificates of those classes entitled to those
amounts on subsequent distribution dates, in each case to the extent of
available funds after interest distributions as required in this prospectus
supplement.
These shortfalls could occur, for example, if delinquencies on the
mortgage loans were exceptionally high and were concentrated in a particular
month and Advances by the master servicer did not cover the shortfall. Any
amounts so carried forward will not bear interest. Any interest shortfalls will
not be offset by a reduction in the servicing compensation of the master
servicer or otherwise, except to the limited extent described in the preceding
paragraph with respect to Prepayment Interest Shortfalls resulting from
prepayments in full.
The pass-through rates on all classes of Class A Certificates, other
than the Class A-1 Certificates, are fixed and are listed on page S- of this
prospectus supplement.
The pass-through rates on the Class A-1 Certificates are calculated as
follows:
S-44
<PAGE>
The pass-through rate on the Class A-1 Certificates with
respect to the initial Interest Accrual Period is___% per annum,
and as to any Interest Accrual Period thereafter, will be a per
annum rate equal to ___% plus the arithmetic mean of the London
interbank offered rate quotations for one-month Eurodollar
deposits, determined monthly as described in this prospectus
supplement, with a maximum rate of ___% per annum and a minimum
rate of ____% per annum.
The pass-through rates on the Class A-1 Certificates for the current and
immediately preceding Interest Accrual Period may be obtained by telephoning the
trustee at __________.
As described in this prospectus supplement, the Accrued Certificate
Interest allocable to each class of certificates is based on the Certificate
Principal Balance of that class.
Determination of LIBOR
LIBOR for any Interest Accrual Period after the initial Interest Accrual
Period will be determined as described in the three succeeding paragraphs.
On each distribution date, LIBOR shall be established by the trustee and
as to any Interest Accrual Period, LIBOR will equal the rate for United States
dollar deposits for one month which appears on the Telerate Screen Page 3750 as
of 11:00 A.M., London time, on the second LIBOR Business Day prior to the first
day of that Interest Accrual Period--the LIBOR rate adjustment date. Telerate
Screen Page 3750 means the display designated as page 3750 on the Telerate
Service or any other page as may replace page 3750 on that service for the
purpose of displaying London interbank offered rates of major banks. If the rate
does not appear on that page or any other page as may replace that page on that
service, or if the service is no longer offered, any other service for
displaying 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 the 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. The reference bank rate will be determined as of 11:00 A.M., London
time, on the day that is one LIBOR business day prior to the immediately
preceding distribution date to prime banks in the London interbank market for a
period of one month in amounts approximately equal to the aggregate Certificate
Principal Balance of the Class A-1 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 quotations are provided, the
rate will be the arithmetic mean of the quotations. If on that 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 that date for loans in U.S. Dollars to leading European banks for
a period of one month in amounts approximately equal to the aggregate
Certificate Principal Balance of the Class A-1 Certificates then outstanding. If
no quotations can be obtained, the rate will be LIBOR for the prior distribution
date, or in the case of the first LIBOR rate adjustment date, % with respect to
the Class A-1 Certificates; provided however, if, under the priorities listed
S-45
<PAGE>
previously in this paragraph, LIBOR for a distribution date would be based on
LIBOR for the previous distribution date for the third consecutive distribution
date, the trustee shall select an alternative comparable index over which the
trustee has no control, used for determining one-month Eurodollar lending rates
that is calculated and published or otherwise made available by an independent
party. 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 LIBOR by the trustee and the trustee's subsequent
calculation of the pass-through rates applicable to the Class A-1 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
Except as provided below, holders of the Class A Certificates will be
entitled to receive on each distribution date, in the priority described in this
prospectus supplement and to the extent of the portion of the Available
Distribution Amount remaining after the distribution of the Interest
Distribution Amount is distributed, a distribution allocable to principal equal
to the Principal Distribution Amount.
Distributions of principal on the Class A Certificates on each
distribution date will be made, after distribution of the Interest Distribution
Amount, as follows:
(i) to the Class A-1 and Class A-2 Certificates, on a pro rata
basis, until their Certificate Principal Balances have been reduced to
zero; and
(ii) from the balance of the Principal Distribution Amount
remaining after the distributions described in clause (i) above, to the
Class A-3 Certificates in reduction of its Certificate Principal
Balance, until its Certificate Principal Balance has been reduced to
zero, an amount equal to the sum of the following:
(A) the Class A-3 Certificates' pro rata share, based on
its Certificate Principal Balance relative to the aggregate
Certificate Principal Balance of all classes of Certificates, of
the aggregate of the amounts described in clauses [ ] of the
first paragraph under "Principal Distributions on the Class A
Certificates" in this prospectus supplement; and
(B) the Lockout Prepayment Percentage of the Class A-3
Certificates' pro rata share, based on its Certificate Principal
Balance relative to the aggregate Certificate Principal Balance
of all classes of Certificates, of the aggregate of the amounts
described in clause [ ] of the first paragraph under "Principal
Distribution on the Class A Certificates" in this prospectus
supplement;
provided that if the aggregate of the amounts set forth in clauses (i), (ii),
(iii) and (v) of the definition of Principal Distribution Amount is more than
the balance of the Available Distribution Amount remaining after the Interest
Distribution Amount has been distributed, the amount paid to the Class A-3
Certificates under this clause (iv) shall be reduced by an amount equal to the
Class A-3 Certificates' pro rata share, based on its aggregate Certificate
Principal Balance relative to the aggregate Certificate Principal Balance of the
Class A Certificates of that difference; and
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<PAGE>
(iii) the balance of the Principal Distribution Amount remaining
after the distributions, if any, described in clauses (ii) through (iv)
above shall be distributed in the following order of priority:
(A) first, concurrently, Class A-1 and Class A-2
Certificates, on a pro rata basis, until their Certificate
Principal Balances have been reduced to zero; and
(B) second, to the Class A-3 Certificates until its
Certificate Principal Balance has been reduced to zero.]
On each distribution date, the certificate insurer shall be entitled to
receive, after payment to the Class A certificateholders of the Interest
Distribution Amount and the Principal Distribution Amount for such distribution
date, but before application of any Subordination Increase Amount, from the
Excess Cash Flow to the extent available therefor, the aggregate of any payments
made with respect to the Class A Certificates by the certificate insurer under
the certificate guaranty insurance policy to the extent not previously
reimbursed, plus interest thereon.
Overcollateralization Provisions
The Pooling and Servicing Agreement requires that, on each distribution
date, Excess Cash Flow, if any, be applied on such distribution date as an
accelerated payment of principal on the Class A Certificates, but only as
follows: The Excess Cash Flow for any distribution date will derive primarily
from the amount of interest accrued on the mortgage loans in excess of the sum
of (a) interest at the related Pass-Through Rates on the Certificate Principal
Balances of the Class A Certificates, (b) the premium payable on the certificate
guaranty insurance policy in respect of the mortgage loans and (c) accrued
Servicing Fees in respect of the mortgage loans, in each case in respect of such
distribution date. Excess Cash Flow will be applied on any distribution date:
o first, to pay to the holders of the Class A Certificates the principal
portion of Realized Losses incurred on the mortgage loans for the preceding
calendar month;
o second, to pay to the certificate insurer any Cumulative Insurance
Payments;
o third, to pay any Subordination Increase Amount;
o fourth, to pay the holders of the Class A Certificates the amount of any
Prepayment Interest Shortfalls allocated thereto, to the extent not covered
by Eligible Master Servicing Compensation on such distribution date;
o fifth, to pay the holders of the Class A Certificates any Prepayment
Interest Shortfalls remaining unpaid from prior distribution dates together
with interest thereon; and
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<PAGE>
o sixth, 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 Excess Cash Flow to the payment of principal on the Class A
Certificates has the effect of accelerating the amortization of the Class A
Certificates relative to the amortization of the mortgage loans.
The Pooling and Servicing Agreement requires that the Excess Cash Flow,
to the extent available as described above, will be applied as an accelerated
payment of principal on the Class A Certificates to the extent that the Targeted
Subordinated Amount exceeds the Subordinated Amount as of such distribution
date.
Subordination Reduction Amount: In the event that the Targeted
Subordinated Amount 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 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 Class A Certificates relative to the amortization of the mortgage loans,
and of reducing the Subordinated Amount. If, on any distribution date, the
Excess Subordinated Amount 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 Targeted
Subordinated Amount), then any amounts relating to principal which would
otherwise be distributed to the holders of the Class A Certificates on such
distribution date shall instead be distributed to the holders of the Class SB
Certificates in an amount equal to the Subordination Reduction Amount for such
distribution date.
Certificate Guaranty Insurance Policy
The following summary of the terms of the certificate guaranty insurance
policy does not purport to be complete and is qualified in its entirety by
reference to the certificate guaranty insurance policy. The following
information regarding the certificate guaranty insurance policy has been
supplied by the certificate insurer for inclusion in this prospectus supplement.
Glossary of Terms: As used in this section and in the certificate
guaranty insurance policy, the following terms shall have the following
meanings:
o Agreement - The Pooling and Servicing Agreement, dated as of
_________, _____, among the depositor, 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
certificate insurer.
o Business Day - 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
certificate insurer is located are authorized or obligated by law or
executive order to close.
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<PAGE>
o Deficiency Amount - For the related Class A Certificates as of any
distribution date, (i) any shortfall in amounts available in the
Certificate Account to pay interest accrued during the 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 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 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. For purposes of determining the Deficiency Amount,
the final distribution date will be the distribution date in ____________.
o Holder - 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.
o Insured Amount - As of any distribution date, any Deficiency Amount.
o Notice - The telephonic or telegraphic notice, promptly confirmed in
writing by telecopy substantially in the form of Exhibit A attached to the
certificate guaranty insurance 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 certificate guaranty insurance policy and
not otherwise defined in the certificate guaranty insurance policy shall have
the meanings set forth in the Agreement as of the date of execution of the
certificate guaranty insurance policy, without giving effect to any subsequent
amendment to or modification of the Agreement unless the amendment or
modification has been approved in writing by the certificate insurer.
The certificate insurer, in consideration of the payment of the premium
and subject to the terms of the related certificate guaranty insurance policy,
thereby unconditionally and irrevocably guarantees to any Holder 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 certificate insurer's obligations
under each certificate guaranty insurance policy for 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 each
certificate guaranty insurance 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 certificate insurer. The certificate
guaranty insurance policy does not cover any interest shortfalls relating to the
Relief Act or Prepayment Interest Shortfalls.
Notwithstanding the foregoing paragraph, the certificate guaranty
insurance 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.
S-49
<PAGE>
The certificate insurer will pay any amounts payable under the
certificate guaranty insurance policy no later than 12:00 noon, New York City
time, on the later of the distribution date on which the related Deficiency
Amount, as defined below, is due or the Business Day following receipt in New
York, New York on a Business Day of a Notice; 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 certificate guaranty insurance policy it shall be deemed not to
have been received for purposes of this paragraph, and the certificate insurer
shall promptly so advise the trustee and the trustee may submit an amended
Notice.
Insured Amounts due under the certificate guaranty insurance policy,
unless otherwise stated in the certificate guaranty insurance policy, are to be
disbursed by the certificate insurer to the trustee on behalf of the Holders by
wire transfer of immediately available funds in the amount of the Insured
Amount.
The certificate guaranty insurance policy is being issued under and
pursuant to and shall be construed under, the laws of the State of New York,
without giving effect to the conflict of laws principles thereof.
The certificate guaranty insurance policy is not cancelable for any
reason. The premium on the certificate guaranty insurance policy is not
refundable for any reason including payment, or provision being made for
payment, prior to maturity of the related Class A Certificates.
Allocation of Losses; Subordination
Subject to the terms thereof, the certificate guaranty insurance policy
will cover all Realized Losses allocated to the Class A Certificates. If
payments are not made as required under the certificate guaranty insurance
policy, Realized Losses will be allocable to the Class A Certificates based on
the following priorities.
The subordination provided to the Class A Certificates by the Class SB
Certificates will cover Realized Losses on the mortgage loans that are Defaulted
Mortgage Losses, Fraud Losses, Bankruptcy Losses and Special Hazard Losses. Any
Realized Losses which are not Excess Special Hazard Losses, Excess Fraud Losses,
Excess Bankruptcy Losses or Extraordinary Losses will be allocated as follows:
o first, to the Excess Cash Flow for the related distribution date; and
o second, to the Class SB Certificates
and the remainder of the Realized Losses among all the remaining classes of
Class A Certificates on a pro rata basis.
Any allocation of a Realized Loss, other than a Debt Service Reduction,
to a certificate will be made by reducing:
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<PAGE>
o its Certificate Principal Balance, in the case of the principal
portion of the Realized Loss, in each case until the Certificate
Principal Balance of that class has been reduced to zero, and
o the Accrued Certificate Interest thereon, in the case of the
interest portion of the Realized Loss, by the amount so allocated
as of the distribution date occurring in the month following the
calendar month in which the Realized Loss was incurred.
In addition, any allocation of a Realized Loss to a Class A Certificate may also
be made by operation of the payment priority to the Class A Certificates
described under "--Principal Distributions on the Class A Certificates" in this
prospectus supplement.
As used in this prospectus supplement, subordination refers to the
provisions discussed above for the sequential allocation of Realized Losses
among the various classes, as well as all provisions effecting those allocations
including the priorities for distribution of cash flows in the amounts described
in this prospectus supplement.
As described in the prospectus, in some circumstances the master
servicer may permit a servicing modification--the modification of a defaulted
mortgage loan to reduce the applicable mortgage rate or to reduce its
outstanding principal amount. Any principal reduction of this type shall
constitute a Realized Loss at the time of the reduction, and the amount by which
each monthly payment is reduced by any 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 in this
prospectus supplement. Any Advances made on any mortgage loan will be reduced to
reflect any related servicing modifications previously made. No servicing
modification will have the effect of reducing the mortgage rate below the sum of
the servicing fee rate and the pool strip rate as in effect at the cut-off date.
The mortgage rate and Net Mortgage Rate as to any mortgage loan will be deemed
not reduced by any servicing modification, so that the calculation of Accrued
Certificate Interest payable on the Class A Certificates will not be affected by
the 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 will be allocated on a pro rata basis among the Class A
Certificates and in an aggregate amount equal to the percentage of that loss
equal to the then aggregate Certificate Principal Balance of the Class A
Certificates divided by the then aggregate Stated Principal Balance of the
mortgage loans, in each case subject to the limitations set forth in the Pooling
and Servicing Agreement, and the remainder of the Realized Losses will be
allocated to the 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 of those classes of
certificates on the basis of its then outstanding Certificate Principal Balance
prior to giving effect to distributions to be made on that 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 respect of that distribution date
in the case of an allocation of the interest portion of a Realized Loss.
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<PAGE>
In order to maximize the likelihood of distribution in full of the
Interest Distribution Amount and Principal Distribution Amount, on each
distribution date, holders of Class A Certificates have a right to distributions
of the Available Distribution Amount that is prior to the rights of the holders
of the Class SB Certificates and Class R Certificates, to the extent necessary
to satisfy the Interest Distribution Amount and Principal Distribution Amount.
The Special Hazard Amount shall initially be equal to $________________. As
of any date of determination following the cut-off date, the Special Hazard
Amount shall equal $_______________ less the sum of (A) any amounts allocated
through subordination relating to Special Hazard Losses and (B) the Adjustment
Amount. The Adjustment Amount will be equal to an amount calculated under the
terms of the pooling and servicing agreement.
The Fraud Loss Amount shall initially be equal to $______________. As of
any date of determination after the cut-off date, the Fraud Loss Amount shall
equal (X) prior to the third anniversary of the cut-off date an amount equal to
____% of the aggregate principal balance of all of the mortgage loans as of the
cut-off date minus the aggregate amounts allocated through Subordination for
Fraud Losses up to that date of determination and (Y) from the third to the
fifth anniversary of the cut-off date, an amount equal to (1) the lesser of (a)
the Fraud Loss Amount as of the most recent anniversary of the cut-off date and
(b) ____% of the aggregate principal balance of all of the mortgage loans as of
the most recent anniversary of the cut-off date minus (2) the aggregate amounts
allocated through subordination for Fraud Losses since the most recent
anniversary of the cut-off date up to that date of determination. On and after
the fifth anniversary of the cut-off date, the Fraud Loss Amount shall be zero
and Fraud Losses shall not be allocated through subordination.
The Bankruptcy Amount will initially be equal to $______________. As of any
date of determination on or after the first anniversary of the cut-off date, the
Bankruptcy Amount will equal the excess, if any, of (1) the lesser of (a) the
Bankruptcy Amount as of the business day next preceding the most recent
anniversary of the cut-off date and (b) an amount calculated under the terms of
the pooling and servicing agreement, which amount as calculated will provide for
a reduction in the Bankruptcy Amount, over (2) the aggregate amount of
Bankruptcy Losses allocated solely to the Class SB Certificates through
subordination since that anniversary.
Notwithstanding the foregoing, the provisions relating to subordination
will not be applicable in connection with a Bankruptcy Loss so long as the
master servicer has notified the trustee in writing that:
o 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
o either:
o the related mortgage loan is not in default with regard to payments due
thereunder or
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<PAGE>
o 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 relating to that mortgage loan are being
advanced on a current basis by the master servicer or a subservicer.
The Special Hazard Amount, Fraud Loss Amount and Bankruptcy Amount may
be further reduced as described in the prospectus under "Subordination."
Advances
Prior to each distribution date, the master servicer is required to make
Advances which were due on the mortgage loans on the immediately preceding due
date and delinquent on the business day next preceding the related determination
date.
These 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 these 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 for 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 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 (a) late collections, Insurance Proceeds and
Liquidation Proceeds from the mortgage loan as to which such unreimbursed
Advance was made or (b) as to any Advance that remains unreimbursed in whole or
in part following the final liquidation of the related mortgage loan, from any
amounts otherwise distributable on any of the Class A Certificates; provided,
however, that any Advances that were made with respect to delinquencies which
ultimately were determined to be Excess Special Hazard Losses, Excess Fraud
Losses, Excess Bankruptcy Losses or Extraordinary Losses are reimbursable to the
master servicer out of any funds in the Custodial Account prior to distributions
on any of the certificates and the amount of those losses will be allocated as
described in this prospectus supplement.
THE CERTIFICATE INSURER
The following information has been supplied by the insurer for inclusion
in this Prospectus Supplement. No representation is made by the depositor, the
underwriters or any of their affiliates as to the accuracy or completeness of
such information.
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<PAGE>
[ ]
CERTAIN YIELD AND PREPAYMENT CONSIDERATIONS
General
The yields 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. The
yields 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 the mortgage loans will in turn be affected by the
amortization schedules of the mortgage loans, the rate and timing of mortgagor
prepayments on the mortgage loans by the mortgagors, liquidations of defaulted
mortgage loans and purchases of mortgage loans due to breaches of some
representations and warranties.
The timing of changes in the rate of prepayments, liquidations and
purchases 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. In addition, the rate of prepayments of the mortgage loans and the
yield to investors on the certificates may be affected by refinancing programs,
which may include general or targeted solicitations, as described under
"Maturity and Prepayment Considerations" in the prospectus. 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 in this prospectus supplement and in
the prospectus under "Yield Considerations" and "Maturity and Prepayment
Considerations", no assurance can be given as to the rate or the timing of
principal payments on the Class A Certificates.
The amount of Excess Cash Flow may be adversely affected by the
prepayment of mortgage loans with higher mortgage rates. Any reduction of this
type will reduce the amount of Excess Cash Flow that is available to cover
Realized Losses, increase overcollateralization on the related classes of Class
A Certificates and cover Prepayment Interest Shortfalls, to the extent and in
the manner described in this prospectus supplement. See "Description of the
Mortgage Pool--General," "Description of the Certificates--Overcollateralization
Provisions" and"--Allocation of Realized Losses" in this prospectus supplement.
The mortgage loans in most cases may be prepaid by the mortgagors at any
time without payment of any prepayment fee or penalty, although a portion of the
mortgage loans provide for payment of a prepayment charge, which may have a
substantial effect on the rate of prepayment of those mortgage loans. See
"Description of the Mortgage Pool--Mortgage Pool Characteristics" in this
prospectus supplement.
Most of the mortgage loans contain due-on-sale clauses. As described
under "Description of the Certificates--Principal Distributions on the Class A
Certificates" in this prospectus supplement, during specified periods all or a
disproportionately large percentage of principal prepayments on the mortgage
loans will be allocated among the Class A Certificates, other than the Lockout
Certificates, and during specified periods no principal prepayments on the
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mortgage loans will be distributed to the Lockout Certificates. Furthermore, if
the Certificate Principal Balances of the Class A Certificates, other than the
Lockout Certificates, have been reduced to zero, the Lockout Certificates may,
under some circumstances, receive all mortgagor prepayments made during the
preceding calendar month.
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, solicitations 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 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. The rate of default on mortgage loans which are refinance or reduced
documentation mortgage loans, and on mortgage loans with high LTV ratios, may be
higher than for other types of mortgage loans. 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. See "Maturity and Prepayment
Considerations" in the prospectus.
The periodic increase in interest paid by the mortgagor of a Buy-Down
Mortgage Loan may increase the risk of default with respect to the related
mortgage loan. See "The Trusts--The Mortgage Loans" and "Yield Considerations"
in the prospectus.
The amount of interest otherwise payable to holders of the Class A
Certificates will be reduced by any interest shortfalls to the extent not
covered by subordination or the master servicer, including Prepayment Interest
Shortfalls. These shortfalls will not be offset by a reduction in the servicing
fees payable to the master servicer or otherwise, except as described in this
prospectus supplement with respect to some Prepayment Interest Shortfalls. See
"Yield Considerations" in the prospectus and "Description of the
Certificates--Interest Distributions" in this prospectus supplement for a
discussion of the effect of principal prepayments on the mortgage loans on the
yield to maturity of the Class A Certificates and possible shortfalls in the
collection of interest.
The yield to investors in the Class A Certificates will be affected by
Prepayment Interest Shortfalls allocable thereto in the month preceding any
distribution date to the extent that those shortfalls exceed the amount offset
by the master servicer. See "Description of the Certificates--Interest
Distributions" in this prospectus supplement.
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In addition, the yield to maturity on each class of the Class A
Certificates will depend on, among other things, the price paid by the holders
of the Class A Certificates and the related pass-through rate. The extent to
which the yield to maturity of any 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 of Class A Certificates 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 anticipated at the time of purchase. Conversely, if a class of Class
A Certificates is purchased at a discount and principal distributions thereon
occur at a rate slower than assumed at the time of purchase, the investor's
actual yield to maturity will be lower than anticipated at the time of purchase.
For additional considerations relating to the yield on the certificates, see
"Yield Considerations" and "Maturity and Prepayment Considerations" in the
prospectus.
Lockout Certificates: Investors in the Lockout Certificates should be aware
that because the Lockout Certificates do not receive any distributions of
payments of principal prior to the distribution date occurring in_____________,
unless the Certificate Principal Balances of the Class A Certificates, other
than the Lockout Certificates, have been reduced to zero, the weighted average
life of the Lockout Certificates will be longer than would otherwise be the
case. The effect on the market value of the Lockout Certificates of changes in
market interest rates or market yields for similar securities will be greater
than for other classes of Class A Certificates entitled to principal
distributions.
Assumed Final Distribution Date: The assumed final distribution date with
respect to each class of the Class A Certificates is________ 25,_____, which is
the distribution date immediately following the latest scheduled maturity date
for any mortgage loan. No event of default, change in the priorities for
distribution among the various classes or other provisions under the 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 the 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 is paid, which may be in the form of
scheduled amortization, prepayments or liquidations.
Prepayments on mortgage loans are commonly measured relative to a
prepayment standard or model. The model used in this prospectus supplement, the
prepayment speed assumption, represents an assumed rate of prepayment each month
relative to the then outstanding principal balance of a pool of new mortgage
loans. A prepayment assumption of 100% PSA assumes constant prepayment rates of
0.20% per annum of the then outstanding principal balance of the mortgage loans
in the first month of the life of the mortgage loans and an additional 0.20% per
annum in each month thereafter until the 30th month. Beginning in the 30th month
and in each month thereafter during the life of the mortgage loans , 100% PSA
assumes a constant prepayment rate of 6% per annum each month. As used in the
table below, "0% PSA" assumes prepayment rates equal to 0% of PSA--no
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prepayments. Correspondingly, "100% PSA" and " ____% PSA" assumes prepayment
rates equal to 100% of PSA and ____% of PSA, respectively, and so forth. PSA
does not purport to be a historical description of prepayment experience or a
prediction of the anticipated rate of prepayment of any pool of mortgage loans ,
including the mortgage loans .
The table captioned "Percent of Initial Certificate Principal Balance
Outstanding at the Following Percentages of PSA" has been prepared on the basis
of assumptions as listed in this paragraph 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" in this
prospectus supplement and their performance. The 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:
Discount Non-Discount
Mortgage loans Mortgage Loans
Aggregate principal balance $ $
Weighted average mortgage rate % %
Weighted average servicing fee % %
rate
Weighted average original term
to maturity (months)
Weighted average remaining term
to maturity (months)
(ii) the scheduled monthly payment for each mortgage loan has been based
on its outstanding balance, mortgage rate and remaining term to maturity, so
that the mortgage loan will amortize in amounts sufficient for its repayment
over its remaining term to maturity; (iii) none of the unaffiliated sellers, the
master servicer or the depositor will repurchase any mortgage loan, as described
under "The Trusts--The Mortgage Loans" and "Description of the
Certificates--Assignment of Mortgage Loans" in the prospectus, and neither the
master servicer nor the depositor exercises any option to purchase the mortgage
loans and thereby cause a termination of the trust fund; (iv) 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 PSA set forth in the table; (v) there
is no Prepayment Interest Shortfall or any other interest shortfall in any
month; (vi) payments on the certificates will be received on the 25th day of
each month, commencing in ; (vii) payments on the mortgage loans earn no
reinvestment return; (viii) there are no additional ongoing trust fund expenses
payable out of the trust fund; and (ix) the certificates will be purchased on
_______________, _______. Clauses (i) through (ix) above are collectively
referred to as the structuring assumptions.
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The actual characteristics and performance of the mortgage loans will
differ from the assumptions used in constructing the table below, which is
hypothetical in nature and is provided only to give a general sense of how the
principal cash flows might behave under varying prepayment scenarios. For
example, it is very unlikely that the mortgage loans will prepay at a constant
level of PSA until maturity or that all of the mortgage loans will prepay at the
same level of PSA. Moreover, the diverse remaining terms to 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
PSA specified, even if the weighted average remaining term to maturity and
weighted average mortgage rate of the mortgage loans are as assumed. Any
difference between the assumptions and the actual characteristics and
performance of the mortgage loans, or actual prepayment or loss experience, will
affect the percentages of initial Certificate Principal Balances outstanding
over time and the weighted average lives of the classes of Class A Certificates.
In accordance with the foregoing discussion and assumptions, the
following table indicates the weighted average life of each class of Class A
Certificates, and sets forth the percentages of the initial Certificate
Principal Balance of each class of Class A Certificates that would be
outstanding after each of the distribution dates at the various percentages of
PSA shown.
Percent of Initial Certificate Principal Balance Outstanding
at the Following Percentages of PSA
Class A-1 Class A-2 Class A-3
DISTRIBUTION DATE % % % % % % % % %
Initial Percentage
Weighted Average Life in
Years (**)
------------
o Indicates a number that is greater than zero but less than 0.5%.
o (Table continued on next page.)
** The weighted average life of a certificate of any class 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 reduction of the
Certificate Principal Balance described in (i) above.
This table has been prepared based on the structuring assumptions,
including the assumptions relating to the characteristics and performance of the
mortgage loans , which differ from their actual characteristics, and should be
read in conjunction therewith.
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POOLING AND SERVICING AGREEMENT
General
The certificates will be issued under a pooling and servicing agreement
dated as of ______, _________, among the depositor, the master servicer, and
__________, as trustee. Reference is made to the prospectus for important
information in addition to that described in this prospectus supplement
regarding the terms and conditions of the pooling and servicing agreement and
the Class A Certificates. The trustee will appoint ____________________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 depositor 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 Funding Mortgage
Securities I, Inc., 8400 Normandale Lake Boulevard, Suite 600, Minneapolis,
Minnesota 55437.
The Master Servicer
Residential Funding, an indirect wholly-owned subsidiary of GMAC
Mortgage and an affiliate of the depositor, will act as master servicer for the
certificates under the pooling and servicing agreement. For a general
description of Residential Funding and its activities, see "Residential Funding
Corporation" in the prospectus.
The following table sets forth information concerning the delinquency
experience, including pending foreclosures, on one- to four-family residential
mortgage loans that complied with Residential Funding's AlterNet Mortgage
Program at the time of purchase by Residential Funding and were being master
serviced by Residential Funding at the dates indicated. Because the AlterNet
Program is relatively new, the loss experience with respect to these mortgage
loans is limited and is not sufficient to provide meaningful disclosure.
As used in this prospectus supplement, a mortgage loan is considered to
be "30 to 59 days" or "30 or more days" delinquent when a payment due on any due
date remains unpaid as of the close of business on the last business day
immediately prior to the next following monthly due date. The determination as
to whether a mortgage loan falls into this category is made as of the close of
business on the last business day of each month. Delinquency information
presented in this prospectus supplement as of the cut-off date is determined and
prepared as of the close of business on the last business day immediately prior
to the cut-off date.
<TABLE>
<CAPTION>
AlterNet Mortgage Program Delinquency Experience
At December 31, 1998 At December 31, 1999 At September 30,
2000
By No. By Dollar By No. By Dollar By No. By
of Amount of Amount of Dollar
Loans of Loans Loans of Loans Loans Amount
of Loans
(Dollar Amounts in (Dollar Amounts in (Dollar Amounts in
Thousands) Thousands) Thousands)
<S> <C>
Total Loan Portfolio...... $ $ $ $ $ $
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Period of Delinquency
31 to 59 days.........
60 to 89 days.........
90 days or more.......
Foreclosures Pending......
Total Delinquent Loans.... $ $ $ $ $ $
Percent of Loan Portfolio. % % % % % %
o The tables above relate only to the mortgage loans referred to above.
o Does not include foreclosures pending.
The following table sets forth information concerning foreclosed
mortgage loans and loan loss experience of Residential Funding as of the dates
indicated, with respect to the mortgage loans referred to above. For purposes of
the following table, Average Portfolio Balance for the period indicated is based
on end of month balances divided by the number of months in the period
indicated, the Foreclosed Loans Ratio is equal to the aggregate principal
balance of Foreclosed Loans divided by the Total Loan Portfolio at the end of
the indicated period, and the Gross Loss Ratios and Net Loss Ratios are computed
by dividing the Gross Loss or Net Loss respectively during the period indicated
by the Average Portfolio Balance during the period.
AlterNet Mortgage Program Foreclosure Experience
At or for
the three
At or for At or for month
the year ended the year ended period ending
December 31, December 31, September 30,
1998 1999 2000
(Dollar Amounts in Thousands)
Total Loan Portfolio..................... $ $ $
Average Portfolio Balance................ $ $ $
Foreclosed Loans......................... $ $ $
Liquidated Foreclosed Loans.............. $ $ $
Foreclosed Loans Ratio................... % % %
Gross Loss............................... $
Gross Loss Ratio......................... % % %
Covered Loss............................. $ $ $
Net Loss................................. $ $ $
Net Loss Ratio........................... % % %
Excess Recovery.......................... $ $ $
---------------------------------------------------------------------------------------------------------------
</TABLE>
o The tables above relate only to the mortgage loans referred to above.
o For purposes of these tables, Foreclosed Loans includes the
principal balance of mortgage loans secured by mortgaged
properties the title to which has been acquired by Residential
Funding, by investors or by an insurer following foreclosure or
delivery of a deed in lieu of foreclosure and which had not been
liquidated by the end of the period indicated.
o Liquidated Foreclosed Loans is the sum of the principal balances
of the foreclosed loans liquidated during the period indicated.
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o Gross Loss is the sum of the gross losses less net gains, or
Excess Recoveries, on all mortgage loans liquidated during the
period indicated. Gross Loss for any mortgage loan is equal to
the difference between (a) the principal balance plus accrued
interest plus all liquidation expenses related to that mortgage
loan and (b) all amounts received in connection with the
liquidation of the related mortgaged property, excluding amounts
received from mortgage pool or special hazard insurance or other
forms of credit enhancement, as described below. Net gains from
the liquidation of mortgage loans are identified below.
o Covered Loss, for the period indicated, is equal to the aggregate
of all proceeds received in connection with liquidated mortgage
loans from mortgage pool insurance, special hazard insurance, but
not including primary mortgage insurance, special hazard
insurance or other insurance available for specific mortgaged
properties, or other insurance as well as all proceeds received
from or losses borne by other credit enhancement, including
subordinate certificates.
o Net Loss is determined by subtracting Covered Loss from Gross
Loss. Net Loss indicated here may reflect Excess Recovery. Net
Loss includes losses on mortgage loan pools which do not have the
benefit of credit enhancement.
o Excess Recovery is calculated only with respect to defaulted
mortgage loans as to which the liquidation of the related
mortgaged property resulted in recoveries in excess of the
principal balance plus accrued interest thereon plus all
liquidation expenses related to that mortgage loan. Excess
Recoveries are not applied to reinstate any credit enhancement,
and usually are not allocated to holders of certificates.
[To be altered for AlterNet Portfolio.] [The loss and delinquency
experience of the master servicer, as shown in the tables above, reflects a
stable, consistently managed servicing operation. Loss and delinquency levels
during these periods were consistently within the ranges anticipated by
management. The loss and delinquency levels have declined over the years shown
in the above tables. This decline is attributable primarily to favorable and
improving economic conditions over this time period. There can be no assurance
that the experience shown in the above tables will be indicative of future loss
and delinquency experience of the total portfolio, or of the mortgage loans in
the trust.]
There can be no assurance that factors beyond Residential Funding's
control, including weakening national or local economic conditions, higher
interest rates, higher unemployment rates, a decline in the availability of
refinancing, or downturns in real estate markets, will not result in increased
rates of delinquencies and foreclosure losses in the future. A general
deterioration of the real estate market in regions where the mortgaged
properties are located may result in higher delinquencies, delays in foreclosure
and lower sales prices with higher losses upon liquidation. A general weakening
of the economy may result in decreases in the financial strength of borrowers
and decreases in the value of collateral serving as security for loans, causing
an increase in delinquencies and higher net losses on liquidated loans.
Servicing and Other Compensation and Payment of Expenses
The servicing fees for each mortgage loan are payable out of the
interest payments on that mortgage loan. The servicing fees relating to each
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mortgage loan will be at least % per annum and not more than % per annum of the
outstanding principal balance of that mortgage loan, with a weighted average
servicing fee of approximately % per annum. The servicing fees consist 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 subservicer, including any payment due to prepayment charges on the
related mortgage loans and the compensation paid to the master servicer as the
direct servicer of a mortgage loan for which there is no subservicer.
The primary compensation to be paid to the master servicer for its master
servicing activities will be at least 0.03% per annum and not more than 0.08%
per annum of the outstanding principal balance of each mortgage loan, with a
weighted average of approximately ______%. As described in the prospectus, a
subservicer is entitled to servicing compensation in a minimum amount equal to
0.25% per annum of the outstanding principal balance of each mortgage loan
serviced by it. The master servicer is obligated to pay some 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 "The
Pooling and Servicing Agreement" in the prospectus for information regarding
other possible compensation to the master servicer and subservicers and for
information regarding expenses payable by the master servicer.
Voting Rights
There are 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 and may be taken by holders of certificates entitled
in the aggregate to that percentage of the voting rights. ___% of all voting
rights will be allocated among all holders of the Class A Certificates, ___% of
all voting rights will be allocated among all holders of the Class R
Certificates and ___% of all voting rights will be allocated among all holders
of the Class SB Certificates, respectively, in each case in proportion to the
percentage interests evidenced by their respective certificates. The pooling and
servicing agreement may be amended without the consent of the holders of the
Residual Certificates in specified circumstances.
Termination
The circumstances under which the obligations created by the pooling and
servicing agreement will terminate relating to the Class A Certificates are
described in "The Pooling and Servicing Agreement--Termination; Retirement of
Certificates" in the prospectus. The master servicer or the depositor will have
the option, on any distribution date on which the aggregate Stated Principal
Balance of the mortgage loans is less than 10% of the aggregate principal
balance of the mortgage loans as of the cut-off date, either to purchase all
remaining mortgage loans and other assets in the trust fund, thereby effecting
early retirement of the Class A Certificates or to purchase, in whole but not in
part, the certificates. Any such purchase of mortgage loans and other assets of
the trust fund shall be made at a price equal to the sum of (a) 100% of the
unpaid principal balance of each mortgage loan or the fair market value of the
related underlying mortgaged properties with respect to defaulted mortgage loans
as to which title to such mortgaged properties has been acquired if such fair
market value is less than such unpaid principal balance, net of any unreimbursed
Advance attributable to principal, as of the date of repurchase plus (b) accrued
interest thereon at the Net Mortgage Rate to, but not including, the first day
of the month in which the repurchase price is distributed.
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Distributions on the certificates relating to any optional termination
will be paid, first, to the Class A Certificates and second, to the Class SB
Certificates in the order of their payment priority. The proceeds of any such
distribution may not be sufficient to distribute the full amount to each class
of certificates if the purchase price is based in part on the fair market value
of the underlying mortgaged property and the fair market value is less than 100%
of the unpaid principal balance of the related mortgage loan. Any such purchase
of the certificates will be made at a price equal to 100% of their Certificate
Principal Balance plus the sum of interest thereon for the immediately preceding
Interest Accrual Period at the then-applicable pass-through rate and any
previously unpaid Accrued Certificate Interest. Upon the purchase of such
certificates or at any time thereafter, at the option of the masters or the
depositor, the mortgage loans 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 or the depositor.
Upon presentation and surrender of the Class A Certificates in
connection with the termination of the trust fund or a purchase of certificates
under the circumstances described in the two preceding paragraphs, the holders
of the Class A Certificates will receive an amount equal to the Certificate
Principal Balance of that class plus interest thereon for the immediately
preceding Interest Accrual Period at the then-applicable pass-through rate, plus
any previously unpaid Accrued Certificate Interest. However, distributions to
the holders of the most subordinate class of certificates outstanding will be
reduced, as described in the preceding paragraph, in the case of the termination
of the trust fund resulting from a purchase of all the assets of the trust fund.
MATERIAL FEDERAL INCOME TAX CONSEQUENCES
_________________, counsel to the depositor, has filed with the depositor's
registration statement an opinion to the effect that, assuming compliance with
all provisions of the pooling and servicing agreement, for federal income tax
purposes, the trust fund will qualify as a REMIC under the Internal Revenue
Code.
For federal income tax purposes:
o the Class R Certificates will constitute the sole class of "residual
interests" in the REMIC and
o each class of Class A Certificates and the Class SB Certificates will
represent ownership of "regular interests" in the REMIC and will be treated
as debt instruments of the REMIC
See "Material Federal Income Tax Consequences--REMICs" in the prospectus.
For federal income tax purposes, the Class _________ Certificates will,
[the Class ___________ Certificates may] [and all other Classes of Class A
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
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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 ____% PSA. No
representation is made that the mortgage loans will prepay at that rate or at
any other rate. See "Material Federal Income Tax Consequences--General" and
"--REMICs--Taxation of Owners of REMIC Regular Certificates--Original Issue
Discount" in the prospectus.
If the method for computing original issue discount described in the
prospectus results in a negative amount for any period with respect to a
certificateholder, the amount of original issue discount allocable to that
period would be zero and the certificateholder will be permitted to offset that
negative amount only against future original issue discount, if any,
attributable to those certificates.
In some 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, it is possible that the holder of a
certificate may be able to select a method for recognizing original issue
discount that differs from that used by the master servicer in preparing reports
to the certificateholders and the IRS.
Some of the classes of Class A Certificates may be treated for federal
income tax purposes as having been issued at a premium. Whether any holder of
one of those classes of certificates will be treated as holding a certificate
with amortizable bond premium will depend on the certificateholder's purchase
price and the distributions remaining to be made on the certificate at the time
of its acquisition by the certificateholder. Holders of those classes of
certificates should consult their tax advisors regarding the possibility of
making an election to amortize such premium. See "Material Federal Income Tax
Consequences--REMICs--Taxation of Owners of REMIC Regular Certificates" and
"--Premium" in the prospectus.
The Class A Certificates will be treated as assets described in Section
7701(a)(19)(C) of the Internal Revenue Code and "real estate assets" under
Section 856(c)(4)(A) of the Internal Revenue Code in the same proportion that
the assets of the trust fund would be so treated. In addition, interest on the
Class A Certificates will be treated as "interest on obligations secured by
mortgages on real property" under Section 856(c)(3)(B) of the Internal Revenue
Code to the extent that the Class A Certificates are treated as "real estate
assets" under Section 856(c)(4)(A) of the Internal Revenue Code. Moreover, the
Class A Certificates will be "qualified mortgages" within the meaning of Section
860G(a)(3) of the Internal Revenue Code if transferred to another REMIC on its
startup day in exchange for a regular or residual interest therein. However,
prospective investors in Class A Certificates that will be treated as assets
described in Section 860G(a)(3) of the Internal Revenue Code should note that,
notwithstanding that treatment, any repurchase of a certificate pursuant to the
right of the master servicer or the depositor to repurchase the Class A
Certificates may adversely affect any REMIC that holds the Class A Certificates
if the repurchase is made under circumstances giving rise to a Prohibited
Transaction Tax. See "The Pooling and Servicing Agreement--Termination" in this
prospectus supplement and "Material Federal Income Tax Consequences--REMICs--
Characterization of Investments in REMIC Certificates" in the prospectus.
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For further information regarding federal income tax consequences of
investing in the Class A Certificates, see "Material Federal Income Tax
Consequences--REMICs" in the prospectus.
METHOD OF DISTRIBUTION
In accordance with the terms and conditions of an underwriting agreement,
dated ___________,__________ will serve as underwriter and has agreed to
purchase and the depositor has agreed to sell the Class A Certificates. The
certificates being sold to the underwriter are referred to as the underwritten
certificates. It is expected that delivery of the underwritten certificates will
be made only in book-entry form through the Same Day Funds Settlement System of
DTC.
In connection with the underwritten certificates, the underwriter has
agreed, in accordance with the terms and conditions of the underwriting
agreement, to purchase all of the underwritten certificates if any of its
underwritten certificates are purchased thereby.
The underwriting agreement provide that the obligations of the
underwriter to pay for and accept delivery of the underwritten certificates are
subject to, among other things, the receipt of legal opinions and to the
conditions, among others, that no stop order suspending the effectiveness of the
depositor's registration statement shall be in effect, and that no proceedings
for that purpose shall be pending before or threatened by the Commission.
The distribution of the underwritten certificates by the underwriter may be
effected from time to time in one or more negotiated transactions, or otherwise,
at varying prices to be determined at the time of sale. Proceeds to the
depositor from the sale of the underwritten certificates, before deducting
expenses payable by the depositor, will be approximately ________% of the
aggregate Certificate Principal Balance of the underwritten certificates plus
accrued interest thereon from the cut-off date.
The underwriter may effect these transactions by selling the
underwritten certificates to or through dealers, and those dealers may receive
compensation in the form of underwriting discounts, concessions or commissions
from the underwriter for whom they act as agent. In connection with the sale of
the underwritten certificates, the underwriter may be deemed to have received
compensation from the depositor in the form of underwriting compensation. The
underwriter and any dealers that participate with the underwriter in the
distribution of the underwritten certificates may be deemed to be underwriters
and any profit on the resale of the underwritten certificates positioned by them
may be deemed to be underwriting discounts and commissions under the Securities
Act.
The underwriting agreement provides that the depositor will indemnify
the underwriter, and that under limited circumstances the underwriter will
indemnify the depositor, against some liabilities under the Securities Act, or
contribute to payments required to be made in respect thereof.
The Class SB Certificates [and Class R Certificates] may be offered by
the depositor from time to time directly or through an underwriter or agent in
one or more negotiated transactions, or otherwise, at varying prices to be
determined at the time of sale. However, there is currently no underwriting
arrangement in effect for these certificates. Proceeds to the depositor from any
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sale of the Class SB Certificates [and Class R Certificates] will equal the
purchase price paid by their purchaser, net of any expenses payable by the
depositor and any compensation payable to any underwriter or agent.
There is currently no secondary market for the Class A Certificates. The
underwriter intends to make a secondary market in the underwritten certificates
but is not obligated to do so. There can be no assurance that a secondary market
for the Class A Certificates will develop or, if it does develop, that it will
continue. The Class A Certificates will not be listed on any securities
exchange.
The primary source of information available to investors concerning the
Class A Certificates will be the monthly statements discussed in the prospectus
under "Description of the Certificates--Reports to Certificateholders," which
will include information as to the outstanding principal balance of the Class A
Certificates. There can be no assurance that any additional information
regarding the Class A Certificates will be available through any other source.
In addition, the depositor is not aware of any source through which price
information about the Class A Certificates will be available on an ongoing
basis. The limited nature of this information regarding the Class A 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 depositor by , _________________,____________________ and for the
underwriter by ,_____________________,_________________.
EXPERTS
The consolidated financial statements of [insurer] ____________ [and
subsidiaries], as of December 31, 1999 and 1998 and for each of the years in the
three-year period ended December 31, 1999 are incorporated by reference in this
prospectus supplement and in the registration statement in reliance upon the
report of _________, independent certified public accountants, incorporated by
reference in this prospectus supplement, and upon the authority of __________ 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 ____________________ and ________________________.
[_____________'s ratings on mortgage pass-through certificates address the
likelihood of the receipt by certificateholders of payments required under the
pooling and servicing agreement._________________'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. __________________'s rating on the certificates does not, however,
constitute a statement regarding frequency of prepayments on the mortgages. See
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"Certain Yield and Prepayment Considerations" in this prospectus supplement. 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 _____________ to mortgage pass-through
certificates address the likelihood of the receipt by certificateholders of all
distributions to which they are entitled under the transaction structure.
______________'s ratings reflect its analysis of the riskiness of the underlying
mortgage loans and the structure of the transaction as described in the
operative documents. ____________________'s ratings do not address the effect on
the certificates' yield attributable to prepayments or recoveries on the
underlying mortgage loans . In addition, the ratings do not address the
likelihood of the receipt of any amounts in respect of Prepayment Interest
Shortfalls.]
The depositor has not requested a rating on the Class A Certificates by any
rating agency other than _____________ and __________________. 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 other rating
agency. A rating on the Certificates by another rating agency, if assigned at
all, may be lower than the ratings assigned to the Class A Certificates by
______________ and ____________.
A security rating is not a recommendation to buy, sell or hold
securities and may be subject to revision or withdrawal at any time by the
assigning rating organization. Each security rating should be evaluated
independently of any other security rating. 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.
LEGAL INVESTMENT
The Class A Certificates will not constitute "mortgage related
securities" for purposes of SMMEA.
One or more classes of the Class A Certificates may be viewed as
"complex securities" under TB13a, which applies to thrift institutions regulated
by the OTS.
The depositor makes no representations as to the proper characterization
of any class of the Class A Certificates for legal investment or other purposes,
or as to the ability of particular investors to purchase any class of the Class
A Certificates under applicable legal investment restrictions. These
uncertainties may adversely affect the liquidity of any class of 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 legal
advisors in determining whether and to what extent any class of 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
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A fiduciary of any ERISA plan, any insurance company, whether through
its general or separate accounts, or any other person investing ERISA plan
assets of any ERISA plan, as defined under "ERISA Considerations--ERISA 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 Internal Revenue Code. The purchase or holding of the Class A
Certificates by or on behalf of, or with ERISA plan assets of, an ERISA plan may
qualify for exemptive relief under the exemption, as described under "ERISA
Considerations--Prohibited Transaction Exemption" 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 ERISA plan must be an
"accredited investor" as defined in Rule 501(a)(1) of Regulation D of the
Commission under the Securities Act.
Insurance companies contemplating the investment of general account
assets in the Class A Certificates should consult with their legal advisors with
respect to the applicability of Section 401(c) of ERISA, as described under
"ERISA Considerations--Insurance Company General Accounts" in the prospectus.
Final Department of Labor regulations under Section 401(c) were published on
January 5, 2000 but will generally be applicable on July 5, 2001.
Any fiduciary or other investor of ERISA plan assets that proposes to
acquire or hold the Class A Certificates on behalf of or with ERISA plan assets
of any ERISA plan should consult with its counsel with respect to: (i) whether
the specific and general conditions and the other requirements in the exemption
would be satisfied, or whether any other prohibited transaction exemption would
apply, and (ii) the potential applicability of the general fiduciary
responsibility provisions of ERISA and the prohibited transaction provisions of
ERISA and Section 4975 of the Internal Revenue Code to the proposed investment.
See "ERISA Considerations" in the prospectus.
The sale of any of the Class A Certificates to an ERISA plan is in no
respect a representation by the depositor or the underwriter that such an
investment meets all relevant legal requirements relating to investments by
ERISA plans generally or any particular ERISA plan, or that such an investment
is appropriate for ERISA plans generally or any particular ERISA plan.
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Residential Asset Securities Corporation
$________________
Mortgage and Manufactured Housing Contract Pass-Through Certificates
Series _______-KS___
Prospectus Supplement
[Name of Underwriter]
Underwriter
You should rely only on the information contained or incorporated by reference
in this prospectus supplement and the prospectus. We have not authorized anyone
to provide you with different information.
We are not offering the certificates offered hereby in any state where the offer
is not permitted.
Dealers will be required to deliver a prospectus supplement and prospectus when
acting as underwriters of the certificates offered hereby and with respect to
their unsold allotments or subscriptions. In addition, all dealers selling the
offered certificates, whether or not participating in this offering, may be
required to deliver a prospectus supplement and prospectus until _______,_____.
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