<PAGE>
As filed with the Securities and Exchange Commission on December 12, 1997
Registration No. 33-
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM S-3
REGISTRATION STATEMENT
under
THE SECURITIES ACT OF 1933
--------------------
ABN AMRO MORTGAGE CORPORATION
(Exact name of registrant as specified in governing instruments)
--------------------
<TABLE>
<S> <C> <C>
Delaware 181 West Madison Street 363886007
(State or other jurisdiction of Chicago, Illinois 60602 (I.R.S. Employer
incorporation or organization) (Address of principal executive offices) Identification Number)
</TABLE>
________________
________________
Joseph Krul, President
ABN AMRO Mortgage Corporation
181 West Madison Street
Chicago, Illinois 60602
(248) 643-2530
(Name and address of agent for service)
--------------------
Copies to:
Diane Citron, Esq.
Mayer, Brown & Platt
190 South LaSalle Street
Chicago, Illinois 60603-3441
(312) 782-0600
--------------------
Approximate date of commencement of proposed sale to the public: From time
to time after this Registration Statement becomes effective.
--------------------
If the only securities being registered on this form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. [_]
If any of the securities being registered on this form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or interest
reinvestment plans, please check the following box. [X]
--------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------
Proposed Maximum Proposed Maximum Amount of
Title of Securities Amount to be Offering Price Per Aggregate Offering Registration Fee
being Registered Registered Unit* Price*
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Mortgage Pass--Through Certificates $1,000,000 100% $1,000,000 $295.00
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
* Estimated solely for the purpose of calculating the registration fee.
--------------------
The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant shall
file a further amendment which specifically states that the Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933, or until this Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
================================================================================
<PAGE>
EXPLANATORY NOTE
This Registration Statement includes (i) a base prospectus and (ii) an
illustrative form of prospectus supplement for use in the offering of each
Series of Mortgage Pass-Through Certificates. Appropriate modifications will be
made to the form of prospectus supplement to disclose the specific terms of any
particular series of certificates, the specific classes of certificates to be
offered thereby, and the terms of the related offering. Each base prospectus
used (in either preliminary or final form) will be accompanied by a prospectus
supplement.
<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+Information contained herein is subject to completion or amendment. A +
+registration statement relating to these securities has been filed with the +
+Securities and Exchange Commission. These Securities may not be sold nor may +
+offers to buy be accepted prior to the time the registration statement becomes+
+effective. This prospectus shall not constitute an offer to sell or the +
+solicitation of an offer to buy nor shall there be any sale of these +
+securities in any State in which such offer, solicitation or sale would be +
+unlawful prior to registration or qualification under the securities laws of +
+any such State. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION, DATED ________ ___, 199_
PROSPECTUS SUPPLEMENT
(To Prospectus dated __________ __, 1997)
$___________
ABN AMRO Mortgage Corporation
Depositor
Mortgage Pass-Through Certificates,
Class ___, Series 199__-___
_______________________________________________
The Series 199__-___ Mortgage Pass-Through Certificates will consist of ___
class[es] of Senior Certificates (the Class A-___, Class A- ___ and Class A-___
Certificates, respectively, and collectively the "Class A Certificates"), ___
class[es] of Subordinate Certificates (the Class B-___ and Class B-___
Certificates, respectively, and collectively the "Class B Certificates") and ___
class[es] of Class R Certificates (the "Residual Certificates" and along with
the Class A and Class B Certificates, collectively, the "Certificates" or the
"Series 199_ -_ Certificates"). [Only the Class A-___, A-___ and A-___
Certificates are offered hereby.] The Class A Certificates and the Class B
Certificates will represent interests in a pool (the "Mortgage Pool") of
[adjustable] [fixed] rate one- to four-unit residential mortgage loans (the
"Mortgage Loans") originated or acquired by [LaSalle Home Mortgage Corporation
("LaSalle") and Standard Federal Bank ("Standard Federal"), each an affiliate of
the Depositor] [and] [names of other Qualified Lenders] and certain other
property related to the Mortgage Pool held in trust for the benefit of the
Certificateholders. The servicing of the Mortgage Loans will be performed by
various servicers identified herein (each, a "Servicer"), and will be supervised
by [LaSalle] [and] [name of other or additional Master Servicer] (in such
capacity, individually and collectively, the "Master Servicer"). [The
Certificates will be credit enhanced by [Special Hazard Insurance] [a
(Continued on next page)
_______________________________________________
[See "Special Considerations" herein and in the Prospectus for a discussion
of certain risk factors that should be considered by prospective investors
before purchasing Certificates of this Series.]
_______________________________________________
THE CERTIFICATES WILL NOT REPRESENT INTERESTS IN OR OBLIGATIONS OF THE
DEPOSITOR, THE MASTER SERVICER, THE TRUSTEE OR ANY OF THEIR RESPECTIVE
AFFILIATES. THE CERTIFICATES WILL NOT BE SAVINGS ACCOUNTS OR DEPOSITS AND
NEITHER THE CERTIFICATES NOR THE UNDERLYING MORTGAGE LOANS WILL BE INSURED OR
GUARANTEED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION OR ANY OTHER GOVERNMENT
AGENCY NOR HAS THE FEDERAL DEPOSIT INSURANCE CORPORATION OR ANY OTHER GOVERNMENT
AGENCY PASSED UPON THE ACCURACY OF THE INFORMATION CONTAINED IN THIS PROSPECTUS
SUPPLEMENT OR THE PROSPECTUS.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED
UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS SUPPLEMENT OR THE PROSPECTUS.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
_______________________________________________
[The Class A Certificates will be purchased by [ABN AMRO Chicago
Corporation, an affiliate of the Depositor,] [and] [name of other or additional
underwriters] (the "Underwriters") from the Depositor and will be offered by the
Underwriters from time to time to the public in negotiated transactions or
otherwise at varying prices to be determined at the time of sale.] Proceeds to
the depositor from the sale of the Class A Certificates will be ____% of the
aggregate initial principal amount of the Class A Certificates, plus accrued
interest at ____% per annum from ____________, 19___, but before deducting
expenses payable by the Depositor.
The Class A Certificates are offered by the Underwriters, subject to
receipt and acceptance by them and subject to their right to reject any order in
whole or in part. It is expected that delivery of the Class Certificates will be
made at the offices of ________________, on or about _____________, 199__.
_______________________________________________
[ABN AMRO Chicago Corporation]
[NAME OF OTHER UNDERWRITER(S)]
The date of this Prospectus Supplement is _______________, 199__
<PAGE>
(Continued from previous page)
Letter of Credit] [subordination]]. See "Description of the Certificates --
[Letters of Credit] [Insurance] [Subordination of Class B Certificates]" herein.
The Class A Certificates will evidence an initial undivided beneficial
interest of approximately ____% in the Mortgage Loans. The remaining undivided
beneficial interest in the Mortgage Loans will be evidenced by the Class B
Certificates and the Residual Certificates described herein. [[The rights of the
Class A-___ Certificateholders to receive distributions with respect to the
Mortgage Loans are subordinated to the rights of the Class A-___ and Class A-___
Certificateholders to the extent described herein and in the Prospectus.] The
rights of the Class B Certificateholders to receive distributions with respect
to the Mortgage Loans are subordinated to the rights of the Class A
Certificateholders to the extent described herein and in the Prospectus. In
addition, the Class A Certificateholders will be entitled to receive a
disproportionately greater percentage of Principal Prepayments to the extent
described herein. See "Description of the Certificates -- Subordination of the
Class B Certificates" herein and "Credit Support -- Subordination" and "--
Shifting Interest Credit Enhancements" in the Prospectus.]
The Class A Certificateholders are entitled to receive 100 percent of the
principal component of the Class A Distribution. Interest on the Mortgage Loans
will accrue to the Class A Certificateholders at the per annum rate equal to
[____%] [the monthly weighted average of the Mortgage Pass-Through Rates of the
Mortgage Loans (the "Pass-Through Rate"), initially ____%.] [After the initial
adjustment on each Mortgage Loan, the Mortgage Pass-Through Rate for each
Mortgage Loan will adjust [annually] [semi-annually] [monthly] to equal the
[_____] Index plus a Net Margin of ____%, subject to [an [annual] [semi-annual]
Maximum Adjustment of ____% and] the lifetime Maximum Rate [and lifetime Minimum
Rate] as described herein]. [Interest will be paid to the Class A
Certificateholders in an amount equal to the interest which has accrued on the
Principal Balance of the Mortgage Loans evidenced by each Certificate [less the
Class A Percentage of any Deferred Interest on the Mortgage Loans.]]
Except for certain representations and warranties relating to the Mortgage
Loans and certain other exceptions, the Master Servicer's obligations with
respect to the Certificates are limited to its contractual servicing
obligations. In the event the amount available for distribution to
Certificateholders on any Distribution Date is less than the amount due them,
the Master Servicer will advance cash to the Certificateholders to the extent
set forth herein. See ["Advances" herein and] "Description of the Certificates--
Advances and Limitations Thereon" in the Prospectus.
There is currently no market for the Class A Certificates offered hereby
and there is no assurance that one will develop.
The Trust Fund will elect to be treated as a "real estate mortgage
investment conduit" ("REMIC") for federal income tax purposes. See "Certain
Federal Income Tax Consequences" in the Prospectus.
S-2
<PAGE>
[Inside Front Cover Page]
The Series 199__-___ Certificates offered by this Prospectus Supplement
constitute a separate series of Mortgage Pass-Through Certificates being offered
by the Depositor pursuant to its Prospectus dated ___________, 199_ of which
this Prospectus Supplement is a part and which accompanies this Prospectus
Supplement. The Prospectus contains important information regarding this
offering which is not contained herein, and prospective investors are urged to
read the Prospectus and this Prospectus Supplement in full.
Until ______________, 199__, all dealers effecting transactions in the
Class A Certificates, whether or not participating in this distribution, may be
required to deliver a Prospectus Supplement and the Prospectus. This is in
addition to the obligation of dealers to deliver a Prospectus Supplement and the
Prospectus when acting as underwriters and with respect to their unsold
allotments or subscriptions.
[IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR
EFFECT TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE
CERTIFICATES OFFERED HEREBY AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL
IN THE OPEN MARKET. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY
TIME.]
S-3
<PAGE>
This summary is qualified in its entirety by reference to the detailed
information appearing elsewhere in this Prospectus Supplement and in the
accompanying Prospectus. Capitalized terms used and not otherwise defined herein
shall have the meanings ascribed thereto in the Prospectus.
Securities Offered......... Mortgage Pass-Through Certificates, Class[es] [A]
[A-___, A-___ and A-___], Series 199__-___
(collectively, the "Class A Certificates").
Seller..................... ABN AMRO Mortgage Corporation (the "Depositor"), a
wholly-owned, indirect subsidiary of ABN AMRO Bank
N.V. [, and an affiliate of the [Underwriter]
[Master Servicer] [Trustee]].
Master Servicer............ [LaSalle Home Mortgage Corporation ("LaSalle"), an
affiliate of the Depositor] [and] [name of
additional or other Master Servicer].
Cut-Off Date............... __________, 199__.
The Mortgage Loans......... [Adjustable ("ARMs")] [Fixed] rate conventional
mortgage loans originated or acquired by [LaSalle]
[Standard Federal] [and] [names of other Qualified
Lenders] secured by one-to four-unit residential
properties located in [any jurisdiction within the
United States of America ("USA") and Puerto Rico.
As of the Cut-off Date: (i) the Mortgage Loans had
an aggregate outstanding Principal Balance of
approximately $__________; (ii) [____%] of the
Mortgage Loans (measured by Principal Balance) had
original terms to stated maturity of ____ years
[and ____% of the Mortgage Loans had original terms
to stated maturity of ____ years]; (iii) ____% of
the Mortgage Loans (measured by Principal Balance)
had Loan-to-Value Ratios at origination of less
than or equal to 80%, ____% of the Mortgage Loans
had Loan-to-Value Ratios at origination between 80%
and 90% and ____% of the Mortgage Loans had
Loan-to-Value Ratios at origination between 90.1%
and 100%; and (iv) the weighted average interest
rate borne by the Mortgage Loans was ____% per
annum. See "The Mortgage Pool" herein.
[The Mortgage Loans with Loan-to-Value Ratios at
origination of less than 80% are not covered by
primary mortgage guaranty insurance. The Mortgage
Loans with Loan-to-Value Ratios at origination
equal to or greater than 80% are covered by Primary
Mortgage Insurance. The requirements for Primary
Mortgage Insurance vary depending upon the
geographic location of the Mortgaged Property as
well as whether the related Mortgaged Property is a
primary residence, second home or investment
property.]
S-4
<PAGE>
On or prior to the Closing Date, the Depositor will
transfer the Mortgage Loans to a trust fund (the
"Trust Fund") pursuant to the provisions described
under "Description of the Certificates --
Assignment of Mortgage Loans" and "--
Representations and Warranties" in the Prospectus.
Index...................... The Index applicable to the Mortgage Loans is
[insert Description of Index.]
Agreement.................. The Pooling and Servicing Agreement (the
"Agreement") dated as of __________ 1, 199__, among
the Depositor, as depositor, the Master Servicer
and [LaSalle National Bank], an affiliate of the
Depositor] [name of other Trustee], as trustee (the
"Trustee") for the holders of the Series 199_-_
Certificates.
Description of the
Certificates.............. The Class A Certificates evidence in the aggregate
approximately a ____% undivided initial beneficial
interest in the Mortgage Loans (approximately
$______ initial principal amount) and the Class B
Certificates evidence in the aggregate
approximately an ____% undivided initial beneficial
interest in the Mortgage Loans (approximately
$___________ initial principal amount). The Class A
Certificates and the Class B Certificates will be
issued in minimum denominations of $________ and
$_________, respectively.
The Class A Certificates represent the Senior
Certificates and the Class B Certificates represent
the Subordinate Certificates, both as described in
the accompanying Prospectus. [Only the Class A-___,
A-___ and A-___ Certificates are offered hereby.]
Principal (Including
Prepayments).............. Passed through monthly to the Certificateholders on
the 25th day of each month (each, a "Distribution
Date") commencing on ______________, 199__. On each
Distribution Date the Class A Certificateholders
are entitled to receive as payments of principal,
in addition to the Class A Percentage of all
scheduled payments on account of principal, the
Class A Prepayment Percentage (as defined below) of
principal prepayments remitted to the Trust Fund
with respect to such principal prepayments on the
Mortgage Loans during the prior calendar month
("Principal Prepayments"). See "Description of the
Certificates -- Shifting Interest Credit
Enhancements" in the Prospectus.
Interest................... Interest with respect to each Mortgage Loan held by
the Trust Fund will accrue, commencing
_____________ 1, 199__, at the Pass-Through Rate as
described below and will be paid monthly to the
Certificateholders.
S-5
<PAGE>
[The Mortgage Interest Rate on each ARM during the
first [________] months after origination (the
"Initial Mortgage Rate") is determined by [the
Depositor] [name of Qualified Lender] independently
of the Index. Thereafter, [and after each
subsequent [one] [six] [12] [36] [60] [84] month
period, each Mortgage Loan adjusts to a rate equal
to the Index plus the Gross Margin, subject to [an
annual] [a semi-annual] [Maximum Adjustment] of
____% and a lifetime Maximum Rate [and lifetime
Minimum Rate] set forth under "The Mortgage Pool"
herein. The Mortgage Interest Rates on the Mortgage
Loans (and also the Mortgage Pass-Through Rates
with respect thereto) will vary due to differences
in the level of the Index applicable on the
respective interest rate adjustment dates (each, an
"Adjustment Date"). Because the Gross Margins for
the Mortgage Loans vary from ____% to ____%, the
Mortgage Interest Rates on certain Mortgage Loans
will differ even if all of the Mortgage Interest
Rates on the Mortgage Loans adjusted on the same
Adjustment Date. Whenever the Mortgage Interest
Rate adjusts, a Mortgagor's Monthly Payment will be
adjusted to an amount that would fully amortize the
Mortgage Loan at its adjusted Mortgage Interest
Rate over its remaining term on a level debt-
service basis.] [The Mortgage Interest Rate for
each Mortgage Loan adjusts monthly subject to its
Minimum Rate and Maximum Rate. To accommodate
changes in the amount of interest that will accrue
on the Principal Balance of the Mortgage Loans due
to adjustable Mortgage Interest Rates, a
Mortgagor's Monthly Payment will be adjusted
annually, if necessary, to an amount that would
fully amortize the Mortgage Loan over its remaining
term on a level debt-service basis. Increases or
decreases in the Monthly Payment are limited to
___% of the Monthly Payment in effect during the
previous year except at the end of the _____ year
following origination of each ARM and at the end of
every ____ years thereafter. Because the Mortgage
Interest Rate adjusts monthly while the Monthly
Payment adjusts annually and is subject to the
limitations described above, the portion of each
Monthly Payment allocated to interest and that
allocated to principal may vary from month to
month. If an adjustment to the Mortgage Interest
Rate causes the amount of interest accrued in any
month to exceed the Monthly Payment, any such
excess interest (the "Deferred Interest") will be
added to the Principal Balance of the Mortgage
Loan.]]
In the event a Mortgagor prepays all of the
Principal Balance of a Mortgage Loan, such
Mortgagor only pays interest on the amount prepaid
to the date of prepayment [In order to minimize any
resulting shortfall in interest for the
corresponding month in which the prepayment was
made (such shortfall, a "Prepayment Interest
Shortfall"), the Master Servicer intends to forego
a portion of the Master Servicing Fee to the extent
available, so that up to a full month's interest
payment on such Mortgage Loans will be passed
S-6
<PAGE>
through to the Certificateholders at the applicable
Mortgage Pass-Through Rate. See "Description of the
Certificates -- Adjustment to Master Servicing Fees
in Connection with Prepayment Interest Shortfall"
in the Prospectus.]
Pass-Through Rate.......... The Pass-Through Rate for the Certificates will be
[an adjustable rate which is] equal to the weighted
average of the Mortgage Pass-Through Rates of each
Mortgage Loan in the Trust Fund.
[Letter of Credit.......... [Name of letter of credit bank] (the "L/C Bank")
will deliver to the Trustee a [standby] [direct
pay] Letter of Credit for the Mortgage Pool in the
amount of $_______ (___% of the aggregate Principal
Balance of the Mortgage Loans as of the Cut-off
Date). The L/C Bank will honor the Trustee's demand
with respect to such Letter of Credit, to the
extent of the amount available thereunder, to make
payments to the Certificate Account on each
Distribution Date in an amount equal to the unpaid
principal balance of any Mortgage Loan with respect
to which foreclosure proceedings have been
commenced or with respect to which the Master
Servicer has agreed to accept a deed to the
property in lieu of foreclosure that has not been
purchased by the Depositor pursuant to the terms of
the Agreement. The liability of L/C Bank under the
Letter of Credit will be reduced by the amount of
unreimbursed payments thereunder. In the event that
at any time there remains no amount available under
the Letter of Credit, any losses will be borne by
the holders of the Certificates.
The maximum amount available at anytime to be paid
under the Letter of Credit will be [___________]
determined in accordance with the provisions of the
Agreement. The duration of coverage and the amount
and frequency of any reduction in coverage provided
by the Letter of Credit will be [_____________],
provided that such terms may be modified if such
modification would not adversely affect the rating
on the Certificate. See "Description of the
Certificates -- Letter of Credit."]
[Special Hazard
Insurance Policy.......... In addition to standard hazard insurance policies
insuring against all losses due to various causes,
which are maintained for all Mortgage Loans, the
Depositor has obtained an insurance policy (the
"Special Hazard Insurance Policy") issued by [name
of Insurer] covering losses that result from
certain other physical risks that are not otherwise
insured against (including earthquakes and
mudflows). The Special Hazard Insurance Policy is
limited in scope and will cover losses in an amount
up to $__________ (___% of the aggregate Principal
Balance of the Mortgage Loans as of the Cut-off
Date). See "Description of the Certificates --
Special Hazard Insurance Policy."]
S-7
<PAGE>
[Fraud Insurance........... A fund (the "Fraud Fund") providing coverage for
Fraud Losses on the Mortgage Loans may be
established at the direction of the Depositor. The
Fraud Fund will be funded by cash, letters of
credit, insurance policies or other instruments in
an amount acceptable to the Rating Agencies. The
amount of coverage provided by the Fraud Fund may
be reduced to the extent the Rating Agencies
confirm that such reduction will not result in the
lowering of the ratings. See "Description of
Certificates -- Fraud Insurance."]
[Primary Mortgage
Insurance................. For each Mortgage Loan with a Loan-to-Value Ratio
greater than 80%, a primary mortgage insurance
policy ("Primary Mortgage Insurance") shall be
maintained which will cover at least [75]% of the
original fair market value of the related Mortgaged
Property until such time the principal balance of
such Mortgage Loan is reduced to 80% of the current
fair market value. The requirements for Primary
Mortgage Insurance vary depending upon the
geographic location of the Mortgaged Property as
well as whether the related Mortgaged Property is a
primary residence, second home or investment
property. See "Description of the Certificates --
Primary Mortgage Insurance."]
Subordination of Class B
Certificates; Shifting
Interest Credit
Enhancement............... The rights of the Class B Certificateholders to
receive distributions with respect to the Mortgage
Loans are subordinated to such rights of the Class
A Certificateholders to the extent of the
Subordinated Amount. As of each Determination Date,
the Subordinated Amount will generally equal the
Class B Percentage of the aggregate Principal
Balance of the Mortgage Loans on such date reduced
by the excess of Aggregate Losses over cumulative
Realized Losses as of such date, if any. This
subordination feature will enhance the likelihood
of timely receipt by the Class A Certificateholders
of the full amount of their scheduled monthly
payments of principal and interest.
One form of protection afforded to the Class A
Certificateholders will be effected by the
preferential right of such holders to receive the
amounts of principal [and interest] due the Class B
Certificateholders on each Distribution Date with
respect to the Mortgage Loans out of available
funds on deposit on such date in the Certificate
Account and by distributing to the Class A
Certificateholders a disproportionately greater
percentage of Principal Prepayments to the extent
described herein.
The Class A Prepayment Percentage for any
Distribution Date occurring during the first _____
years after the Cut-off Date will, except as
provided below, equal 100%, which will have the
effect
S-8
<PAGE>
of accelerating the amortization of the Class A
Certificates while increasing the respective
interest in the Trust Fund evidenced by the Class B
Certificates. Increasing the respective interest of
the Class B Certificates relative to that of the
Class A Certificates is intended to preserve the
availability of the subordination feature provided
by the Class B Certificates. The Class A Prepayment
Percentage for any Distribution Date occurring
after the first ____ years from the Cut-off Date
will, subject to the satisfaction of certain
conditions, gradually decline until it ultimately
equals the Class A Percentage. The foregoing is
subject to the following: (i) if on any
Distribution Date the allocation to the Class A
Certificates of Principal Prepayments to the extent
required above would reduce the aggregate Principal
Balance of the Mortgage Loans beneficially owned by
the Class A Certificateholders (the "Class A
Certificate Balance") below zero, the Class A
Prepayment Percentage for such Distribution Date
will be limited to the percentage necessary to
reduce the Class A Certificate Balance to zero and
thereafter the Class A Prepayment Percentage shall
be zero and (ii) if the Class A Percentage as of
any Distribution Date is greater than the initial
Class A Percentage, the Class A Prepayment
Percentage for such Distribution Date shall be
100%. See "Description of the Certificates" herein
and "Description of the Certificates -- Shifting
Interest Credit Enhancements" in the Prospectus.
[Reserve Fund.............. A reserve fund (the "Reserve Fund") in an amount
equal to approximately $ or such amount as the
Rating Agency may agree to (the "Initial Deposit")
will be established as part of the Trust Fund by
the Depositor. The Initial Deposit may be used by
the Master Servicer solely to make Advances (as
described below). Future payments and collections
on delinquent Mortgage Loans as to which an Advance
was made will be used to maintain the Reserve Fund
at an amount equal to the Initial Deposit. See
"Description of the Certificates -- Reserve Fund"
herein.]
[The Subordinated Amount and the Reserve Fund are
intended to enhance the likelihood of timely
receipt by Class A Certificateholders of the full
amount of scheduled monthly payments of principal
and interest due them with respect to the Mortgage
Loans and to protect such Certificateholders
against losses. However, in certain circumstances
the Subordinated Amount could be depleted and
payment deficiencies could result. If on any
Distribution Date when the Subordinated Amount is
greater than zero the aggregate amount of payments
received from the Mortgagors on Mortgage Loans and
any Advances do not provide sufficient funds to
make full distributions to the Class A
Certificateholders, the amount of the payment
deficiency, plus interest thereon at the Pass-
Through Rate, will be added to the amount such
Class A Certificateholders are entitled to receive
on the
S-9
<PAGE>
next Distribution Date. The Class A
Certificateholders will bear any losses on the
Mortgage Loans in excess of the Subordinated
Amount.]
Administration Fee......... The Administration Fee is composed of the Master
Servicing Fee and the Trustee's Fee, each of which
is calculated monthly on a Mortgage Loan by the
Mortgage Loan basis and equals a fixed percentage
of the Principal Balance of a Mortgage Loan. The
Master Servicing Fee is subject to adjustment in
connection with the payment by the Master Servicer
of any Prepayment Interest Shortfall. See
"Description of the Certificates -- Adjustment to
Master Servicing Fees in Connection with Prepayment
Interest Shortfall" in the Prospectus.
Advances................... In the event of delinquencies in payments on the
Mortgage Loans, the Master Servicer will advance
cash (the "Advances") to the Trust Fund for
distribution to the Certificateholders in an
aggregate amount equal to such delinquent payments
to the extent described herein. The Trustee is
obligated to make any such advance if the Master
Servicer fails in its obligation to do so, to the
extent provided in the Agreement. In addition,
Advances may be made by withdrawals from funds on
deposit in the Certificate Account [or from the
Initial Deposit. Any Advance made from the Initial
Deposit will be redeposited in the Reserve Fund
from either a subsequent recovery on the applicable
Mortgage Loan or, to the extent of the Subordinated
Amount, future distributions on the Class B
Certificates to restore the Initial Deposit to its
original amount.] See "Description of the
Certificates -- Advances and Limitations Thereon"
in the Prospectus.
Denomination............... A single Class A Certificate will represent a
minimum of _____% of the aggregate Principal
Balance of the Mortgage Loans comprising the
Mortgage Pool as of the Cut-off Date.
Delivery Date.............. On or about __________, 199_.
Trustee.................... [LaSalle National Bank, a national banking
association and an affiliate of the Depositor]
[name of other Trustee].
Optional Termination....... [The Master Servicer] [the Depositor] [the Residual
Holder] may, at its option, repurchase from the
Trust Fund all Mortgage Loans outstanding at such
time as the aggregate Principal Balance of such
Mortgage Loans held in the Trust Fund is less than
approximately $________ ([10]%) of the aggregate
principal balance of the Mortgage Loans as of the
Cut-off Date. The repurchase price will equal the
sum of (a) the principal balance of each such
Mortgage Loan, plus accrued interest thereon at the
applicable Mortgage Pass-Through Rate to the next
Installment Due Date, less any unreimbursed
Advances made with respect to any such Mortgage
Loans and (b) the fair market value of all acquired
property in respect of any Mortgage Loans, less any
S-10
<PAGE>
unreimbursed Advances made with respect to any such
Mortgage Loans, subject to the limitations and
other provisions described in the Prospectus. An
amount not in excess of the adjusted principal
balance of each Mortgage Loan, plus accrued
interest thereon (including the imputed principal
balance of each Mortgage Loan, plus accrued
interest thereon, as to which title to the
underlying Mortgaged Property has been acquired by
the Trust Fund) will be remitted to the Certificate
Account and subsequently distributed to the
Certificateholders in the month following the month
in which such repurchase and any additional
repurchase proceeds will be distributed to the
holders of the Residual Certificates. See
"Description of the Certificates-- Optional
Termination" herein and "Description of the
Certificates -- Termination" in the Prospectus.
Residual Interest in
the REMICs................ Upon the issuance of the Class A Certificates, the
Depositor will retain a Residual Certificate for
the Trust Fund which will evidence ownership of the
"residual interest" in the Trust Fund under section
860G(a)(2) of the Code. The Residual Certificates
represent the right to receive: (i) in the event
the Trust Fund acquires a Mortgaged Property
relating to a defaulted Mortgage Loan, any gain
realized from the sale of such Mortgaged Property
(net of reimbursement to the Master Servicer for
reasonable expenses); (ii) investment earnings on
amounts held in the Certificate Account and the
Reserve Fund; (iii) in the event of an optional
termination or other repurchase of any Mortgage
Loans by the Depositor, any amount paid by the
Depositor for such Mortgage Loans in excess of the
principal balances thereof at the time of
repurchase, plus accrued interest thereon; (iv)
amounts representing interest paid on each Mortgage
Loan in excess of the Mortgage Pass-Through Rate
and the Administration Fee with respect to such
Mortgage Loan; (v) any interest paid on a Mortgage
Loan in excess of such Mortgage Loan's Maximum Rate
due to an increase in such Maximum Rate upon an
assumption of such Mortgage Loan; and (vi) amounts,
if any, remaining in the Certificate Account and
the Reserve Fund upon the termination of the
obligations created pursuant to the Agreement.
The Residual Certificates are not being offered
hereby; the Depositor may, but need not, sell the
Residual Certificates or a portion thereof on or
after the Closing Date.
Federal Income Tax
Considerations............ The Trust Fund will elect to be treated as a "real
estate mortgage investment conduit" ("REMIC") under
the Internal Revenue Code of 1986, as amended (the
"Code"). The Class A Certificates will
S-11
<PAGE>
represent "regular interests" in the REMIC. A Class
A Certificateholder may be required to accrue
original issue discount in income under the
original issue discount rules of the Code in
advance of the receipt of cash attributable to such
income. See "Certain Federal Income Tax
Consequences" [herein and] in the Prospectus.
Legal Investment........... The Class A Certificates will constitute "mortgage-
related securities" under the Secondary Mortgage
Market Enhancement Act of 1984 ("SMMEA") so long as
they are rated by the Rating Agency in one of its
two highest rating categories, and such
Certificates would be "legal investments" for
certain types of institutional investors to the
extent provided in SMMEA, subject to state laws
overriding SMMEA. A number of states have enacted
legislation overriding the legal investment
provisions of SMMEA. Certificates that do not
constitute "mortgage-related securities" under
SMMEA will require registration, qualification or
an exemption under applicable state securities laws
and may not be "legal investments" to the same
extent as "mortgage-related securities." See "Legal
Investment" in the Prospectus.
Rating..................... It is a condition to the issuance of the Class A
Certificates that they be rated not less than [___]
by the Rating Agenc[y][ies]. See "Rating" herein.
S-12
<PAGE>
SPECIAL CONSIDERATIONS
Prospective Certificateholders should consider, among other things, the
following risk factors in connection with the purchase of Certificates:
[Balloon Payments. Approximately __% of the aggregate outstanding principal
amount of the total balance of all Mortgage Loans as of the Cut-off Date
(representing approximately __ Mortgage Loans) may not be fully amortizing over
their terms to maturity and, thus, will require substantial principal payments
at their stated maturity ("Balloon Payments"). Mortgage Loans with Balloon
Payments involve a greater degree of risk because the ability of a Mortgagor to
make a Balloon Payment typically will depend upon its ability either to timely
refinance the loan or to timely sell the related Mortgaged Property. 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 interest rates at the time
of sale or refinancing, the Mortgagor's equity in the related Mortgaged
Property, the financial condition and operating history of the Mortgagor and the
related Mortgaged Property, tax laws, rent control laws (with respect to certain
two-to-four unit properties), prevailing general economic conditions and the
availability of credit for residential real properties generally.]
[Delinquent Mortgage Loans. Certain of the Mortgage Loans may as of the
Cut-off Date have one or more scheduled payments past due. Inclusion of such
Mortgage Loans in the Mortgage Assets may affect the rate of defaults and
prepayments on the Mortgage Loans and the yield on the Certificates.]
[Geographic Concentration. [If there is a high geographic concentration,
add risk factor for that particular geographic concentration.]]
Yield Considerations and Risks. For a discussion of prepayment
consideration and other yield considerations and risks, see "Yield
Considerations and Risks" herein and "Yield Considerations" and "Maturity
Considerations" in the Prospectus.
[Other special investment considerations applicable to specific Series and
not covered by base Prospectus to be added here if applicable.]
DESCRIPTION OF THE MORTGAGE NOTES
General
The mortgage notes (the "Mortgage Notes") evidencing the Mortgage Loans are
[adjustable interest rate promissory notes ("ARMs")] [fixed rate promissory
notes ("Fixed Rate Mortgage Loans")]. [ARMs bear interest during the first [six]
[twelve] [thirty-six] [sixty] months following origination at a fixed rate
determined by the Depositor independently of an index (the "Initial Mortgage
Rate"). Thereafter, (subject to the lifetime Maximum Rate, [lifetime Minimum
Rate] and the [annual] [semi-annual] Maximum Adjustment referred to below), the
Mortgage Interest Rates on such ARMs adjust every [six][twelve] months to a rate
equal to the sum of the applicable index identified in the [Mortgage Note]
relating to such ARM (the "Index") and a fixed spread over the Index determined
by [the Depositor] [insert name of Qualified Lender] at the time of origination
(the "Gross Margin"). To accommodate changes in the adjustable Mortgage Interest
Rate, each Mortgage Note provides for [adjustments to the Mortgagor's
S-13
<PAGE>
Monthly Payments whenever the Mortgage Interest Rate adjusts] [annual
adjustments to the Mortgagor's Monthly Payments]. [Except as provided below,
such annual adjustments, however, are limited to a ___% increase or decrease in
the Mortgagor's Monthly Payment from the previous year (the "Payment Cap").]
[At the end of the [fifth] year[, as applicable,] following origination of
each ARM that provides for Deferred Interest and at the end of every [five]-
year[, as applicable,] interval thereafter, each Mortgage Note provides for a
waiver of the Payment Cap on the annual adjustment to the Mortgagor's Monthly
Payment. On these dates a new Monthly Payment is set that will amortize the
unpaid principal balance of the ARM over its remaining term at the then current
Mortgage Interest Rate. Should the annual increases be insufficient to fully
amortize the ARM in the last [five] year period, as applicable, each Mortgage
Note requires the Mortgagor to remit a lump sum payment equal to the remaining
unpaid Principal Balance on the stated maturity of such ARM. However, no
Mortgage Loan has a shorter term for amortization of principal than its original
term to maturity.]
The Mortgage Notes evidencing ARMs establish maximum [and minimum] rates at
which interest may accrue on the Principal Balance of the Mortgage Loan
regardless of the current Index (the "Maximum Rate" [and "Minimum Rate,"
respectively]). [In addition, the Mortgage Notes limit the amount by which
interest rates may increase or decrease as of the date of any interest rate
adjustment (the "Maximum Adjustment").] The Maximum Rate, [and] [the Minimum
Rate] [and the Maximum Adjustment] [is] [are] established at the time of
origination of each ARM.]
[The Mortgage Notes evidencing Fixed-Rate Mortgage Loans bear simple
interest at fixed annual rates. Such Mortgage Notes provide for monthly payments
of [interest only for up to _____ years after origination and thereafter]
principal and interest in equal installments for the contractual term of the
note in sufficient amounts to fully amortize the principal thereof by maturity.]
The Index
The Index for the Mortgage Loan is expressed as a percentage and reflects
the [weekly average yield for U.S. Treasury securities adjusted to a constant
maturity of ______ years as made available by the Federal Reserve Board in
Statistical Release H.15(519)]. The Index applicable on any Adjustment Date is
the most recent Index figure available as of ______ days before such Adjustment
Date. If the Index is no longer available, the Master Servicer will choose a new
Index which is based upon comparable information and is acceptable to the
Trustee.
Listed below are historical values of the Index since _____ through _____:
Year
-----------------------------------------------------------
Month 19 19 19 19 19
----- ---- ---- ---- ---- ----
January ............ % % % % %
February ...........
March ..............
April ..............
S-14
<PAGE>
May ........................
June ........................
July ........................
August .......................
September ....................
October ......................
November .....................
December .....................
THE MORTGAGE POOL
As of the Cut-off Date, the mortgage pool (the "Mortgage Pool") will
consist of Mortgage Loans evidenced by Mortgage Notes that had an aggregate
principal balance of $__________. The Mortgage Notes are by mortgages or deeds
of trust or other similar security instruments creating a lien on one- to four-
unit residential properties located in __________ (the "Mortgaged Properties")
and having the additional characteristics described below and in the
Prospectus./1/
Each Mortgage Loan was acquired by the Depositor for inclusion in the
Mortgage Pool, was originated or acquired by [LaSalle][Standard Federal][or]
[names of other Qualified Lenders] during the period __________ , 199_ through
__________ , 199_ and had an original term to maturity of not more than___
years. The weighted average term to maturity as of the Cut-off Date of the
Mortgage Loans is _____ years. As of the Cut-off Date, the weighted average
interest rate borne by the Mortgage Loans was ___% per annum [and the weighted
average Maximum Rate [and weighted average Minimum Rate] [was] [were] ___% [and
___%] per annum[, respectively]. [The Maximum Adjustment for each Mortgage Loan
is ___%.]] All of the Mortgage Loans have principal and interest payable on the
[first] day of each month (each an "Installment Due Date"). See "Description of
the Certificates -- General," "-- Adjustment to Master Servicing Fees in
Connection with Prepayment Interest Shortfall" and "-- Example of Distribution"
in the Prospectus. The latest date on which any Mortgage Loan matures is
_______________, 20__. At origination, based upon [LaSalle's][Standard
Federal's][insert name of____________________
- -------------------------
/1/ The description herein of the Mortgage Pool and the Mortgaged Properties is
based upon the Mortgage Pool as it was constituted at the close of business
on _______________,199_, as adjusted for all scheduled principal payments
due on or before such date. Prior to the issuance of the Certificates,
Mortgage Loans may be removed from the Mortgage Pool (i) as a result of
principal prepayments thereof in full, or (ii) as a result of delinquencies
or otherwise, as set forth in the Agreement. In either event, other
mortgage loans may be included in the Mortgage Pool. The Depositor believes
that the information set forth herein with respect to the Mortgage Pool as
presently constituted is representative of the characteristics of the
Mortgage Pool as it will be constituted at the time the Certificates are
issued, although the range of adjustable Mortgage Interest Rates and
maturities, and certain other characteristics of the Mortgage Loans in the
Mortgage Pool may vary.
S-15
<PAGE>
Qualified Lender's] appraisal of the Mortgaged Property securing each Mortgage
Loan, the weighted average Loan-to-Value Ratio of the Mortgage Loans was ___%.
[No Mortgage Loan in the Mortgage Pool is covered by a primary mortgage guaranty
insurance policy.] At origination, each Mortgage Loan had a principal balance of
not less than $__________ nor more than $__________ and the average principal
balance of the Mortgage Loans was approximately $__________ . Substantially all
of the Mortgaged Properties are owner occupied primary or second residences
intended to be used principally by the Mortgagor, based on representations made
by the Mortgagor at the time of origination of the corresponding Mortgage Loan.
In its underwriting of loans on second residences, the Depositor includes the
debt on both the Mortgagor's primary and second residences in its primary debt
ratio calculations.
The Depositor will assign the Mortgage Loans to the Trustee for the
ultimate benefit of the Certificateholders. The Master Servicer will service the
Mortgage Loans directly or through [name of Qualified Lender] as Servicer
pursuant to the Agreement, and will receive compensation for such services. See
"Description of the Certificates -- Assignment of Mortgage Loans" in the
Prospectus.
The Depositor will make representations and warranties regarding the
Mortgage Loans in the Agreement, but its assignment of the Mortgage Loans to the
Trustee will be without recourse and the Depositor's obligations relating to the
Mortgage Loans will be limited to the representations and warranties made by it
and to its servicing obligations, if any, under the Agreement. The Master
Servicer is required to make certain advances of its own funds in respect of the
Mortgage Loans to the limited extent set forth under "Description of the
Certificates -- Advances and Limitations Thereon" in the Prospectus
["Description of the Certificates -- Advances" herein].
Each Class A Certificate represents an undivided beneficial interest in the
Mortgage Loans in the Mortgage Pool. The Certificate Balance of each Class A
Certificate will decrease more rapidly than the decreases in the Principal
Balances of the Mortgage Loans due to the disproportionate distributions to
Class A Certificateholders of amounts attributable to principal prepayments on
the Mortgage Loans.
Set forth below is a description of additional characteristics of the
Mortgage Loans:
[Month] [Year] of Origination of Mortgage Loans
<TABLE>
<CAPTION>
Aggregate Principal % of
[Month] [Year] Number of Balance Outstanding Mortgage
of Origination Mortgage Loans As of Cut-Off Date Pool
- -------------- -------------- ------------------- --------
<S> <C> <C> <C>
..................... $ %
Total................ $ 100%
</TABLE>
<TABLE>
<CAPTION>
Types of Mortgaged Properties
Aggregate Principal % of
Number of Balance Outstanding Mortgage
Property Type Mortgage Loans As of Cut-Off Date Pool
- ------------- -------------- ------------------- --------
<S> <C> <C> <C>
..................... $ %
Total................ $ 100%
</TABLE>
Loan Purpose
S-16
<PAGE>
<TABLE>
<CAPTION>
Aggregate Principal % of
Number of Balance Outstanding Mortgage
Loan Purpose Mortgage Loans As of Cut-Off Date Pool
- ------------ -------------- -------------------- --------
<S> <C> <C> <C>
Purchase $ %
Refinance....................
Cash-out Refinance...........
Total................... $ 100%
</TABLE>
Occupancy of the Mortgaged Property
<TABLE>
<CAPTION>
Aggregate Principal % of
Number of Balance Outstanding Mortgage
Type of Loan Mortgage Loans As of Cut-Off Date Pool
- ------------ -------------- -------------------- --------
<S> <C> <C> <C>
Owner Occupied............... $ %
Non-Owner Occupied...........
Second homes.................
Total $ 100%
</TABLE>
Geographical Distribution of Mortgaged Properties
<TABLE>
<CAPTION>
Aggregate Principal % of
Number of Balance Outstanding Mortgage
State Mortgage Loans As of Cut-Off Date Pool
- ----- -------------- ------------------- --------
<S> <C> <C> <C>
$ %
Total................... $ 100%
</TABLE>
S-17
<PAGE>
Distribution of Original Mortgage Loan Amounts
<TABLE>
<CAPTION>
Aggregate Principal % of
Original Mortgage Number of Balance Outstanding Mortgage
Loan Amount*/ Mortgage Loans As of Cut-Off Date Pool
- ----------------- -------------- ------------------- --------
<S> <C> <C> <C>
$ 99,999.99 or less ........... $ %
$100,000 -- 199,999.99.........
$200,000 -- 299,999.99.........
$300,000 -- 399,999.99.........
$400,000 -- 499,999.99.........
$500,000 -- 599,999.99.........
$600,000 -- 699,999.99.........
$700,000 -- 799,999.99.........
$800,000 -- 899,999.99.........
$900,000 -- 999,999.99.........
$1,000,000 and above...........
Total $ 100%
</TABLE>
- -----------------------------
* Original means as of the date of origination.
S-18
<PAGE>
Original Loan-to-Value Ratios
<TABLE>
<CAPTION>
Aggregate Principal % of
Original Loan- Number of Balance Outstanding Mortgage
to-Value Ratios Mortgage Loans As of Cut-Off Date Pool
- ----------------------------- -------------- -------------------- ---------
<S> <C> <C> <C>
60.0% or less................ $ %
60.01%--70.00%...............
70.01%--75.00%...............
75.01%--80.00%...............
80.01%--90.00%...............
90.01%--95.00%...............
95.01%--100.00%..............
Total.......... $ 100%
</TABLE>
[Initial Mortgage Rates
<TABLE>
<CAPTION>
Aggregate Principal % of
Initial Mortgage Number of Balance Outstanding Mortgage
Interest Rate (%) Mortgage Loans As of Cut-Off Date Pool
- ----------------------------- -------------- ------------------- --------
<S> <C> <C> <C>
..................... $ %
Total.......... $ 100%]
</TABLE>
[Current Mortgage Interest Rates(1)
<TABLE>
<CAPTION>
Aggregate Principal % of
Current Mortgage Number of Balance Outstanding Mortgage
Interest Rates Mortgage Loans As of Cut-Off Date Pool
- ----------------------------- -------------- ------------------- --------
<S> <C> <C> <C>
..................... $ %
Total.......... $ 100%
</TABLE>
- --------------------
(1) The weighted average Mortgage Interest Rate as of the Cut-Off Date was
____% per annum.]
[Mortgage Loan Gross Margins(1)
<TABLE>
<CAPTION>
Aggregate Principal % of
Number of Balance Outstanding Mortgage
Gross Margins Mortgage Loans As of Cut-Off Date Pool
- ----------------------------- -------------- ------------------- --------
<S> <C> <C> <C>
..................... $ %
Total.......... $ 100%
</TABLE>
____________________
(1) The weighted average Gross Margin is approximately ____% per annum.]
S-19
<PAGE>
[Month in Which First or Next Adjustment
to Mortgage Interest Rate Occurs
<TABLE>
<CAPTION>
Weighted
Average
Aggregate Principal % of Current
Number of Balance Outstanding Mortgage Interest
Months Mortgage Loans As of Cut-Off Date Pool Rate
- ------ -------------- ------------------- -------- --------
<S> <C> <C> <C> <C>
1................ $ % %
2................
3................
4................
5................
6................
7................
8................
9................
10................
11................
12................
Total......... $ 100%]
</TABLE>
[Months Remaining Until Annual
Monthly Payment Adjustment
<TABLE>
<CAPTION>
Weighted
Average
Aggregate Principal % of Current
Number of Balance Outstanding Mortgage Interest
Months Mortgage Loans As of Cut-Off Date Pool Rate
- ------ -------------- ------------------- -------- --------
<S> <C> <C> <C> <C>
1................ $ %
2................
3................
4................
5................
6................
7................
8................
9................
10................
11................
12................
Total......... $ 100%]
</TABLE>
S-20
<PAGE>
[Maximum Mortgage Interest Rates(1)
<TABLE>
<CAPTION>
Aggregate Principal % of
Maximum Mortgage Number of Balance Outstanding Mortgage
Interest Rate (%) Mortgage Loans As of Cut-Off Date Pool
- ----------------- -------------- ------------------- --------
<S> <C> <C> <C>
Total.......... $ 100%
</TABLE>
____________________
(1) The weighted average Maximum Mortgage Interest Rate is ____% per annum.]
Remaining Term to Stated Maturity
<TABLE>
<CAPTION>
Aggregate Principal % of
Number of Balance Outstanding Mortgage
Remaining Term (Months) Mortgage Loans As of Cut-Off Date Pool
- ----------------------- -------------- -------------------- --------
<S> <C> <C> <C>
Total.......... $ 100%
</TABLE>
YIELD CONSIDERATIONS AND RISKS
[Rate Limitations
The Mortgage Loans are subject to lifetime Maximum Rates[,] [and] [lifetime
Minimum Rates] [and [annual] [semi-annual] Maximum Adjustments.] See "Yield
Considerations -- Maximum and Minimum Rates, Maximum Adjustment, Payment Caps
and Deferred Interest" in the Prospectus.]
Prepayment Considerations
Because the Class A Percentage of principal payments and the Class A
Prepayment Percentage of principal prepayments on the Mortgage Loans will be
distributed to the Class A Certificateholders, thus reducing the Certificate
Balance of the Class A Certificates, the rate of principal payments on the Class
A Certificates, the aggregate amount of each interest payment on the Class A
Certificates and the yield to maturity of such Class A Certificates are directly
related to the rate of payments of principal on the Mortgage Loans. In addition,
affiliates of the Depositor may solicit certain Mortgagors to refinance their
Mortgage Loans, which would result in the prepayment of such Mortgage Loans. The
principal payments on the Mortgage Loans may be in the form of scheduled
principal payments or prepayments (for this purpose, the term "prepayment"
includes prepayments and liquidations due to default, casualty, condemnation and
the like). Any such prepayments will result in distributions to
Certificateholders in the month following the month of such prepayment of
amounts which would otherwise be distributed over the remaining term of the
Mortgage Loans. In addition, the Class A Certificateholders are entitled to
receive a disproportionate share of such prepayments, further accelerating the
rate at which they will receive distributions in respect of principal on the
Mortgage Loans. See "Maturity Considerations" in the Prospectus. In general, the
prepayment rate of the Mortgage Loans may be influenced by a number of factors,
including prevailing interest rate adjustments and the direction of recent
changes therein, general economic conditions and homeowner mobility. [Mortgagors
are permitted to prepay [some of] the Mortgage Loans, in whole or in part, at
any time without paying a Prepayment Premium.] [The rate of principal payments
is likely to be affected by the Lock-out Periods and Prepayment Premium
S-21
<PAGE>
provisions or Yield Maintenance Charges applicable to the Mortgage Loans, and by
the extent to which the Master Servicer is able to enforce such provisions.] The
rate of payment of principal may also be affected by any repurchase by the
Depositor or the Master Servicer of the Mortgage Loans. See "Description of the
Certificates -- Optional Termination" herein and "Description of the
Certificates -- Termination" in the Prospectus. In such event, a portion of the
repurchase price paid by the Depositor or the Master Servicer will be remitted
to the Certificate Account and subsequently distributed to the
Certificateholders in the month following the month of such repurchase. In the
case of a Mortgage Pool with a range of Mortgage Interest Rates,
disproportionate prepayments of Mortgage Loans with higher Mortgage Interest
Rates will result in a lower effective pass-through rate to Certificateholders.
See "Yield Considerations" in the Prospectus. Because the Class A
Certificateholders receive the Class A Prepayment Percentage of principal
prepayments plus the Class A Percentage of other principal payments on each
Distribution Date the yield to maturity will be impacted to a greater degree
than if such Certificateholders only received the Class A Percentage of such
principal prepayments.
[The Mortgage Loans comprising the Mortgage Pool are ARMs. The rate of
principal prepayment with respect to adjustable rate mortgage loans has
fluctuated in recent years. As is the case with conventional fixed-rate mortgage
loans, adjustable rate mortgage loans may be subject to a greater rate of
principal prepayment in a declining interest rate environment. For example, if
prevailing interest rates fall significantly, adjustable rate mortgage loans
could be subject to higher prepayment rates than if prevailing interest rates
remain constant because the availability of fixed-rate mortgage loans at
competitive interest rates may encourage Mortgagors to refinance their ARMs to
"lock in" a lower fixed interest rate. The Maximum [and Minimum] Rates, [Minimum
Monthly Payments] Maximum Adjustments,] [Prepayment Premiums,] Gross Margins,
Payment Caps and other features of the ARM programs of mortgage lenders in
recent years have significantly varied in response to market conditions such as
interest rates, consumer demand and regulatory restrictions. The lack of
uniformity of the terms and provisions of such ARM programs have made it
impracticable to compile meaningful comparative data on prepayment rates and
accordingly, there can be no certainty as to the rate of prepayment on the
Mortgage Loans in stable or changing interest rate environments. See "Yield
Considerations" and "Maturity Considerations" in the Prospectus.]
[The adjustable Mortgage Interest Rate on an ARM which negatively amortizes
changes more frequently than adjustments in the related Mortgagor's Monthly
Payment. During a period of declining interest rates, the component of each
Mortgagor's Monthly Payment in excess of interest accrued on the Principal
Balance of each Mortgage Loan will be applied to reduce the outstanding
Principal Balance on the related Mortgage Loan, thereby resulting in accelerated
amortization of such Mortgage Loan. Any such accelerated amortization of the
Principal Balance of the Mortgage Loans comprising the Mortgage Pool will
shorten the weighted average life of the Class A Certificates over that which
would result in the absence of such accelerated amortization. Conversely, to the
extent that any of the Mortgage Loans negatively amortize over their respective
terms, the weighted average life of the Class A Certificates will increase
beyond that which would otherwise be the case.]
[The Mortgage Loans comprising the Mortgage Pool are Fixed-Rate Mortgage
Loans. The rate of prepayment with respect to conventional fixed-rate mortgage
loans has fluctuated significantly in recent years. In general, if prevailing
interest rates fall significantly below the interest rates at the time of
origination, fixed rate mortgage loans are likely to be subject to higher
prepayment rates than if prevailing rates remain at or above those at the time
such mortgage loans were originated. Conversely, if prevailing interest rates
rise appreciably above the interest rates at the time of origination, fixed-rate
mortgage loans
S-22
<PAGE>
are likely to experience a lower prepayment rate than if prevailing rates remain
at or below those at the time such mortgage loans were originated. However,
there can be no assurance that any Mortgage Pool comprised of fixed-rate
Mortgage Loans will conform to past experience or any published prepayment
forecast. See "Yield Considerations" and "Maturity Considerations" in the
Prospectus.]
Although all of the Mortgage Loans included in the Mortgage Pool are by
their terms assumable under certain limited conditions, such Mortgage Loans also
contain "due-on-sale" provisions under which the Mortgage Loans become due and
payable, at the option of the holder thereof, upon the sale of the Related
Mortgaged Property. It is the Depositor's policy to enforce "due-on-sale"
provisions with respect to most fixed-rate Mortgage Loans and some ARMs;
however, where such provisions are not enforced the prospective purchaser must
meet the Depositor's creditworthiness standards and applicable law at the time
of transfer must not limit the Depositor's ability to make the interest rate and
payment adjustments permitted by the related Mortgage Note. [The Depositor has
agreed in the Agreement to waive its contractual right to decrease the Maximum
Rate or the Minimum Rate applicable to any Mortgage Note upon an assumption of
the related ARM.] [The Mortgage Notes provide that upon assumption the Maximum
Rate will be recast to equal the original percentage specified in the related
Mortgage Note above the Mortgage Interest Rate in effect on the date of
assumption.] [In the event that the assumption of any Mortgage Loan would cause
the Maximum Rate to decrease below the Maximum Rate in effect for such Mortgage
Loan at the time of issuance of the Certificates, the Depositor intends to, but
is not obligated to repurchase such Mortgage Loan from the Trust Fund at a
purchase price, subject to the REMIC Regulations, equal to the unpaid principal
balance of such Mortgage Loan plus interest at the Mortgage Pass-Through Rate,
less any unreimbursed Advances.] Acceleration of Mortgage Loans as a result of
enforcement of such "due-on-sale" provisions in connection with transfers of the
related Mortgaged Properties or the occurrence of certain other events resulting
in acceleration will affect the level of prepayments on the Mortgage Loans,
thereby affecting the weighted average life of the Class A Certificates. See
"Maturity Considerations" in the Prospectus.
Yield on the Class A Certificates
The yield of the Class A Certificates will depend upon, among other things,
the price at which the Class A Certificates are purchased, the amount of
principal payments, including both scheduled and unscheduled payments, and the
rate at which such principal is paid to the Class A Certificateholders.
[The after-tax yield to Certificateholders may be effected by lags between
the time interest income accrues to Certificateholders and the time the related
interest income is received by Certificateholders. See "Certain Federal Income
Tax Consequences" in the Prospectus.]
Effect of Shortfall
If on any Distribution Date, after taking into account any Advances, there
are not sufficient funds to make full distributions to the Class A
Certificateholders, the amount of the resulting payment deficiency (a
"shortfall"), together with interest at the Pass-Through Rate, will be added to
the amount the Class A Certificateholders are entitled to receive on the next
Distribution Date. If any shortfalls occur, the weighted average life of the
Class A Certificates would be increased over that had such shortfalls not
occurred.
S-23
<PAGE>
DESCRIPTION OF THE CERTIFICATES
The Class A Certificates will be issued pursuant to the Agreement. A form
of the Agreement is filed as an exhibit to the Registration Statement of which
the Prospectus and this Prospectus Supplement are a part. Copies of the
Agreement will be sent to Certificateholders by the Master Servicer upon written
request. Reference is made to the Prospectus for additional information
regarding the terms and conditions of the Agreement. For a more detailed
discussion of the Certificates, see the Agreement.
The Depositor is not limited in the number of Series of Certificates which
may be issued.
The following summaries do not purport to be complete and are subject to,
and are qualified in their entirety by reference to, the provisions of the
Agreement. When particular provisions or terms used in the Agreement are
referred to, the actual provisions (including definitions of terms) are
incorporated by reference.
The Class A Certificates will be transferable and exchangeable at the
Corporate Trust Office or agency of the Trustee in [Chicago, Illinois] [New
York, New York]. No service charge will be made for any registration of exchange
or transfer of the Class A Certificates on the Certificate Register maintained
by the Trustee, but the Trustee may require payment of a sum sufficient to cover
any related tax or other governmental charge. There is at present no market for
the Class A Certificates, and [although the Underwriters have indicated their
intention to make a secondary market for the Class A Certificates,] there can be
no assurance that a secondary market for the Class A Certificates will develop.
As is the case with any interest-sensitive security, should a secondary market
develop for the Class A Certificates, fluctuating market interest rates may
affect the market value of the Class A Certificates.
The Depositor [or the Mortgage Asset Seller][or the Qualified Lender] under
certain circumstances will be required to repurchase certain defective or
defaulted Mortgage Loans from the Trust Fund for a purchase price equal to the
[unpaid principal balance of] [Trust Fund's adjusted basis in] each such
Mortgage Loan, determined pursuant to the applicable provisions of the Code,
plus accrued and unpaid interest thereon. In certain of these cases, the
Depositor may be entitled to substitute a replacement mortgage loan in lieu of
repurchasing such Mortgage Loans. See "Description of the Certificates --
Assignment of Mortgage Loans," "--Representations and Warranties" and "--
Realization upon Defaulted Mortgage Loans" in the Prospectus.
The Depositor [will] [will not] be entitled to purchase delinquent or
defaulted Mortgage Loans from the Trust Fund prior to foreclosure or Mortgage
Loans as to which the Mortgagor has tendered a deed in lieu of foreclosure for a
purchase price equal to the Trust Fund's adjusted basis in each such Mortgage
Loan or deed pursuant to applicable provisions of the Code. See "Description of
the Certificates -- Realization upon Defaulted Mortgage Loans" in the
Prospectus.
Distributions
[Note: The description of distributions set forth below will be modified as
appropriate to reflect the terms of a particular Series.]
Distributions of principal and interest on the Class A Certificates will be
made by the Trustee or a duly authorized paying agent (the "Paying Agent") on
the 25th day of each month, or if such day is not
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a Business Day, the next succeeding Business Day (each a "Distribution Date"),
beginning ____________, 199__, to the persons in whose names such Certificates
are registered at the close of business on the last Business Day of the
preceding month (the "Record Date"). Distributions will be made by the Trustee
or the Paying Agent by check mailed to the person entitled thereto as it appears
on the Certificate Register or, in the case of a Class A Certificateholder who
has a Certificate with a Certificate Balance in excess of $5 million and who has
so notified the Trustee or the Paying Agent in writing in accordance with the
Agreement, by wire transfer in immediately available funds to the account of
such Certificateholder at a bank or other depository institution having
appropriate wire transfer facilities; provided, however, that the final
distribution in retirement of Class A Certificates will be made only upon
presentation and surrender of such Certificates at the office of the Trustee
specified in the final distribution notice to Class A Certificateholders.
The Pool Receipts on any Determination Date equal all payments or other
receipts on account of principal and interest on the Mortgage Loans or property
acquired in respect thereof due after the Cut-off Date, including, but not
limited to, Advances and Principal Prepayments, if any, but excluding amounts in
respect of the Retained Yield.
The Pool Distribution on any Distribution Date is an amount equal to all
previously undistributed Pool Receipts received by the Master Servicer due after
the Cut-off Date, or received prior to the Cut-off Date but due thereafter, and
before the related Determination Date except for certain amounts not included in
the Pool Distribution in accordance with the Agreement.
The Administration Fee with respect to any Mortgage Loan in any month is an
amount paid out of interest on such Mortgage Loan and equal to ______ % per
annum of the Principal Balance for the related Mortgage Loan, but subject to
adjustment as provided in the Agreement. The Administration Fee represents
consideration for the Master Servicer's services as Master Servicer and includes
amounts allocated to cover certain expenses, including payments of the Trustee's
fees [and premiums for Primary Mortgage Insurance on specific Mortgage Loans].
Class A Distribution.
--------------------
On any Distribution Date the amount required to be distributed to the Class
A Certificateholders (the "Class A Distribution") will be equal to the lesser of
(x) the Pool Distribution for the related Distribution Date or (y) the sum of:
(i) one month's interest at the Pass-Through Rate on the Class A
Principal Balance (net of the Class A Percentage of the amount by which the
aggregate amount of interest otherwise payable on the prepaid Mortgage
Loans by adjustment of the Administration Fee exceeds the related aggregate
Administration Fee available for payment thereof);
(ii) the outstanding balance in the Class A Interest Shortfall
Account;
(iii) the Class A Percentage of each scheduled payment of principal
payable on the Mortgage Loans on the preceding Installment Due Date;
(iv) the Class A Prepayment Percentage of Principal Prepayments; and
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(v) the Redirected Distribution Amount.
In the event that clause (y) is greater than clause (x), distributions
shall be allocated first to the interest component of the Class A Distribution
calculated pursuant to clause (y)(i) hereof; second to any balance in the Class
A Interest Shortfall Account in accordance with clause (y)(ii) hereof; and third
to the principal component of the Class A Distribution calculated pursuant to
clauses (y)(iii)--(v) hereof.
The Class A Certificate Balance for any Distribution Date is the original
Class A Principal Balance less the sum of (A) all amounts previously distributed
to holders of Class A Certificates on previous Distribution Dates on account of
amounts described in clauses (y)(iii)--(y)(v) of the definition of Class A
Distribution and (B) if such Distribution Date is subsequent to the date on
which the Class B Certificate Balance equals zero, the principal amount of the
Bankruptcy Losses, Fraud Losses, Special Hazard Losses and Excess Credit Losses
since such date.
The Class A Interest Shortfall on any Distribution Date is the excess, if
any, of the amount computed pursuant to clause (y)(i) of the definition of Class
A Distribution over the amount distributed to the Class A Certificateholders on
such Distribution Date. The Class A Interest Shortfall Account is a ledger
account established on the books of the Master Servicer to reflect any unpaid
Class A Interest Shortfall owed to the Class A Certificateholders [and accrued
interest thereon at the Pass-Through Rate]. The balance in such account will be
decreased on each Distribution Date by disbursements to the Class A
Certificateholders of any previously due Class A Interest Shortfalls and accrued
interest thereon at the Pass-Through Rate from the Distribution Date that said
Class A Interest Shortfall first accrued through such Distribution Date and
increased on each Distribution Date by any new Class A Interest Shortfall
allocable to the Class A Certificates and by accrued and unpaid interest on
previously due and unpaid Class A Interest Shortfalls at the Pass-Through Rate.
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<PAGE>
The Class A Prepayment Percentage for each Distribution Date is the
percentage indicated below for the period during which such Distribution Date
occurs:
<TABLE>
<CAPTION>
Distribution Date Class A Prepayment Percentage
----------------- -----------------------------
<S> <C>
__________ through ________ ........ 100%
__________ through ________ ........ Class A Percentage, plus 70% of the
difference
between the Class A Percentage and 100%
__________ through ________ ........ Class A Percentage, plus 60% of the
difference
between the Class A Percentage and 100%
__________ through ________ ........ Class A Percentage, plus 40% of the
difference
between the Class A Percentage and 100%
__________ through ________ ........ Class A Percentage, plus 20% of the
difference
between the Class A Percentage and 100%
__________ and thereafter ........ Class A Percentage;
</TABLE>
provided, however, that the application of the foregoing reduction provisions is
subject to satisfaction of certain criteria regarding the amortization,
delinquency and loss experience of the Mortgage Loans, and provided further,
that if the Class A Percentage as of any Distribution Date is greater than the
initial Class A Percentage, the Class A Prepayment Percentage for such
Distribution Date shall be 100%.
The Class A Percentage initially will be approximately _______% and on each
Distribution Date will be adjusted to reflect the then current entitlement of
the holders of the Class A Certificates to distributions of scheduled payments
of principal in respect of the Mortgage Loans, based on the Class A Certificate
Balance and the aggregate outstanding Principal Balance of the Mortgage Loans in
the Trust Fund.
[As to any Distribution Date, prior to giving effect to any amounts
distributable to Class B Certificateholders on such Distribution Date, with
respect to which the Class B Certificate Balance is less than or equal to the
Minimum Required Class B Certificate Balance, the Redirected Distribution Amount
will be equal to the amount otherwise distributable to holders of the Class B
Certificates as Class B Distribution on such Distribution Date pursuant to
clauses (y)(iii) and (y)(iv) under the definition of Class B Distribution for
such Distribution Date. As to any Distribution Date with respect to which the
Class B Certificate Balance is greater than the Minimum Required Class B
Certificate Balance, the Redirected Distribution Amount will be an amount equal
to the excess, if any, of (A) the amount, if any, otherwise distributable to
holders of the Class B Certificates on such Distribution Date pursuant to
clauses (y)(iii) and (y)(iv) under the definition of the Class B Distribution
for such Distribution Date, over (B) the amount of the difference between the
Class B Certificate Balance on such Distribution Date and the Minimum Required
Class B Certificate Balance.]
Class B Distribution.
--------------------
On any Distribution Date, the Class B Distribution will be equal to the
lesser of:
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<PAGE>
(x) the Pool Distribution for the related Distribution Date reduced by any
amounts required to be paid to the Class A Certificateholders on such
Distribution Date; or
(y) the sum of:
(i) one month's interest at the Pass-Through Rate on the Class B
Certificate Balance (net of the Class B Percentage of the amount by which
the aggregate amount of interest otherwise payable on the prepaid Mortgage
Loans by adjustment of the Administration Fee exceeds the related aggregate
Administration Fee available for payment thereof);
(ii) the outstanding balance in the Class B Interest Shortfall
Account;
(iii) the Class B Percentage of each scheduled payment of principal
payable on the Mortgage Loans on the preceding Installment Due Date; and
(iv) the Class B Prepayment Percentage of Principal Prepayments;
provided that the Class B Distribution shall be limited to an amount, which,
after payment to the Class B Certificateholders, would not reduce the Class B
Principal Balance below the Minimum Required Class B Principal Balance.
In the event that clause (y) is greater than clause (x), distributions will
be allocated first to the interest component of the Class B Distribution
calculated pursuant to clause (y)(i) hereof; second to any balance in the Class
B Interest Shortfall Account in accordance with clause (y)(ii) hereof; and third
to the principal component of the Class B Distribution calculated pursuant to
clauses (y)(iii) and (iv) hereof. The amount distributable pursuant to clause
(x) hereof shall never be less than zero. At any time when the Class B
Certificate Balance equals zero, the Class B Certificates shall not be entitled
to any further Class B Distributions.
The Class B Certificate Balance on any Distribution Date is the difference
between the Pool Principal Balance and the Class A Certificate Balance.
The Class B Interest Shortfall on any Distribution Date is the excess, if
any, of the amount computed pursuant to clause (y)(i) of the definition of Class
B Distribution over the amount distributed to the Class B Certificateholders
with respect to such clause on such Distribution Date. The Class B Interest
Shortfall Account is a ledger account established on the books of the Master
Servicer to reflect any unpaid Class B Interest Shortfall owed to the Class B
Certificateholders. The balance in such account will be decreased on each
Distribution Date by disbursements with respect to clause (y)(ii) of the
definition of Class B Distribution to the Class B Certificateholders of any
previously due Class B Interest Shortfalls and interest otherwise distributable
with respect to clause (y)(ii) of the definition of Class B Distribution to the
Class B Certificateholders but used instead to cover Excess Credit Losses,
Bankruptcy Losses, Special Hazard Losses or Fraud Losses and increased on each
Distribution Date by any new Class B Interest Shortfall allocable to the Class B
Certificates with respect to clause (y)(ii) of the definition of Class B
Distribution.
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<PAGE>
The Class B Prepayment Percentage will be zero until the Distribution Date
in ___________ from which date the Class B Prepayment Percentage will equal 100%
less the then applicable Class A Prepayment Percentage.
[Subordination of the Class B Certificates
The rights of the Class B Certificateholders to receive distributions with
respect to the Mortgage Loans will be subordinated to such rights of the Class A
Certificateholders to cover losses by reason of default by the Mortgagors on the
Mortgage Loans in the Mortgage Pool.
This subordination feature will provide full protection to the Class A
Certificateholders against Fraud Losses, Bankruptcy Losses, Special Hazard
Losses and Excess Credit Losses, only to the extent of the Class B Percentage of
principal and interest otherwise distributable on the Class B Certificates. In
the event of a personal bankruptcy of a Mortgagor, the bankruptcy court may
establish the value of the Mortgaged Property at an amount less than the then
outstanding Principal Balance of the Mortgage Loan secured by such Mortgaged
Property (a "Deficient Valuation"). The amount of the secured debt could be
reduced to such value, and the holder of such Mortgage Loan thus would become an
unsecured creditor to the extent the outstanding Principal Balance of such
Mortgage Loan exceeds the value so assigned to the Mortgaged Property by the
bankruptcy court. In addition, certain other modifications of the terms of a
Mortgage Loan can result from a bankruptcy proceeding, including the reduction
of the amount of the monthly payment on the related Mortgage Loan (a "Debt
Service Reduction;" Debt Service Reductions and Deficient Valuations,
collectively, are defined as "Bankruptcy Losses"). Fraud Losses are losses on
Mortgage Loans arising from fraud, dishonesty or misrepresentation of the
Mortgagor in the origination of such Mortgage Loans. Special Hazard Losses are
losses relating to Mortgage Loans that become liquidated and have been the
subject of certain hazards (including earthquakes, tidal waves and related water
damage, war, civil insurrection, certain governmental actions, errors in design,
faulty workmanship or materials, nuclear reaction and chemical contamination)
not insured against under any applicable insurance policy and not resulting from
reasonable wear and tear. Excess Credit Losses are any losses on a related
Mortgage Loan due to a Mortgagor default and that are in excess of __% of the
principal balance of such Mortgage Loan as of the Cut-Off Date plus Deferred
Interest, if any, other than a Fraud Loss, Bankruptcy Loss or Special Hazard
Loss.
The Class B Certificateholders will bear all Fraud Losses, Bankruptcy
Losses, Special Hazard Losses and Excess Credit Losses until the Class B
Certificate Balance has been reduced to zero and all such losses will be
allocated for each Distribution Date to the extent not previously allocated to
the Class B Certificates as follows:
(1) by reducing the amount of principal, if any, due the Class B
Certificateholders with respect to the Class B Certificate Distribution for
such Distribution Date by the amount of such Fraud Losses, Bankruptcy
Losses, Special Hazard Losses and Excess Credit Losses with a corresponding
reduction of the Class B Certificate Balance;
(2) by creating a Class B Interest Shortfall (i.e. creating an
increase in the Class B Interest Shortfall Account) by the amount of such
Fraud Losses, Bankruptcy Losses, Special Hazard Losses and Excess Credit
Losses not otherwise covered by (1) above; and
S-29
<PAGE>
(3) by reducing the Class B Certificate Balance by the amount of such
Fraud Losses, Bankruptcy Losses, Special Hazard Losses and Excess Credit
Losses not otherwise covered by (1) and (2) above.
For each Distribution Date, the Class B Certificate Balance will be reduced
by the amount of Fraud Losses, Bankruptcy Losses, Special Hazard Losses and
Excess Credit Losses allocated to it net of the amount of Class B Interest
Shortfalls created pursuant to (2) above. Class B Interest Shortfalls generally
will be paid back only out of amounts otherwise distributable to pay Class B
principal with a corresponding reduction of the Class B Certificate Balance.
The initial Class B Certificate Balance will be an amount equal to
approximately ____% of the initial Pool Principal Balance. Holders of the Class
B Certificates will be entitled to receive on each Distribution Date
distributions of principal on the basis of the Class B Percentage evidenced by
their respective Class B Certificates, provided that, to the extent any Fraud
Losses, Bankruptcy Losses, Special Hazard Losses or Excess Credit Losses occur
during the month prior to the month of such Distribution Date, the amount
distributable to Class B Certificateholders in respect of the Class B Percentage
of principal will be used, to the extent available, to make up any shortfall and
the Class B Certificate Balance will be reduced by the amount of such losses.
This reduction of the Class B Certificate Balance on any Distribution Date for
Fraud Losses, Bankruptcy Losses, Special Hazard Losses or Excess Credit Losses
occurring during the month prior to the month of the related Distribution Date
will have the effect of decreasing the percentage of principal payments on the
Mortgage Loans to which holders of the Class B Certificates will be entitled on
and after the Distribution Date, thereby increasing, as a relative matter, the
respective interests of the holders of the Class A Certificates in future
principal payments on the Mortgage Loans. In addition, no distributions in
respect of the Class B Percentage of principal may be made to the holders of the
Class B Certificates on any Distribution Date to the extent the Class B
Certificate Balance is or would be, after taking such distribution into account,
less than the Minimum Required Class B Certificate Balance. Any amount not
permitted to be distributed to the holders of the Class B Certificates as a
result of the limitations specified above will be added to distributions of
principal made to holders of the Class A Certificates on the applicable
Distribution Date. The effect of the foregoing provisions, to the extent they
reduce the amounts otherwise distributed to the Class B Certificateholders on
any Distribution Date, is to accelerate the rate at which the Certificate
Balances of the Class A Certificates are reduced.
As of any Distribution Date following all distributions required to be made
on such date, the Minimum Required Class B Certificate Balance is the lesser of
(a) the greatest of (i) ____% of the Pool Principal Balance as of such
Distribution Date, (ii) two times the then largest outstanding Principal Balance
of any Mortgage Loan in the Mortgage Pool and (iii) the aggregate amount of the
outstanding Principal Balances of all Mortgage Loans secured by Mortgaged
Properties located in the ZIP code area which, of all ZIP code areas, has the
highest aggregate amount of outstanding Principal Balances of Mortgage Loans and
(b) the Class B Certificate Balance as of the immediately preceding Distribution
Date, less any Special Hazard Losses during the month immediately preceding the
month of such Distribution Date.
As described above, one form of protection afforded to the Class A
Certificateholders in the event of shortfalls in collections on the Mortgage
Loans will be effected by the preferential right of the Class A
Certificateholders to receive the amount of principal [and interest] otherwise
due the Class B Certificateholders with respect to the Class B Distribution on
each Distribution Date with respect to the
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<PAGE>
Mortgage Loans out of available funds on deposit in the Certificate Account.
Another form of protection afforded to the Class A Certificateholders will be
effected by distributing to the Class A Certificateholders a disproportionately
greater percentage of Principal Prepayments, the Class A Prepayment Percentage
described herein, for such Distribution Date. This disproportionate distribution
will have the effect of accelerating the amortization of the Class A
Certificates while, in the absence of Fraud Losses, Bankruptcy Losses, Special
Hazard Losses and Excess Credit Losses, increasing the respective interest in
the Trust Fund evidenced by the Class B Certificates. Increasing the respective
interest of the Class B Certificates relative to that of the Class A
Certificates is intended to preserve the availability of the subordination
provided by the Class B Certificates.
The Class A Prepayment Percentage will be equal to 100% through the
Distribution Date in ___________ after which date the Class A Prepayment
Percentage may decrease as described in "Distributions -- Class A Distribution"
herein. The Class A Percentage will be adjusted on each Determination Date to
reflect the then current ownership interest in the Trust Fund evidenced by the
Class A Certificates, based on the Class A Certificate Balance and the aggregate
outstanding Principal Balance of the Mortgage Loans in the Trust Fund. The Class
B Percentage will be adjusted on each Determination Date to reflect the then
current ownership interest in the Trust Fund evidenced by the Class B
Certificates, based on the Class B Certificate Balance and the aggregate
outstanding Principal Balance of the Mortgage Loans in the Trust Fund. See
"Distributions -- Class A Distribution" herein.]
[Reserve Fund
The Reserve Fund is a part of the Trust Fund. The Reserve Fund will be
funded by an Initial Deposit of cash in an amount equal to approximately
$_________ or such other amount as is acceptable to the Rating Agency. The
Initial Deposit may be used by the Master Servicer solely to make Advances and
will not be available as a source of funds for any other distribution to
Certificateholders. Future payments plus collections on delinquent Mortgage
Loans as to which an Advance was made from the Initial Deposit will be used to
maintain the Reserve Fund at an amount equal to the Initial Deposit. Following
the date the Trust Fund is terminated, all amounts remaining on deposit in the
Reserve Fund shall be distributed to the holder of the Residual Certificate for
the Trust Fund.]
[Letter of Credit
[Name of Letter of Credit Bank] (the "L/C Bank") will deliver to the
Trustee a [standby] [direct pay] Letter of Credit (the "Letter of Credit"). The
maximum obligation of the L/C Bank under the Letter of Credit will be to honor
requests for payment thereunder in an aggregate fixed dollar amount, net of
unreimbursed payments thereunder, equal to [$__________ (____% of the aggregate
Principal Balance of the Mortgage Loans on the Cut-off Date (the "L/C
Percentage")). The duration of coverage and the amount and frequency of any
reduction in coverage provided by the Letter of Credit will be [___________] or
such terms as will be in compliance with the requirements established by the
Rating Agency without adversely affecting the rating assigned to the
Certificates. The amount available under the Letter of Credit shall be reduced
to the extent of the unreimbursed payments thereunder. The obligations of the
L/C Bank under the Letter of Credit will expire [30 days] after the latest of
the scheduled final maturity dates of the Mortgage Loans or the repurchase of
all Mortgage Loans in the Mortgage Pool. See "Description of the Certificates --
Termination" in the Prospectus.
[Insert description of L/C Bank.]
S-31
<PAGE>
Under the Agreement, the Master Servicer will be required not later than
three business days prior to each Distribution Date to determine whether a
payment under the Letter of Credit will be necessary on the Distribution Date
and will, no later than the third business day prior to such Distribution Date,
advise the L/C Bank and the Trustee of its determination, setting forth the
amount of any required payment. On the Distribution Date, the L/C Bank will be
required to honor the Trustee's request for payment thereunder in an amount
equal to the lesser of (A) the remaining amount available under the Letter of
Credit or (B) the outstanding principal balances of any Mortgage Loan with
respect to which foreclosure proceedings have been commenced or with respect to
which the Master Servicer has agreed to accept a deed to the property in lieu of
foreclosure that has not been purchased by [the Depositor] [the Master Servicer]
pursuant to the terms of the Agreement, to be assigned on such Distribution Date
(together with accrued and unpaid interest thereon at the related Mortgage
Interest Rate to the related Installment Due Date). The proceeds of such
payments under the Letter of Credit will be deposited into the Certificate
Account and will be distributed to Certificateholders on such Distribution Date,
except to the extent of any unreimbursed Advances or Administration Fees.
If at any time the L/C Bank makes a payment in the amount of the full
outstanding principal balance and accrued interest on such a Mortgage Loan, it
will be entitled to receive an assignment by the Trustee of such Mortgage Loan,
and the L/C Bank will thereafter own such Mortgage Loan free of any further
obligation to the Trustee or the Certificateholders with respect thereto.
Payments made to the Certificate Account by the L/C Bank under the Letter of
Credit with respect to such a Mortgage Loan will be reimbursed to the L/C Bank
only from the proceeds (net of liquidation costs) of such Mortgage Loan. The
amount available under the Letter of Credit will be increased to the extent the
L/C Bank is reimbursed for such payments.
To the extent the proceeds of liquidation of a Mortgage Loan acquired by
the L/C Bank in the manner described in the preceding paragraph exceed the
amount of payments made with respect thereto, the L/C Bank will be entitled to
retain such proceeds as additional compensation for issuance of the Letter of
Credit.
Prospective purchasers of Certificates must look to the credit of the L/C
Bank, to the extent of its obligations under the Letter of Credit, in the event
of default by Mortgagors. If the amount available under the Letter of Credit is
exhausted, or the L/C Bank becomes insolvent, the Certificateholders (in the
priority specified in the related Prospectus Supplement) will thereafter bear
all risks of loss resulting from default by Mortgagors (including losses not
covered by insurance), and must look primarily to the value of the properties
securing defaulted Mortgage Loans for recovery of the outstanding principal and
unpaid interest.]
[Special Hazard Insurance Policy
The Depositor will obtain a Special Hazard Insurance Policy for the
Mortgage Pool in the amount of $__________ (____% of the aggregate Principal
Balance of the Mortgage Loans as of the Cut-off Date). The Special Hazard
Insurance Policy for the Mortgage Pool will be issued by [name of insurer] (the
"Special Hazard Insurer").]
[[Insert description of Special Hazard Insurer.]
S-32
<PAGE>
Terms of Special Hazard Insurance. The Special Hazard Insurance Policy
will, subject to the limitations described below, protect against loss by reason
of damage to Mortgaged Properties caused by certain hazards (including vandalism
and earthquakes and, except where the Mortgagor is required to obtain flood
insurance, floods and mudflows) not insured against under the standard form of
hazard insurance policy for the respective states in which the Mortgaged
Property is located. See "Description of the Certificates -- Hazard Insurance"
in the Prospectus. The Special Hazard Insurance Policy will not cover losses
occasioned by war, certain governmental actions, nuclear reaction and other
perils.
Subject to the foregoing limitations, each Special Hazard Insurance Policy
provides that, when there has been damage to the Mortgaged Property securing a
defaulted Mortgage Loan and to the extent such damage is not covered by the
standard hazard insurance policy, if any, maintained by the Mortgagor, the
Special Hazard Insurer will pay the lesser of (i) the cost of repair or
replacement of such Mortgaged Property or (ii) upon transfer of such Mortgaged
Property to the Special Hazard Insurer, the unpaid principal balance of such
Mortgage Loan at the time of acquisition of such Mortgaged Property by
foreclosure or deed in lieu of foreclosure, plus accrued interest to the date of
claim settlement (excluding late charges and penalty interest) and certain
expenses incurred in respect of such Mortgaged Property. No claim may be validly
presented under the Special Hazard Insurance Policy unless (i) hazard insurance
on the Mortgaged Property has been kept in force and other reimbursable
protection, preservation and foreclosure expenses have been paid (all of which
must be approved in advance as necessary by the insurer) and (ii) the insured
has acquired title to the Mortgaged Property as a result of default by the
Mortgagor. If the sum of the unpaid principal balance plus accrued interest and
certain expenses is paid by the Special Hazard Insurer, the amount of further
coverage under the Special Hazard Insurance Policy will be reduced by such
amount less any net proceeds from the sale of the Mortgaged Property. Any amount
paid as the cost of repair of the Mortgaged Property will further reduce
coverage by such amount.
The Agreement provides that the Master Servicer will be required to
exercise its best reasonable efforts to maintain the Special Hazard Insurance
Policy, unless coverage thereunder has been exhausted through payment of claims,
and will pay the premium for the Special Hazard Insurance Policy on a timely
basis. The Master Servicer will exercise its best reasonable efforts to obtain
from another insurer a replacement policy comparable to the Special Hazard
Insurance Policy with a total coverage that is equal to the then existing
coverage of the Special Hazard Insurance Policy; provided that if the cost of
any such replacement policy is greater than the cost of the terminated Special
Hazard Insurance Policy, the amount of coverage under the replacement Special
Hazard Insurance Policy may be reduced to a level such that the applicable
premium will not exceed the cost of the Special Hazard Insurance Policy that was
replaced.
[Fraud Insurance
A fund (the "Fraud Fund") providing coverage for Fraud Losses on the
Mortgage Loans may be established at the direction of the Depositor. The Fraud
Fund will be funded by cash, letters of credit, insurance policies or other
instruments in an amount acceptable to the Rating Agencies. The amount of
coverage provided by the Fraud Fund may be reduced to the extent the Rating
Agencies confirm that such reduction will not result in the lowering of the
ratings.]
[Primary Mortgage Insurance
For each Mortgage Loan with a Loan-to-Value Ratio greater than 80%, a
primary mortgage insurance policy ("Primary Mortgage Insurance") shall be
maintained which will cover at least [75]% of
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<PAGE>
the original fair market value of the related Mortgaged Property until such time
the principal balance of such Mortgage Loan is reduced to 80% of the current or
original fair market value. The fair market value of the Mortgaged Property
securing any Mortgage Loan is the lesser of the purchase price paid by the
related Mortgagor or the appraised value of such Mortgaged Property at
origination. The requirements for Primary Mortgage Insurance vary depending on
whether the related Mortgaged Property is a primary residence, second home or
investment property and may be subject to amendment or modification by
subsequent legislation. The requirements for Primary Mortgage Insurance will
also vary by state.]
[Advances
Subject to the following limitations, prior to each Distribution Date, the
Master Servicer will be obligated to advance its own funds, or funds held in the
Certificate Account which are in excess of the Pool Distribution for such
Distribution Date, in an aggregate amount sufficient to assure payment to the
holders of the Certificates of distributions in full on the Distribution Date,
but not more than the aggregate of Monthly Payments (after deducting the Master
Servicing Fees which were due on the related Installment Due Date and delinquent
on the day of the month of distribution) or, if such day is not a Business Day,
then on the next preceding Business Day.
The Master Servicer will be obligated to make Advances regardless of
whether such Advances are deemed to be recoverable from the related Mortgage
Loans, to the extent of the Subordinated Amount. Thereafter, such Advances are
required to be made only to the extent they are deemed by the Master Servicer to
be recoverable from related late collections, insurance proceeds or Liquidation
Proceeds. Any failure by the Master Servicer to make an Advance with respect to
the Class A Certificates as required under the Agreement will constitute an
event of default thereunder, in which case the Trustee will be obligated to make
any such Advance, in accordance with the terms of the Agreement.]
The Master Servicer.
The Mortgage Loans will be serviced by [LaSalle] [and] [name of other
Master Servicer] (in such capacity, [individually and collectively] the "Master
Servicer") pursuant to the Agreement. The Master Servicer is an [Illinois
corporation].
The executive offices of the Master Servicer are located at [4242 North
Harlem Avenue, Norridge IL 60634, telephone number (708) 456-0400].
At ______________, 199__, the Master Servicer provided servicing for
$____________ aggregate principal amount of mortgage loans, substantially all of
which are being serviced for third parties.
S-34
<PAGE>
The following table presents for the one-to-four-unit loan portfolio of the
Master Servicer, the net gains (losses) on the disposition of properties
acquired in foreclosure or by deed in lieu of foreclosure during the periods
indicated and the number of properties in foreclosure and held at the dates
indicated.
<TABLE>
<CAPTION>
Year Ended December 31,
--------------------------
19-- 19-- 19--
------ ------ ------
(Dollars in thousands)
<S> <C> <C> <C>
One- to four-unit mortgages:
Principal balances(1)............................. $ $ $
Net gains (losses)(2)............................. $ $ $
Net gains (losses) percentage(3).................. % % %
Total number of loans disposed(4).................
Total number of real estate properties
acquired in foreclosure.........................
Principal balance of loans acquired
in foreclosure.................................. $ $ $
As percent of principal balance................... % % %
</TABLE>
- --------------------
(1) Total principal balance of one- to four-unit mortgages at the end of each
period.
(2) Including additions to valuation reserves on unsold properties for each
period (net of any accrued interest thereon).
(3) Based on aggregate principal balances of one- to four-unit mortgages at the
end of each period.
(4) At the end of each period.
There can be no assurance that the loss experience on the Mortgage Loans
comprising the Mortgage Pool will correspond to the loss experience of the
Master Servicer's mortgage portfolio set forth in the foregoing table. Indeed,
the statistics shown above represent the loss experience for the total one-to-
four-unit mortgage portfolios for each of the years presented, whereas the
aggregate loss experience on the Mortgage Loans will depend on the results
obtained over the life of the Mortgage Pool. Moreover, if the one-to-four-unit
real estate market should experience an overall decline in property values such
that the Principal Balances of the Mortgage Loans comprising the Mortgage Pool
and any secondary financing on the related Mortgaged Properties become equal to
or greater than the value of the related Mortgaged Properties, the actual rates
of delinquencies, foreclosures and losses could be significantly higher than
those previously experienced by the Master Servicer. In addition, adverse
economic conditions (which may or may not affect real property values) may
affect the timely payment by Mortgagors of scheduled payments of principal and
interest on the Mortgage Loans and, accordingly, the rates of delinquencies,
foreclosures and losses with respect to the Mortgage Pool. To the extent that
such losses are not covered by subordination provisions or shifting interest
credit enhancement described herein, such losses will be borne, at least in
part, by the holders of the Class A Certificates. See "Description of the
Certificates" herein and in the Prospectus.
The following table indicates the Master Servicer's delinquency experience
on one-to-four-unit loans held in the Master Servicer's portfolio that were
serviced by the Master Servicer at the times indicated, expressed as a stage of
the total dollar amount of mortgage loans held by it. Loans serviced by others
S-35
<PAGE>
constitute approximately ______% of the Master Servicer's one-to-four-unit loan
portfolio as of _______________, 19__ . The percentages expressed below include
mortgage loans in the process of foreclosure.
One-to-Four-Unit Mortgage Loans
<TABLE>
<CAPTION>
Year Ended December 31,
---------------------------------
19-- 19--
--------------- ---------------
Dollar Amount* Dollar Amount*
(Expressed as a (Expressed as a
Number of Percentage) Percentage)
Days of Mortgage of Mortgage
Delinquent Loans Serviced Loans Serviced
- ---------- --------------- ---------------
(% of Portfolio)
<S> <C> <C>
30 to 59 days................................ % %
60 to 89 days................................
Over 90 days.................................
Foreclosures.................................
Total.................................... % %
</TABLE>
- -------------
* Estimate based on average loan balance.
While the above delinquencies are typical of the Master Servicer's recent
experience, there can be no assurance that the future delinquency experience on
the one-to-four-unit Mortgage Loans included in the Mortgage Pool will be
similar.
[The Trustee
___________________, a [national banking association], will act as Trustee
for the Series 199_-_ Certificates pursuant to the Agreement. The Trustee's
principal executive offices are located at __________________ and its telephone
number is ____________.]
[Because the Trustee will be making Advances in the event that the Master
Servicer fails to make a required Advance, the rating on the Class A
Certificates is based in part upon the long-term debt rating of the Trustee.
Consequently, downgrading of the long-term debt of the Trustee may result in a
downgrading of the Class A Certificates. Any successor trustee will be required
to have a long-term debt rating from [name of Rating Agency] in at least the
[second] highest rating category by the Rating Agency, if such trustee can be
obtained without undue expense.]
[Qualified Lender(s)]
[Insert description of Qualified Lender(s), including loss and delinquency
information if relevant and available.]
S-36
<PAGE>
Optional Termination
[The Master Servicer] [the Depositor] [the Residual Holder] may at its
option purchase from the Trust Fund all Mortgage Loans remaining outstanding at
such time as the Principal Balance of the Mortgage Loans is less than ___% of
the aggregate unpaid principal balance of the Mortgage Loans as of the Cut-off
Date. The purchase price will equal the sum of (a) the Principal Balance of each
Mortgage Loan plus accrued interest thereon at the Mortgage Pass-Through Rate to
the next Installment Due Date less any unreimbursed Advances made with respect
to any such Mortgage Loan and (b) the fair market value of all acquired property
in respect of any Mortgage Loans, less any unreimbursed Advances made with
respect to any such Mortgage Loans. An amount not in excess of the adjusted
principal balance of each Mortgage Loan, plus accrued interest thereon
(including the imputed principal balance of each Mortgage Loan, plus accrued
interest thereon, as to which title to the underlying Mortgaged Property has
been acquired by the Trust Fund) will be remitted to the Certificate Account and
subsequently distributed to the Certificateholders in the month following the
month in which such repurchase occurs and any additional amount will be
distributed to the holder of the Residual Certificate.
[FEDERAL INCOME TAX CONSIDERATIONS]
[ERISA CONSIDERATIONS]
[USE OF PROCEEDS]
[UNDERWRITING]
The Underwriters have agreed, subject to the terms and conditions of the
Underwriting Agreement, to purchase the entire principal amount of the Class A
Certificates offered hereby.
In the Underwriting Agreement, the Underwriters have agreed, subject to the
terms and conditions set forth therein, to purchase all the Class A Certificates
offered hereby if any Class A Certificates are purchased. In the event of
default by any Underwriter, the Underwriting Agreement provides that, in certain
circumstances, the Underwriting Agreement may be terminated.
Distribution of the Class A Certificates will be made from time to time in
negotiated transactions or otherwise at varying prices to be determined at the
time of sale. Proceeds to the Depositor from the sale of the Class A
Certificates will be ___% of the aggregate initial principal amount of the Class
A Certificates, plus interest at ___% per annum from the Cut-off Date, but
before deducting expenses payable by the Depositor. In connection with the
purchase and sale of the Class A Certificates, the Underwriters may be deemed to
have received compensation from the Depositor in the form of underwriting
discounts.
The Underwriting Agreement provides that the Depositor will indemnify the
Underwriters against certain liabilities under the Securities Act of 1933, as
amended, or contribute to payments the Underwriters may be required to make in
respect thereof.]
S-37
<PAGE>
LEGAL MATTERS
Certain legal matters relating to the Class A Certificates, including
certain Federal income tax consequences with respect thereto, will be passed
upon for the Depositor and the Underwriters by Mayer, Brown & Platt, Chicago,
Illinois.
RATING
It is a condition to the issuance of the Class A Certificates that they be
rated not less than ___ by the Rating Agency. 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.
[The ratings of Moody's Investors Service, Inc. ("Moody's") on mortgage
pass-through certificates address the likelihood of the receipt by
certificateholders of all distributions to which such certificateholder is
entitled. Moody's rating opinions address the structural, legal, issuer and tax-
related aspects associated with the certificates, including the nature of the
underlying mortgage loans. Moody's ratings on pass-through certificates do not
represent any assessment of the likelihood that principal prepayments might
differ from those originally anticipated. The rating does not address the
possibility that certificateholders might suffer a lower than anticipated
yield.]
[The ratings of Standard & Poor's Ratings Group ("S&P") on mortgage pass-
through certificates address the likelihood of the receipt by certificateholders
of payments required under agreements pursuant to which such certificates are
issued. S&P's ratings take into consideration the credit quality of the mortgage
pool, including any credit support providers, structural and legal aspects
associated with the certificates, and the extent to which the payment stream on
the mortgage pool is adequate to make payments required under the certificates.
S&P's ratings on such certificates do not, however, constitute a statement
regarding frequency of prepayments on the mortgages.]
[The ratings of Fitch Investors Service, Inc. ("Fitch") on mortgage pass-
through certificates address the likelihood of the receipt of all distributions
to which such certificateholders are entitled, including payment of all
principal on the certificates by the final scheduled distribution date. Fitch's
rating opinions address the structural and legal aspects associated with the
certificates. Fitch's ratings on pass-through certificates do not represent any
assessment of the likelihood or rate of principal prepayments.]
[The ratings of Duff & Phelps Credit Rating Co. ("Duff") on mortgage pass-
through certificates address the likelihood of the receipt of all distributions
to which such certificateholders are entitled, including payment of all
principal on the certificates by the final scheduled distribution date. Duff's
rating opinions address the structural and legal aspects associated with the
certificates. Duff's ratings on pass-through certificates do not represent any
assessment of the likelihood or rate of principal prepayments.]
S-38
<PAGE>
INDEX OF SIGNIFICANT DEFINITIONS
Set forth below is a list of certain of the more significant terms used in
this Prospectus Supplement and the pages on which the definitions of such terms
may be found herein. Other significant terms used in this Prospectus Supplement
may be found in the "Index of Significant Definitions" found in the base
Prospectus.
<TABLE>
<CAPTION>
Page
----
<S> <C>
Adjustment Date............................................................ S-6
Advances................................................... S-2, S-9, S-10, S-34
Agreement.................................................................. S-5
ARMs.................................................................. S-4, S-13
Balloon Payments........................................................... S-13
Bankruptcy Losses.......................................................... S-29
Certificates............................................................... S-1
Class A Certificate Balance........................................... S-9, S-26
Class A Certificateholders................................................. S-2
Class A Certificates................................................... S-1, S-4
Class A Distribution....................................................... S-25
Class A Interest Shortfall Account......................................... S-26
Class A Percentage......................................................... S-27
Class A Prepayment Percentage......................................... S-8, S-27
Class A Principal Balance.................................................. S-25
Class B Certificate Balance................................................ S-28
Class B Certificateholders................................................. S-2
Class B Certificates....................................................... S-1
Class B Distribution....................................................... S-27
Class B Interest Shortfall Account......................................... S-28
Class B Percentage......................................................... S-31
Class B Prepayment Percentage.............................................. S-29
Class B Principal Balance.................................................. S-28
Code....................................................................... S-11
Cut-Off Date............................................................... S-4
Debt Service Reduction..................................................... S-29
Deferred Interest.......................................................... S-6
Deficient Valuation........................................................ S-29
Depositor.............................................................. S-1, S-4
Distribution Date..................................................... S-5, S-25
Duff....................................................................... S-38
Excess Credit Losses....................................................... S-29
Fitch...................................................................... S-38
Fixed Rate Mortgage Loans.................................................. S-13
Fraud Fund............................................................ S-8, S-33
Fraud Insurance....................................................... S-8, S-33
Fraud Losses............................................................... S-29
Gross Margin............................................................... S-13
</TABLE>
S-39
<PAGE>
<TABLE>
<CAPTION>
Page
----
<S> <C>
Index................................................................. S-5, S-13
Initial Deposit............................................................ S-9
Initial Mortgage Rate................................................. S-6, S-13
Installment Due Date....................................................... S-15
L/C Bank.............................................................. S-7, S-31
L/C Percentage............................................................. S-31
LaSalle................................................................ S-1, S-4
LaSalle Talman............................................................. S-4
Letter of Credit...................................................... S-7, S-31
Master Servicer.................................................. S-1, S-4, S-34
Maximum Adjustment......................................................... S-14
Maximum Rate............................................................... S-14
Minimum Rate............................................................... S-14
Minimum Required Class B Principal Balance................................. S-28
Moody's.................................................................... S-38
Mortgage Loans............................................................. S-1
Mortgage Notes............................................................. S-13
Mortgage Pool......................................................... S-1, S-15
Mortgaged Properties....................................................... S-15
Pass-Through Rate.......................................................... S-2
Paying Agent............................................................... S-24
Payment Cap................................................................ S-14
Pool Principal Balance..................................................... S-30
Prepayment Interest Shortfall.............................................. S-6
Primary Mortgage Insurance............................................ S-8, S-33
Principal Prepayments...................................................... S-5
Record Date................................................................ S-25
REMIC................................................................. S-2, S-11
Reserve Fund.......................................................... S-9, S-31
Residual Certificates...................................................... S-1
S&P........................................................................ S-38
Series 199_ - _ Certificates............................................... S-1
Servicer................................................................... S-1
SMMEA...................................................................... S-12
Special Hazard Insurance Policy....................................... S-7, S-32
Special Hazard Insurer..................................................... S-32
Special Hazard Losses...................................................... S-29
Standard Federal........................................................... S-1
Trust Fund................................................................. S-5
Trustee......................................................... S-5, S-10, S-36
Underwriters............................................................... S-1
Underwriting Agreement..................................................... S-37
USA........................................................................ S-4
</TABLE>
S-40
<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+Information contained herein is subject to completion or amendment. A +
+registration statement relating to these securities has been filed with the +
+Securities and Exchange Commission. These Securities may not be sold nor may +
+offers to buy be accepted prior to the time the registration statement becomes+
+effective. This prospectus shall not constitute an offer to sell or the +
+solicitation of an offer to buy nor shall there be any sale of these +
+securities in any State in which such offer, solicitation or sale would be +
+unlawful prior to registration or qualification under the securities laws of +
+any such State. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION - DATED OCTOBER ___, 1997
ABN AMRO Mortgage Corporation
(Depositor)
Mortgage Pass-Through Certificates
(Issuable in Series)
--------------------
ABN AMRO Mortgage Corporation (the "Depositor") may sell, from time to time
on terms to be determined at the time of sale, one or more series (each a
"Series") of Mortgage Pass-Through Certificates (the "Certificates") evidencing
beneficial ownership interests in assets deposited into a trust (a "Trust Fund")
by the Depositor pursuant to a Pooling and Servicing Agreement (the "Agreement")
executed by the Depositor, the Trustee and the Master Servicer for each Series.
Each Trust Fund will consist of separate pools (the "Pools") of mortgage assets
("Mortgage Assets"), which may include adjustable or fixed rate, conventional,
one-to-four-unit residential first mortgage loans, including loans secured by
shares in cooperative corporations ("Mortgage Loans"), certificates backed by
mortgage loans ("Mortgage Certificates") or any combination of the foregoing and
other assets to be held by each Trust Fund in connection with the Mortgage Loans
and Mortgage Certificates, including any insurance policies, reserve funds,
accounts, letters of credit or other credit enhancements specified in the
related Prospectus Supplement. The Mortgage Loans will have been originated or
purchased by one or more qualified mortgage lenders as described herein (a
"Qualified Lender") and sold to the Depositor by such Qualified Lender or
another seller (in such capacity, a "Mortgage Asset Seller"). The Qualified
Lenders and Mortgage Asset Sellers may include affiliates of the Depositor, and
certain of the mortgage loans underlying the Mortgage Certificates may have been
originated or purchased by affiliates of the Depositor. The Prospectus
Supplement for a Series will name the entity or entities, which may include an
affiliate of the Depositor, which will act directly or through one or more other
qualified mortgage loan servicers, as master servicer (individually and
collectively, the "Master Servicer") of the Mortgage Loans for such Series. The
Pass-Through Rate or Rates with respect to each Series of Certificates and
specific information regarding the Mortgage Assets comprising each Pool will be
set forth in the related Prospectus Supplement.
Each Series of Certificates will consist of one or more Classes of
Certificates, which may include one or more senior Classes of Certificates and
one or more subordinate Classes of Certificates (respectively, the "Senior
Certificates" and the "Subordinate Certificates"). A Class of Certificates of a
Series may be divided into two or more Classes representing interests in
specified percentages of principal or interest, or both, in the Mortgage Assets
comprising the related Pool, as set forth in the related Prospectus Supplement.
Certain Series or Classes of Certificates may be covered by one or more forms of
credit enhancement, in each case as described in the related Prospectus
Supplement.
The obligations of the Master Servicer with respect to the Certificates
will be limited to its contractual servicing obligations, supervision of other
Servicers, if any, and the obligation, if the amount available for distribution
to holders of Certificates evidencing interests in the related Pool on any
Distribution Date is less than the amount due them, to advance cash to such
Certificateholders to the extent the Master Servicer determines such advances
are recoverable from future payments and collections on the Mortgage Assets or
otherwise. See "Description of the Certificates -- Advances and Limitations
Thereon" herein.
(Continued on next page)
------------------------------
See "Special Considerations" herein for a discussion of certain risk
factors that should be considered by prospective investors before purchasing
Certificates of any Series.
------------------------------
THE CERTIFICATES WILL NOT REPRESENT INTERESTS IN OR OBLIGATIONS OF THE
DEPOSITOR, THE MASTER SERVICER, THE TRUSTEE OR ANY OF THEIR RESPECTIVE
AFFILIATES. THE CERTIFICATES WILL NOT BE SAVINGS ACCOUNTS OR DEPOSITS AND
NEITHER THE CERTIFICATES NOR THE UNDERLYING MORTGAGE LOANS WILL BE INSURED OR
GUARANTEED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION OR ANY OTHER GOVERNMENT
AGENCY NOR HAS THE FEDERAL DEPOSIT INSURANCE CORPORATION OR ANY OTHER GOVERNMENT
AGENCY PASSED UPON THE ACCURACY OF THE INFORMATION CONTAINED IN THIS PROSPECTUS.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED
UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
The date of this Prospectus is _________, 1997
<PAGE>
(Continued from previous page)
The Trust Fund relating to a Series of Certificates may elect to be treated
as one or more "real estate mortgage investment conduits" (each, a "REMIC") for
Federal income tax purposes. See "Certain Federal Income Tax Consequences"
herein.
Prior to issuance there will have been no market for the Certificates and
there can be no assurance that a secondary market for the Certificates will
develop. This Prospectus may not be used to consummate sales of a Series of
Certificates unless accompanied by a Prospectus Supplement. Certificates may be
offered through one or more different plans of distribution, including offerings
through underwriters. See "Plan of Distribution" herein. Affiliates of the
Depositor may from time to time act as agents or underwriters in connection with
the sale of the Certificates.
2
<PAGE>
[Inside Cover]
PROSPECTUS SUPPLEMENT
The Prospectus Supplement relating to each Series of Certificates to be
offered hereunder will set forth with respect to such Series of Certificates,
among other things, (i) the aggregate principal balance of the Mortgage Loans,
Notional Amount, if any, Pass-Through Rate or Rates (or the manner of
determining such rate or rates) and authorized denominations of each Class of
such Certificates; (ii) certain information concerning the Mortgage Assets
comprising the Pool, including the type and characteristics of the Mortgage
Assets included in each such Pool on the date of issue and insurance policies or
other forms of credit enhancement relating to such Mortgage Assets; (iii) the
order of the application of payments to each Class of Certificates and the
specified aggregate original percentage interest of each such Class in the
Mortgage Assets comprising the Pool; (iv) the identity of each Class of
Subordinate Certificates included in such Series of Certificates, if any; (v)
information regarding any Subordinated Amount, Shifting Interest Credit
Enhancement, Reserve Fund and Retained Yield; (vi) the Installment Due Dates,
Determination Dates and Distribution Dates; (vii) additional information
regarding yield considerations, maturity considerations and prepayment
considerations, if applicable; (viii) whether the Trust Fund will elect to be
treated as one or more REMICs; (ix) additional information with respect to the
plan of distribution of such Certificates; and (x) certain special
considerations that should be considered by investors in connection with the
purchase of the Certificates of such Series. If specific information respecting
any Series of Certificates is not known to the Depositor at the time a Series of
Certificates is initially offered, general information of the nature described
above will be provided in the related Prospectus Supplement, and specific
information will be set forth in a report on Form 8-K which will be available to
investors in such Series of Certificates at or before the initial issuance
thereof and will be filed with the Commission within 15 days after such initial
issuance.
REPORTS TO CERTIFICATEHOLDERS
Unless and until Replacement Certificates (as defined herein) are issued,
the related Trust Fund will provide to CEDE & Co., as nominee of The Depository
Trust Company ("DTC") and registered holder of the Certificates and, upon
request, to DTC Participants (as defined herein), periodic and annual reports
concerning the related Trust Fund. Such reports may be made available to the
beneficial owners of the certificates (the "Certificate Owners") upon request to
their DTC Participants. Such reports will not constitute financial statements
prepared in accordance with generally accepted accounting principles. Such
reports will not be examined and reported on by an independent public
accountant. See "Description of the Certificates --Reports to
Certificateholders" herein.
INCORPORATION OF CERTAIN INFORMATION BY REFERENCE
All documents filed by the Depositor on behalf of the Trust Fund referred
to in the accompanying Prospectus Supplement with the Securities and Exchange
Commission (the "Commission") pursuant to Section 13(a), 13(c), 14 or 15(d) of
the Securities Exchange Act of 1934, as amended (the "Exchange Act"), on or
after the date of such Prospectus Supplement and prior to the termination of any
offering of the Certificates issued by such Trust Fund shall be deemed to be
incorporated by reference in this Prospectus and to be a part of this Prospectus
from the date of filing of such documents. Any statement contained in a document
incorporated or deemed to be incorporated by reference herein shall be deemed to
be modified or superseded for all purposes of this Prospectus to the extent that
a statement contained herein (or in the accompanying Prospectus Supplement) or
in any other subsequently filed document which also is or is deemed to be
incorporated by reference modifies or replaces such statement. Any such
statement so modified or superseded shall not be deemed, except as modified or
superseded, to constitute a part of this Prospectus.
3
<PAGE>
The Depositor will provide or cause to be provided without charge to each
person to whom this Prospectus is delivered in connection with the offering of
one or more classes of Certificates, a copy of any or all documents or reports
incorporated herein by reference, in each case to the extent such documents or
reports relate to one or more of such classes of such Certificates, other than
the exhibits to such documents (unless such exhibits are specifically
incorporated by reference in such documents). Requests to the Depositor should
be directed in writing to: ABN AMRO Mortgage Corporation, 181 West Madison
Street, Suite 3250, Chicago, Illinois 60602-4510, Attention: Maria Fregosi --
Director - ABN AMRO Mortgage Operations.
ADDITIONAL INFORMATION
In connection with the issuance of each Series of Certificates registered
pursuant to the Registration Statement of which this Prospectus and the related
Prospectus Supplement are a part, the Depositor will be subject to the
informational requirements of the Exchange Act and, in accordance therewith,
will, if required by law, periodically file reports and other information with
the Commission. Such reports and other information filed can be inspected and
copied at the public reference facilities maintained by the Commission at its
Public Reference Section, 450 Fifth Street, N.W., Washington, D.C. 20549, and at
its Regional Offices located as follows: Midwest Regional Office, Citicorp
Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661-2511; and
Northeast Regional Office, 7 World Trade Center, Suite 1300, New York, New York
10048. Copies of such material can also be obtained from the Public Reference
Section of the Commission, 450 Fifth Street, Washington, D.C. 20549, at
prescribed rates.
This Prospectus contains, and the Prospectus Supplement for each Series of
Certificates will contain, a summary of the material terms of the documents
referred to herein and therein, but neither contains nor will contain all the
information set forth in the Registration Statement of which this Prospectus is
a part. For further information, reference is made to such Registration
Statement and the exhibits thereto which the Depositor has filed with the
Commission, Washington, D.C., under the Securities Act of 1933, as amended (the
"Securities Act"). Statements contained in this Prospectus and any Prospectus
Supplement as to the contents of any contract or other document referred to are
summaries, and in each instance, reference is made to the copy of the contract
or other document filed as an exhibit to the Registration Statement, each such
statement being qualified in all respects by such reference. Copies of the
Registration Statement may be obtained from the Commission, upon payment of the
prescribed charges, or may be examined free of charge at the Commission's
offices. Copies of the Pooling and Servicing Agreement will be provided to each
person to whom a Prospectus is delivered upon written or oral request directed
to: ABN AMRO Mortgage Corporation, 181 West Madison Street, Suite 3250, Chicago,
Illinois 60602-4510, Attention: Maria Fregosi -- Director - ABN AMRO Mortgage
Operations. (Telephone: 312-904-8507).
Copies of the most recent Prospectus for certificates issued by FNMA and
FNMA's annual report and other quarterly financial statements as well as other
financial information may be obtained from FNMA by writing or calling its MBS
Helpline at 3900 Wisconsin Avenue, N.W., Area 2H-3S, Washington, D.C. 20016,
telephone 1-800-BEST-MBS or 202-752-6547. Neither the Depositor nor any of the
underwriters which might be designated to offer the Certificates participated in
the preparation of any such documents, and no such entity has conducted any
independent inquiry to verify the accuracy or completeness of the information
set forth in FNMA's Prospectus, annual report or other reports or statements.
Copies of the most recent Offering Circular for certificates issued by
FHLMC as well as FHLMC's most recent Information Statement and Information
Statement Supplement can be obtained by writing or calling the Investor Inquiry
Department of FHLMC at 8200 Jones Branch Drive, McLean, Virginia 22102
(telephone 1-800-336-FMPC). Neither the Depositor nor any of the underwriters
which might be designated to offer the Certificates participated in the
preparation of any of such documents, and
4
<PAGE>
no such entity has conducted any independent inquiry so verify the accuracy or
completeness of the information set forth in FHLMC's Offering Circular,
Information Statement or Information Statement Supplement.
Until 90 days after the date of each Prospectus Supplement, all dealers
effecting transactions in the registered securities covered by such Prospectus
Supplement, whether or not participating in this distribution thereof, may be
required to deliver such Prospectus Supplement and the Prospectus. This is in
addition to the obligation of dealers to deliver a Prospectus Supplement and
Prospectus when acting as underwriters of the Series of Certificates covered by
such Prospectus Supplement and with respect to their unsold allotments or
subscriptions.
No person has been authorized to give information or to make any
representation other than those contained in this Prospectus and any Prospectus
Supplement with respect hereto and, if given or made, such information or
representation must not be relied upon. This Prospectus and any Prospectus
Supplement with respect hereto do not constitute an offer to sell or a
solicitation of an offer to buy any securities other than the Certificates
offered hereby and thereby nor an offer of the Certificates to any person in any
state or other jurisdiction in which such offer would be unlawful. The delivery
of this Prospectus at any time does not imply that information herein is correct
as of any time subsequent to its date.
5
<PAGE>
SUMMARY
This summary is qualified in its entirety by reference to the detailed
information appearing elsewhere in this Prospectus and in the related Prospectus
Supplement which will be prepared in connection with each Series of
Certificates. The Supplement for each Series will specify the extent (if any)
to which the terms of such Series or the related Mortgage Assets vary from the
description of Certificates and Mortgage Assets in general which is contained in
this Prospectus. All capitalized terms used in this Prospectus but not defined
herein shall have the meanings given them in the Agreement.
Securities Offered Mortgage Pass-Through Certificates
(Issuable in Series).
Depositor ABN AMRO Mortgage Corporation (the
"Depositor") is a limited purpose, wholly
owned indirect subsidiary of ABN AMRO Bank
N.V. The Depositor will acquire Mortgage
Loans and/or Mortgage Certificates from
Mortgage Asset Sellers or Qualified Lenders,
and will deposit such Mortgage Assets with
the Trustee to form the Pool underlying the
Certificates.
Master Servicer One or more entities, which may include an
affiliate of the Depositor, will be named in
the related Prospectus Supplement as the
Master Servicer for a Series of Certificates.
The Master Servicer will be responsible for
the servicing and administration of the
Mortgage Assets as set forth in the related
Prospectus Supplement. Any Master Servicer or
any successor Master Servicer may contract
with Servicers, who also may be Qualified
Lenders or Mortgage Asset Sellers, to perform
all or a portion of the servicing functions
on behalf of such Master Servicer. See
"Description of the Certificates."
[Back-Up Master Servicer ABN AMRO Bank N.V.]
Trustee The Trustee with respect to a Series, which
may be an affiliate of the Depositor, will be
specified in the related Prospectus
Supplement. See "Description of the
Certificates" herein for a description of the
Trustee's rights and obligations.
The Pools Each Pool will consist of Mortgage Loans or
other "regular interests" in another Pool to
the extent specified in the related
Prospectus Supplement, Mortgage Certificates,
or any combination of the foregoing
("Mortgage Assets"), together with certain
accounts, reserve funds, insurance policies,
letters of credit and related agreements
specified in the related Prospectus
Supplement. If so specified in the related
Prospectus Supplement, the Mortgage Assets
may be divided into asset groups (each an
"Asset Group") and the Certificates of
separate Classes will evidence ownership
interests of a corresponding Asset Group. The
Pool for a Series will also include the
Certificate Account and may include certain
policies of insurance relating to the
Mortgage Assets and various credit
enhancements, all as specified in the related
Prospectus Supplement. See "The Pools" and
"Description of the Certificates" herein.
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(1) The Mortgage Loans
Each Mortgage Loan included in a Pool will be
originated or purchased by a Qualified Lender
and will be acquired by the Depositor from a
Qualified Lender or a Mortgage Asset Seller.
Qualified Lenders and Mortgage Asset Sellers
may be affiliates of the Depositor. The
Mortgage Loans relating to any Series of
Certificates may, as set forth in the related
Prospectus Supplement, be adjustable or fixed
rate conventional one-to-four unit
residential first Mortgage Loans. Adjustable
Rate Mortgage Loans ("ARMs") will, as
described herein and in the related
Prospectus Supplement, permit or require
periodic changes in the interest rates borne
by such Mortgage Loans (the "Mortgage
Interest Rates"), and in the scheduled
monthly payments of principal and interest
(the "Monthly Payments") made on such
Mortgage Loans. See "The Pools--The Mortgage
Loans" herein.
The Mortgage Loans will be secured by one- to
four-unit residential properties or by shares
in cooperative corporations. The residential
properties or cooperative corporations
relating to the Mortgage Loans shall be
located in any jurisdiction within the United
States of America or its territories,
including Puerto Rico ("USA"), as specified
in the related Prospectus Supplement. See
"The Mortgage Pool" in the related Prospectus
Supplement. Unless otherwise specified in the
related Prospectus Supplement, each Mortgage
Loan will have a 5- to 40-year term to
maturity at origination and a principal
balance at origination of not more than
$2,000,000. The related Prospectus Supplement
will specify whether any of the Mortgage
Loans will be covered by primary mortgage
guaranty insurance.
In addition, to the extent set forth in the
related Prospectus Supplement, the beneficial
interests in the Mortgage Loans relating to a
Series of Certificates may be in the form of
participation interests therein which will
represent REMIC "regular interests" in a
Trust Fund which contains the Mortgage Loans
relating to such Series.
(2) The Mortgage Certificates
A Pool may include certain assets (the
"Mortgage Certificates") which may consist of
GNMA Certificates, FHLMC Certificates, FNMA
Certificates, Private Certificates or any
combination thereof. Private Certificates may
evidence beneficial interests in mortgage
loans or mortgage-backed securities including
(a) mortgage participations or pass-though
certificates representing beneficial
interests in certain loans, (b)
collateralized mortgage obligations secured
by such loans or (c) pass-through
certificates representing beneficial
interests in certain securities consisting in
whole or in part of interests in governmental
certificates (e.g., GNMA Certificates, FHLMC
Certificates and FNMA Certificates), or any
combination thereof. Any GNMA Certificates
included in a Pool will be guaranteed as to
full and
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timely payment of principal and interest by
GNMA, which guaranty is backed by the full
faith and credit of the United States. Any
FHLMC Certificates included in the Pool will
be guaranteed as to the timely payment of
interest and ultimate collection (and if so
specified in the related Prospectus
Supplement timely payment of principal) by
FHLMC. Any FNMA Certificates included in a
Pool will be guaranteed as to timely payment
of scheduled payments of principal and
interest by FNMA. No FHLMC or FNMA
Certificates will be backed, directly or
indirectly, by the full faith and credit of
the United States. No Private Certificates
will be backed, directly or indirectly, by
any agency or instrumentality of the United
States but may have other forms of credit
support, as described in such Prospectus
Supplement. Any Private Certificate will have
been acquired in a secondary transaction and
not from the issuer or any affiliate of the
issuer of such Private Certificate and,
unless otherwise specified in the related
Prospectus Supplement, each Private
Certificate will evidence an interest in, or
will be secured by a pledge of Mortgage Loans
that conform to the descriptions of Mortgage
Loans contained herein.
Each Mortgage Certificate will evidence an
interest in a pool of mortgage loans and/or
in principal distributions and interest
distributions thereon. Such loans may have
been originated or purchased by affiliates of
the Depositor. The Prospectus Supplement for
each Series will specify the aggregate
approximate principal balance of GNMA, FHLMC
and FNMA Certificates and of Private
Certificates included in a Pool and will
describe the principal characteristics of the
underlying mortgage loans or cooperative
loans and any insurance, guaranty or other
credit support applicable to such loans, the
Mortgage Certificates or both. In addition,
the related Prospectus Supplement will
describe the terms upon which distributions
will be made to the Trustee as the holder of
the Mortgage Certificates. The Mortgage
Certificates included in any Pool will be
registered in the name of the Trustee or its
nominee or in the case of book-entry Mortgage
Certificates in the name of a financial
intermediary with a Federal Reserve Bank or a
clearing corporation and will be held by the
Trustee only for the benefit of the related
Series of Certificates. See "The Pools --
Mortgage Certificates --Additional
Information."
Agreement The Certificates of each Series offered by
this Prospectus and the related Prospectus
Supplement will be issued pursuant to a
separate Pooling and Servicing Agreement (the
"Agreement") among the Depositor and the
Master Servicer and the Trustee specified in
such Prospectus Supplement. See "Description
of the Certificates."
Forward Commitments;
Pre-Funding Account If specified in the related Prospectus
Supplement relating to any Series, the
Trustee or the Master Servicer may, on behalf
of the related Trust Fund, enter into an
agreement (each, a "Forward
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<PAGE>
Purchase Agreement") with the Depositor
whereby the Depositor will agree to transfer
additional Mortgage Loans to such Trust Fund
following the date on which such Trust Fund
is established and the related Certificates
are issued. Any Forward Purchase Agreement
will require that any Mortgage Loans so
transferred to a Trust Fund conform to the
requirements specified in such Forward
Purchase Agreement. If a Forward Purchase
Agreement is to be utilized, and unless
otherwise specified in the related Prospectus
Supplement, the Trustee will be required to
deposit in a segregated account (each, a
"Pre-Funding Account") all or a portion of
the proceeds received by the Trustee in
connection with the sale of one or more
classes of Certificates of the related
Series; subsequently, the additional Mortgage
Loans will be transferred to the related
Trust Fund in exchange for money released to
the Depositor from the related Pre-Funding
Account in one or more transfers. Each
Forward Purchase Agreement will set a
specified period during which any such
transfers must occur. The Forward Purchase
Agreement or the related Agreement will
require that, if all moneys originally
deposited to such Pre-Funding Account are not
so used by the end of such specified period,
then any remaining moneys will be applied as
a mandatory prepayment of the related class
or classes of Certificates as specified in
the related Prospectus Supplement. Unless
otherwise specified in the related Prospectus
Supplement, the specified period for the
acquisition by a Trust Fund of additional
Mortgage Loans will not exceed three months
from the date such Trust Fund is established.
Description of the Certificates Each Class of Certificates within a Series
will evidence the interest specified in the
related Prospectus Supplement in the Pool
established for such Series together with
amounts held in a trust account established
and maintained by the Master Servicer or the
Trustee under the Agreement (the "Certificate
Account") and certain other property held in
trust for the benefit of the
Certificateholders (collectively, the "Trust
Fund"). Each Series of Certificates may
consist of one or more subclasses of
Certificates of equivalent priority or may
consist of one or more Classes of senior
Certificates (the "Senior Certificates") and
one or more Classes of subordinate
Certificates (the "Subordinate Certificates"
and, together with the Senior Certificates,
the "Certificates"). The Subordinate
Certificates of a Series will be subordinated
in certain respects described in the related
Prospectus Supplement to the Senior
Certificates of the same Series. A Series may
also contain one or more classes of
Compounding Certificates, Stripped
Certificates, Prepayment Certificates, Non-
Accelerated Certificates and other types of
Certificates or a combination thereof, all as
set forth in the related Prospectus
Supplement. Each Class of a Series may bear
interest at a different Pass-Through Rate and
may evidence the right to receive a specified
portion of each distribution of principal or
interest or both, in the order specified in
the related Prospectus Supplement. The
Certificates will be issuable in most
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<PAGE>
instances in book-entry form in the
authorized denominations specified in the
related Prospectus Supplement. See
"Description of the Certificates" herein.
Any Class of Certificates of a Series offered
hereby and by the related Prospectus
Supplement will be rated by at least one
nationally recognized statistical rating
agency or organization that initially rates
the Series at the request of the Depositor
and is identified in the related Prospectus
Supplement ("Rating Agency") in one of such
Rating Agency's four highest rating
categories ("Investment Grade"). A 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 Agency. Further, such ratings do not
address the effects of prepayments on the
yield anticipated by an investor.
Certain Series or Classes of Certificates may
be enhanced by certain forms of credit
enhancement, in each case as described in the
related Prospectus Supplement. The
Certificates will not be guaranteed or
insured by any government agency or other
insurer and, except as described below and in
the related Prospectus Supplement, the
Mortgage Assets comprising the Pool relating
to a Series of Certificates will not be
guaranteed or insured by any government
agency or other insurer. See "Credit
Enhancements" herein.
Registration of Certificates Unless otherwise specified in the related
Prospectus Supplement, Certificateholders may
elect to hold their Certificate interests
through DTC, in the United States, or
Centrale de Livraison de Valeurs Mobilieres
S.A. ("CEDEL") or the Euroclear System
("Euroclear"), in Europe. Transfers within
DTC, CEDEL or Euroclear, as the case may be,
will be in accordance with the usual rules
and operating procedures of the relevant
system. Cross-market transfers between
persons holding directly or indirectly
through DTC, on the one hand, and
counterparties holding directly or indirectly
through CEDEL or Euroclear, on the other,
will be effected in DTC through Citibank,
N.A. ("Citibank") or Morgan Guaranty Trust
Company of New York ("Morgan"), the relevant
depositaries (collectively, the
"Depositaries") of CEDEL or Euroclear,
respectively, and each participating member
of DTC. The Certificates will initially be
registered in the name of CEDE & Co., the
nominee of DTC. The interests of the
Certificateholders will be represented by
book-entries on the records of DTC and
participating members thereof. Certificates
will be available in definitive form only
under the limited circumstances described
herein. See "Special Considerations" and
"Description of the Certificates --
Registration of Certificates" herein.
Interest Each class of Certificates of a Series will
accrue interest from the date and at the
fixed or adjustable Pass-Through Rate set
forth (or determined as set forth) in the
related Prospectus Supplement, except for any
class of Certificates which are
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<PAGE>
entitled to receive distributions of
principal on Mortgage Loans and/or Mortgage
Certificates, but not to receive
distributions of interest thereon ("PO
Certificates").
Accrued interest will be distributed (to the
extent of available funds and subject to
negative amortization, if any, on the
underlying Mortgage Loans) at the times and
in the manner specified in such Prospectus
Supplement. Distributions of interest on any
class of Compounding Certificates will
commence at the time specified in such
Prospectus Supplement; until then, interest
on the Compounding Certificates will be added
to the Certificate Balance thereof and will
thereafter accrue interest.
Interest on each Mortgage Loan that does not
provide for negative amortization will be
passed through to the Certificateholders
monthly at the Mortgage Pass-Through Rate for
that Mortgage Loan from the date identified
in the related Prospectus Supplement.
Interest on Mortgage Loans that provide for
negative amortization will accrue on the
Principal Balance thereof at the Mortgage
Interest Rates identified in the related
Prospectus Supplement. In the event the
amount of interest paid by an obligor on a
Mortgage Note (a "Mortgagor") on such a
Mortgage Loan in any month is less than the
amount of interest accrued on the Principal
Balance thereof, such excess interest
("Deferred Interest") will be added to the
Principal Balance of such negatively
amortizing Mortgage Loan. The amount of
interest that will be deposited into the
Certificate Account with respect to each
Mortgage Loan in any month will equal the
amount of interest paid by a Mortgagor less a
fee for the servicing of the Mortgage Loan
and related expenses payable to the Master
Servicer specified in the related Prospectus
Supplement (the "Administration Fee"), and,
to the extent specified in the related
Prospectus Supplement, less an amount, if
any, retained by a Mortgage Asset Seller or a
Servicer (the "Retained Yield"). The
Administration Fee or the Retained Yield may
be fixed or may adjust as specified in the
related Prospectus Supplement. See
"Prepayment and Yield Considerations" and
"Description of the Certificates" herein.
In the event a Mortgagor prepays all or part
of the principal balance of a Mortgage Loan,
such Mortgagor will only pay interest on the
amount prepaid to the date of prepayment.
Unless otherwise specified in the related
Prospectus Supplement, in order to minimize
any resulting shortfall in interest for the
corresponding month in which the prepayment
was made (such shortfall, a "Prepayment
Interest Shortfall"), the Master Servicer
will adjust or forego a portion of the
current Administration Fees due to the Master
Servicer, to the extent available, so that up
to a full month's interest payment on such
Mortgage Loans will be passed through to the
Certificateholders at the applicable Mortgage
Pass-Through Rate. See "Description of the
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<PAGE>
Certificates -- Adjustment to Master
Servicing Fees in Connection with Prepayment
Interest Shortfall" herein.
Principal (Including
Prepayments) Each class of Certificates of a Series
(except for Certificates entitled to receive
distributions of interest only on the
Mortgage Loans and/or Mortgage Certificates,
but not distributions of principal thereon
and are denominated in Notional Balances (the
"IO Certificates")) will (to the extent of
available funds) receive distributions of
principal in the amounts, at the times and in
the manner specified in the related
Prospectus Supplement until its initial
aggregate Certificate Balance has been fully
amortized. The aggregate amount distributed
as principal for a Series will generally be
equal to (or determined pursuant to a formula
based on) the amount of principal received on
the related Pool during the period specified
in the related Prospectus Supplement.
Allocations of distributions of principal
will be made to the Certificates of each
class in the proportions, during the periods
and in the order specified in the related
Prospectus Supplement. The Certificate
Balance of a class or classes of Certificates
may increase in accordance with any negative
amortization experienced by Mortgage Loans
and Mortgage Certificates in the related
Pool. Distributions will be made pro rata
among the Certificates of each class then
entitled to receive such distributions. See
"Maturity Considerations" and "Description of
the Certificates" herein.
Credit Enhancement Credit enhancement in the form of reserve
funds, subordination, insurance policies,
letters of credit or other types of credit
enhancement may be provided with respect to
the Mortgage Assets or with respect to one or
more Classes of Certificates of a Series. If
Mortgage Assets are divided into separate
Asset Groups, the beneficial ownership of
which is evidenced by a separate Class or
Classes of a Series, credit enhancement may
be provided by a cross-support feature which
requires that distributions be made with
respect to Certificates evidencing beneficial
ownership of one Asset Group prior to
distributions to Subordinate Certificates
evidencing beneficial ownership in another
Asset Group within the Trust Fund.
The type, characteristics and amount of
credit enhancement will be determined based
upon the characteristics of the Mortgage
Assets and other factors and will be
established on the basis of requirements of
each Rating Agency rating the Certificates of
such Series to enable the Certificates of
such Series to receive a rating from a Rating
Agency set forth below. See "Credit
Enhancements" and "Rating" herein. The
protection against losses provided by such
credit enhancement will be limited. See
"Description of the Certificates" and "Credit
Enhancements."
a. Subordinate Certificates; Shifting
Interest; Reserve Fund
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<PAGE>
One or more Classes of any Series may be
Subordinate Certificates, as specified in the
related Prospectus Supplement. The rights of
the Subordinate Certificateholders to receive
any or a specified portion of distributions
with respect to the Mortgage Loans will be
subordinated to the rights of the Senior
Certificateholders to the extent specified in
the related Prospectus Supplement (the
"Subordinated Amount").
If so specified in the related Prospectus
Supplement, the subordination feature may be
enhanced by distributing to the Senior
Certificateholders on certain Distribution
Dates, as payment of principal, a certain
percentage of all Principal Prepayments
received during the prior Prepayment Period
("Shifting Interest Credit Enhancement").
This will have the effect of accelerating the
amortization of the Senior Certificates while
increasing the respective interest in the
Trust Fund evidenced by the Subordinate
Certificates. Increasing the respective
interest of the Subordinate Certificates
relative to that of the Senior Certificates
is intended to preserve the availability of
the subordination provided by the Subordinate
Certificates. See "Credit Enhancements --
Subordination" and "-- Shifting Interest
Credit Enhancement" herein.
In addition to the preferential right of the
Senior Certificateholders to receive current
distributions from the Pool, to the extent
specified in the related Prospectus
Supplement, a reserve fund may be established
relating to such Series of Certificates (the
"Reserve Fund"). The related Prospectus
Supplement will specify whether or not the
Reserve Fund is part of the Trust Fund.
Unless otherwise specified in the related
Prospectus Supplement, the Reserve Fund, if
any, will be created with an initial cash
deposit by the Depositor (the "Initial
Deposit") in an amount specified in the
related Prospectus Supplement and augmented
by the retention of distributions otherwise
available to the Subordinate
Certificateholders until the Reserve Fund
reaches an amount (the "Specified Reserve
Fund Balance") specified in the related
Prospectus Supplement. See "Credit
Enhancements --Reserve Fund" herein.
The subordination feature will enhance the
likelihood of timely receipt by Senior
Certificateholders of the full amount of
scheduled monthly payments of principal and
interest due them and will protect the Senior
Certificateholders against certain losses;
however, in certain circumstances the Reserve
Fund, if any, could be depleted and temporary
shortfalls could result. If on any
Distribution Date, after taking into account
the aggregate amount of payments received
from the Mortgage Loans, any Advances (as
described below) and amounts available in the
Reserve Fund, if any, as specified in the
related Prospectus Supplement, do not provide
sufficient funds to make full disbursements
to the Senior Certificateholders of such
Series, unless otherwise specified in the
related Prospectus Supplement, the amount of
such shortfall (the "Shortfall"), plus
interest at the
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<PAGE>
applicable Pass-Through Rate or Rates, will
be added to the amount the Senior
Certificateholders are entitled to receive on
the next Distribution Date in the order and
the proportions as specified in the related
Prospectus Supplement. In the event the
Reserve Fund, if any, is depleted before the
Subordinated Amount is reduced to zero, such
Senior Certificateholders will nevertheless
have a preferential right to receive current
distributions from the Pool to the extent of
the then outstanding Subordinated Amount.
Unless otherwise specified in the related
Prospectus Supplement, until the Subordinated
Amount is reduced to zero, on any
Distribution Date any amounts otherwise
distributable to the Subordinate Certificates
or, to the extent specified in the Agreement,
in the Reserve Fund, if any, shall generally
be used to offset the amount of any losses
realized ("Realized Losses") with respect to
the Mortgage Loans. Realized Losses remaining
after application of such amounts shall
generally be applied to reduce the ownership
interest of the Subordinate Certificates in
the Pool. If the Certificate Balance of the
Subordinate Certificates has been reduced to
zero, the Senior Certificates will bear all
Realized Losses whether or not there is any
remaining Subordinated Amount.
b. Alternative Credit Enhancement including
Insurance, Letters of Credit and Surety Bonds
As an alternative, or in addition to the
credit enhancement afforded by the
Subordinate Certificates, credit enhancement
with respect to a Series of Certificates may
be provided by mortgage insurance, hazard
insurance, by the deposit of cash,
certificates of deposit, letters of credit,
surety bonds, a separate pool of mortgage
loans or mortgage certificates, a limited
guaranty insurance policy issued by one or
more insurance companies, or by such other
methods as may be set forth in the Prospectus
Supplement for such Series.
To the extent described in the related
Prospectus Supplement and to the extent it
will not result in the downgrading of any
rating on the related Certificates by the
Rating Agency rating such Certificates,
certain insurance policies (or deposits in
lieu thereof) may cover more than one Series
of Certificates.
Advances Unless otherwise specified in the related
Prospectus Supplement, in the event of
delinquencies in payments on the Mortgage
Loans, the Master Servicer will make advances
of cash ("Advances") to the holders of each
Class of Certificates, but only to the extent
that it determines such Advances will be
recoverable from future payments and
collections on the Mortgage Loans or
otherwise. Any such Advances will be
recoverable to the Master Servicer as
described herein or in the applicable
Prospectus Supplement. See "Description of
the Certificates -- Advances and Limitations
Thereon."
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<PAGE>
Optional Termination Unless otherwise specified in the related
Prospectus Supplement, the Depositor may, at
its option with respect to any Series of
Certificates, repurchase all Mortgage Assets
remaining outstanding at such time as the
aggregate outstanding Principal Balance of
such Mortgage Assets is less than a specified
percentage of the aggregate outstanding
principal balance of the Mortgage Assets as
of the Cut-off Date specified with respect to
such Series. Unless otherwise provided in the
related Prospectus Supplement, and if the
Trust Fund issuing a particular Series of
Certificates elects real estate mortgage
investment conduit ("REMIC") status under the
Internal Revenue Code of 1986, as amended
(the "Code"), the repurchase price will equal
the sum of (a) the principal balance of each
such Mortgage Asset, plus accrued interest
thereon at the applicable Mortgage Pass-
Through Rate or Mortgage Certificate interest
rate to the date specified in the related
Prospectus Supplement, less any unreimbursed
Advances made with respect to any such
Mortgage Asset and (b) the fair market value
of all acquired property in respect of any
Mortgage Asset, less any unreimbursed
Advances made with respect to any such
Mortgage Asset. See "Description of the
Certificates -- Termination" herein.
Federal Income Tax
Considerations The Federal income tax consequences to
Certificateholders will vary depending on the
characteristics of a Trust Fund and whether
the Trust Fund issuing a particular Series of
Certificates elects REMIC status under the
Code. See "Certain Federal Income Tax
Consequences" herein. Generally, if a Trust
Fund elects REMIC status, one or more classes
of Certificates will be treated as REMIC
"regular interests" (the "Regular
Certificates"). For Federal income tax
purposes, a Regular Certificate will be
treated as a debt instrument issued by the
REMIC. The amounts includible in the income
of a Regular Certificate holder will be
determined under the accrual method of
accounting. One or more Series of Regular
Certificates may be issued with "original
issue discount" that is not de minimis.
Holders of any such Series of Regular
Certificates will be required to include such
original issue discount in gross income for
Federal income tax purposes as it is deemed
to accrue, in advance of the receipt of the
cash attributable to such income. If a
Regular Certificate is issued at a premium,
the holder will be entitled to make an
election to amortize such premium on a
constant yield method as an offset to the
interest income on such Certificate.
If no REMIC election is made, the Trust Fund
will be treated as a grantor trust and not as
an association taxable as a corporation. The
treatment of a particular Series of
Certificates will depend on the
characteristics of such Series. The holders
of Certificates will either be treated as
holders of undivided pro rata interests in
the underlying Mortgage Loans or as owners of
stripped bonds or stripped coupons. If the
stripped bond rules do not apply with respect
to a particular Series, the holders of such
15
<PAGE>
Series must include in income their allocable
share of interest income of the Trust Fund
and may, subject to applicable limitations,
deduct their allocable share of the expenses
of the Trust Fund. If the stripped bond rules
do apply with respect to a particular Series,
the income with respect to such Series
generally will be accounted for under the
original issue discount rules under a
constant yield to maturity method, which may
require inclusion prior to the receipt of the
cash associated with such income.
ERISA A fiduciary of any employee benefit plan
subject to the Employee Retirement Income
Security Act of 1974, as amended ("ERISA"),
or the Code should carefully review with its
own legal advisors whether the purchase or
holding of Certificates could give rise to a
transaction prohibited or otherwise
impermissible under ERISA or the Code. See
"ERISA Considerations" herein and in the
related Prospectus Supplement.
Legal Investment The Certificates offered hereby and by the
related Prospectus Supplement will generally
constitute "mortgage-related securities"
under the Secondary Mortgage Market
Enhancement Act of 1984 ("SMMEA") so long as
they are rated by a Rating Agency in one of
its two highest rating categories. Any such
Certificates would be "legal investments" for
certain types of institutional investors to
the extent provided in SMMEA, subject to
state laws overriding SMMEA. A number of
states have enacted legislation overriding
the legal investment provisions of SMMEA.
Certificates that do not constitute
"mortgage-related securities" under SMMEA
will require registration, qualification or
an exemption under applicable state
securities laws and may not be "legal
investments" to the same extent as
"mortgage-related securities." See "Legal
Investment" herein.
Rating Each Class of Certificates offered by means
of this Prospectus and the related Prospectus
Supplement will be rated in an Investment
Grade rating category by the Rating Agency or
Agencies identified in such Prospectus
Supplement. A 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 Agency. Further, such
ratings do not address the effects of
prepayments on the yield anticipated by an
investor.
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<PAGE>
SPECIAL CONSIDERATIONS
Prospective Certificateholders should consider, among other things, the
following risk factors in connection with the purchase of the Certificates:
1. General Risk Factors Affecting Mortgage Loans. An investment in
Certificates may be affected, among other things, by a decline in real estate
value or changes in mortgage market interest rates. If the residential real
estate market in the locale of properties securing the Mortgage Loans (or the
mortgage loans underlying the Mortgage Certificates) should experience an
overall decline in property values such that the outstanding balances of such
loans, and any secondary financing on the Mortgaged Properties underlying a
particular Pool, become equal to or greater than the value of Mortgaged
Properties, the actual rates of delinquencies, foreclosures and losses could be
higher than those now generally experienced in the mortgage lending industry.
To the extent that such losses are not covered by any applicable insurance
policies or other credit enhancement, holders of the Certificates of a Series
evidencing interests in such Pool will bear all risk of loss resulting from
default by mortgagors and will depend primarily upon the value of the Mortgaged
Properties for recovery of the outstanding principal and unpaid interest of the
defaulted loans. See "The Pools -- The Mortgage Loans."
2. Limited Obligations and Assets of the Depositor. The Certificates will
not represent an interest in or obligation of the Depositor or any of its
affiliates. The Certificates will not be insured or guaranteed by any
government agency or instrumentality, nor, unless expressly provided in the
related Prospectus Supplement, by the Depositor or any of its affiliates, any
Servicer or the Master Servicer. Unless otherwise set forth in the Prospectus
Supplement for a Series, the Trust Fund for a Series will be the only available
source of funds to make distributions on the Certificates of such Series. The
only obligations of the Depositor with respect to the Certificates of any Series
will be pursuant to certain representations and warranties. See "Description of
the Certificates -- Representations and Warranties." The Depositor does not
have, and is not expected in the future to have, any significant assets with
which to meet any obligation to repurchase Mortgage Assets with respect to which
there has been a breach of any representation or warranty. If, for example, the
Depositor were required to repurchase a Mortgage Asset, its only sources of
funds to make such repurchase would be from funds obtained from the enforcement
of a corresponding obligation, if any, on the part of the originator of the
Mortgage Asset, the Mortgage Asset Seller, the Servicer or the Master Servicer,
as the case may be, or from a reserve fund established to provide funds for such
repurchases. See "The Depositor."
3. Limited Liquidity of the Certificates. There can be no assurance that a
secondary market will develop for the Certificates of any Series or, if it does
develop, that it will provide the holders of Certificates of such Series with
liquidity of investment or that it will remain for the term of such Series of
Certificates. Although the Certificateholders of each Series will receive
monthly statements containing certain statistical information with respect to
the related Pool, initially the Depositor does not intend to publish information
relating to the Certificates of any Series or any Pool. The limited availability
of any such published information may affect the liquidity of the Certificates.
In addition, the issuance of the Certificates in book-entry form may reduce the
liquidity of such Certificates in the secondary trading market since investors
may be unwilling to purchase Certificates for which they cannot obtain physical
certificates. See "Description of the Certificates --Registration of
Certificates" herein.
4. Limitations of Insurance and Credit Enhancements. If insurance policies
or other credit enhancement are provided with respect to a Series of
Certificates, the insurance policies or credit enhancement on the Mortgage
Assets, the Pools or all or any part of a Trust Fund will not cover all
contingencies and will cover certain contingencies only to a limited extent. See
"Credit Enhancements."
5. Average Life of Certificates Affecting Yield to Certificateholders:
Prepayment Considerations. Prepayments on the Mortgage Assets in any Trust Fund
generally will result in a faster rate of principal
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payments on one or more Classes of the related Certificates than if payments on
such Mortgage Assets were made as scheduled. Thus, the prepayment experience on
the Mortgage Assets may affect the average life of each Class of related
Certificates. Prepayments also may result from mandatory prepayments relating
to unused moneys held in Pre-Funding Accounts. The rate of principal payments
on pools of mortgage loans varies between pools and from time to time is
influenced by a variety of economic, demographic, geographic, social, tax, legal
and other factors. There can be no assurance as to the rate of prepayment on
the Mortgage Assets in any Trust Fund or that the rate of payments will conform
to any model described herein or in any Prospectus Supplement. If prevailing
interest rates fall significantly below the applicable mortgage rates, principal
prepayments are likely to be higher than if prevailing rates remain at or above
the rates borne by the mortgage loans underlying or comprising the Mortgage
Assets in any Trust Fund. As a result, the actual maturity of any Class of
Certificates could occur significantly earlier than expected. A Series of
Certificates may include one or more Classes of Certificates with priorities of
payment and, as a result, yields on other classes of Certificates of such Series
may be more sensitive to prepayments on Mortgage Assets. A Series of
Certificates may include one or more Classes offered at a significant premium or
discount. Yields on such Classes of Certificates will be sensitive, and in some
cases extremely sensitive, to prepayments on Mortgage Assets and, where the
amount of interest payable with respect to a Class is disproportionately high as
compared to the amount of principal, as with certain Classes of Stripped
Certificates, a holder might, in some prepayment scenarios, fail to recoup its
original investment. A Series of Certificates may include one or more Classes
of Certificates that provide for distribution of principal thereof from amounts
attributable to interest accrued but not currently distributable on one or more
classes of Compounding Certificates and, as a result, yields on such
Certificates will be sensitive to (a) the provisions of such Certificates
relating to the timing of distributions of interest thereon and (b) if such
Compounding Certificates accrue interest at a variable or adjustable Pass-
Through Rate, changes in such rate. [In addition, the Depositor may, solely at
is option and subject to the terms of the applicable Pooling and Servicing
Agreement, purchase any defaulted Mortgage Loan or any Mortgage Loan as to which
default is imminent from the Trust Fund.] See "Prepayment and Yield
Considerations" and "Maturity Considerations" herein.
6. Limitations of Subordinated Amounts. With respect to Certificates of a
Series having a Class of Subordinated Certificates, while the subordination
feature is intended to enhance the likelihood of timely payment of principal and
interest to Senior Certificateholders, the Subordinated Amount may be limited,
as specified in the Prospectus Supplement, the Subordinated Amount, if any,
could be depleted in certain circumstances, and payments applied to the Senior
Certificates which are otherwise due to the Subordinated Certificates may be
less than losses.
7. Limited Nature of Ratings. Any rating assigned by a Rating Agency to a
Class of Certificates will reflect such Rating Agency's assessment solely of the
likelihood that holders of Certificates of such Class will receive payments to
which such Certificateholders are entitled under the related Agreement. Such
rating will not constitute an assessment of the likelihood that principal
prepayments on the related Mortgage Assets will be made, the degree to which the
rate of such prepayments might differ from that originally anticipated or the
likelihood of early optional termination of the Series of Certificates. Such
rating will not address the possibility that prepayment at higher or lower rates
than anticipated by an investor may cause such investor to experience a lower
than anticipated yield or that an investor purchasing a Certificate at a
significant premium might fail to recoup its initial investment under certain
prepayment scenarios.
8. ERISA Considerations. Generally, ERISA applies to investments made by
employee benefit plans and transactions involving the assets of such plans. Due
to the complexity of regulations which govern such plans, prospective investors
that are subject to ERISA are urged to consult their own counsel regarding
consequences under ERISA of acquisition, ownership and disposition of the
Certificates of any Series. See "ERISA Considerations."
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9. Certain Federal Tax Considerations Regarding REMIC Residual
Certificates. Holders of REMIC Residual Certificates will be required to report
on their federal income tax returns as ordinary income their pro rata share of
taxable income of the REMIC regardless of the amount or timing of their receipt
of cash payments as described in "Certain Federal Income Tax Considerations --
Qualification as a REMIC -- Taxation of Owners of Residual Certificates."
Accordingly, under certain circumstances, holders of Residual Certificates might
have taxable income and tax liabilities arising from such investment during a
taxable year in excess of the cash received during such period. The requirement
that holders of Residual Certificates report their pro rata share of the taxable
income and net loss of the REMIC will continue until the principal balances of
all Classes of Certificates of the related Series have been reduced to zero,
even though holders of Residual Certificates have received full payment of their
stated interest and principal. A portion (or, in certain circumstances, all) of
a Residual Certificateholder's share of the REMIC taxable income may be treated
as "excess inclusion" income to such holder which (i) except in the case of
certain thrift institutions, will not be subject to offset by losses from other
activities, (ii) for a tax-exempt Holder, will be treated as unrelated business
taxable income and (iii) for a foreign holder, will not qualify for exemption
from withholding tax. Individual holders of Residual Certificates may be limited
in their ability to deduct servicing fees and other expenses of the REMIC.
Because of the special tax treatment of REMIC residual interests, the taxable
income arising in a given year on a REMIC residual interest will not be equal to
the taxable income associated with investment in a corporate bond or stripped
instrument having similar cash flow characteristics and pre-tax yield.
Therefore, the after-tax yield on the Residual Certificates may be significantly
less than that of a corporate bond or stripped instrument having similar cash
flow characteristics.
10. Difficulty in Pledging. Since most transactions in the Certificates can
be effected only through DTC, CEDEL, Euroclear, participating organizations,
indirect participants and certain banks, the ability of a Certificate Owner to
pledge a Certificate to persons or entities that do not participate in the DTC,
CEDEL or Euroclear systems, or otherwise to take actions in respect of such
Certificates, may be limited due to lack of a physical certificate representing
the Certificates. See "Description of the Certificates -- Registration of
Certificates" herein.
11. Potential Delays in Receipt of Distributions. Certificate Owners may
experience some delay in their receipt of distributions of interest and
principal on the Certificates since such distributions will be forwarded by the
Trustee to DTC and DTC will credit such distributions to the accounts of its DTC
Participants (as defined herein) which will thereafter credit them to the
accounts of Certificate Owners either directly or indirectly through indirect
participants. See "Description of the Certificates -- Registration of
Certificates" herein.
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THE POOLS*
General
Unless otherwise specified in the Prospectus Supplement for a Series, the
Pool evidenced by the Certificates of that Series will have the general
characteristics set forth below.
For each Series, the Depositor will convey a Trust Fund to the trustee
identified in the related Prospectus Supplement (the "Trustee") for the benefit
of the Certificateholders consisting of a pool of assets ("Pool"). Each Pool
will consist of (i) Mortgage Assets, (ii) amounts held from time to time in the
Certificate Account and the Pre-Funding Account, if any, (iii) the lender's
interest in any Insurance Policies relating to a Mortgage Loan, (iv) any
property which initially secured a Mortgage Loan and which has been acquired by
foreclosure or deed in lieu of foreclosure and (v) rights under any form of
credit enhancement as may be specified in the Prospectus Supplement. Each
Certificate will represent an undivided ownership interest in the Trust Fund
established for that Series of Certificates as described in the related
Prospectus Supplement. See "Description of the Certificates -- Assignment of
Mortgage Loans" herein. If so specified in the related Prospectus Supplement,
the Mortgage Assets may be divided into Asset Groups and the Certificates of
separate Classes will evidence ownership interests of a corresponding Asset
Group.
Mortgage Assets in the Pool may consist of any combination of the following
to the extent and as specified in the related Prospectus Supplement, Mortgage
Loans or participation interests therein which will represent REMIC "regular
interests" in a Trust Fund which contains the Mortgage Loans relating to such
Series, and Mortgage Certificates.
The Depositor will make certain representations and warranties regarding
certain characteristics of the Mortgage Assets comprising a Pool and as to the
accuracy in all material respects of certain information furnished to the
Trustee in respect of each such Mortgage Assets. Upon a breach of any
representation or warranty that materially and adversely affects the interests
of the related Certificateholders in Mortgage Assets, the Depositor will be
obligated either to cure the breach in all material respects, to purchase the
Mortgage Assets or, if the related Agreement so provides, to substitute in its
place a comparable qualifying mortgage asset pursuant to the conditions set
forth therein. This repurchase or substitution obligation constitutes the sole
remedy available to the Certificateholders or the Trustee for a breach of any
such representation or warranty by the Depositor. The Depositor will not
advance any of its own funds to the Trust Fund or to the Certificateholders,
except to the limited extent set forth under "Description of the Certificates --
Advances and Limitations Thereon."
The Mortgage Loans
General
The Prospectus Supplement for each Series will specify for each Pool, among
other things, the years of origination of the Mortgage Loans; the original Loan-
to-Value Ratios; the range of aggregate principal balances of the Mortgage Loans
at origination and the aggregate outstanding principal balance thereof as of the
Cut-off Date; the original maturities of the Mortgage Loans and the last
maturity date
- -------------------------
* Whenever in this Prospectus terms such as "Pool," "Trust Fund," "Agreement"
or "Pass-Through Rate" are used, those terms respectively apply, unless the
context otherwise indicates, to one specific Pool, Trust Fund, Pooling and
Servicing Agreement and the Pass-Through Rate or Rates applicable to the related
Series of Certificates.
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of any Mortgage Loan; insurance policies, letters of credit or other forms of
credit enhancement, if any, applicable to any Mortgage Loan; and the Mortgage
Interest Rates. A Pool may be comprised of fully or negatively amortizing
adjustable rate Mortgage Loans ("ARMs") with Mortgage Interest Rates adjusted
periodically (with corresponding adjustments in the amount of monthly payments)
to equal the sum of a fixed margin and an index, subject to applicable minimum
and maximum rates and maximum adjustments for any period. In such case the
Prospectus Supplement will specify the Initial Mortgage Interest Rates, the
index or formula, if any, used to determine the adjustable Mortgage Interest
Rate (the "Index"), the weighted average Minimum Rate (if any), the weighted
average Maximum Rate, the Maximum Adjustment, if applicable, and the then-
current Mortgage Interest Rate. The Prospectus Supplement will also specify
whether ARMs included in a Pool provide for adjustments to the Mortgage Interest
Rates more frequent than changes to the scheduled monthly payments of principal
and interest (the "Monthly Payments") made on such ARMs, which together could
result in negative amortization. See "Description of ARMs" below. The Prospectus
Supplement will also describe any other special payment features of the Mortgage
Loans included in a Pool. If specific information respecting the Mortgage Loans
is not known to the Depositor at the time a Series of Certificates is initially
offered, general information of the nature described above will be provided in
the related Prospectus Supplement, and specific information will be set forth in
a report on Form 8-K which will be available to investors in such Series of
Certificates at or before the initial issuance thereof and will be filed with
the Commission within 15 days after such initial issuance.
The entity or entities named as Master Servicer in the related Prospectus
Supplement will service the Mortgage Loans, and will receive a fee for such
services, pursuant to the related Agreement. See "Description of the
Certificates -- Retained Yield, Administration Fees, Compensation and Payment of
Expenses." With respect to those Mortgage Loans serviced through a Servicer,
such Servicer will be required to service the related Mortgage Loans in
accordance with the applicable agreement between such Servicer and the Master
Servicer (a "Servicing Agreement") and will receive the fee for such services
specified in such Servicing Agreement; however, the Master Servicer will remain
liable for its servicing obligations under the Agreement as if the Master
Servicer alone were servicing such Mortgage Loans.
General Characteristics of the Mortgage Loans
Both ARMs and fixed-rate Mortgage Loans are eligible for inclusion in
Pools. Unless otherwise specified in the applicable Prospectus Supplement, all
of the Mortgage Loans in a Pool will (i) have individual principal balances at
origination of not more than $2,000,000, (ii) have monthly payments due on the
first day of each month (each, an "Installment Due Date"), (iii) have a 5- to
40-year term at origination, (iv) have an adjustable or fixed rate of interest,
(v) have level or variable monthly payments over the term of the Mortgage Loan,
and (vi) be secured by a lien on the underlying Mortgaged Property or by a
leasehold interest therein.
Unless otherwise specified in a Prospectus Supplement, the Mortgage Loans
will be secured by Mortgages on Mortgaged Properties that may be located in any
jurisdiction within the USA and Puerto Rico. The geographic distribution of
Mortgaged Properties will be set forth in the Prospectus Supplement.
The applicable Prospectus Supplement will also set forth the number and
aggregate unpaid principal balances of the Mortgage Loans in each Pool that are
secured by one-to-four-unit residential properties, condominium units,
townhouses and units located within planned unit developments ("PUDs") and that
are secured by shares of cooperative corporations ("Co-op Loans"). For
condominiums, townhouses and PUDs, the Depositor has developed project approval
guidelines which substantially conform to the FNMA and/or the FHLMC project
approval guidelines.
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A Pool may contain certain Mortgage Loans ("Buydown Loans") which include
provisions whereby the originator or a third party partially subsidizes the
monthly payments of the Mortgagor during the early years of the Mortgage Loan,
the difference to be made up from a fund (a "Buydown Fund") contributed by the
originator or third party at the time of origination of the Mortgage Loan. A
Buydown Fund will be in an amount equal either to the discounted value or full
aggregate amount of future payment subsidies. The underlying assumption of
buydown plans is that the income of the Mortgagor will increase during the
buydown period as a result of normal increases in compensation and of inflation,
so that the Mortgagor will be able to meet the full mortgage payments at the end
of the buydown period. To the extent that this assumption as to increased income
is not fulfilled, the possibility of defaults on Buydown Loans is increased. The
related Prospectus Supplement will contain information with respect to any
Buydown Loan concerning limitations on the interest rate paid by the Mortgagor
initially, on annual increases in the interest rate and on the length of the
buydown period.
Description of ARMs
General. Unless otherwise specified in the related Prospectus Supplement,
ARMs eligible for inclusion in a Pool provide for a fixed Initial Mortgage
Interest Rate for an initial period of time ranging from one month to 120
months. Thereafter, the interest rates (the "Mortgage Interest Rates") are
subject to periodic adjustment based, subject to the applicable limitations
discussed below, on changes in the applicable Index to a rate equal to the Index
plus a fixed percentage spread over the Index established contractually for each
ARM at the time of its origination (the "Gross Margin"). Certain ARMs can be
converted into fixed-rate mortgage loans at the option of the Mortgagor upon the
fulfillment of certain conditions set forth in the related Mortgage Note within
a set period after origination of the related Mortgage Loan. To the extent
specified in the related Prospectus Supplement, any ARM so converted may be
subject to repurchase by the Depositor.
Adjustable interest rates can cause payment increases that some Mortgagors
may find difficult to make. However, many ARMs provide that no Mortgage Interest
Rate may be adjusted to a rate above the applicable lifetime Maximum Rate or
below the applicable lifetime Minimum Rate for such ARMs. In addition, certain
ARMs provide for limitations on the maximum amount by which Mortgage Interest
Rates may adjust for any single adjustment period (the "Maximum Adjustment").
Certain ARMs are payable in self amortizing payments of principal and
interest. Other ARMs ("Negatively Amortizing ARMs") provide instead for
limitations on changes in the Monthly Payment on such ARMs ("Payment Caps"). As
discussed below, limitations on Monthly Payments can result in Monthly Payments
which are greater or less than the amount to amortize a Negatively Amortizing
ARM by its maturity at the Mortgage Interest Rate in effect in any particular
month. In the event that a Monthly Payment is not sufficient to pay the
interest accruing on a Negatively Amortizing ARM, any such excess interest
("Deferred Interest") is added to the Principal Balance of such Mortgage Loans,
causing negative amortization thereof, and will be repaid through future Monthly
Payments. In the event that a Monthly Payment exceeds the sum of the interest
accrued at the applicable Mortgage Interest Rate and the principal payment which
would have been necessary to amortize the outstanding principal balance over the
remaining term of the loan, the excess (or "accelerated amortization") reduces
the principal balance of the ARM. See "Maturity Considerations -- Prepayment
Considerations." Negatively Amortizing ARMs do not provide for the extension of
their original maturity to accommodate changes in their Mortgage Interest Rate.
See "Initial Mortgage Interest Rate and Interest Rate Changes" below. All of the
limitations on periodic increases in interest rates and on changes in Monthly
Payments protect borrowers from unlimited interest rate and payment increases.
With respect to any Pool consisting of ARMs, the related Prospectus Supplement
will specify whether the Pool includes Negatively Amortizing ARMs.
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The Index. The Index applicable to any ARMs comprising a Pool will be
specified in the Prospectus Supplement for the related Series.
Initial Mortgage Interest Rate and Interest Rate Changes. During the
initial period following origination, generally ranging from one month to 120
months, ARMs bear interest at the initial Mortgage Interest Rate that may be set
by the lender independently of the Index otherwise applicable at the time of
origination. The Initial Mortgage Interest Rate is based on competitive factors
and on other various factors including the lender's (i) lending policy at the
time of origination; (ii) availability of funds for lending purposes; (iii) rate
of return obtainable on other investments; and (iv) cost of doing business. The
Initial Mortgage Interest Rate may be higher for mortgage loans with a
relatively higher Loan-to-Value Ratio. After the initial period, the Mortgage
Interest Rate will be set periodically in accordance with the applicable Index
and the Gross Margin that is set by the lender at the time of origination of the
ARM, subject to the lifetime Maximum Rate and lifetime Minimum Rate and the
periodic Maximum Adjustment. The Index applicable as of any interest adjustment
date will be the most recent index figure available during a period specified in
the related Prospectus Supplement.
The Mortgage Interest Rates on ARMs that do not provide for negative
amortization adjust at certain intervals which will be specified in the related
Prospectus Supplement. To accommodate changes in the adjustable Mortgage
Interest Rate, the Monthly Payment for an ARM which does not provide for
negative amortization will be adjusted at the time the rate adjustment occurs to
an amount that would fully amortize the Mortgage Loan over its remaining term at
the Mortgage Interest Rate in effect as of the date of such adjustment. The
Mortgage Loans which comprise any Pool may have been originated at different
times and therefore the Monthly Payments with respect to such Mortgage Loans
will adjust periodically in different months.
Maximum Rates, Minimum Rates and the Maximum Adjustment. There are
lifetime limits with respect to the maximum and minimum Mortgage Interest Rates
for each ARM (the "Maximum Rate" and the "Minimum Rate," respectively). If no
Minimum Rate is specified in a Mortgage Note, the Minimum Rate is equal to the
Gross Margin for such Mortgage Loan. In addition, the Maximum Adjustment limits
the amount by which the Mortgage Interest Rate on any ARM may increase or
decrease as of the date of any Mortgage Interest Rate adjustment. Such limits
are established at the time of origination of the ARM and are based on a variety
of factors, including competitive conditions at the time of origination in the
area in which the Mortgaged Property is located. Because of the lifetime Maximum
Rate, lifetime Minimum Rate and, if applicable, the periodic Maximum Adjustment,
the Mortgage Interest Rate in effect from time to time on an ARM may not be
equal to the applicable Index plus the Gross Margin.
Description of the Fixed-Rate Mortgage Loans
The fixed-rate Mortgage Loans eligible for inclusion in a Pool (the "Fixed-
Rate Mortgage Loans") bear simple interest at fixed annual rates and have
original terms to maturity ranging up to 40 years. Such Mortgage Loans provide
for monthly payments of principal and interest in substantially equal
installments for the contractual term of the Mortgage Note in sufficient amounts
to fully amortize the principal thereof by maturity.
Assumption
Although all of the Mortgage Loans included in a Pool are by their terms
assumable under certain limited conditions, such Mortgage Loans also contain
"due-on-sale" provisions under which the Mortgage Loans become due and payable,
at the option of the holder thereof, upon the sale of the related Mortgaged
Property. It is expected that the Master Servicer will enforce "due-on-sale"
provisions with respect to most fixed-rate Mortgage Loans and some ARMs;
however, where such provisions are not enforced the prospective purchaser must
meet the Master Servicer's creditworthiness standards and
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applicable law at the time of transfer must not limit the Master Servicer's
ability to make the interest rate and payment adjustments permitted by the
related Mortgage Note. Upon any such assumption, a fee based on a percentage of
the outstanding principal balance of the Mortgage Loan generally must be paid,
which sum generally will be retained by the Master Servicer as additional
servicing compensation. In some cases the Maximum Rate or Minimum Rate
applicable to ARMs may change upon assumption. Upon assumption, the terms of
Fixed-Rate Mortgage Loans generally are not modified to current market rates,
unless the loan bears a higher interest rate than the prevailing market rate.
Description of Qualified Lenders
Each Mortgage Loan will be originated or purchased by a Qualified Lender
and acquired by the Depositor from such Qualified Lender or a Mortgage Asset
Seller. Qualified Lenders and Mortgage Asset Sellers may be affiliates of the
Depositor. All Qualified Lenders will be or will have been at the time of the
origination of such Mortgage Loans, mortgagees approved by the Secretary of
Housing and Urban Development ("HUD"), the Federal Home Loan Mortgage
Corporation ("FHLMC"), or the Federal National Mortgage Association ("FNMA"), or
state-chartered or federally-chartered savings and loan associations, banks or
similar financial institutions whose deposits or accounts are insured by either
the Savings Association Insurance Fund (the "SAIF") or the Bank Insurance Fund
(the "BIF") administered by the Federal Deposit Insurance Corporation (the
"FDIC"). The Depositor has approved (or will approve) individual institutions as
eligible Qualified Lenders by applying certain criteria, including the Qualified
Lender's depth of mortgage origination experience and financial stability. In
general, each Qualified Lender must have experience in originating residential
mortgages and net worth acceptable to the Depositor and must use the services of
qualified underwriters, appraisers and attorneys. However, from time to time,
the Depositor may purchase Mortgage Loans for inclusion in a Pool from Qualified
Lenders which lenders, while not meeting the generally applicable criteria used
by the Depositor, as described above, have been reviewed by the Depositor and
found to be otherwise acceptable. In connection with such purchases by the
Depositor, the Depositor will reunderwrite such Mortgage Loans. See
"--Underwriting Policies" below.
Payment Provisions of the Mortgage Loans
Each Mortgage Loan may be fully amortizing or require a substantial payment
(a "Balloon Payment") due on its stated maturity date, in each case as described
in the related Prospectus Supplement. Each such Mortgage Loan may require
payment of a premium or a yield maintenance penalty (a "Prepayment Premium") in
connection with a prepayment, in each case as described in the related
Prospectus Supplement. In the event that holders of any Class or Classes of
Certificates offered hereby will be entitled to all or a portion of any
Prepayment Premiums collected in respect of Mortgage Loans, the related
Prospectus Supplement will specify the method or methods by which any such
amounts will be allocated.
Underwriting Policies
The Mortgage Loans to be included in each Mortgage Pool will be subject to
the various credit, appraisal and underwriting standards described herein. The
Depositor's credit, appraisal and underwriting standards with respect to certain
Mortgage Loans will generally conform to those published in the Depositor's
Selling Guide (together with the Depositor's Servicing guide, the "Guide", as
modified from time to time). The credit, appraisal and underwriting standards as
set forth in the Guide are continuously revised based on opportunities and
prevailing conditions in the residential mortgage market and the market for the
Depositor's mortgage pass-through certificates. The Mortgage Loans may be
underwritten by the Depositor or by designated third parties.
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In addition, the Depositor may purchase Mortgage Loans which do not conform
to the underwriting standards set forth in the Guide. Such Mortgage Loans may be
purchased from Qualified Lenders and Mortgage Asset Sellers who will represent
that the Mortgage Loans have been originated in accordance with credit,
appraisal and underwriting standards agreed to by the Depositor. The Depositor
will generally review only a limited portion of the Mortgage Loans in any
delivery of such Mortgage Loans for conformity with the applicable credit,
appraisal and underwriting standards. Certain other Mortgage Loans will be
purchased from Qualified Lenders and Mortgage Asset Sellers who will represent
that the Mortgage Loans were originated pursuant to credit, appraisal and
underwriting standards determined by a mortgage insurance company acceptable to
the Depositor. The Depositor will accept a certification from such insurance
company as to a Mortgage Loan's insurability in a mortgage pool as of the date
of certification as evidence that such Mortgage Loan conforms to applicable
underwriting standards. Such certifications will likely have been issued before
the purchase of the Mortgage Loans by the Depositor. The Depositor will perform
only random quality assurance reviews on Mortgage Loans delivered with such
certifications.
The credit, appraisal and underwriting standards utilized in negotiated
transactions and the credit, appraisal and underwriting standards of insurance
companies issuing certificates may vary substantially from the credit, appraisal
and underwriting standards set forth in the Guide. All of the credit, appraisal
and underwriting standards will provide an underwriter with sufficient
information to evaluate the borrower's repayment ability and the adequacy of the
Mortgaged Property as collateral. Due to the variety of underwriting standards
and review procedures that may be applicable to the Mortgage Loans included in
any Mortgage Pool, the related Prospectus Supplement will not distinguish among
the various credit, appraisal and underwriting standards applicable to the
Mortgage Loans nor describe any review for compliance with applicable credit,
appraisal and underwriting standards performed by the Depositor. Moreover, there
can be no assurance that every Mortgage Loan was originated in conformity with
the applicable credit, appraisal and underwriting standards in all material
respects, or that the quality or performance of Mortgage Loans underwritten
pursuant to varying standards as described above will be equivalent under all
circumstances.
The Depositor's underwriting standards are intended to evaluate the
prospective Mortgagor's credit standing and repayment ability, and the value and
adequacy of the proposed Mortgaged Property as collateral. The Depositor expects
that each prospective Mortgagor will be required to complete an application
which will include information with respect to the applicant's assets,
liabilities, income, credit history, employment history and other related items,
and furnish an authorization to apply for a credit report which summarizes the
Mortgagor's credit history. With respect to establishing the prospective
Mortgagor's ability to make timely payments, the Depositor will require evidence
regarding the Mortgagor's employment and income, and of the amount of deposits
made to financial institutions where the Mortgagor maintains demand or savings
accounts. In some instances, Mortgage Loans which were originated under a
limited mortgage documentation program (a "Limited Mortgage Documentation
Program") may be sold to the Depositor. For a mortgage loan originated under a
Limited Mortgage Documentation Program to qualify for purchase by the Company,
the prospective mortgagor must have a good credit history and be financially
capable of making a larger cash down payment in a purchase, or be willing to
finance less of the appraised value, in a refinancing, than would otherwise be
required by the Depositor. Currently, the Depositor's underwriting standards
provide that only mortgage loans with certain loan-to-value ratios will qualify
for purchase. If the mortgage loan qualifies, the Depositor waives some of its
documentation requirements and eliminates verification of income and employment
for the prospective mortgagor.
The Depositor's underwriting standards generally follow guidelines
acceptable to FNMA and FHLMC. In determining the adequacy of the property as
collateral, an independent appraisal is made of each property considered for
financing. The appraiser is required to inspect the property and verify that it
is in good condition and that construction, if new, has been completed. The
appraisal is based on
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the appraiser's judgment of values, giving appropriate weight to both the market
value of comparable homes and the cost of replacing the property. With respect
to a Mortgage Loan made in connection with the borrower's purchase of the
Mortgaged Property, the "appraised value" is the lower of the purchase price or
the amount determined by the appraiser. The Loan-to-Value Ratio of a Mortgage
Loan is generally equal to the original principal amount of the Mortgage Loan
divided by the appraised value of the related Mortgaged Property.
Certain states where the Mortgaged Properties may be located are "anti-
deficiency" states where, in general, lenders providing credit on one- to four-
family properties look solely to the property for repayment in the event of
foreclosure. See "Certain Legal Aspects of the Mortgage Loans--Anti-Deficiency
Legislation and Other Limitations on Lenders." The Depositor expects that the
underwriting standards applied with respect to the Mortgage Loans (including
anti-deficiency states) will require that the underwriting officers be satisfied
that the value of the property being financed, as indicated by the independent
appraisal, currently supports and is anticipated to support in the future the
outstanding loan balance, and provides sufficient value to mitigate the effects
of adverse shifts in real estate values. The general appreciation of real estate
values experienced in the past has been a factor in limiting the general loss
experience on conventional one-to-four-unit residential first mortgage loans.
There can be no assurance, however, that the past pattern of appreciation in
value of the real property securing these loans will continue.
The Depositor will obtain representations and warranties from the
applicable Qualified Lender (which may or may not be the Qualified Lender that
originated the Mortgage Loan) that the Mortgage Loan was originated in
accordance with the underwriting guidelines described above or such other
policies as the Depositor may require or approve from time to time. Unless
otherwise specified in the applicable Prospectus Supplement, the Depositor, not
later than 90 days following delivery of a Series of Certificates, will review
or cause to be reviewed, all or a representative sample of the Mortgage Loans,
and perform such other reviews as it deems appropriate to determine compliance
with such standards. Any Mortgage Loan found to be not in compliance with such
standards after inclusion in a Pool must be repurchased or substituted for by
the Mortgage Loan Seller, unless such Mortgage Loan is otherwise demonstrated to
be includible in the Pool to the satisfaction of the Depositor. See "Description
of the Certificates--Representations and Warranties."
The foregoing underwriting policies may be varied for particular Series of
Certificates to the extent set forth in the related Prospectus Supplement.
Mortgage Certificates
General
All of the Mortgage Certificates will be registered in the name of the
Trustee or its nominee or, in the case of Mortgage Certificates issued only in
book-entry form, a financial intermediary (which may be the Trustee) that is a
member of the Federal Reserve System or of a clearing corporation on the books
of which the security is held. Each Mortgage Certificate will evidence an
interest in a pool of mortgage loans and/or in principal distributions and
interest distributions thereon.
GNMA, FHLMC and FNMA Certificates
The descriptions of GNMA, FHLMC and FNMA Certificates and of Private
Certificates that are set forth below are descriptions of certificates
representing proportionate interests in a pool of mortgage loans and in the
payments of principal and interest thereon. GNMA, FHLMC, FNMA or the issuer of a
particular series of Private Certificates may also issue mortgage-backed
securities representing a right to receive distributions of interest only or
principal only or disproportionate distributions of principal or
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interest or to receive distributions of principal and/or interest prior or
subsequent to distributions on other certificates representing interests in the
same pool of mortgage loans. In addition, any of such issuers may issue
certificates representing interests in mortgage loans having characteristics
that are different from the types of mortgage loans described below. The terms
of any such certificates to be included in a Pool (and of the underlying
mortgage loans) will be described in the related Prospectus Supplement, and the
descriptions that follow are subject to modification as appropriate to reflect
the terms of any such certificates that are actually included in a Pool.
GNMA. GNMA is a wholly owned corporate instrumentality of the United States
within HUD. Section 306(g) of Title III of the National Housing Act of 1934, as
amended (the "Housing Act"), authorizes GNMA to guarantee the timely payment of
the principal of and interest on certificates that are based on and backed by a
pool of loans ("FHA Loans") insured by the United States Federal Housing
Administration (the "FHA") under the Housing Act or Title V of the Housing Act
of 1949, or guaranteed by the United States Department of Veteran Affairs (the
"VA") under the Servicemen's Readjustment Act of 1944, as amended, or Chapter 37
of Title 38, United States Code or by pools of other eligible mortgage loans.
Section 306(g) of the Housing Act provides that "the full faith and credit
of the United States is pledged to the payment of all amounts which may be
required to be paid under any guaranty under this subsection." In order to meet
its obligations under such guaranty, GNMA is authorized, under Section 306(d) of
the Housing Act, to borrow from the United States Treasury with no limitations
as to amount.
GNMA Certificates. All of the GNMA Certificates (the "GNMA Certificates")
will be mortgage-backed certificates issued and serviced by GNMA- or FNMA-
approved mortgage servicers. The mortgage loans underlying GNMA Certificates may
consist of FHA Loans secured by mortgages on one-to four-family residential
properties or multi-family residential properties, loans secured by mortgages on
one- to four-family residential properties or multi-family residential
properties, mortgage loans which are partially guaranteed by the VA and other
mortgage loans eligible for inclusion in mortgage pools underlying GNMA
Certificates.
Each GNMA Certificate provides for the payment by or on behalf of the
issuer of the GNMA Certificate to the registered holder of such GNMA Certificate
of monthly payments of principal and interest equal to the registered holder's
proportionate interest in the aggregate amount of the monthly scheduled
principal and interest payments on each underlying eligible mortgage loan, less
servicing and guaranty fees aggregating the excess of the interest on each such
mortgage loan over the GNMA Certificate pass-through rate. In addition, each
payment to a GNMA Certificateholder will include proportionate pass-through
payments to such holder of any prepayments of principal of the mortgage loan
underlying the GNMA Certificate, and the holder's proportionate interest in the
remaining principal balance in the event of a foreclosure or other disposition
of any such mortgage loan.
Unless otherwise specified in the related Prospectus Supplement, the GNMA
Certificates included in a Pool may be issued under either or both of the GNMA I
program ("GNMA I Certificates") and the GNMA II program ("GNMA II
Certificates"). All mortgages underlying a particular GNMA I Certificate must be
of the same type (for example, all single-family level payment mortgage loans)
and have the same annual interest rate (except for pools of mortgages secured by
mobile homes). The annual interest rate on each GNMA I Certificate is one-half
percentage point less than the annual interest rate on the mortgage loans
included in the pool of mortgages backing such GNMA I Certificate. Mortgages
underlying a particular GNMA II Certificate must be of the same type (for
example, all single-family level payment mortgage loans), but may have annual
interest rates that vary from each other by up to one percentage point. The
annual interest rate on each GNMA II Certificate will be between one-half
percentage point and one and one-half percentage points less than the highest
annual interest rate on any mortgage loan included in the pool of mortgages
backing such GNMA II Certificate.
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GNMA will have approved the issuance of each of the GNMA Certificates in
accordance with a guaranty agreement between GNMA and the servicer of the
mortgage loans underlying such GNMA Certificate. Pursuant to such agreement, the
servicer is required to advance its own funds in order to make timely payments
of all amounts due on the GNMA Certificate, even if the payments received by
such servicer on the mortgage loans backing the GNMA Certificate are less than
the amounts due on such GNMA Certificate. If a servicer is unable to make
payments on a GNMA Certificate as it becomes due, it must promptly notify GNMA
and request GNMA to make such payment. Upon such notification and request, GNMA
will make such payments directly to the registered holder of the GNMA
Certificate. In the event no payment is made by such servicer and such servicer
fails to notify and request GNMA to make such payment, the registered holder of
the GNMA Certificate has recourse only against GNMA to obtain such payment. The
registered holder of the GNMA Certificates included in a Pool is entitled to
proceed directly against GNMA under the terms of each GNMA Certificate or the
guaranty agreement or contract relating to such GNMA Certificate for any amounts
that are not paid when due under each GNMA Certificate.
As described above, the GNMA Certificates included in a Pool, and the
related underlying mortgage loans, may have characteristics and terms different
from those described above. Any such different characteristics and terms will be
described in the related Prospectus Supplement.
FHLMC. FHLMC is a corporate instrumentality of the United States created
pursuant to Title III of the Emergency Home Finance Act of 1970, as amended (the
"FHLMC Act"). FHLMC is a stockholder-owned corporation. FHLMC was established
primarily for the purpose of increasing the availability of mortgage credit for
the financing of urgently needed housing. It seeks to provide an enhanced degree
of liquidity for residential mortgage investments primarily by assisting in the
development of secondary markets for conventional one-to-four-unit residential
first mortgages. The principal activity of FHLMC currently consists of the
purchase of first lien conventional one-to-four-unit residential first
residential mortgage loans or participation interests in such mortgage loans and
the resale of the mortgage loans so purchased in the form of mortgage
securities. FHLMC is confined to purchasing, so far as practicable, conventional
one-to-four-unit residential first mortgage loans and participation interests
therein which it deems to be of such quality, type and class as to meet
generally the purchase standards imposed by private institutional mortgage
investors.
FHLMC Certificates. FHLMC Certificates (the "FHLMC Certificates") represent
an undivided interest in a group of mortgage loans purchased by FHLMC. Mortgage
loans underlying the FHLMC Certificates included in a Pool will consist
principally of fixed- or adjustable-rate mortgage loans with original terms to
maturity of approximately 5, 7, 15, 20 and 30 years, which are secured by first
liens on one- to four-family residential properties.
FHLMC Certificates are issued and maintained and may be transferred only on
the book-entry system of a Federal Reserve Bank and may only be held of record
by entities eligible to maintain book-entry accounts at a Federal Reserve Bank.
Beneficial owners will hold FHLMC Certificates ordinarily through one or more
financial intermediaries. The rights of a beneficial owner of a FHLMC
Certificate against FHLMC or a Federal Reserve Bank may be exercised only
through the Federal Reserve Bank on whose book-entry system such Certificate is
held.
Under its Cash and Guarantor programs, FHLMC guarantees to each registered
holder of a FHLMC Certificate the timely payment of interest at the rate
provided for by such FHLMC Certificate on the registered holder's pro rata share
of the unpaid principal balance outstanding of the related mortgage loans,
whether or not received. FHLMC also guarantees to each registered holder of a
FHLMC Certificate ultimate collection of all principal of the related mortgage
loans, without any offset or deduction, to the extent of such holder's pro rata
share thereof, but does not guarantee the timely payment of scheduled principal.
Pursuant to its guarantees, FHLMC generally indemnifies holders of
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FHLMC Certificates against any diminution in principal by reason of charges for
property repairs, maintenance and foreclosure. FHLMC may remit the amount due on
account of its guarantee of ultimate collection of principal at any time after
default on an underlying mortgage loan, but not later than 30 days following (i)
foreclosure sale, (ii) payment of the claim by any mortgage insurer, or (iii)
the expiration of any right of redemption, whichever occurs later, but in any
event no later than one year after demand has been made upon the mortgagor for
accelerated payment of principal or for payment of principal due on the maturity
of the mortgage. In taking actions regarding the collection of principal after
default on the mortgage loans underlying FHLMC Certificates, including the
timing of demand for acceleration, FHLMC reserves the right to exercise its
servicing judgment with respect to the mortgages in the same manner as for
mortgages that it has purchased but not sold. In lieu of guaranteeing only the
ultimate collection of principal payments in the manner described above, FHLMC
may, but will not be obligated to, enter into one or more agreements with the
issuer and the trustee of the FHLMC Certificates pursuant to which FHLMC will
agree to guarantee the timely receipt of scheduled principal payments. If such
an agreement is entered into and is applicable to all or any part of the FHLMC
Certificates included in a Pool, its existence will be disclosed in the related
Prospectus Supplement.
Under its Gold PC Program, FHLMC guarantees to each registered holder of a
FHLMC Certificate the timely payment of interest calculated in the same manner
as described above, as well as timely installments of scheduled principal
calculated on the basis of the weighted average remaining term to maturity of
the mortgage loans in the pool underlying the related FHLMC Certificate.
As described above, the FHLMC Certificates included in a Pool, and the
related underlying mortgage loans, may have characteristics and terms different
from those described above. Any such different characteristics and terms will be
described in the related Prospectus Supplement.
FHLMC Certificates are not guaranteed by the United States or by any
Federal Home Loan Bank and do not constitute debts or obligations of the United
States or any Federal Home Loan Bank. The obligations of FHLMC under its
guarantee are obligations solely of FHLMC and are not backed by, nor entitled
to, the full faith and credit of the United States.
FNMA. FNMA is a federally chartered and stockholder owned corporation
organized and existing under the Federal National Mortgage Association Charter
Act, as amended. FNMA was originally established in 1938 as a United States
government agency to provide supplemental liquidity to the mortgage market and
was transformed into a stockholder-owned and privately managed corporation by
legislation enacted in 1968.
FNMA provides funds to the mortgage market primarily by purchasing home
mortgage loans from local lenders, thereby replenishing their funds for
additional lending. FNMA acquires funds to purchase home mortgage loans from
many capital market investors that may not ordinarily invest in mortgages,
thereby expanding the total amount of funds available for housing. Operating
nationwide, FNMA helps to redistribute mortgage funds from capital-surplus to
capital-short areas. In addition, FNMA issues mortgage-backed securities
primarily in exchange for pools of mortgage loans from lenders.
FNMA Certificates. "FNMA Certificates" represent fractional interests in a
pool of mortgage loans formed by FNMA.
FNMA guarantees to each registered holder of a FNMA Certificate that it
will distribute amounts representing scheduled principal and interest at the
applicable pass-through rate on the underlying mortgage loans, whether or not
received, and such holder's proportionate share of the full principal amount of
any foreclosed or other finally liquidated mortgage loan, whether or not such
principal amount is actually recovered. If FNMA were unable to perform such
obligations, distributions on FNMA Certificates would consist solely of payments
and other recoveries on the underlying mortgage loans and,
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accordingly, delinquencies and defaults would affect monthly distributions to
holders of FNMA Certificates. The obligations of FNMA under its guarantees are
obligations solely on FNMA and are not backed by, nor entitled to, the full
faith and credit of the United States. The FNMA Certificates are not guaranteed
by the United States and do not constitute debts or obligations of the United
States.
As described above, the FNMA Certificates included in a Pool, and the
related underlying mortgage loans, may have characteristics and terms different
from those described above. Any such different characteristics and terms will be
described in the related Prospectus Supplement.
Private Certificates
Each "Private Certificate" will evidence an undivided interest in a pool of
fixed- or adjustable-rate conventional one-to-four-unit residential first
mortgage loans or cooperative loans. Private Certificates contained in a Pool
may represent all or some of the regular and/or residual interests in a REMIC or
interests in a grantor trust. It is expected that Private Certificates will be
issued pursuant to participation or pooling and servicing agreements entered
into from time to time between the related seller and the related Trustee for
the Certificates or custodian. In addition, an affiliate of such seller or of
the depositor under such pooling and servicing agreement may be a servicer for
such pool of mortgage loans. The mortgage loans underlying the Private
Certificates may be subserviced by one or more loan servicing institutions under
the supervision of the servicer. Each Private Certificate will have been
acquired in a secondary transaction and not from the issuer or any affiliate of
the issuer of such Private Certificate and, unless otherwise specified in the
related Prospectus Supplement, each Private Certificate will evidence an
interest in, or will be secured by a pledge of mortgage loans that conform to
the descriptions of Mortgage Loans herein.
It is expected that all collections received by the servicers on the
mortgage loans (net of servicing fees to be retained by the servicers and such
other amounts as may be specified in the related pooling and servicing
agreement) will be deposited with the Trustee for the Certificates. Monthly
distributions of the principal and interest components of such collections
(adjusted to the stated rate or pass-through rate (as the case may be) borne by
such Private Certificate) will be made to the Trustee for the Certificates of
the related Series for deposit into the Certificate Account for such Series.
The mortgage loans underlying any such Private Certificates may be covered
by (i) individual policies of primary mortgage insurance insuring against all or
a portion of any foreclosure losses on the particular mortgage loans covered
thereby, (ii) subordination arrangements and/or (iii) such other policies of
insurance and other forms of credit enhancement (including, without limitation,
obligations to advance delinquent payments) as may be specified in the related
Prospectus Supplement.
More specific information concerning the Private Certificates underlying a
particular Series of Certificates, the mortgage loans underlying such Private
Certificates, and related servicing and insurance, subordination or other credit
support arrangements will be set forth in the related Prospectus Supplement.
THE DEPOSITOR
The Depositor was incorporated in Delaware in 1991 and is a wholly owned
limited purpose indirect subsidiary of ABN AMRO Bank N.V. It is not expected
that the Depositor will have any business operations other than offering Series
of Certificates and related activities. The principal executive offices of the
Depositor are located at 181 West Madison Street, Suite 3250, Chicago, Illinois
60602-4510, and its telephone number is (312) 904-5005.
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Unless otherwise specified in the related Prospectus Supplement, neither
the Depositor, its parents nor any of the Depositor's affiliates will ensure or
guarantee distributions on the Certificates of any Series. As described herein,
the only obligations of the Depositor will be pursuant to certain
representations and warranties with respect to the Mortgage Assets. See
"Description of the Certificates -- Representations and Warranties." The
Depositor will have no ongoing servicing responsibilities or other
responsibilities with respect to any Mortgage Asset. The Depositor does not have
nor is it expected in the future to have any significant assets with which to
meet any obligations with respect to any Trust Fund. If the Depositor were
required to repurchase or substitute a Mortgage Asset, its only source of funds
to make the required payment would be funds obtained from the related Mortgage
Asset Seller or, if applicable, the Master Servicer or the Servicer.
USE OF PROCEEDS
Unless otherwise specified in the related Prospectus Supplement,
substantially all of the net proceeds to be received from the sale of each
Series of Certificates will be used either by the Depositor to purchase the
Mortgage Assets related to that Series or to return to the Depositor the amounts
previously used to effect such a purchase (including the repayment of any loans
made to the Depositor by any of its affiliates), the costs of carrying the
Mortgage Loans and/or Mortgage Certificates until the sale of the Certificates
and other expenses connected with pooling the Mortgage Loans and/or Mortgage
Certificates and issuing the Certificates. Any remaining proceeds will be used
for the general corporate purposes of the Depositor which are related to the
foregoing activities.
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PREPAYMENT AND YIELD CONSIDERATIONS
General
Determination of Mortgage Pass-Through Rates
Unless otherwise specified in the related Prospectus Supplement, the
"Mortgage Pass-Through Rate" for each Mortgage Loan included in a Pool will be
determined by deducting from the Mortgage Interest Rate borne by or accruing on
such loan an Administration Fee (and, if so specified in a related Prospectus
Supplement, a Retained Yield). The Administration Fee and Retained Yield, if
any, may be uniform with respect to all Mortgage Loans in a Pool or may vary on
a loan-by-loan basis. With respect to ARMs, the Administration Fee and/or the
Retained Yield, if any, will generally vary on a loan-by-loan basis to produce a
uniform margin (the "Net Margin") by which the Mortgage Pass-Through Rate with
respect to each Mortgage Loan in a Pool will exceed the applicable Index for
such loan. For example, if the Net Margin for a Class or Series of Certificates
were established to be 125 basis points over the Index applicable to the ARMs
included in the Pool for such class or series, an individual Mortgage Loan whose
terms provide for a Mortgage Interest Rate of 200 basis points over the
applicable Index would be assigned an Administration Fee and Retained Yield, if
any, totaling 75 basis points and a Mortgage Loan whose Mortgage Interest Rate
is 175 basis points over the Index would be assigned an Administration Fee and
Retained Yield, if any, totaling 50 basis points. The related Prospectus
Supplement will specify whether the Administration Fee and Retained Yield, if
any, assigned to that Mortgage Loan at the time of formation of a Pool will be
fixed throughout the term of the related Agreement, except to the limited extent
described below, or will vary. If the lifetime Maximum Rate or the periodic
Maximum Adjustment applicable to a Mortgage Loan prevents its Mortgage Interest
Rate from adjusting at any Adjustment Date to the full extent of the Index plus
the Gross Margin applicable to such loan, the Mortgage Pass-Through Rate for
such loan may be less than the Index plus the Net Margin applicable to the
related Class or Series of Certificates that is specified in the Prospectus
Supplement for such class or series. Similarly, if the lifetime Minimum Rate or,
if applicable, the periodic Maximum Adjustment prevents the Mortgage Interest
Rate from fully adjusting, the Mortgage Pass-Through Rate for such loan may
exceed the Index plus the Net Margin.
Determination of Certificate Pass-Through Rate
Unless otherwise specified in the related Prospectus Supplement, the Pass-
Through Rate for each Class of Certificates of a Series will, for Pools
consisting of ARMs, and may, for Pools consisting of Fixed-Rate Mortgage Loans,
be all, or a portion specified in the related Prospectus Supplement, of the
weighted average of the Mortgage Pass-Through Rates of the Mortgage Loans
included in the Pool. The weighted average Mortgage Pass-Through Rate with
respect to Pools comprised of ARMs generally will change with any changes in the
adjustable Mortgage Interest Rates borne by or accruing on the underlying ARMs
and may change with principal prepayments, negative amortization or accelerated
amortization of the ARMs. The weighted average Mortgage Pass-Through Rate for a
Pool consisting of Fixed-Rate Mortgage Loans with different Mortgage Pass-
Through Rates may change due to differing prepayment rates and differing
amortization rates of the Mortgage Loans included in the Pool.
Yield
The yield on any Certificate will depend on, among other things, the price
paid by the Certificate holder, the Pass-Through Rate of the Certificate in
effect from time to time and the prepayment experience with respect to the
Mortgage Assets represented by the Certificate. If any Certificate is offered at
a discount from or premium over its original principal amount or is offered
without any principal amount or with a lower proportionate share of the
principal amount of the Mortgage Assets, the actual yield to maturity realized
on such Certificate may be dramatically affected by the prepayment
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experience on the Mortgage Assets comprising the related Pool. In extreme cases,
as described below, holders of certain Certificates could fail to recoup their
investment.
The following discussions of certain yield considerations is intended to be
general in nature and reference is made to the discussion in each Prospectus
Supplement regarding yield and prepayment considerations and other risks.
Price
Subject to the effect of the amount of interest payable in connection with
prepayments as described in the Prospectus Supplement relating to a Series of
Certificates, prepayments of principal in whole or in part or accelerated
amortization, if any, on the Mortgage Assets comprising a Pool will increase the
yield on a Certificate purchased at a price less than the aggregate Principal
Balance of the Mortgage Assets represented by such Certificate and will decrease
the yield on a Certificate purchased at a price equal to, slightly less than
(due to effects of payment delays), or greater than the aggregate Principal
Balance of the Mortgage Assets represented by such Certificate. Additionally,
and as more fully described in the Prospectus Supplement relating thereto, if
any Certificate is offered without any principal amount or with a lower
disproportionate share of the principal amount of the underlying Mortgage
Assets, the yield realized on such Certificate will be extremely sensitive to
levels of prepayments of the Mortgage Assets represented thereby. In extreme
cases, holders of any such Certificates could fail to recoup their original
investment.
Effective Pass-Through Rate
Each monthly installment of interest due on a Mortgage Loan is calculated
as one-twelfth of the product of the applicable Mortgage Interest Rate and the
principal balance outstanding on the scheduled payment Installment Due Date for
such Mortgage Loan in the preceding month. The Mortgage Pass-Through Rate with
respect to each Mortgage Loan will be similarly calculated on a loan-by-loan
basis, after subtracting the Retained Yield, if any, and the Administration Fee
applicable to each Mortgage Loan from the applicable Mortgage Interest Rate,
unless otherwise specified in the related Prospectus Supplement. In the case of
a Pool with a range of Mortgage Pass-Through Rates, disproportionate prepayments
of Mortgage Loans with higher Mortgage Pass-Through Rates will result in a lower
effective pass-through rate to Certificateholders.
The yield on interest bearing Classes of Certificates evidencing Pools
comprised of Mortgage Loans will be slightly lower than the yield otherwise
produced by the applicable Pass-Through Rate because while interest will accrue
on each Mortgage Loan from the Installment Due Date for such Mortgage Loan each
month, in each case as specified in the related Prospectus Supplement, the
distribution in respect of interest will not be made until the Distribution Date
in the month following the month of accrual. When a Mortgage Loan is prepaid in
full between Installment Due Dates, the Mortgagor is required to pay interest on
the amount prepaid only to the date of prepayment and not thereafter. In
addition, if a partial prepayment is applied by the Master Servicer to reduce
the principal balance of the related Mortgage Loan as of a date prior to the
receipt of such payment, on the following Installment Due Date, the Mortgagor
would pay interest on the lower principal balance. In the event a Mortgagor
prepays all or part of the Principal Balance on a Mortgage Loan and there is a
Prepayment Interest Shortfall, unless otherwise specified in the related
Prospectus Supplement, the Master Servicer may adjust or forego all or part of
the current Administration Fees due to it, to the extent available, so that up
to a full month's interest payment will be passed through to the
Certificateholders at the Mortgage Pass-Through Rate. To the extent sufficient
current Administration Fees due to the Master Servicer are not so available, the
yield to Certificateholders will be slightly less than it would be if such
current Administration Fees due to the Master Servicer were available. See
"Description of the Certificates -- Example of Distribution" herein.
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Other Yield Considerations
Mortgage Interest Rates on Negatively Amortizing ARMs. Since a portion
of the interest accrued on Negatively Amortizing ARMs may be deferred and
payable at a future time, the interest paid by a Mortgagor on such a Mortgage
Loan on a given Installment Due Date (the "Interest Remittance Amount") which is
distributed to Certificateholders may not be equal to interest at the applicable
Mortgage Pass-Through Rates on such Mortgage Loan. During periods of negative
amortization, any Deferred Interest that is added to the Principal Balance of a
Mortgage Loan bears interest at the applicable Mortgage Pass-Through Rate. The
distribution to Certificateholders of the Interest Remittance Amount, rather
than interest calculated at the applicable Mortgage Pass-Through Rate, will not
materially affect the yield to Certificateholders if the Certificates are
purchased at or near par. Negative Amortization will lengthen the average life
of the Certificates, and if the Certificates are purchased at a discount or
premium, a yield effect can occur. See "-- Price" and "Maturity Considerations
- -- Prepayment Considerations." Any Deferred Interest will be includible in
taxable income of classes entitled thereto as it accrues, rather than when it is
received. See "Certain Federal Income Tax Consequences."
Mortgage Interest Rates on Non Negatively Amortizing ARMs. The
Mortgage Interest Rates on ARMs adjust periodically in response to movements in
the applicable Index. The Index applicable as of any interest adjustment date
will be the most recent index figure available during a period before such
adjustments are made as specified in the related Prospectus Supplement. In
addition, because ARMs included in a Pool may have different origination dates,
the Mortgage Interest Rates on the ARMs comprising a Pool will not necessarily
adjust at the same dates. At any given time, the Mortgage Interest Rates on any
of the ARMs included in a Pool could be scheduled to adjust within one to 12
months. Accordingly, the yield to Certificateholders on Pools comprised of ARMs
will be adjusted on a delayed basis relative to movements in the applicable
Index.
Maximum and Minimum Rates, Maximum Adjustment, Payment Caps and Deferred
Interest
In the case of a Pool comprised of ARMs, and as more fully described above
under the caption "The Pools -- The Mortgage Loans -- Description of ARMs"
herein and "Description of the Mortgage Notes" in the related Prospectus
Supplement, the lifetime Maximum and Minimum Rates, the periodic Maximum
Adjustment, and Payment Caps and Deferred Interest, in the case of Negatively
Amortizing ARMs, on the ARMs could affect the yield on the related Series of
Certificates. In the event that despite prevailing market interest rates the
Mortgage Interest Rate on an ARM cannot increase due to the Maximum Rate or, if
applicable, the Maximum Adjustment, the yield on the related Certificates could
be impacted adversely. Conversely, should the Mortgage Interest Rate on an ARM
not be able to decrease due to the Minimum Rate or, if applicable, the Maximum
Adjustment at a time when market interest rates are below such level, the yield
on the related Certificates could be higher than that which would otherwise be
the case. In that event, the Mortgagor may be more likely to prepay the Mortgage
Loan in full and obtain refinancing at a lower rate. In addition, to the extent
that a Payment Cap on a Negatively Amortizing ARM restricts an increase in the
related Mortgagor's Monthly Payment or because the adjustable Mortgage Interest
Rate changes more frequently than the adjustments in a Monthly Payment, Deferred
Interest could result and impact the yield on the related Certificates.
Distribution Shortfalls
If on any Distribution Date the aggregate amount of payments received from
Mortgagors on the related Mortgage Loans, any Advances, funds otherwise payable
to the Subordinate Certificateholders and monies available in the Reserve Fund,
if any, do not provide sufficient funds to make full distributions to the Senior
Certificateholders, unless otherwise specified in the related Prospectus
Supplement, the amount of the shortfall together with interest at the related
applicable Pass-Through Rate
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or Rates, will be added to the amount the Senior Certificateholders are entitled
to receive on the next Distribution Date. The allocation of any such shortfall
and recoveries thereof between the Classes of Senior Certificates if the Senior
Certificates are comprised of more than one class, and the effect of any such
shortfall on yield will be discussed in the Prospectus Supplement relating to
such Certificates.
Classes of Certificates
The Certificates of a Series may be divided into two or more classes, in
which each class will evidence interests in specified allocations of the
principal payments only, or of the interest payments only, or both principal and
interest payments in respect of the Mortgage Assets in the related Trust Fund.
In the event Certificates are so subdivided, the yield of any class evidencing
interest payments only will be adversely impacted by prepayments and partial
prepayments. If appropriate, the Prospectus Supplement for such Series will
offer examples of cash flows on the Certificates, based on specified Mortgage
Interest Rates.
MATURITY CONSIDERATIONS
General
The weighted average life of the Certificates will be dependent in large
part on the principal prepayment experience on the Mortgage Assets comprising a
Pool. Although a number of factors may affect the prepayment experience of a
particular Pool, there can be no assurance that any Pool will conform to the
Depositor's past experience or any published prepayment forecast.
The following discussion of certain maturity considerations is intended to
be general in nature and reference is made to the discussion in the related
Prospectus Supplement regarding prepayment and maturity considerations and other
risks.
Maturity
Unless otherwise specified in the related Prospectus Supplement, all of the
Mortgage Loans will have original terms to maturity of not more than 40 years.
Prepayment Considerations
A substantial portion of the Mortgage Loans will be secured by the
principal residence of the related Mortgagors. Each Mortgage Loan may contain
prohibitions on prepayment or require payment of a Prepayment Premium, in each
case as described in the related Prospectus Supplement. The prepayment
experience of the Mortgage Loans, and of the mortgage loans underlying the
Mortgage Certificates, comprising a Pool will affect the weighted average life
of the related Series of Certificates. Based on public information with respect
to the mortgage industry, a significant number of the Mortgage Loans, and of the
mortgage loans underlying the Mortgage Certificates, could be paid in full prior
to maturity.
The payment behavior of the Mortgage Loans and of the mortgage loans
underlying the Mortgage Certificates may be influenced by a variety of
political, economic, tax, geographic, demographic, social and other factors.
These factors may include the age, payment terms and geographic distribution of
such loans; characteristics of the Mortgagors; amount of the Mortgagors' equity;
the availability of mortgage financing in general; changes in local industry and
population as they affect population migration; local housing availability and
apartment vacancy rates; and the use of junior liens or other individualized
financing arrangements. In a fluctuating interest rate environment, payment
behavior may be influenced by the difference between the interest rates of the
Mortgage Loans and of the mortgage loans underlying
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the Mortgage Certificates and the prevailing mortgage rates for both fixed and
adjustable rate mortgages; the availability of fixed-rate mortgages with
interest rates that are competitive with those of the Mortgage Loans and of the
mortgage loans underlying the Mortgage Certificates and the availability of
adjustable rate mortgages with interest rates determined by indices which are
different from the applicable Index; and the extent to which the Mortgage Loans
and the mortgage loans underlying the Mortgage Certificates are assumed or
refinanced or the Mortgaged Properties are sold or conveyed. The relative
contribution of these factors may vary over time.
In the event the Depositor substitutes a Mortgage Loan for another Mortgage
Loan (upon the satisfaction of the conditions set forth in the Agreement) and
the principal balance of such substituted Mortgage Loan is less than the
principal balance of the Mortgage Loan replaced, the amount of such difference
shall be required to be paid by the Depositor to the Trust Fund and such amount
will be passed through to the Certificateholders as a prepayment. See
"Description of the Certificates -- Assignment of Mortgage Loans."
Assumptions of the mortgage loans will reduce the level of principal
prepayments in the related Pool that would otherwise occur if such mortgage
loans had been accelerated. To the extent it has knowledge of any conveyance or
prospective conveyance by any Mortgagor of the related Mortgaged Property, the
Master Servicer will retain the right to accelerate the maturity of such
Mortgage Loan under any applicable "due-on-sale" clause if credit or other
factors warrant such enforcement. However, as discussed above, the Mortgage
Loans provide for assumption by qualifying buyers, and the Master Servicer may
in certain cases encourage the assumption of Mortgage Loans by persons meeting
relevant underwriting standards and in no event will it exercise any such right
of acceleration if prohibited by law. If the Master Servicer determines not to
enforce such a "due-on-sale" clause, it will enter into an assumption and
modification agreement with the person to whom such property has been conveyed
or is proposed to be conveyed, pursuant to which such person becomes liable
under the Mortgage Loan. Any fees collected by the Master Servicer in connection
with the execution of an assumption agreement may be retained by the Master
Servicer or the applicable Servicer as additional servicing compensation. See
"Description of the Certificates -- Collection and Other Servicing Procedures"
herein.
The rate of prepayments with respect to conventional one-to-four-unit
residential first mortgage loans, including ARMs and fixed-rate loans, has
fluctuated significantly in recent years. In general, if prevailing interest
rates fall significantly below the interest rates at the time of origination,
mortgage loans are likely to be subject to higher prepayment rates than if
prevailing rates remain at or above those at the time such mortgage loans were
originated because the availability of fixed-rate loans at competitive interest
rates may encourage borrowers to refinance their ARMs or above market fixed-rate
loans to "lock-in" low fixed interest rates. Conversely, if prevailing interest
rates rise appreciably above the interest rates at the time of origination,
mortgage loans are likely to experience a lower prepayment rate than if
prevailing rates remain at or below those at the time such mortgage loans were
originated. However, there can be no assurance that any Pool will conform to
past experience or any published prepayment forecast.
The Maximum and Minimum Rates, Maximum Adjustments, Gross Margins, Payment
Caps and other features of the ARM programs of mortgage lenders during recent
years have significantly varied in response to market conditions such as
interest rates, consumer demand and regulatory restrictions. The lack of
uniformity of the terms and provisions of such ARM programs have made it
impractical to compile meaningful comparative data on prepayment rates of ARMs
and accordingly, there can be no certainty as to the rate of prepayments on ARMs
in either stable or changing interest rate environments. The ARMs comprising a
Pool or underlying the Mortgage Certificates comprising a Pool may experience a
rate of principal prepayments which is different from the principal prepayment
rate for ARMs included in any other Pool for other adjustable rate mortgages
having different or similar characteristics and for
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fixed-rate mortgages. In addition, there can be no assurance that any Pool will
conform to past prepayment experience or any published prepayment forecast.
As described under "The Pools -- The Mortgage Loans -- Description of
ARMs," if interest rates rise without a simultaneous increase in the related
Monthly Payments, Deferred Interest and negative amortization may result in the
case of Negatively Amortizing ARMs. However, borrowers may pay amounts in
addition to their Monthly Payments in order to avoid such negative amortization
and increase tax deductible interest payments. To the extent that any of the
Mortgage Loans or any mortgage loans underlying any Mortgage Certificate
negatively amortize over their respective terms, future interest accruals are
computed on the higher outstanding Principal Balance and a smaller portion of
the Monthly Payment is applied to principal than is necessary to amortize the
unpaid principal over its remaining term. Accordingly, the weighted average life
of such mortgage loans will be increased beyond that which would otherwise be
the case. During a period of declining interest rates, the portion of each
Monthly Payment in excess of scheduled interest and principal will be applied to
reduce the outstanding Principal Balance on the related Negatively Amortizing
ARM, thereby resulting in accelerated amortization of such mortgage loan. Any
such increase in amortization of the Principal Balances of any Negatively
Amortizing ARMs comprising a Pool or underlying Mortgage Certificate comprising
a Pool will shorten the weighted average life of such Negatively Amortizing ARMs
over that which would be the case in the absence of such accelerated
amortization. The application of partial prepayments to reduce the principal
amount of a Negatively Amortizing ARM will tend to reduce the weighted average
life of the mortgage loan and will adversely affect the yield to (i) holders of
Certificates which purchased their Certificates at a premium, if any, (ii)
holders of classes with lower proportionate shares of the principal amount in
the underlying Mortgage Assets, if any, and (iii) holders of IO Certificates.
The pooling of Negatively Amortizing ARMs having Monthly Payment adjustment
dates in different months, together with different Initial Mortgage Rates,
Maximum Rates, Minimum Rates and stated maturity dates, could result in some
Negatively Amortizing ARMs experiencing negative amortization while the
amortization of other Negatively Amortizing ARMs is accelerated. The weighted
average life of Certificates of a Series will reflect a composite of the
repayment and prepayment characteristics of the Mortgage Assets in the related
Pool.
The number of foreclosures and the principal amount of the Mortgage Loans
and mortgage loans underlying Mortgage Certificates foreclosed in relation to
such mortgage loans which are repaid in accordance with their terms will affect
the weighted average life of the Mortgage Assets in the Pool and that of the
related Series of Certificates. Servicing decisions made with respect to the
Mortgage Loans and mortgage loans underlying Mortgage Certificate, including the
use of payment plans prior to demand for acceleration and the restructuring of
mortgage loans in bankruptcy proceedings, as well as the Master Servicer's
servicing policy generally not to accept payment from the Mortgagor of less than
the total of the scheduled monthly payments due on the Mortgage Loans, may also
have an impact upon the payment behavior of particular Pools. See "Description
of the Certificates -- Collection and Other Servicing Procedures." In
particular, the return to holders of Certificates which purchased their
Certificates at a premium, if any, the return on classes with lower
proportionate shares of the principal amount of the interest in the underlying
mortgage loans, if any, and the return on interest only classes, if any, may be
adversely affected by servicing policies and decisions resulting in
foreclosures.
As may be described in the Prospectus Supplement relating to any Series,
the related Agreement may provide that all or a portion of the principal
collected on or with respect to the related Mortgage Loans may be applied by the
related Trustee to the acquisition of additional Mortgage Loans during a
specified period (rather than used to fund payments of principal to
Certificateholders during such period) with the result that the related
Certificates possess an interest-only period, also commonly referred to as a
revolving period, which will be followed by an amortization period. Any such
interest-only or revolving period may, upon the occurrence of certain events to
be described in the related Prospectus
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Supplement, terminate prior to the end of the specified period and result in the
earlier than expected amortization of the related Certificates.
The Prospectus Supplement for a Series of Sequential Pay Certificates may
contain a table setting forth percentages of the initial Certificate Balance of
each class expected to be outstanding after each of the dates shown in such
table. Any such table will be based upon a number of assumptions stated in such
Prospectus Supplement, including assumptions that prepayments on the mortgage
loans underlying the related Mortgage Certificates or on the Mortgage Loans are
made at rates corresponding to various percentages of the prepayment model
specified in the related Prospectus Supplement. It is unlikely, however, that
the prepayment of the mortgage loans underlying the Mortgage Certificates, or of
the Mortgage Loans, underlying any Series will conform to any of the percentages
of the prepayment model described in the table set forth in such Prospectus
Supplement.
See "Description of the Certificates -- Termination" herein and
"Description of the Certificates -- Optional Termination" in the Prospectus
Supplement for a description of the Depositor's or Master Servicer's option to
repurchase the Mortgage Assets comprising part of a Trust Fund when the
aggregate outstanding Principal Balance of such Mortgage Assets is less than a
specified percentage of the aggregate outstanding Principal Balance of such
Mortgage Assets as of the related Cut-off Date. The Depositor or a Mortgage
Asset Seller may also be required to repurchase Mortgage Assets from any Pool
because of breaches in its representations and warranties to the Trustee. Any
such repurchases will shorten the weighted average lives of the Certificates.
DESCRIPTION OF THE CERTIFICATES
Each Series of Certificates will be issued pursuant to a separate Agreement
(the "Agreement") for such Series between the Depositor, the Master Servicer and
the Trustee. The Agreement for each Series of Certificates will contain similar
terms and conditions, except for provisions with respect to the Pass-Through
Rate or Rates for each Class of such Series, the Delivery Date for such Series,
the specific Mortgage Loans relating to such Series, whether such Series
includes Senior Certificates and Subordinate Certificates and/or whether such
Series is enhanced by insurance or other forms of credit enhancement, whether
the Trust Fund relating to a Series of Certificates will elect to be treated as
a REMIC, the order and amount of distributions of principal or interest or both
on the various Classes of Certificates included in such Series, and any other
variations described in the Prospectus Supplement for such Series. If so
specified in the related Prospectus Supplement, the Mortgage Assets may be
divided into Asset Groups and the Certificates of separate Classes will evidence
ownership interests of a corresponding Asset Group. The following summaries of
certain provisions of each Agreement do not purport to be complete and are
subject to, and are qualified in their entirety by reference to, the provisions
of the Agreement relating to each Pool and the related Prospectus Supplement.
Reference is made to the form of Agreement filed as an exhibit to the
Registration Statement of which this Prospectus forms a part for a complete
statement of the particular provisions and terms used in the Agreement and
referred to herein.
General
The Certificates of each Series will be issued in fully registered
certificated or book-entry form and will represent ownership interests in the
Trust Fund created pursuant to the Agreement for such Series. Except as
otherwise specified in the related Prospectus Supplement, the Trust Fund for a
Series of Certificates will consist of: (i) the Mortgage Loans as from time to
time are subject to the Agreement for such Series (which may be, if so specified
in the related Prospectus Supplement for such Series, exclusive of the Retained
Yield, if any, for each such Mortgage Loan); (ii) Mortgage Certificates; (iii)
such assets as from time to time are required to be deposited in one or more
trust accounts established and maintained pursuant to such Agreement; (iv) any
property which initially secured a
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Mortgage Loan and which is acquired by foreclosure or deed in lieu of
foreclosure; and (iv) the interests of the Holders of such Certificates in any
insurance policies or other forms of credit enhancement required to be
maintained pursuant to such Agreement. See "Credit Enhancements" herein. To the
extent set forth in the related Prospectus Supplement, the beneficial interests
in the Mortgage Loans relating to a Series of Certificates may be in the form of
participation interests therein which will represent REMIC "regular interests"
in a Trust Fund which contains the Mortgage Loans relating to such Series.
The Certificates of each Series in certificated form may be transferred or
exchanged at the Corporate Trust Office of the Trustee or other offices
specified in the related Prospectus Supplement without the payment of any
service charge, other than any tax or other governmental charge payable in
connection therewith. In the event a Series of Certificates is issued, in whole
or in part, in book-entry form through the facilities of DTC or a similar
institution (the "Repository") transfers or exchanges may be similarly effected
through a participating member of the Repository, as described in the related
Prospectus Supplement. Prior to issuance there has been no market for any Series
of Certificates, and there can be no assurance that one will develop or if one
does develop that it will provide the Holders of Certificates of such Series
with liquidity or that it will remain for the life of the Certificates of such
Series.
Each Certificate of a Series will evidence the specified interest of the
Holder thereof in payments of principal or interest or both in respect of the
Pool comprising part of the Trust Fund for such Series of Certificates. Each
Class may bear a different Pass-Through Rate, based upon the specified interest
of such Class in payments of principal and interest. Certain Series or Classes
of Certificates, or certain of the Mortgage Loans or Mortgage Certificates
relating to a Series, may be enhanced by mortgage or hazard insurance or other
forms of credit enhancement, in each case as described in the related Prospectus
Supplement for such Series. The specific characteristics and percentage
interests of each Class of Certificates of a Series and the minimum or specified
denominations of such Certificates will be set forth in the Prospectus
Supplement for such Series. Any statements made herein relating to the Classes
of Certificates which are not offered for sale hereby are solely for the
information of the Holders of Certificates being offered hereby.
A Series of Certificates may contain one or more Classes of Senior
Certificates which are senior in right of distribution to one or more Classes of
Subordinated Certificates (one or more of which may be senior in right of
distribution to one or more other Classes of Subordinated Certificates) and may
also contain one or more Classes of: Certificates upon which interest will
accrue but will be added to the Certificate Balance, rather than distributed,
until the time specified in the related Prospectus Supplement and thereafter
will be distributed as so specified ("Compounding Certificates"); Certificates
entitled to principal distributions (with disproportionate, nominal or no
interest distributions) or to interest distributions (with nominal or no
principal distributions) ("Stripped Certificates"); Certificates entitled to
minimum distributions of principal in accordance with a specified schedule based
on the assumed rate of prepayment on the Mortgage Loans ("Prepayment
Certificates"); Certificates with principal distribution on the classes of such
Series made in the sequence specified in the related Prospectus Supplement
("Sequential Pay Certificates"); Certificates entitled to distributions of
principal in accordance with a specified schedule that is intended to slow the
amortization rate of such Certificates relative to the related Mortgage Loans
("Non-Accelerated Certificates"); other types of Certificates; or a combination
thereof, all as set forth in the related Prospectus Supplement. The relative
interests of the Senior Certificates and the Subordinated Certificates of a
Series of certain certificates ("Shifting Interest Certificates") in the Pool
will be subject to adjustment from time to time if funds available for
distribution on Senior Certificates of such Series are insufficient to cover the
amounts of principal otherwise payable to the holders of such Senior
Certificates on a Distribution Date as specified in the related Prospectus
Supplement.
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If so provided in the related Prospectus Supplement, the Trust Fund may
include guaranteed investment contracts pursuant to which moneys held in the
funds and accounts established for the related Series will be invested at a
specified rate. The Trust Fund may also include certain other agreements, such
as interest rate exchange agreements, interest rate cap or floor agreements,
currency exchange agreements or similar agreements provided to reduce the
effects of interest rate or currency exchange rate fluctuations on the Mortgage
Assets on one or more Classes of Certificates. The principal terms of any such
guaranteed investment contract or other agreement (any such agreement, a "Cash
Flow Agreement"), including, without limitation, provisions relating to the
timing, manner and amount of payments thereunder and provisions relating to the
termination thereof, will be described in the Prospectus Supplement for the
related Series. In addition, the related Prospectus Supplement will provide
certain information with respect to the obligor under any such Cash Flow
Agreement.
As used herein, the term "Fractional Undivided Interest" shall mean the
percentage of the principal portion of a Trust Fund evidenced by a Certificate
and the term "Percentage Interest" shall mean the percentage of the aggregate
distributions allocable to a Class of Certificates evidenced by a Certificate of
such Class. The term "Principal Balance" means the principal balance of a
Mortgage Loan remaining to be paid at the close of business on the Cut-off Date
(after deduction of all principal payments due on or before the Cut-off Date
whether or not paid) and reduced by all amounts distributed to Certificate
holders and allocable to principal of such Mortgage Loan and, in the case of
Negatively Amortizing ARMs, increased by Deferred Interest added to principal of
such ARMs. The term "Residual Holder" shall mean a Certificateholder entitled to
receive the "residual interest" in the REMIC as defined in Section 860G(a)(2) of
the Code. The terms defined in this paragraph may be assigned different meanings
in the Prospectus Supplement relating to a particular Series of Certificates.
Except as otherwise specified in the related Prospectus Supplement for a
Series of Certificates, the Mortgage Loans will have Installment Due Dates on
the first day of the month ("First of the Month Mortgage Loans"). Except as
otherwise specified in the related Prospectus Supplement, distributions of
principal and interest received in respect of the Mortgage Loans relating to
such Series of Certificates will be made by the Trustee or other paying agent
(the "Paying Agent") on the 25th day of each month or if such 25th day is not a
Business Day (as defined in the related Agreement) on the next succeeding
Business Day (each, a "Distribution Date") and will be paid to the persons in
whose names such Certificates are registered at the close of business on the
last Business Day of the prior month (or in the event the last day of the month
is not a Business Day, on the Business Day immediately preceding such last day)
(the "Record Date"). Unless otherwise specified in the related Prospectus
Supplement, such distributions will begin with the month succeeding the month in
which the Cut-off Date occurs. The aggregate principal balances of the
Certificates on the Cut-off Date will be the sum of the aggregate principal
balances of the Mortgage Loans and the Mortgage Certificates as of the first day
of the month in which the Cut-off Date occurs, after deducting payments of
principal and interest due on or before such date. In the event a Series of
Certificates represents interests in a Pool consisting of Mortgage Loans other
than First of the Month Mortgage Loans, the related Prospectus Supplement will
more fully describe any resulting effect on the holders of Certificates of such
Series.
In addition, the related Prospectus Supplement will specify whether the
related Agreement will provide that all or a portion of principal collected on
the Mortgage Loans may be retained by the Trustee (and held in certain temporary
investments, including Mortgage Loans) for a specified period prior to being
used to distribute payments of principal to certain Certificateholders.
The result of such retention and temporary investment by the Trustee of
such principal would be to slow the amortization rate of the related
Certificates relative to the amortization rate of the related Mortgage Loans, or
to attempt to match the amortization rate of the related Certificates to an
amortization schedule established at the time such Certificates are issued. Any
such feature applicable to any Certificates may terminate, resulting in the
current funding of principal payments to the related
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Certificateholders and an acceleration of the amortization of such Certificates
upon the occurrence of certain events as set forth in the related Prospectus
Supplement.
Such distributions with respect to certificated Certificates will be made
by check mailed to the address of each Holder as it appears on the Certificate
Register for such Series or, if provided by the Agreement for such Series, in
the case of any Holder of a Certificate of such Series with an initial
Certificate Balance or Notional Amount equal to or in excess of the amount
specified in the Agreement and described in the related Prospectus Supplement
and who has so notified the Trustee or any applicable Paying Agent, by wire
transfer in immediately available funds to the account of such Holder at a bank
or other depository institution having appropriate wire transfer facilities;
except that the final distribution in retirement of a certificated Certificate
will be made only upon presentation and surrender of such Certificate at the
office or agency of the Trustee specified in the final distribution notice to
such Certificateholder. In the event a Series of Certificates is issued, in
whole or in part, in book-entry form, distributions on such Certificates,
including the final distribution in retirement of such Certificates, will be
made through the facilities of the Repository in accordance with its usual
procedures in the manner described in the Prospectus Supplement for such Series.
Assignment of Mortgage Loans
General
At the time of issuance of each Series of Certificates, the Depositor will
cause the Mortgage Loans, including loans underlying Mortgage Certificates,
comprising the Pool relating to such Series to be assigned to the Trustee for
such Series, together with all principal and interest due on or with respect to
such Mortgage Loans subsequent to the Cut-off Date. If so specified in the
Prospectus Supplement for a Series of Certificates, all right, title and
interest in and to the Retained Yield, if any, may be expressly reserved as
described in such Prospectus Supplement, and such Retained Yield will not
constitute part of the Trust Fund for such Series. The Trustee will, in exchange
for the Trust Fund for such Series of Certificates and concurrently with such
assignment, execute and deliver the Certificates to a certificate registrar
appointed pursuant to the Agreement for such Series (the "Certificate
Registrar") for authentication and delivery to the Depositor or its designee.
Each Mortgage Loan relating to such Series will be identified in a schedule
appearing as an exhibit to the Agreement for such Series which will include
information about each such Mortgage Loan including, among other things, its
Principal Balance as of the close of business on the Cut-off Date, its current
Mortgage Interest Rate and Mortgage Pass-Through Rate, its current scheduled
monthly payment of principal and interest, its stated maturity, its
Administration Fee, its Retained Yield, if any, its Loan-to-Value Ratio, and, if
such Mortgage Loan is an ARM, its applicable Index, its Gross Margin, its
lifetime Minimum Rate (if any), its lifetime Maximum Rate, its periodic Maximum
Adjustment, the frequency of its interest rate adjustment and its First Monthly
Payment Adjustment Date.
The Trustee for a Series of Certificates will be authorized to appoint one
or more custodians, which may include affiliates of the Depositor or the Trustee
(together, the "Custodians"), under a custodial agreement to maintain possession
of and review the documents with respect to the Mortgage Loans relating to such
Series, as the agent of such Trustee. Any such custodial agreement will be on
such terms as the Depositor, the Trustee and each Custodian shall agree.
In addition, the Depositor will, as to each Mortgage Loan, deliver to the
Trustee the Mortgage Note endorsed without recourse in blank or to the order of
the Trustee, the original Mortgage with evidence of recording indicated thereon,
an Officer's Certificate to the effect that a title insurance policy was issued
and remains in full force and effect, and an assignment of the Mortgage in
recordable form unless otherwise described in the related Prospectus Supplement.
The Agreement will generally require that the assignment of each Mortgage be
properly recorded and delivered to the Trustee within one year
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following the issuance of the Certificates; provided that assignments of
Mortgages need not be recorded in any state for which the Depositor delivers to
the Trustee an opinion of counsel to the effect that recordation of such
assignments is not necessary to secure or perfect the interest in such Mortgaged
Properties in the name of the Trustee. (Section 2.1. of the Agreement).
Unless otherwise specified in the related Prospectus Supplement, the
Trustee will review and hold such documents in trust for the benefit of the
Certificateholders. If any such document is found by the Trustee (within 45 days
or within a longer specified period with respect to assignments which must be
recorded) to be defective in any material respect and the Depositor does not
cure such defect within 60 days after notice by the Trustee given to the
Depositor within the relevant period, the Depositor will, after the Trustee's
notice to the Depositor of the defect, either (i) within the three month period
commencing on the closing date of the sale of the related Series of Certificates
repurchase the related Mortgage Loan at a price, unless otherwise specified in
the related Prospectus Supplement, equal to the principal balance of such
Mortgage Loan, plus accrued interest on such principal balance at the Mortgage
Interest Rate to the next scheduled Installment Due Date of such Mortgage Loan,
or (ii) within the three month period commencing on the closing date of the sale
of the related Series of Certificates (or within the two year period commencing
on such closing date if the related Mortgage Loan is a "defective obligation"
within the meaning of the Code) unless otherwise provided in the related
Prospectus Supplement, substitute a different mortgage loan upon satisfaction of
the conditions set forth in the Agreement. Except as otherwise specified in the
related Prospectus Supplement, this repurchase or substitution obligation
constitutes the sole remedy available to the Certificateholders or the Trustee
for a material defect in a constituent document. (Section 2.2.) The related
Prospectus Supplement will specify any restrictions with respect to repurchases,
substitutions and any alternative arrangements.
Because assignments by the Depositor to the Trustee of the Mortgage Loans
secured by Mortgaged Properties located in certain states may not be recorded,
it might be possible for the Depositor to transfer such Mortgage Loans to bona
fide purchasers for value without notice, notwithstanding the Trustee's rights.
However, in most instances the Depositor would not be able to deliver the
original documents evidencing the Mortgage Notes or the mortgages because under
the terms of the Agreement and any Custodial Agreement, such documents are to be
retained in the possession of the Trustee or the specified Custodian, except
when released to the Depositor in connection with its servicing activities.
Moreover, under the law of California and certain other states, a subsequent
transferee who failed to obtain delivery of the original evidence of
indebtedness would not, in the absence of special facts, be able to defeat the
Trustee's interest in a Mortgage Loan so long as such evidence of indebtedness
remained in the possession of the Trustee.
Pursuant to the Agreement, the Master Servicer will service and administer
the Mortgage Loans assigned to the Trustee as more fully set forth below.
Representations and Warranties
Unless otherwise specified in the related Prospectus Supplement, in the
Agreement, the Depositor will represent and warrant to the Trustee (or will
assign to the Trustee representations and warranties of the Mortgage Asset
Seller) with respect to the Mortgage Loans comprising the Mortgage Assets in a
Trust Fund, upon delivery of the Mortgage Loans to the Trustee hereunder, among
other things: (i) that the information set forth in the schedule of Mortgage
Loans appearing as an exhibit to the Agreement is correct in all material
respects at the date or dates respecting which such information is furnished as
specified therein; (ii) that as of the date of the transfer of the Mortgage
Loans to the Trustee, the Depositor is the sole owner and holder of each
Mortgage Loan free and clear of all liens, pledges, charges or security
interests of any nature and has full right and authority, subject to no interest
or participation of, or agreement with, any other party, to sell and assign the
same; (iii) that as of the date of initial issuance of the Certificates, no
payment of principal of or interest on or in respect of any
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Mortgage Loan is more than 89 days past due; (iv) that to the best of the
Depositor's knowledge, as of the date of the transfer of the Mortgage Loans to
the Trustee there is no valid offset, defense or counterclaim to any Mortgage
Note or Mortgage; (v) that as of the date of the initial issuance of the
Certificates, there is, to the best of the Depositor's knowledge, no proceeding
pending or threatened for the total or partial condemnation of any of the
Mortgaged Property and the Mortgaged Property is free of material damage and in
good repair and neither the Mortgaged Property nor any improvement located on or
being part of the Mortgaged Property is in violation of any applicable zoning
law or regulation; (vi) that each Mortgage Loan complies in all material
respects with applicable state or federal laws, regulations and other
requirements, pertaining to usury, equal credit opportunity and disclosure laws
and each Mortgage Loan was not usurious at the time of origination; (vii) that
to the best of the Depositor's knowledge, as of the date of the initial issuance
of the Certificates, all taxes, government assessments and insurance premiums in
respect to the Mortgaged Properties previously due and owing have been paid;
(viii) that each Mortgage Note and the related Mortgage are genuine and each is
the legal, valid and binding obligation of the maker thereof, enforceable in
accordance with its terms except as such enforcement may be limited by
bankruptcy, insolvency, reorganization or other similar laws affecting the
enforcement of creditor's rights generally and by general equity principles
(regardless of whether such enforcement is considered in a proceeding in equity
or at law); all parties to the Mortgage Note and the Mortgage had legal capacity
to execute the Mortgage Note and the Mortgage and each Mortgage Note and
Mortgage have been duly and properly executed by the Mortgagor; (ix) that each
Mortgage is a valid and enforceable first lien on the property securing the
related Mortgage Note, which may arise thereunder and that each Mortgage Loan is
covered by an ALTA mortgagee title insurance policy or other form of policy or
insurance generally acceptable to FNMA or FHLMC, issued by, and is a valid and
binding obligation of, a title insurer acceptable to FNMA or FHLMC insuring the
originator, its successors and assigns, as to the lien of the Mortgage in the
original principal amount of the Mortgage Loan subject only to (a) the lien of
current real property taxes and assessments not yet due and payable, (b)
covenants, conditions and restrictions, rights of way, easements and other
matters of public record as of the date of recording of such Mortgage acceptable
to mortgage lending institutions in the area in which the Mortgaged Property is
located or specifically referred to in the appraisal performed in connection
with the origination of the related Mortgage Loan and (c) such other matters to
which like properties are commonly subject which do not individually, or in the
aggregate, materially interfere with the benefits of the security intended to be
provided by the Mortgage; and (x) that as of the initial issuance of the
Certificates, neither the Depositor nor any prior holder of any Mortgage has,
except as the Mortgage File may reflect, modified the Mortgage in any material
respect; satisfied, cancelled or subordinated such Mortgage in whole or in part;
released such Mortgaged Property in whole or in part from the lien of the
Mortgage; or executed any instrument of release, cancellation, modification or
satisfaction; (xi) that each Mortgaged Property consists of a fee simple estate,
a leasehold estate, or condominium form of ownership in real property, or a
share interest in a cooperative corporation in the case of a Co-op Loan; (xii)
the condominium projects that include the condominiums that are the subject of
any Co-op Loan are generally acceptable to FNMA and FHLMC; (xiii) no foreclosure
action is threatened or has been commenced (except for the filing of any notice
of default) with respect to any Mortgage Loan; and except for payment
delinquencies not in excess of 91 days, to the best of the Depositor's
knowledge, there is no default, breach, violation or event of acceleration
existing under any Mortgage or the related Mortgage Note and no event which,
with the passage of time or with notice and the expiration of any grace or cure
period, would constitute a default, breach, violation or event of acceleration;
and the Depositor has not waived any default, breach, violation or event of
acceleration; (xiv) that no Mortgage Loan had a Loan-to-Value Ratio at
origination in excess of 100% and (xv) the Mortgage Loans were not selected in a
manner to adversely affect the interests of the Certificateholders and the
Depositor knows of no conditions which reasonably would cause it to expect any
Mortgage Loan to become delinquent or otherwise lose value.
Unless otherwise specified in the related Prospectus Statement, within 90
days of the discovery by the Depositor or the applicable Mortgage Asset Seller
of a breach of any representation or warranty which materially and adversely
affects the interests of the Certificateholders in a Mortgage Loan, or the
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Depositor's or such Mortgage Asset Seller's receipt of notice thereof from the
Trustee or a Custodian, and without regard to any limitation set forth in such
representation or warranty concerning the knowledge of the Depositor as to facts
stated therein, the Depositor or the applicable Mortgage Asset Seller will cure
the breach or either (i) repurchase the Mortgage Loan at a price equal to the
principal balance of such Mortgage Loan plus accrued interest on such principal
balance at the Mortgage Interest Rate to the next scheduled Installment Due Date
of such Mortgage Loan or (ii) within the three month period commencing on the
closing date of the sale of the related Series of Certificates (or within the
two year period commencing on such closing date if the related Mortgage Loan is
a "defective obligation" within the meaning of the Code) unless otherwise
provided in the related Prospectus Supplement, substitute a different Mortgage
Loan upon satisfaction of the conditions set forth in the Agreement. Except as
otherwise specified in the related Prospectus Supplement, this repurchase and
substitution obligation constitutes the sole remedy available to the
Certificateholders or the Trustee for any such breach. (Section 2.3.) The
related Prospectus Supplement will specify any restrictions with respect to
repurchases, substitution and any alternative arrangements.
Forward Commitments: Pre-Funding Account
If specified in the Prospectus Supplement relating to any Series, the
Trustee or the Master Servicer may, on behalf of the related Trust Fund, enter
into an agreement (each, a "Forward Purchase Agreement") with the Depositor
whereby the Depositor will agree to transfer additional Mortgage Loans to such
Trust Fund following the date on which such Trust Fund is established and the
related Certificates are issued. The Trust Fund may enter into Forward Purchase
Agreements to permit the acquisition of additional Mortgage Loans that could not
be delivered by the Depositor or have not formally completed the origination
process, in each case prior to the date on which the Certificates are delivered
to the Certificateholders (the "Closing Date"). Any Forward Purchase Agreement
will require that any Mortgage Loans so transferred to a Trust Fund conform to
the requirements specified in such Forward Purchase Agreement. If a Forward
Purchase Agreement is to be utilized, and unless otherwise specified in the
related Prospectus Supplement, the Trustee will be required to deposit in a
segregated account (each, a "Pre-Funding Account") all or a portion of the
proceeds received by the Trustee in connection with the sale of one or more
classes of Certificates of the related Series; the additional Mortgage Loans
will be transferred to the related Trust Fund in exchange for money released to
the Depositor from the related Pre-Funding Account. Each Forward Purchase
Agreement will set a specified period during which any such transfers must
occur. The Forward Purchase Agreement or the related Agreement will require
that, if all moneys originally deposited to such Pre-Funding Account are not so
used by the end of such specified period, then any remaining moneys will be
applied as a mandatory prepayment of the related class or classes of
Certificates as specified in the related Prospectus Supplement. Unless otherwise
specified in the related Prospectus Supplement, the specified period for the
acquisition by a Trust Fund of additional Mortgage Loans will not exceed three
months from the date such Trust Fund is established.
Payments on Mortgage Loans
The Certificate Account which the Master Servicer will establish and
maintain in trust will be a separate account which must be maintained with a
depository institution (which may be an affiliate of the Master Servicer)
acceptable to the Rating Agency rating the Certificates of a Series. The Master
Servicer will credit to the Certificate Account on a daily basis the following
payments and collections received or made by it subsequent to the Cut-off Date
(including scheduled payments of principal and interest due after the Cut-off
Date but received by the Master Servicer on or before the Cut-off Date), but
excluding any portion thereof allocable to Retained Yield, if any:
(i) all Mortgagor payments on account of principal, including
principal prepayments by Mortgagors, on the Mortgage Loans;
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<PAGE>
(ii) all Mortgagor payments on account of interest on the Mortgage
Loans, which may be net of that portion thereof which the Master Servicer
is entitled to retain as Administration Fees pursuant to the Agreement (as
adjusted);
(iii) all proceeds from Liquidation Proceeds net of unpaid
Administration Fees;
(iv) all proceeds received by the Master Servicer under any title,
hazard or other insurance policy covering any Mortgage Loan or the related
Mortgaged Property, other than proceeds to be applied to the restoration or
repair of the property subject to the related Mortgage or released to the
Mortgagor in accordance with the Master Servicer's normal servicing
procedures;
(v) all amounts required to be transferred to the Certificate
Account from the Reserve Fund, if any, pursuant to the Agreement;
(vi) any Advances made as described under "Description of the
Certificates -- Advances and Limitations Thereon";
(vii) all Repurchase Proceeds of Mortgage Loans; and
(viii) all other amounts required to be deposited in the Certificate
Account pursuant to the Agreement;
provided, however, that with respect to any payment of interest received by the
Master Servicer relating to a Mortgage Loan (whether paid by the Mortgagor or
received as Liquidation Proceeds, insurance proceeds or otherwise, but not as a
result of any Deferred Interest) which is less than the full amount of interest
then due with respect to such Mortgage Loan, the Master Servicer or any other
holder of the Retained Yield, if it has retained any Retained Yield with respect
to such Mortgage Loan, shall retain as its Retained Yield only its pro rata
share of such interest payment. (Section 3.2.)
Unless otherwise specified in the related Prospectus Supplement, the
Agreement will provide that amounts deposited in the Certificate Account may be
invested in Eligible Investments, as defined below, maturing in general not
later than the Business Day preceding the next Distribution Date. If a REMIC
election (see "Certain Federal Income Tax Consequences") is made with respect to
a Series of Certificates, then (i) earnings on such Eligible Investments shall
belong to the Depositor unless otherwise specified in the related Prospectus
Supplement and (ii) investments will be restricted in such a manner as to
constitute "permitted investments" (as defined in Section 860G(a)(5) of the
Code) and dispositions thereof will not be made if the result thereof would be
to cause any part of the proceeds to be subject to the 100 Percent Tax on
Prohibited Transactions imposed by Section 860F(a)(1) of the Code or would be to
cause a loss of REMIC status. If a REMIC election is not made, all income and
gain realized on any such investment will be for the account of the Master
Servicer. The amount of any loss incurred in connection with any such investment
must be deposited in the Certificate Account by the Master Servicer out of its
own funds immediately as realized.
The Master Servicer is authorized to make withdrawals from the Certificate
Account for various purposes set forth in the Agreement.
Unless otherwise specified in the related Prospectus Supplement, "Eligible
Investments" shall include any one or more of the following obligations or
securities: (a) direct obligations of, or guaranteed as to full and timely
payment of principal and interest by, the United States or any agency or
instrumentality thereof; (b) direct obligations of, or guaranteed as to timely
payment of principal and interest by, FHLMC, FNMA or the Federal Farm Credit
System, qualified by a Rating Agency as
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<PAGE>
investment grade; (c) demand and time deposits in or certificates of deposit of,
or bankers' acceptances issued by, a qualified bank or trust company, savings
and loan association or savings bank; (d) general obligations of or obligations
guaranteed by any state of the United States or the District of Columbia with an
investment grade rating; (e) investment grade commercial or finance company
paper; (f) certain guaranteed reinvestment agreements issued by any bank,
insurance company or other corporation rated in one of the two highest rating
levels available to such issuers by each Rating Agency at the time of such
investment; and (g) such other obligations as are acceptable as Eligible
Investments to each Rating Agency as provided in the related Agreement.
Distributions on the Certificates
Unless otherwise specified in the Prospectus Supplement for a Series of
Certificates, on each applicable Distribution Date the Pool Distribution will be
distributed to Certificateholders, in most cases, through DTC and DTC
Participants as described in "Registration of Certificates" below. The "Pool
Distribution" will consist of all previously undistributed payments or other
receipts on account of principal and interest due after the Cut-off Date and
received before the 20th day (or if such 20th day is not a Business Day, the
Business Day immediately preceding such 20th day) of the month of distribution
(each, a "Determination Date") except:
(i) amounts received on Mortgage Loans as late payments or other
recoveries of principal or interest (including Liquidation Proceeds and
insurance proceeds) which represent recoveries of unreimbursed Advances;
(ii) amounts representing reimbursement for Nonrecoverable Advances
and amounts representing reimbursement for certain losses and expenses
incurred by the Master Servicer and described in the Agreement;
(iii) that portion of each Mortgagor payment of interest on a
particular Mortgage Loan in excess of interest at the Mortgage Pass-Through
Rate (less Deferred Interest, if any) on the Principal Balance of such
Mortgage Loan outstanding during the period for which such payment was
received, as adjusted;
(iv) all amounts representing scheduled payments of principal and
interest due after the immediately preceding Installment Due Date;
(v) all Principal Prepayments and Repurchase Proceeds with respect
to Mortgage Loans received after the related Prepayment Period (as defined
below) and all related payments of interest representing interest for any
period of time after the immediately preceding Installment Due Date for
such Mortgage Loans;
(vi) where permitted by the Agreement, that portion of Liquidation
Proceeds which represents unpaid Administration Fees to which the Master
Servicer is entitled; and
(vii) any other amount not included in the Pool Distribution in
accordance with the Agreement.
Unless otherwise provided in the applicable Prospectus Supplement, the term
"Prepayment Period" shall refer to the month preceding the month in which such
distribution occurs.
Distributions of interest on Certificates which received interest will be
made periodically at the intervals and at the Pass-Through Rate specified or
determined in the manner described in the related
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Prospectus Supplement. Interest on the Certificates will be calculated on the
basis of a 360-day year consisting of twelve 30-day months unless otherwise
specified in the related Prospectus Supplement.
If funds in the Certificate Account (together with any amounts transferred
from any reserve fund or applicable credit enhancement) are insufficient to make
the full distribution to Certificateholders described above on any Distribution
Date, the funds available for distribution to the Certificateholders of each
Class will be distributed in accordance with their respective interests therein,
except that Subordinate Certificateholders, if any, will not, subject to the
limitations described in the related Prospectus Supplement, receive any amount
of distributions until Senior Certificateholders receive the amount of present
distributions due them and the amount of distributions owed them which were not
timely distributed thereon and to which they are entitled (in each case
calculated as described in the related Prospectus Supplement). If specified in
the related Prospectus Supplement, the difference between the amount which
Certificateholders would have received if there had been sufficient eligible
funds available for distribution and the amount actually distributed will be
included in the calculation of the amount which the Certificateholders are
entitled to receive on the next Distribution Date.
Distributions on the Certificates on each Distribution Date will generally
be allocated to each Certificate entitled thereto on the basis of the undivided
percentage interest (the "Percentage Interest") evidenced by such Certificate in
the Trust Fund or on the basis of their outstanding principal amounts or
notional amounts (subject to any subordination of the rights of any classes of
Subordinate Certificates to receive current distributions as specified in the
related Prospectus Supplement). If the Mortgage Assets for a Series have
adjustable or variable interest or pass-through rates, then the Pass-Through
Rate of the Certificates of such Series may also vary, due to changes in such
rates and due to prepayments with respect to Mortgage Loans comprising or
underlying the related Mortgage Assets. If the Mortgage Assets for a Series have
fixed interest or pass-through rates, then the Pass-Through Rate on Certificates
of the related Series may be fixed, or may vary, to the extent prepayments cause
changes in the weighted average interest rate or pass-through rate of the
Mortgage Assets. If the Mortgage Assets have lifetime or periodic adjustment
caps on their respective pass-through rates, then the Pass-Through Rate on the
Certificates of the related Series may also reflect such caps.
Interest. Each Class of Certificates of a Series will accrue interest from
the date and at the fixed or adjustable Pass-Through Rate set forth (or
determined as set forth) in the related Prospectus Supplement, except for any
Class of PO Certificates, which will not accrue interest. The "Accrual Period"
with respect to any Distribution Date shall be the period from (and including)
the first day of the month preceding the month in which such Distribution Date
falls (or, in the case of the first Distribution Date, from the Closing Date)
through the last day of such preceding month, or such other period as may be
specified in the related Prospectus Supplement. Accrued interest will be
distributed (to the extent of available funds and subject to negative
amortization, if any, on the underlying Mortgage Loans) at the times and in the
manner specified in such Prospectus Supplement. Distributions of interest on any
Class of Compounding Certificates will commence at the time specified in such
Prospectus Supplement; until then, interest on the Compounding Certificates will
be added to the Certificate Balance thereof and will thereafter accrue interest.
Unless otherwise specified in the related Prospectus Supplement, interest on the
Certificates of each Class will accrue at the applicable Pass-Through Rate from
the date specified in the related Prospectus Supplement (calculated on the basis
of a 360-day year consisting of twelve 30-day months) through the last day of
the Accrual Period for the Distribution Date on which the Certificate Balance of
the Certificates of such Class is a fully amortized.
Principal. The "Certificate Balance" of a Certificate of a Series at any
time is equal to the initial Certificate Balance of such Certificate (plus, in
the case of Compounding Certificates, interest added to the Certificate Balance
thereof) less all distributions of principal thereon through the preceding
Distribution Date and adjustments, if any, in respect of losses and represents
the amount in respect of principal which the holder thereof is then entitled to
receive from the cash flow on the assets included
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<PAGE>
in the related Pool. The aggregate initial Certificate Balance of a Series and
each Class thereof will be the amount set forth as such on the cover of the
related Prospectus Supplement.
Each Class of Certificates of a Series (except for IO Certificates) will
(to the extent of available funds) receive distributions of principal in the
amounts, at the times and in the manner specified in the related Prospectus
Supplement until its initial aggregate Certificate Balance has been fully
amortized. The aggregate amount distributed as principal for a Series will
generally be equal to (or determined pursuant to a formula based on) the amount
of principal received on the related Pool during the period specified in the
Prospectus Supplement. Allocations of distributions of principal will be made to
the Certificates of each Class in the proportions, during the periods and in the
order specified in the related Prospectus Supplement. The Certificate Balance of
a Class or Classes of Certificates may increase in accordance with any negative
amortization experienced by Mortgage Assets in the related Pool. Distributions
will be made pro rata among the Certificates of each Class then entitled to
receive such distributions.
The "Scheduled Amortization Date" for a Class of Certificates is the latest
date as of which the aggregate Certificate Balance of the Certificates of such
Class is expected to be fully amortized, either based on the assumptions that
all scheduled payments (with no prepayments) on the Mortgage Loans and/or
Mortgage Certificates in the related Pool are timely received and, if
applicable, that all such scheduled payments are reinvested on receipt at the
rate or rates specified in the related Prospectus Supplement at which amounts in
the Certificate Account are assumed to earn interest (the "Assumed Reinvestment
Rate") or, if a minimum prepayment agreement is entered into with respect to
such Series that payments on the related Mortgage Loans and/or Mortgage
Certificates are received, in accordance with a minimum prepayment rate or
schedule as set forth in the related Supplement. (If an Assumed Reinvestment
Rate is specified for a Series of Certificates, reinvestment earnings on funds
in the Certificate Account will not belong to the Master Servicer as additional
servicing compensation. Such amounts will be part of the Pool and will be
available to make distributions on the related Certificates.)
Senior and Subordinated Certificates. A Series of Certificates may consist
of one or more Classes of Senior Certificates and one or more Classes of
Subordinated Certificates, one or more of which may be further subordinated to
one or more other classes of Subordinated Certificates. Any such subordination
may be limited to the Subordinated Amount specified in the related Supplement
or, in the case of Shifting Interest Certificates, to the proportionate interest
of the Subordinated Certificates in distributions and will be effected by a
subordination of the right to receive current distributions, to the extent and
under the circumstances set forth in the related Prospectus Supplement. In
addition, a Reserve Fund may be established, which may be funded in part by an
initial deposit therein and in part by the deposit therein of amounts otherwise
distributable to holders of Subordinated Certificates. The terms of any
subordination arrangement will be described in the Prospectus Supplement. See
"Credit Enhancements -- Subordination."
Compounding Certificates. Compounding Certificates of a Series will not be
entitled to distributions of principal or interest until the date specified in
the related Prospectus Supplement. On each Distribution Date prior to the first
Distribution Date on which interest is distributed on a Class of Compounding
Certificates, the amount of interest accrued during the prior Distribution
Period or Accrual Period will be added to the Certificate Balance of such Class
and will accrue interest at the applicable Pass-Through Rate from the time it is
added to the Certificate Balance or from such other date as may be specified in
the related Prospectus Supplement.
Stripped Certificates. Stripped Certificates may consist of PO
Certificates, IO Certificates or Certificates entitled to distributions of
principal on Mortgage Loans and/or Mortgage Certificates with disproportionate
or nominal interests distributions or of interest on Mortgage Loans and/or
Mortgage Certificates with nominal principal distributions.
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PO Certificates are entitled to receive distributions of principal on
Mortgage Loans and/or Mortgage Certificates but not to receive distributions of
interest thereon.
IO Certificates are entitled to receive distributions of interest on
Mortgage Loans and/or Mortgage Certificates, but not distributions of principal
thereon and will be denominated in Notional Balances. With respect to any IO
Certificate and any Distribution Date, the "Notional Balance" is the amount
specified as such on such Certificate, reduced by distributions allocable to
principal on the corresponding Class or Classes of Certificates entitled to
distributions of principal, all as set forth in the related Prospectus
Supplement. The initial aggregate Notional Balance for a Class of IO
Certificates will be specified in the related Supplement. The Notional Balance
of each IO Certificate will be used to calculate the amount of interest to be
distributed on all IO Certificates of such Series and each holder's pro rata
share of the interest distributions on the Mortgage Loans and/or Mortgage
Certificates allocated to that Class and for the determination of certain other
rights of holders of such Class of IO Certificates and will not represent an
interest in, or entitle any such holder to any distribution with respect to, any
principal distributions on the Mortgage Loans and/or Mortgage Certificates. Each
such Certificate's pro rata share of the interest distributions on the Mortgage
Loans and/or Mortgage Certificates on each Distribution Date will be calculated
by multiplying the interest distributions on the Mortgage Loans and/or Mortgage
Certificates allocated to its Class by a fraction, the numerator of which is the
Notional Balance of such IO Certificate and the denominator of which is the
aggregate Notional Amount of the IO Certificates of its Class.
Sequential Pay Certificates. Distributions of principal will be made on the
classes of a Series of Sequential Pay Certificates or on certain Classes of such
Series in order of the latest date as of which the aggregate Certificate Balance
of the Certificates of such Class is expected to be fully amortized (the
"Scheduled Amortization Date") or in another order, such that no Class will
receive a principal distribution until classes having earlier Scheduled
Amortization Date or prior designations have been fully amortized.
Prepayment Certificates. Prepayment Certificates are entitled to minimum
distributions of principal based on the assumption that the Mortgage Loans or
mortgage loans underlying Mortgage Certificates in the related Pool prepay at a
rate specified in the related Prospectus Supplement. Such distributions of
principal will commence on the Payment Date specified in the related Prospectus
Supplement.
Residual Certificates. A Series of REMIC Certificates will include a Class
of Residual Certificates representing the right to receive, in addition to any
other distributions to which they are entitled in accordance with their terms,
distributions of all of the Surplus (if any) with respect to each Distribution
Date. The "Surplus" for a Series of REMIC Certificates as of any Distribution
Date equals the amount, if any, by which the sum of distributions, payments and
other amounts received exceeds the sum of (i) the amount required to be
distributed to Certificateholders on such Distribution Date and (ii) certain
expenses, all as more specifically described in the related Prospectus
Supplement. In addition, after the aggregate Certificate Balance of all Classes
of Regular Certificates has been fully amortized, the holders of the Residual
Certificates will be the sole owners of the related Pool and will have sole
rights with respect to the Mortgage Loans and/or Mortgage Certificates and other
assets remaining in such Pool. Some or all of the Residual Certificates of a
Series may be offered by this Prospectus and the related Prospectus Supplement;
if so, the terms of such Residual Certificates will be described herein and
therein. Any qualifications on direct or indirect ownership of Residual
Certificates offered hereby and by the related Prospectus Supplement, as well as
restrictions on the transfer of such Residual Certificates, will be set forth in
the related Prospectus Supplement. If such Residual Certificates are not so
offered, the Depositor may (but need not) sell some or all of such Residual
Certificates on or after the date of original issuance of such Series in
transactions exempt from registration under the Securities Act and otherwise
under circumstances that will not adversely affect the REMIC status of the Pool.
If Residual Certificates
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offered hereby and by the related Prospectus Supplement have a Certificate
Balance or a Pass-Through Rate, references herein with respect to distributions
on Certificates and Regular Certificates and related matters should be deemed to
include Residual Certificates, as appropriate.
Non-Accelerated Certificates. Non-Accelerated Certificates are entitled to
distributions of principal according to an amortization schedule established at
the time such Certificates are issued. The scheduled amortization rate of such
Certificates is intended to be slower than the amortization rate of the related
Mortgage Loans.
Advances and Limitations Thereon
Unless otherwise specified in the related Prospectus Supplement, the Master
Servicer will make an Advance each month for distribution to the
Certificateholders equal to the sum of the amount of delinquent Monthly Payments
due on the applicable Installment Due Date immediately preceding each such
Distribution Date, adjusted to the applicable Mortgage Pass-Through Rate less an
amount that the Master Servicer determines would not be recoverable from
Liquidation Proceeds or otherwise. Additionally, if otherwise specified in the
related Prospectus Supplement, the Trustee, on behalf of the Master Servicer,
may make such Advances. In making Advances, the Master Servicer is endeavoring
to maintain a regular flow of scheduled interest and principal payments to the
Certificateholders, rather than to guarantee or insure against losses.
Accordingly, any funds of the Master Servicer so advanced are recoverable
without interest by it out of amounts which represent late recoveries of
principal and/or interest respecting which any such Advance was made, or out of
related Liquidation Proceeds. If related Liquidation Proceeds are insufficient,
unreimbursed Advances ("Nonrecoverable Advances") may be recovered out of any
funds in the Certificate Account. In addition, Advances may be made by
withdrawals from funds on deposit in the Certificate Account. The Master
Servicer will make Advances whenever it determines that funds will ultimately be
available to reimburse it. If the Master Servicer makes an Advance on any
Distribution Date, it will be included with the distribution to the Certificate
holders on such Distribution Date. In the event the Trustee purchases any
foreclosed property and such property becomes part of the Trust Fund, the Master
Servicer will continue to make Advances on such property as if the Mortgage Loan
were still outstanding in the manner described above. At the time the Trustee
sells such property, the Master Servicer shall be reimbursed for all such
Advances in an amount not to exceed the sale price. (Section 4.3.)
Adjustment to Master Servicing Fees in Connection with Prepayment Interest
Shortfall
When a Mortgagor prepays the entire Mortgage Loan between Installment Due
Dates for such Mortgage Loan, the Mortgagor pays interest on the amount prepaid
only to the date of prepayment. In addition, a partial prepayment may be applied
by the Master Servicer to reduce the principal balance of the related Mortgage
Loan as of a date prior to the receipt of such payment. Unless otherwise
specified in the related Prospectus Supplement, in order that Certificateholders
will not be adversely affected by a Prepayment Interest Shortfall, the Master
Servicer may forego all or a portion of the Master Servicing Fees so that the
distributions made to such Certificateholders on the Distribution Date in the
following month will include an amount equal to up to a full month's interest
payment, at the applicable Mortgage Pass-Through Rate, that would otherwise have
been included in such distribution with respect to any such Mortgage Loan
prepaid in full or in part. Any such payments by the Master Servicer of a
Prepayment Interest Shortfall may be covered only from and to the extent of the
aggregate Master Servicing Fees attributable to payments being distributed on
the related Distribution Date. Any such prepayments together with the full
month's interest thereon at the applicable Mortgage Pass-Through Rate will be
paid to the Certificateholders on the Distribution Date in the month following
the month in which the last day of the related Prepayment Period occurred.
Except with respect to a First of the Month Mortgage Loan, in the event a
Mortgage Loan is prepaid in full in a given month on a date after the scheduled
due date of such Mortgage Loan in such month, the Master Servicer will retain as
an increase in the Master
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Servicing Fee the amount of the Mortgagor's payments attributable to interest at
the applicable Mortgage Pass-Through Rate paid on the Mortgage Loan from the
scheduled due date of such Mortgage Loan to the date of prepayment. (Section
4.6.) See "Prepayment and Yield Considerations" herein.
Example of Distribution
The following chart sets forth an example of the application of the
foregoing provisions to the first two months of the related Trust Fund's
existence, assuming the Certificates are issued in October 1997, relate to a
Pool consisting of Mortgage Loans and are paid on a monthly basis:
<TABLE>
<CAPTION>
<S> <C>
October 1 (A) Cut-off Date.
October 2-
October 31 (B) The Master Servicer receives any Principal Prepayments
and interest thereon to date of prepayment.
October 31 (C) Record Date.
November 1-
November 20 (D) The Master Servicer receives scheduled payments of
principal and interest due on November 1.
November 20 (E) Determination Date.
November 25 (F) Distribution Date.
</TABLE>
Succeeding monthly periods follow the pattern of (B) through (F).
- -----------
(A) The initial unpaid principal balance of the Mortgage Loans in the Pool
would be the aggregate unpaid principal balances of the Mortgage Loans at
the close of business on October 1, after deducting principal payments due
on or before such dates. Those principal payments due on or before such
dates, and the related interest payments, would not be part of the Trust
Fund and would be turned over to the Depositor when received.
(B) Principal prepayments received during this period would be credited to the
Certificate Account for distribution to Certificateholders on the November
25 Distribution Date. When a Mortgage Loan is prepaid in full or
liquidated, interest on the amount prepaid or liquidated is collected only
from the last scheduled Installment Due Date through which interest has
been paid to the date of prepayment or liquidation. Unless otherwise
specified in the related Prospectus Supplement, to the extent funds are
available from the current Master Servicing Fees, and in order to minimize
the resulting Prepayment Interest Shortfall, the Master Servicer would make
an additional payment to Certificateholders with respect to any Mortgage
Loan that prepaid by October 31 equal to the amount of the Prepayment
Interest Shortfall for such Mortgage Loan necessary to assure that on the
related Distribution Date the Pool Distribution would include with respect
to each such Mortgage Loan an amount equal to one month's interest at the
Mortgage Pass-Through Rate for such Mortgage Loan.
(C) Distributions in the month of November will be made to Certificateholders
of record at the close of business on this date.
(D) Scheduled monthly payments on the Mortgage Loans due on November 1 will be
deposited in the Certificate Account as received by the Master Servicer.
(E) As of the close of business on November 20 the Master Servicer will
determine the amounts of Advances, if any, and the amounts of principal and
interest which will be passed through to the Certificateholders. The Master
Servicer will be obligated to distribute those scheduled payments
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due on November 1 which have been received on or before November 20, as
well as all principal prepayments received on Mortgage Loans between
October 2 and October 31 (with interest adjusted to the applicable Mortgage
Pass-Through Rate). To the extent funds are available from the
Administration Fees from payments received during the period described in
(D) above to cover any shortfalls of interest with respect to principal
prepayments in full, unless otherwise specified in the related Prospectus
Supplement, they will be included in the distribution.
(F) Unless otherwise so specified in the related Prospectus Supplement, the
Master Servicer will make distributions to Certificateholders on the 25th
day of each month, or if such 25th day is not a Business Day, on the
succeeding Business Day.
Registration of Certificates
Certificateholders may hold their Certificates through DTC (in the United
States) or CEDEL or Euroclear (in Europe) if they are participants of such
systems, or indirectly through organizations which are participants in such
systems.
The Certificates will initially be registered in the name of CEDE & Co.,
the nominee of DTC, CEDEL and Euroclear will hold omnibus positions on behalf of
their participants through customers' securities accounts in CEDEL's and
Euroclear's names on the books of their respective depositaries which in turn
will hold such positions in customers' securities accounts in the depositaries'
names on the books of DTC. Citibank will act as depositary for CEDEL and Morgan
will act as depositary for Euroclear (in such capacities, individually the
"Depositary" and collectively the "Depositaries").
Transfers between DTC Participants (as defined below) will occur in
accordance with DTC rules. Transfers between CEDEL Participants and Euroclear
Participants will occur in accordance with their respective rules and operating
procedures.
Cross-market transfers between persons holding directly or indirectly
through DTC, on the one hand, and directly or indirectly through CEDEL
Participants or Euroclear Participants, on the other, will be effected in DTC in
accordance with DTC rules on behalf of the relevant European international
clearing system by its Depositary; however, such cross-market transactions will
require delivery of instructions to the relevant European international clearing
system by the counterparty in such system in accordance with its rules and
procedures and within its established deadlines (European time). The relevant
European international clearing system will, if the transaction meets its
settlement requirements, deliver instructions to its Depositary to take action
to effect final settlement on its behalf by delivering or receiving securities
in DTC, and making or receiving payment in accordance with normal procedures for
same-day funds settlement applicable to DTC. CEDEL Participants and Euroclear
Participants may not deliver instructions directly to the Depositaries.
Because of time-zone differences, credits of securities received in CEDEL
or Euroclear as a result of a transaction with a DTC Participant will be made
during subsequent securities settlement processing and dated the Business Day
following the DTC settlement date. Such credits or any transactions in such
securities settled during such processing will be reported to the relevant
Euroclear or CEDEL Participants on such Business Day. Cash received in CEDEL or
Euroclear as a result of sales of securities by or through a CEDEL Participant
or Euroclear Participant to a DTC Participant will be received with value on the
DTC settlement date but will be available in the relevant CEDEL or Euroclear
cash account only as of the Business Day following settlement in DTC. For
information with respect to tax documentation procedures relating to the
Certificates, see "Certain Federal Income Tax Consequences -- Qualification as a
REMIC -- Reporting and Other Administrative Matters", "-- Foreign Investors" and
"-- Investment in Certificates Not Representing Interests in a REMIC --
Reporting" and "-- Foreign Investors" and "Global Clearance, Settlement and Tax
Documentation Procedures" in Annex I hereto.
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Certificateholders who are not DTC Participants but desire to purchase,
sell or otherwise transfer ownership of Certificates may do so only through DTC
Participants or indirect participants (unless and until Replacement
Certificates, as defined below, are issued). In addition, Certificateholders
will receive all distributions of principal of, and interest on, the
Certificates from the Trustee through DTC and DTC Participants.
Certificateholders will not receive or be entitled to receive certificates
representing their respective interests in the Certificates, except under the
limited circumstances described below.
Unless and until Replacement Certificates are issued, it is anticipated
that the only "Certificateholder" of the Certificates will be CEDE & Co., as
nominee of DTC. Certificateholders will not be Certificateholders as that term
is used in the Agreement. Certificate Owners are only permitted to exercise the
rights of Certificateholders indirectly through DTC Participants and DTC.
While the Certificates are outstanding (except under the circumstances
described below), under the rules, regulations and procedures creating and
affecting DTC and its operations (the "Rules"), DTC is required to make book-
entry transfers among DTC Participants on whose behalf it acts with respect to
the Certificates and is required to receive and transmit distributions of
principal of, and interest on, the Certificates. DTC Participants and indirect
participants with whom Certificate Owners have accounts with respect to
Certificates are similarly required to make book-entry transfers and receive and
transmit such distributions on behalf of their respective Certificate Owners.
Accordingly, although Certificate Owners will not possess certificates, the
Rules provide a mechanism by which Certificate Owners will receive distributions
and will be able to transfer their interests.
Unless and until Replacement Certificates are issued, Certificate Owners
who are not DTC Participants may transfer ownership of Certificates only through
DTC Participants and indirect participants by instructing such DTC Participants
and indirect participants to transfer Certificates, by book-entry transfer,
through DTC for the account of the purchasers of such Certificates, which
account is maintained with their respective DTC Participants. Under the Rules
and in accordance with DTC's normal procedures, transfers of ownership of
Certificates will be executed through DTC and the accounts of the respective DTC
Participants at DTC will be debited and credited. Similarly, the DTC
Participants and indirect participants will make debits or credits, as the case
may be, on their records on behalf of the selling and purchasing Certificate
Owners.
DTC is a limited-purpose trust company organized under the laws of the
State of New York, a member of the Federal Reserve System, a "clearing
corporation" within the meaning of the New York Uniform Commercial Code, and a
"clearing agency" registered pursuant to the provisions of Section 17A of the
Exchange Act. DTC accepts securities for deposit from its participating
organizations ("DTC Participants") and facilitates the clearance and settlement
of securities transactions between DTC Participants in such securities through
electronic book-entry changes in accounts of DTC Participants, thereby
eliminating the need for physical movement of certificates. DTC Participants
include securities brokers and dealers, banks and trust companies and clearing
corporations and may include certain other organizations. Indirect access to the
DTC system is also available to others such as banks, brokers, dealers and trust
companies that clear through or maintain a custodial relationship with a DTC
Participant, either directly or indirectly ("indirect participants").
CEDEL is incorporated under the laws of Luxembourg as a professional
depository. CEDEL holds securities for its participating organizations ("CEDEL
Participants") and facilitates the clearance and settlement of securities
transactions between CEDEL Participants through electronic book-entry changes in
accounts of CEDEL Participants, thereby eliminating the need for physical
movement of certificates. Transactions may be settled in CEDEL in any of 28
currencies, including United States dollars. CEDEL provides to its CEDEL
Participants, among other things, services for safekeeping, administration,
clearance and settlement of internationally traded securities and securities
lending and borrowing. CEDEL interfaces with domestic markets in several
countries. As a professional depository,
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CEDEL is subject to regulation by the Luxembourg Monetary Institute. CEDEL
Participants are recognized financial institutions around the world, including
underwriters, securities brokers and dealers, banks, trust companies, clearing
corporations and certain other organizations. Indirect access to CEDEL is also
available to others, such as banks, brokers, dealers and trust companies that
clear through or maintain a custodial relationship with a CEDEL Participant,
either directly or indirectly.
Euroclear was created in 1968 to hold securities for participants of
Euroclear ("Euroclear Participants") and to clear and settle transactions
between Euroclear Participants through simultaneous electronic book-entry
delivery against payment, thereby eliminating the need for physical movement of
certificates and any risk from lack of simultaneous transfers of securities and
cash. Transactions may now be settled in any of 32 currencies, including United
States dollars. Euroclear includes various other services, including securities
lending and borrowing and interfaces with domestic markets in several countries
generally similar to the arrangements for cross-market transfers with DTC
described above. Euroclear is operated by the Brussels, Belgium office of Morgan
Guaranty Trust Company of New York (the "Euroclear Operator"), under contract
with Euroclear Clearance Systems S.C., a Belgian cooperative corporation (the
"Cooperative"). All operations are conducted by the Euroclear Operator, and all
Euroclear securities clearance accounts and Euroclear cash accounts are accounts
with the Euroclear Operator, not the Cooperative. The Cooperative establishes
policy for Euroclear on behalf of Euroclear Participants. Euroclear Participants
include banks (including central banks), securities brokers and dealers and
other professional financial intermediaries. Indirect access to Euroclear is
also available to other firms that clear through or maintain a custodial
relationship with a Euroclear Participant, either directly or indirectly.
The Euroclear Operator is the Belgian branch of a New York banking
corporation which is a member bank of the Federal Reserve System. As such, it is
regulated and examined by the Board of Governors of the Federal Reserve System
and the New York State Banking Department, as well as the Belgian Banking
Commission.
Securities clearance accounts and cash accounts with the Euroclear Operator
are governed by the Terms and Conditions Governing Use of Euroclear and the
related Operating Procedures of the Euroclear System and applicable Belgian law
(collectively, the "Terms and Conditions"). The Terms and Conditions govern
transfers of securities and cash within Euroclear, withdrawals of securities and
cash from Euroclear, and receipts of payments with respect to securities in
Euroclear. All securities in Euroclear are held on a fungible basis without
attribution of specific certificates to specific securities clearance accounts.
The Euroclear Operator acts under the Terms and Conditions only on behalf of
Euroclear Participants, and has no record of or relationship with persons
holding through Euroclear Participants.
Distributions with respect to Certificates held through CEDEL or Euroclear
will be credited to the cash accounts of CEDEL Participants or Euroclear
Participants in accordance with the relevant system's rules and procedures, to
the extent received by its Depositary. Such distributions will be subject to tax
reporting in accordance with relevant United States tax laws and regulations.
See "Certain Income Tax Consequences". CEDEL or the Euroclear Operator, as the
case may be, will take any other action permitted to be taken by a
Certificateholder on behalf of a CEDEL Participant or Euroclear Participant only
in accordance with its relevant rules and procedures and subject to its
Depositary's ability to effect such actions on its behalf through DTC.
Certificates will be issued in registered form to Certificate Owners, or
their nominees, rather than to DTC (such Certificates being referred to herein
as "Replacement Certificates"), only if (i) DTC or the Depositor advises the
Trustee in writing that DTC is no longer willing or able to discharge properly
its responsibilities as nominee and depository with respect to the Certificates
and the Depositor or the Trustee is unable to locate a qualified successor, or
(ii) the Depositor, at its sole option and with the consent of
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the Trustee, elects to terminate the book-entry system through DTC. Upon
issuance of Replacement Certificates to Certificate Owners, such Certificates
will be transferable directly (and not exclusively on a book-entry basis) and
registered Certificateholders will deal directly with the Trustee with respect
to transfers, notices and distributions.
DTC has advised the Depositor and the Trustee that, unless and until
Replacement Certificates are issued, DTC will take any action permitted to be
taken by a Certificateholder only at the direction of one or more DTC
Participants to whose DTC accounts the Certificates are credited. DTC may take
actions, at the direction of the related DTC Participants, with respect to some
Certificates which conflict with actions taken with respect to other
Certificates.
Because DTC can only act on behalf of DTC Participants, who in turn act on
behalf of indirect participants and certain banks, the ability of holders of
beneficial interests in the Certificates to pledge such Certificates to persons
or entities that do not participate in the DTC system, or otherwise take actions
in respect of such Certificates, may be limited due to the lack of a definitive
certificate for such Certificates.
Although DTC, CEDEL and Euroclear have agreed to the foregoing procedures
in order to facilitate transfers of Certificates among participants of DTC,
CEDEL and Euroclear, they are under no obligation to perform or continue to
perform such procedures and such procedures may be discontinued at any time.
Reports to Certificateholders
Unless otherwise specified in the related Prospectus Supplement, the Master
Servicer will cause the Trustee to forward with each distribution to each
Certificateholder of record a statement setting forth the following information
as to each Class of Certificates to the extent applicable:
(a) the amount, if any, of such distribution allocable to principal on
the Mortgage Loans and Mortgage Certificates, separately identifying the
aggregate amount of any Principal Prepayments included therein;
(b) the amount of such distribution allocable to interest on the
Mortgage Loans and Mortgage Certificates;
(c) the amount of Deferred Interest, if any, added to the aggregate
Principal Balance of the Mortgage Loans and Mortgage Certificates during
such month;
(d) the aggregate amount, by Class, of any Advances included in the
amounts actually distributed;
(e) the aggregate Principal Balance of the Mortgage Loans as of the
close of business on the last day of the Prepayment Period prior to the
immediately preceding Installment Due Date, after giving effect to payments
allocated to principal reported under clause (a) above and to amounts of
Deferred Interest, if any, added to principal under clause (c) above;
(f) the related amount of Administration Fees, as adjusted, pursuant
to the Agreement, retained or withdrawn from the Certificate Account by the
Master Servicer and the amount of additional servicing compensation
received by the Master Servicer attributable to penalties, fees, excess
Liquidation Proceeds and other items;
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(g) the number and aggregate Principal Balances of Mortgage Loans
delinquent with respect to (a) one Monthly Payment, and (b) two or more
Monthly Payments, as of the close of business on the day prior to the
immediately preceding Installment Due Date;
(h) the book value of any real estate acquired through foreclosure or
grant of a deed in lieu of foreclosure in respect of any Mortgage Loan as
of the close of business on the day prior to the immediately preceding
Installment Due Date;
(i) the amount remaining in the Reserve Fund, if any, on the
Distribution Date after any withdrawal reported under clause (f) above;
(j) the weighted average Mortgage Pass-Through Rate as of the first
day of the month immediately preceding the month of the Distribution Date;
and
(k) all Advances recovered during the related Prepayment Period.
In addition, within a reasonable period of time after the end of each
calendar year, the Master Servicer will cause the Trustee to furnish a report to
each Certificateholder of record at any time during such calendar year (a) as to
the aggregate of amounts reported pursuant to clauses (a) through (k) above for
such calendar year or, in the event such person was a Certificateholder of
record during a portion of such calendar year, for the applicable portion of
such year and (b) such other customary information as the Master Servicer deems
necessary or desirable for Certificateholders to prepare their tax returns.
(Section 4.4.) Information in the monthly and annual reports provided to the
Certificateholders will not have been examined and reported upon by an
independent public accountant. However, the Master Servicer will provide to the
Trustee annually a report by independent public accountants with respect to the
Master Servicer's servicing of the Mortgage Loans. (Section 3.12.)
See "-- Evidence as to Compliance" below.
Reports to the Trustee
No later than 25 days after each Distribution Date, the Master Servicer
will provide the Trustee with a report, certified by a Servicing Officer,
setting forth the status of the Certificate Account as of the close of business
on such Distribution Date, stating that all distributions required to be made by
the Master Servicer under the Agreement have been made (or if any required
distribution has not been made by the Master Servicer specifying the nature and
status thereof and showing, for the period covered by such statement, the
aggregate of deposits into and withdrawals from the Certificate Account for each
category of deposits and withdrawals specified in the Agreement). Such statement
shall also include information as to the aggregate unpaid Principal Balances of
all the Mortgage Loans and Mortgage Certificates as of the day prior to the
immediately preceding applicable Installment Due Date. Copies of such reports
may be obtained by Certificateholders upon request in writing from the Trustee
or from the Master Servicer that is identified in the related Prospectus
Supplement.
Collection and Other Servicing Procedures
The Master Servicer will make reasonable efforts to collect all payments
called for under the Mortgage Loans and any applicable credit enhancement
applicable thereto and will, consistent with the Agreement, follow such
collection procedures as it follows with respect to its own conventional one-to-
four-unit residential first mortgage loans. Consistent with the above, the
Master Servicer may, in its discretion, (i) waive any assumption fee, late
payment charge or other charge in connection with a Mortgage Loan; and (ii)
arrange a schedule, running for no more than 180 days after the Installment Due
Date for payment of any installment on any Mortgage Note, for the liquidation of
delinquent items. (Section 3.2.) In servicing ARMs, the Master Servicer will on
occasion accommodate borrower inquiries
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regarding the notice of interest rate adjustments by deferring the effective
date of the adjustment and requesting the borrower to agree to reduce the notice
period provided in the related mortgage note. The result of any deferrals of the
effective date of rate adjustments to Mortgage Loans included in a Pool, during
periods of rising interest rates, may be to reduce the yield to investors in
Certificates evidencing interests in such Pool.
In connection with any assumption or substitution, the Mortgage Interest
Rate will not be changed, but the Maximum Rate and Minimum Rate may be revised
as described above under "Yield Considerations and Risks" if so specified in the
related Prospectus Supplement. (Section 3.6.)
Certain of the Mortgage Loans may provide for payment by the Mortgagor to
the Master Servicer of amounts to be used for payment of taxes, assessments,
hazard insurance premiums or comparable items for the account of the Mortgagor.
Such amounts, if any, will not become part of the Trust Fund and
Certificateholders will possess no interest therein. The Master Servicer may
deal with these amounts in accordance with its normal servicing procedures.
(Section 3.2.)
Pursuant to each Agreement, the Master Servicer will be responsible for
servicing and administering the Mortgage Loans, but will be permitted to enter
into a Servicing Agreement with a Qualified Lender or another eligible
institution (the other party to such Servicing Agreement hereafter referred to
as a "Servicer"), to perform all or part of such functions under its supervision
that it would otherwise be required to perform as described below.
The Master Servicer, or the Servicer, subject to general supervision of the
Master Servicer, will diligently perform all services and duties specified in
each Agreement, or Servicing Agreement, in the same manner as prudent mortgage
lending institutions would perform with respect to mortgages of the same type as
the Mortgage Loans in those jurisdictions where the related Mortgaged Properties
are located. The Master Servicer will monitor the performance of the Servicer
and will have the right to remove such Servicer at any time if it considers such
removal to be in the best interest of the related Certificateholders. The duties
to be performed by the Master Servicer, directly or through the Servicer, will
include collection and remittance of principal and interest payments, collection
of insurance claims and, if necessary, foreclosure. In the event a Servicing
Agreement shall be terminated by the Master Servicer the servicing function of
the Servicer thereunder shall be either transferred to a substitute servicer or
performed by the Master Servicer. The Master Servicer shall be entitled to
retain the portion of the Administration Fee paid to the Servicer under a
terminated Servicing Agreement in the event the Master Servicer shall elect to
perform such servicing functions itself.
The Master Servicer will be paid an Administration Fee for the performance
of its services and duties under each Agreement as specified in the related
Prospectus Supplement. Additionally, the Master Servicer or the Servicer may be
entitled to retain late charges, assumption fees and similar charges to the
extent collected from Mortgagors.
Hazard Insurance
The Depositor and/or the Master Servicer will obtain for each Mortgage Loan
a hazard insurance policy providing for no less than the coverage of the
standard form of fire insurance policy with extended coverage in the applicable
state. The Master Servicer will cause to be maintained for each Mortgage Loan
such hazard insurance policy. Such coverage will be in an amount equal to the
lesser of the principal balance of the Mortgage Loan and the replacement cost of
the improvements securing such Mortgage Loan. As set forth above, all amounts
collected by the Master Servicer under any hazard policy (except for amounts to
be applied to the restoration or repair of the Mortgaged Property or released to
the Mortgagor in accordance with the Master Servicer's normal servicing
procedures) will be credited to the Certificate Account. In the event that the
Master Servicer maintains a blanket policy
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insuring against hazard losses on all the Mortgage Loans, it shall conclusively
be deemed to have satisfied its obligation relating to the maintenance of hazard
insurance. Such blanket policy may contain a deductible clause, in which case
the Master Servicer will be required to credit to the Certificate Account the
amounts which would have been credited thereto but for such clause. (Section
3.5.)
In general, the standard form of fire and extended coverage policy covers
physical damage to or destruction of the improvements on the property by fire,
lighting, explosion, smoke, windstorm and hail, and riot, strike and civil
commotion, subject to the conditions and exclusions particularized in each
policy. Although the policies relating to the Mortgage Loans will be
underwritten by different insurers and therefore do not contain identical terms
and conditions, the basic terms thereof are dictated by applicable law and most
such policies typically do not cover any physical damages resulting from the
following: war, revolution, governmental actions, flood and other water-related
causes, earth movement (including earthquakes, landslides and mud flows),
nuclear reactions, hurricanes, wet or dry rot, vermin, rodents, insects or
domestic animals, theft and, in certain cases, vandalism. The foregoing list is
merely indicative of certain kinds of uninsured risks and is not intended to be
all-inclusive. If any Mortgaged Property was located in a federally designated
special flood hazard area at the time of origination, the Master Servicer will
cause to be maintained a flood insurance policy on such Mortgaged Property up to
the maximum amount available or to the full amount of the related Mortgage Loan.
The hazard insurance policies covering Mortgaged Properties typically will
contain a clause which in effect requires the insured at all times to carry
insurance of a specified percentage (generally 80% to 90%) of the full
replacement value of the improvements on the property in order to recover the
full amount of any partial loss. If the insured's coverage falls below this
specified percentage then the insurer's liability in the event of partial loss
shall not exceed the greater of (i) the actual cash value (generally defined as
replacement cost at the time and place of loss, less physical depreciation) of
the improvements damaged or destroyed or (ii) such proportion of the loss as the
amount of insurance carried bears to the specified percentage of the full
replacement cost of such improvements. Since residential properties have
appreciated in value over time, from time to time, in the past, the effect of
this requirement in the event of partial loss may be that hazard insurance
proceeds will be insufficient to restore fully the damaged property. However,
until the Subordinated Amount is reduced to zero (and provided any applicable
special loss limitation described in the related Prospectus Supplement has not
been exceeded), Senior Certificateholders will not realize a loss by reason of
uninsured hazard losses or application of the requirement if there are
sufficient funds otherwise due the Subordinate Certificate holders or held in
the Reserve Fund, if any, to pay Senior Certificateholders the amount which they
are entitled to receive.
Realization Upon Defaulted Mortgage Loans
The Master Servicer will be obligated under the Agreement to follow such
practices and procedures as it deems necessary or advisable and as are normal
and usual in its general mortgage servicing activities to realize upon defaulted
Mortgage Loans. However, in the case of damage to a Mortgaged Property, the
Master Servicer is not required to expend its own funds in connection with
foreclosure or to restore any damaged property unless it reasonably determines
(i) that such foreclosure and/or restoration will increase the Liquidation
Proceeds to Certificateholders after reimbursement to the Master Servicer for
its expenses and (ii) that such expenses will be recoverable to it through
Liquidation Proceeds of the sale of the Mortgaged Property. In the event that
the Master Servicer has expended its own funds to restore damaged property, it
will be entitled to charge the Certificate Account, out of related Liquidation
Proceeds, an amount equal to expenses incurred by it. (Section 3.7.)
The Master Servicer may sell property securing a defaulted Mortgage Loan at
a trustee's sale or, in the event a deficiency judgment is available against the
Mortgagor or other person (see "Certain Legal Aspects of the Mortgage Loans --
Anti-Deficiency Legislation and Other Limitations on Lenders" herein
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for a description of the limited availability of deficiency judgments),
foreclose against such property and proceed for the deficiency against the
appropriate person. It is anticipated that in most cases the Master Servicer
will not seek deficiency judgments against defaulting Mortgagors. The Depositor
and/or the Master Servicer will be entitled to elect to purchase defaulted
Mortgage Loans or Mortgage Loans as to which the related Mortgagor has tendered
a deed in lieu of foreclosure from the Trust Fund for a purchase price equal to
the Principal Balance plus accrued and unpaid interest thereon. In the event the
Master Servicer purchases such a Mortgage Loan, any gain realized in a
liquidation proceeding on such Mortgage Loan will not be paid to the Trust Fund.
If the Master Servicer does not purchase such a Mortgage Loan, any gain realized
in a liquidation proceeding on such Mortgage Loan will be paid to the Trust Fund
for distribution to the Certificateholders, less reasonable reimbursement to the
Master Servicer for its expenses. If the Trust Fund elects to be treated as a
REMIC, such gain would become an asset of the REMIC Residual Holders to the
extent such gain is not necessary to make payments due to the holders of regular
interests. Often, the holder of property acquired through foreclosure maximizes
recovery by providing financing to a new purchaser. The Trustee will not be
empowered to provide such financing and the Master Servicer may, but will not be
obligated to, do so. This may result in a Pool experiencing greater losses with
respect to defaulted Mortgage Loans than might otherwise be the case.
Until the Subordinated Amount is reduced to zero (and provided any
applicable special loss limitation has not been exceeded), if Liquidation
Proceeds are less than the sum of the Principal Balance of the defaulted
Mortgage Loan and the Master Servicer's expenses, Senior Certificateholders will
not realize a loss.
Except as otherwise specified in the related Prospectus Supplement, with
respect to any payment of interest received by the Master Servicer in respect to
a Mortgage Loan (whether paid by the Mortgagor or received as Liquidation
Proceeds, insurance proceeds or otherwise) which is less than the full amount of
interest then due with respect to the related Mortgage Loan, the Retained Yield,
if any, will be prorated accordingly. (Section 3.2.)
With respect to a Series of Certificates for which a REMIC election (see
"Certain Federal Income Tax Consequences" herein) is made, if the Trustee
acquires ownership of any Mortgaged Property as a result of a default or
imminent default of any Mortgage Loan secured by such Mortgaged Property, the
Trustee will be required to dispose of such property within two years after the
date on which ownership of such property is acquired.
Retained Yield, Administration Fees, Compensation and Payment of Expenses
The Prospectus Supplement for a Series of Certificates will specify whether
any Retained Yield is retained by the Master Servicer with respect to the
Mortgage Loans comprising the related Pool. If so, the Retained Yield, which may
be adjustable, will be established on a loan-by-loan basis and will be specified
in the schedule of Mortgage Loans attached as an exhibit to the Agreement. The
Retained Yield will be deducted from Mortgagor payments as received and before
they are credited to the Certificate Account and will not be included as part of
the Trust Fund.
Unless otherwise specified in the related Prospectus Supplement, the Master
Servicer is entitled to receive a Master Servicing Fee with respect to each
Mortgage Loan, which may be variable, as described in the Agreement. The Master
Servicer's aggregate Master Servicing Fee for any month may be subject to
adjustment as described above under "Adjustment to Master Servicing Fees in
Connection with Prepayment Interest Shortfall." The Master Servicer may either
retain the Master Servicing Fees to which it is entitled before making required
deposits to the Certificate Account or may withdraw them from the Certificate
Account.
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Since the Master Servicer's Retained Yield, if any, and the Master
Servicing Fees are percentages of the then outstanding Principal Balance of each
Mortgage Loan each month, the Master Servicer's aggregate compensation will
decrease as the Mortgage Loans amortize. In addition to such compensation, the
Master Servicer will retain all assumption fees, late payment charges and other
charges, to the extent collected from Mortgagors.
The Master Servicer will pay certain expenses incurred in connection with
its servicing of the Mortgage Loans, including, without limitation, payment of
the fees and disbursements of the Trustee and independent accountants, and
payment of expenses incurred in connection with distributions and reports to
Certificateholders. (Section 3.9.)
The Master Servicer is entitled to reimbursement for certain expenses
incurred by it in connection with the liquidation of defaulted Mortgage Loans,
including under certain circumstances reimbursement of expenditures incurred by
it in connection with the restoration of Mortgaged Properties, such right of
reimbursement being prior to the rights of Certificateholders to receive any
related Liquidation Proceeds. The Master Servicer is also entitled to
reimbursement from the Certificate Account for Advances. (Sections 3.3 and 3.7.)
Evidence as to Compliance
The Agreement will provide that on or before April 30 of each year,
beginning, with respect to a Series of Certificates, with the April 30 of the
year which begins not less than six months after the initial issuance of such
Series of Certificates, a firm of independent public accountants will furnish a
statement to the Trustee to the effect that such firm has examined certain
documents and records relating to the servicing of the Mortgage Loans of each
Series and that, either (a) on the basis of such examination conducted
substantially in compliance with the audit program for mortgages serviced for
FHLMC, such firm is of the opinion that such servicing has been conducted in
compliance with the manner of servicing set forth in the Agreement except for
(i) such exceptions as such firm believes to be immaterial and (ii) such other
exceptions as are set forth in such statement or (b) that their examination
conducted substantially in compliance with the uniform single audit program for
mortgage bankers disclosed no exceptions or errors in the records relating to
mortgage loans serviced for others that in their opinion are material and that
such program requires them to report. (Section 3.12.) The Agreement will also
provide for delivery to the Trustee of an annual statement signed by an officer
of each Master Servicer to the effect that such Master Servicer has fulfilled
its obligations under the Agreement throughout the preceding calendar year.
(Section 3.11.)
Certain Matters Regarding the Master Servicer
Unless otherwise specified in the applicable Prospectus Supplement, a
Master Servicer may not resign from its obligations and duties as Master
Servicer under the Agreement, except upon determination that its duties
thereunder are no longer permissible under applicable law or are in material
conflict by reason of applicable law with any other activities of a type and
nature presently carried on by it. No such resignation will become effective
until the Trustee or a successor Master Servicer has assumed such Master
Servicer's obligations and duties under the Agreement. (Section 6.4.) If a
Master Servicer resigns for any of the foregoing reasons, it is possible that
the Trustee would be unable or unwilling to assume responsibility for servicing
the Mortgage Loans under the Agreement and would therefore seek to appoint
another institution as mortgage servicer as described under "Rights Upon
Default" below. Such Master Servicer may, however, arrange for its duties under
the Agreement to be performed by a subservicer, or the other Master Servicer, if
any, so long as the Master Servicer remains responsible for the performance of
such duties.
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The Agreement will also provide that neither the Master Servicer nor any
director, officer, employee or agent of the Master Servicer will be under any
liability to the Trust Fund or the Certificate holders for any action taken or
for refraining from the taking of any action in good faith pursuant to the
Agreement, or for errors in judgment; provided, however, that neither the Master
Servicer nor any such person will be protected against any liability which would
otherwise be imposed by reason of willful misfeasance, bad faith or gross
negligence in the performance of duties or by reason of reckless disregard of
obligations and duties thereunder. The Agreement further provides that the
Master Servicer and any director, officer, employee or agent of any Master
Servicer is entitled to indemnification by the Trust Fund and will be held
harmless against any loss, liability or expense incurred in connection with any
legal action relating to the Agreement or the Certificates, other than any loss,
liability or expense incurred by reason of willful misfeasance, bad faith or
gross negligence in the performance of duties thereunder or by reason of
reckless disregard of obligations and duties thereunder. In addition, the
Agreement provides that the Master Servicer is not under any obligation to
appear in, prosecute or defend any legal action which is not incidental to its
servicing responsibilities under the Agreement and which in its opinion may
involve it in any expense or liability. Any Master Servicer may, however, in its
discretion, subject to the terms and conditions of the Agreement, undertake any
such action which it may deem necessary or desirable in respect of the Agreement
and the rights and duties of the parties thereto and the interests of the
Certificateholders thereunder. In such event, the legal expenses and costs of
such action and any liability resulting therefrom will be expenses, costs and
liabilities of the Trust Fund and such Master Servicer and the other Master
Servicer, if any, will be entitled to be reimbursed therefor and charge the
Certificate Account for such reimbursement, such right of reimbursement being
prior to the rights of Certificateholders to receive any amounts in the
Certificate Account. (Section 6.3.)
Any person into which a Master Servicer may be merged or consolidated, or
any person resulting from any merger, conversion or consolidation to which such
Master Servicer is a party, or any person succeeding to the business of such
Master Servicer will be such Master Servicer's successor under the Agreement.
(Section 6.2.)
[Back-Up Master Servicer
Pursuant to the Agreement relating to any Series, ABN AMRO Bank N.V. or
another successor back-up master servicer appointed pursuant to such Agreement
will serve as back-up master servicer (the "Back-Up Master Servicer") and assume
the duties of the Master Servicer after a notice of termination of the Master
Servicer or if the Master Servicer fails to perform certain duties. The Back-Up
Master Servicer shall have no liability for any act of the Master Servicer prior
to such assumption.]
Special Servicing Agreements
The Pooling and Servicing Agreement may permit the Master Servicer to enter
into a special servicing agreement with an unaffiliated holder of subordinated
mortgage pass-through certificates. Pursuant to such an agreement, such holder
may instruct the Master Servicer and if applicable, any sub-Servicer, to
commence or delay foreclosure proceedings with respect to delinquent Mortgage
Loans. Such commencement or delay at such holder's direction will be taken by
the Master Servicer only after such holder deposits a specified amount of cash
with the Master Servicer. Such cash will be available for distribution to the
Certificateholders if proceeds resulting from a liquidation or foreclosure are
less than they otherwise may have been had the Master Servicer acted pursuant to
their normal servicing procedures.
Events of Default
Events of Default under the Agreement consist of (i) any failure by the
Master Servicer to distribute or cause to be distributed to Certificateholders
any required payment which continues
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unremedied for five days after the giving of written notice of such failure to
the Master Servicer by the Trustee, or to the Master Servicer and the Trustee by
Certificateholders holding Certificates evidencing Fractional Undivided
Interests aggregating not less than 25% of the Trust Fund or 51% of the
Percentage Interest of any Class of Certificates; (ii) any failure by the Master
Servicer duly to observe or perform in any material respect any other of its
covenants or agreements in the Agreement which continues unremedied for 60 days
after the giving of written notice of such failure to the Master Servicer by the
Trustee, or to the Master Servicer and the Trustee by Certificateholders holding
Certificates evidencing Fractional Undivided Interests aggregating not less than
25% of the Trust Fund or 51% of the Percentage Interest of any Class of
Certificates; and (iii) certain decrees or orders in any insolvency,
readjustment of debt, marshalling of assets and liabilities or similar
proceedings and certain actions by the Master Servicer indicating its
insolvency, reorganization or inability to pay its obligations. (Section 7.1.)
Rights Upon Default
So long as an Event of Default remains unremedied, the Trustee or
Certificateholders holding Certificates evidencing Fractional Undivided
Interests aggregating not less than 25% of the Trust Fund or 51% of the
Percentage Interest of any Class of Certificates may terminate all of the rights
and obligations of the Master Servicer under the Agreement (without prejudice to
its rights to the Retained Yield, if any, which rights the Master Servicer will
retain under all circumstances), whereupon the Trustee will succeed to all of
the Master Servicer's responsibilities, duties and liabilities under the
Agreement and will be entitled to monthly servicing compensation not to exceed
the Administration Fees. In the event that the Trustee is unwilling or unable to
so act, it may select, pursuant to the public bid or such other procedure
described in the Agreement, or petition a court of competent jurisdiction to
appoint, a housing and home finance institution, bank or mortgage servicing
institution with a net worth of at least $15,000,000 to act as successor to the
Master Servicer under the Agreement. In the event such public bid procedure is
used, the successor Master Servicer would be entitled to servicing compensation
in such amounts, up to the servicing compensation provided by Section 3.9 of the
Agreement, as may be agreed by the Trustee, and the Depositor, or if the Trust
Fund elects REMIC status, the Residual Certificate holder, would be entitled to
receive the net profits, if any, realized from the sale of such servicing rights
and obligations under the Agreement. (Sections 7.1 and 7.5.)
During the continuance of any Event of Default, the Trustee will have the
right to take action to enforce its rights and remedies and to protect and
enforce the rights and remedies of the Certificate holders. Certificateholders
holding Certificates evidencing Fractional Undivided Interests, aggregating not
less than 25% of the Trust Fund or 51% of the Percentage Interest of each Class
of Certificates, may direct the time, method and place of conducting any
proceeding for any remedy available to the Trustee or exercising any trust or
power conferred upon the Trustee. However, the Trustee will not be under any
obligation to pursue any such remedy or to exercise any of such trusts or powers
unless such Certificateholders have offered the Trustee reasonable security or
indemnity against the costs, expenses and liabilities which may be incurred by
the Trustee therein or thereby. Also, the Trustee may decline to follow any such
direction if the Trustee determines that the action or proceeding so directed
may not lawfully be taken or would involve it in personal liability or be
unjustly prejudicial to the non-assenting Certificateholders. (Sections 7.2 and
7.3.)
No Certificateholder, solely by virtue of its status as a
Certificateholder, will have any right under the Agreement to institute any
proceeding with respect to the Agreement, unless such Certificateholder
previously has given to the Trustee written notice of default and unless
Certificateholders holding Certificates evidencing Percentage Interests
aggregating not less than 25% of each Class of Certificates have made written
request upon the Trustee to institute such proceeding in its own name as Trustee
thereunder and have offered to the Trustee reasonable indemnity, and the Trustee
for 60 days thereafter has neglected or refused to institute any such
proceeding. (Section 10.3.)
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Amendment
The Agreement may be amended by the Depositor, the Master Servicer and the
Trustee, without the consent of any of the Certificateholders, (i) to cure any
ambiguity; (ii) to correct or supplement any provision therein which may be
inconsistent with any other provision therein; (iii) to permit the trust to be
subject to the REMIC Provisions under the Code; or (iv) to make any other
provisions with respect to matters or questions arising under the Agreement
which are not inconsistent with the provisions of the Agreement, provided that
such action will not adversely affect in any material respect the interests of
any Certificateholder. The Agreement may also be amended by the Depositor, the
Master Servicer and the Trustee with the consent of Certificateholders holding
Certificates evidencing Percentage Interests aggregating not less than 50% of
the Trust Fund for the purpose of adding any provisions to or changing in any
manner or eliminating any of the provisions of the Agreement or of modifying in
any manner the rights of Certificateholders; provided, however, that no such
amendment may (a) reduce in any manner the amount of, or delay the timing of,
payments received on Mortgage Loans which are required to be distributed on any
Certificate without the consent of such Certificateholders; (b) adversely affect
in any material respect the interest of Certificateholders holding Senior
Certificates in a manner other than as described in clause (a) above without the
consent of Certificateholders holding Senior Certificates aggregating not less
than 66-2/3% of the aggregate Percentage Interest evidenced by all Senior
Certificates; (c) adversely affect in any material respect the interest of
Certificateholders holding Subordinate Certificates in a manner other than as
described in clause (a) above without the consent of Certificateholders holding
Subordinate Certificates aggregating not less than 66-2/3% of the aggregate
Percentage Interest evidenced by all Subordinate Certificates; or (d) reduce the
aforesaid percentages of Certificates the Certificateholders of which are
required to consent to any such amendment without the consent of the all
Certificateholders of the Class or Classes affected then outstanding. (Section
10.1.) For purposes of giving any such consent (other than a consent to an
action which would adversely affect in any material respect the interests of the
Subordinate Certificateholders while the Depositor or the Master Servicer or any
affiliate is a Subordinate Certificateholder holding Certificates aggregating
not less than 66-2/3% of the Fractional Undivided Interests evidenced by all of
the Subordinate Certificate holders), any Certificates registered in the name of
the Master Servicer or any of its affiliates shall be deemed not to be
outstanding. (Article I.)
Termination
The obligations created by the Agreement will terminate upon the payment to
Certificateholders of all amounts held by the Master Servicer and required to be
paid to them pursuant to the Agreement after the earlier of (i) the final
payment or other liquidation (or any Advance made with respect thereto) of the
last Mortgage Asset subject thereto and the disposition of all property acquired
upon foreclosure or deed in lieu of foreclosure of any Mortgage Asset, or (ii)
if the applicable Prospectus Supplement so provides, the repurchase by the
Depositor, the Master Servicer or the Residual Holder, if any, from the Trustee
of all Mortgage Assets at the time subject to the Agreement and all property
acquired in respect of any Mortgage Asset. Unless otherwise specified in the
applicable Prospectus Supplement any repurchase pursuant to clause (ii) above
will be at a price equal to the sum of (a) the principal balance of each
Mortgage Loan or Mortgage Certificate plus accrued interest thereon at the
Mortgage Pass-Through Rate or Mortgage Certificate interest rate, as applicable,
to the next Installment Due Date, less any unreimbursed Advances made with
respect to any such Mortgage Asset and (b) the fair market value of all acquired
property in respect of any Mortgage Assets, less any unreimbursed Advances made
with respect to any such Mortgage Loans. The exercise of such repurchase right
will effect early retirement of the Certificates, but the Depositor's, the
Master Servicer's or the Residual Holder's right to so purchase will be subject
to the aggregate principal balance of the Mortgage Assets at the time of
repurchase being less than the percentage of the aggregate principal balance of
the Mortgage Assets as of the Cut-off Date as will be specified in the
applicable Prospectus Supplement. In no event, however, will the trust created
by the Agreement continue beyond the expiration of 60 years from the date of
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execution and delivery of the Agreement. The Master Servicer will give written
notice of termination of the Agreement to each Certificateholder, and the final
distribution will be made only upon surrender and cancellation of non book-entry
Certificates at an office or agency of the Master Servicer specified in the
notice of termination. (Section 9.1.)
CREDIT ENHANCEMENTS
General
For any Series, credit enhancement may be provided with respect to one or
more Classes thereof or the related Mortgage Assets. Credit enhancement may be
in the form of the establishment of one or more reserve funds, subordination of
one or more Classes of the Certificates of such Series, letters of credit, use
of a bankruptcy bond, repurchase bond or special hazard insurance policy,
certificate guarantee insurance policy, the use of cross-support features or
another method of credit enhancement described in the related Prospectus
Supplement, or combination of the foregoing, in any case, in such amounts and
having such terms and conditions as are acceptable to each Rating Agency which
assigns a rating to the Certificates of the Related Series.
To the extent any of the forms of credit enhancement described above and
further described below or other forms of credit enhancement are obtained for a
Series of Certificates, or deposits made in lieu thereof, a description of such
credit enhancement will be more fully set forth in the related Prospectus
Supplement.
Subordination
Unless otherwise specified in the related Prospectus Supplement, each
Series of Certificates will include Subordinate Certificates. The rights of the
Subordinate Certificateholders to receive distributions with respect to the
Mortgage Loans are subordinate to such rights of the Senior Certificateholders
to the extent of the then Subordinated Amount, as described below, or as
otherwise described in the applicable Prospectus Supplement. The Subordinated
Amount (before giving effect to Aggregate Losses described below) will be
determined in accordance with a schedule described in the applicable Prospectus
Supplement. The Subordinated Amount, as so determined at any time, will be
reduced by an amount equal to Aggregate Losses. Aggregate Losses will be defined
in the Agreement as generally including the aggregate amount of delinquencies,
losses and other deficiencies (other than any deficiency consisting of interest
on any unpaid amounts due the Senior Certificateholders) in the amounts due the
Senior Certificateholders previously borne by the Subordinated
Certificateholders, whether by way of withdrawal from the Reserve Fund, if any,
described below, reduction in amounts otherwise available to the Subordinate
Certificateholders or otherwise (as adjusted for the aggregate amounts of such
delinquencies, losses and other deficiencies previously recovered on the
Mortgage Loans).
Shifting Interest Credit Enhancement
The protection afforded to the Senior Certificateholders of a Series of
Certificates by the subordination feature described above under "Subordination"
will be effected by the preferential right of the Senior Certificateholders to
receive current distributions from the Pool and, if so specified in the related
Prospectus Supplement, such subordination feature will be enhanced by
distributing to one or more Classes of Senior Certificates on certain
Distribution Dates, as payments of principal, certain Principal Prepayments in
the related Pool under the circumstances and for the period of time set forth
therein ("Shifting Interest Credit Enhancement"). Shifting Interest Credit
Enhancement will have the effect of accelerating the amortization of the Senior
Certificates while increasing the respective interest evidenced by the
Subordinated Certificates in the related Trust Fund. Increasing the respective
interest
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of the Subordinate Certificates relative to that of the Senior Certificates is
intended to preserve the availability of the subordination provided by the
Subordinate Certificates.
Overcollateralization
If so specified in the related Prospectus Supplement, interest collections
on the Mortgage Loans may exceed interest payments on the Certificates for the
related Payment Date. Such amounts may be deposited into the Reserve Fund or
applied as a payment of principal on the Certificates. To the extent such
amounts are applied as principal payments on the Certificates, the effect will
be to reduce the principal balance of the Certificates relative to the
outstanding balance of the Mortgage Loans, thereby creating
"Overcollateralization" and additional protection to the Certificateholders, as
specified in the related Prospectus Supplement.
Reserve Fund
In addition to the preferential right of the Senior Certificateholders to
receive current distributions from the Pool (to the extent of the then
Subordinated Amount), to the extent described in the related Prospectus
Supplement the Master Servicer may establish and maintain with the Trustee a
reserve fund (the "Reserve Fund"). The related Prospectus Supplement will state
whether or not the Reserve Fund, if any, will be part of the Trust Fund. Unless
otherwise specified in the related Prospectus Supplement, the Depositor will
make an initial cash deposit (the "Initial Deposit") to the Reserve Fund, if
any, equal to the amount specified in the related Prospectus Supplement and
following the initial issuance of the Certificates and until the balance of such
Reserve Fund equals the sum of (i) the Initial Deposit, if any, and (ii) an
amount specified in the applicable Prospectus Supplement (the "Specified Reserve
Fund Balance"), the Trustee or the applicable Paying Agent will withhold
distributions of principal and interest otherwise available to the Subordinate
Certificateholders and deposit such amounts in such Reserve Fund, unless
otherwise described in the Prospectus Supplement. After the Specified Reserve
Fund Balance is attained, the Trustee or the applicable Paying Agent will
withhold distributions of principal only from the Subordinate Certificateholders
and deposit such amounts in the Reserve Fund, if any, as necessary to maintain
the Specified Reserve Fund Balance applicable at the time, unless otherwise
described in the Prospectus Supplement. Amounts in the Reserve Fund, if any,
will be transferred to the Certificate Account for distribution to Senior
Certificateholders to the extent required to make full distributions to such
holders on a particular Distribution Date. The related Prospectus Supplement
will set forth when and to what extent the Specified Reserve Fund Balance may be
reduced. Unless otherwise specified in the Prospectus Supplement, if the
Subordinated Amount is reduced to zero, under certain circumstances, an amount
equal to the sum of (i) the Initial Deposit and (ii) the funds remaining in any
Reserve Fund at the time the Subordinated Amount is reduced to zero will be
distributed to the Holders of the Subordinate Certificates.
Letter of Credit
Credit enhancement with respect to a Series of Certificates may be provided
by the issuance of a letter of credit by a bank or financial institution
specified in the related Prospectus Supplement (the "L/C Bank"). The maximum
obligation of the L/C Bank under the letter of credit will be to honor requests
for payment thereunder in an aggregate fixed dollar amount, net of unreimbursed
payments thereunder, equal to the percentage set forth in the related Prospectus
Supplement of the aggregate principal balance on the related Cut-off Date of the
Mortgage Loans evidenced by each Series. The duration of coverage and the amount
and frequency of any reduction in coverage provided by the letter of credit with
respect to a Series of Certificates will be in compliance with the requirements
established by the Rating Agency rating such Series, and will be set forth in
the Prospectus Supplement relating to such Series of Certificates.
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Surety Bond
If so specified in the related Prospectus Supplement with respect to a
Series of Certificates, credit enhancement may be provided in the form of a
surety bond issued by an insurer named therein.
Special Hazard Insurance Policy
If so specified in the Prospectus Supplement with respect to a Series of
Certificates, the Depositor or the Master Servicer will obtain a special hazard
insurance policy (the "Special Hazard Insurance Policy") for such Series, issued
by the insurer specified in such Prospectus Supplement (the "Special Hazard
Insurer") and covering any special hazard amount ("Special Hazard Amount"). The
Master Servicer will in that event exercise its best reasonable efforts to keep
or cause to be kept a Special Hazard Insurance Policy in full force and effect,
unless coverage thereunder has been exhausted through payment of claims. The
Master Servicer will pay the premiums on each Special Hazard Insurance Policy on
a timely basis. Claims under such Special Hazard Insurance Policy will generally
be limited to a percentage set forth in the Prospectus Supplement (expected to
be not greater than 1%) of the aggregate principal balance as of the Cut-off
Date of the Mortgage Loans comprising the related Pool. The terms of any Special
Hazard Insurance Policy will be more fully described in the applicable
Prospectus Supplement.
Bankruptcy Bond
If so specified in the Prospectus Supplement with respect to a Series of
Certificates, the Depositor or the Master Servicer will obtain a bankruptcy bond
(the "Bankruptcy Bond") for such Series. The obligor on, and the amount of the
coverage of, any such Bankruptcy Bond will be set forth in the applicable
Prospectus Supplement. The Master Servicer will exercise its best reasonable
efforts to maintain and keep or cause to be maintained and kept the Bankruptcy
Bond in full force and effect, unless coverage thereunder has been exhausted
through payment of claims. The Master Servicer will pay or cause to be paid the
premiums for each Bankruptcy Bond on a timely basis. Each Bankruptcy Bond will
cover certain losses resulting from an extension of the maturity of a Mortgage
Loan, or a reduction by the bankruptcy court of the principal balance of or the
Mortgage Rate on a Mortgage Loan, and the unpaid interest on the amount of a
principal reduction during the pendency of a proceeding under the federal
Bankruptcy Code. See "Certain Legal Aspects of the Mortgage Loans."
Cross-Support Features
If the Mortgage Assets for a Series are divided into separate Asset Groups,
the beneficial ownership of which is evidenced by a separate Class or Classes of
a Series, credit enhancement may be provided by a cross-support feature which
requires that distributions be made on Senior Certificates evidencing the
beneficial ownership of one Asset Group prior to distributions to Subordinate
Certificates evidencing beneficial ownership in another Asset Group within the
Trust Fund. The related Prospectus Supplement for a Series which includes a
cross-support feature will describe the manner and conditions for applying such
cross-support feature.
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Other Arrangements for Credit Enhancements
Certain other arrangements for credit enhancement (including but not
limited to a letter of credit, limited guaranty, surety bond, insurance contract
or reserve fund) may be applicable to a Series of Certificates, to the Mortgage
Loans and/or Mortgage Certificates included in the related Pool and/or to the
mortgage loans underlying such Mortgage Certificates, as described in the
related Prospectus Supplement. In addition, unless otherwise provided in the
related Prospectus Supplement for a Series, at any time a surety bond, letter of
credit or other form of credit enhancement may be substituted for the credit
support arrangement in effect initially for such Series (or any substitute
therefor) to the extent permitted by the rating agencies rating such Series of
Certificates, without resulting in a downgrading of the current rating of the
Certificates of such Series.
CERTAIN LEGAL ASPECTS OF THE MORTGAGE LOANS
The following discussion contains summaries of certain legal aspects of
mortgage loans which are general in nature. Because such legal aspects are
governed by applicable state law (which laws may differ substantially), the
summaries do not purport to be complete nor to reflect the laws of any
particular state, nor to encompass the laws of all states in which the security
for the Mortgage Loans or the mortgage loans underlying the Mortgage
Certificates is situated. The summaries are qualified in their entirety by
reference to the applicable federal and state laws governing the Mortgage Loans
and the mortgage loans underlying the Mortgage Certificates.
General
The Mortgage Loans and the mortgage loans underlying the Mortgage
Certificates (other than Co-op Loans) will be secured by either deeds of trust
or mortgages, depending upon the prevailing practice in the state in which the
underlying property is located. A mortgage creates a lien upon the real property
described in the mortgage. Under a deed of trust, the borrower grants the
property, irrevocably until the debt is paid, in trust, generally with a power
of sale, to the trustee to secure payment of the loan. The trustee's authority
under a deed of trust and the mortgagee's authority under a mortgage are
governed by the express provisions of the deed of trust or mortgage, applicable
law, and, in some cases, with respect to the deed of trust, the directions of
the beneficiary. There are two parties to a mortgage: the mortgagor, who is the
borrower and homeowner; and the mortgagee, who is the lender. In a mortgage
state instrument, the mortgagor delivers to the mortgagee a note or bond
evidencing the loan and the mortgage. Although a deed of trust is similar to a
mortgage, a deed of trust has three parties; the borrower-homeowner called the
trustor (similar to a mortgagor), a lender called the beneficiary (similar to a
mortgagee), and a third-party grantee called the trustee. The lien created by
the mortgage or deed of trust is not prior to the lien for real estate taxes and
assessments and other charges imposed under governmental police powers. Priority
between mortgages or deeds of trust depends on their terms or the terms of
separate subordination or inter-creditor agreements, the knowledge of the
parties in some cases and generally on the order of recordation of the mortgage
in the appropriate recording office.
Foreclosure
Foreclosure of a deed of trust is generally accomplished by a non-judicial
trustee's sale under a specific provision in the deed of trust that authorizes
the trustee to sell the property to a third party upon any default by the
borrower under the terms of the note or deed of trust. In certain states, such
foreclosure also may be accomplished by judicial action in the manner provided
for foreclosure of mortgages. In some states, the trustee must record a notice
of default and send a copy to the borrower-trustor and to any person who has
recorded a request for a copy of a notice of default and notice of sale. In
addition, the trustee must provide notice in some states to any other individual
having an interest of record in the real property, including any junior
lienholders. If the deed of trust is not reinstated within
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any applicable cure period, a notice of sale must be posted in a public place
and, in most states, published for a specified period of time in one or more
newspapers. In addition, some state laws require that a copy of the notice of
sale be posted on the property and sent to all parties having an interest of
record in the property.
In some states, the borrower-trustor has the right to reinstate the loan at
any time following default until shortly before the trustee's sale. In general,
the borrower, or any other person having a junior encumbrance on the real
estate, may, during a reinstatement period, cure the default by paying the
entire amount in arrears plus the costs and expenses incurred in enforcing the
obligation. Certain state laws control the amount of foreclosure expenses and
costs, including attorneys' fees, which may be recovered by a lender.
Foreclosure of a mortgage is generally accomplished by judicial action.
Generally, the action is initiated by the service of legal pleadings upon all
parties having an interest of record in the real property. Delays in completion
of the foreclosure occasionally may result from difficulties in locating
necessary parties defendant. When the mortgagee's right to foreclosure is
contested, the legal proceedings necessary to resolve the issue can be time-
consuming. After the completion of a judicial foreclosure proceeding, the court
may issue a judgment of foreclosure and appoint a receiver or other officer to
conduct the sale of the property. In some states, mortgages may also be
foreclosed by advertisement, pursuant to a power of sale provided in the
mortgage. Foreclosure of a mortgage by advertisement is essentially similar to
foreclosure of a deed of trust by non-judicial power of sale.
In case of foreclosure under either a deed of trust or a mortgage, the sale
by the receiver or other designated officer, or by the trustee, is a public
sale. However, because of the difficulty a potential buyer at the sale would
have in determining the exact status of title and because the physical condition
of the property may have deteriorated during the foreclosure proceedings, it is
uncommon for a third party to purchase the property at the foreclosure sale.
Rather, it is common for the lender to purchase the property from the trustee or
receiver for an amount equal to the unpaid principal amount of the note, accrued
and unpaid interest and the expenses of foreclosure. Thereafter, subject to the
right of the borrower in some states to remain in possession during the
redemption period, the lender will assume the burdens of ownership, including
maintaining hazard insurance and making such repairs at its own expense as are
necessary to render the property suitable for sale. The lender commonly will
obtain the services of a real estate broker and pay the broker a commission in
connection with the sale of the property. Depending upon market conditions, the
ultimate proceeds of the sale of the property may not equal the lender's
investment in the property. Any loss may be reduced by the receipt of mortgage
insurance proceeds. Courts have applied equitable principles to a lender's
utilization of the foreclosure process in order to avert a mortgagor's loss of
his residence for technical or trivial defaults. Some courts have been faced
with the issue of whether the particular foreclosure statutes in their states
meet federal or state constitutional requirements for fair and adequate notice.
In most instances, such courts have upheld such notice provisions as being
reasonable or as not involving sufficient state action to invoke such
constitutional provisions.
Rights of Redemption
In some states, after sale pursuant to a deed of trust or foreclosure of a
mortgage, the borrower and certain foreclosed junior lienors are given a
statutory period in which to redeem the property from the foreclosure sale. In
certain other states, this right of redemption applies only to sale following
judicial foreclosure, and not to sale pursuant to a non-judicial power of sale.
In most states where the right of redemption is available, statutory redemption
may occur upon payment of the foreclosure purchase price, accrued interest and
taxes. In some states, the right to redeem is an equitable right. The effect of
a right of redemption is to diminish the ability of the lender to sell the
foreclosed property. The exercise of a right of redemption would defeat the
title of any purchaser at a foreclosure sale, or of any
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purchaser from the lender subsequent to judicial foreclosure or sale under a
deed of trust. Consequently, the practical effect of the redemption right is to
force the lender to maintain the property and pay the expenses of ownership
until the redemption period has run.
Anti-Deficiency Legislation and Other Limitations on Lenders
Certain states have imposed statutory restrictions that limit the remedies
of a beneficiary under a deed of trust or a mortgagee under a mortgage. In some
states, statutes limit the right of the beneficiary or mortgagee to obtain a
deficiency judgment against the borrower following foreclosure or sale under a
deed of trust. A deficiency judgment is a personal judgment against the former
borrower equal in most cases to the difference between the amount due to the
lender and the net amount realized upon the foreclosure sale.
Some state statutes may require the beneficiary or mortgagee to exhaust the
security afforded under a deed of trust or mortgage by foreclosure in an attempt
to satisfy the full debt before bringing a personal action against the borrower.
In certain other states, the lender has the option of bringing a personal action
against the borrower on the debt without first exhausting such security;
however, in some of these states, the lender, following judgment on such
personal action, may be deemed to have elected a remedy and may be precluded
from exercising remedies with respect to the security. Consequently, the
practical effect of the election requirement, when applicable, is that lenders
will usually proceed first against the security rather than bringing a personal
action against the borrower.
Other statutory provisions may limit any deficiency judgment against the
former borrower following a foreclosure sale to the excess of the outstanding
debt over the fair market value of the property at the time of such sale. The
purpose of these statutes is to prevent a beneficiary or a mortgagee from
obtaining a large deficiency judgment against the former borrower as a result of
low or no bids at the foreclosure sale.
In some states, exceptions to the anti-deficiency statutes are provided in
certain instances where the value of the lender's security has been impaired by
acts or omissions of the borrower, for example, in the event of waste of the
property.
In addition to anti-deficiency and related legislation, numerous other
federal and state statutory provisions, including the federal bankruptcy laws,
the federal Soldiers' and Sailors' Civil Relief Act of 1940 and state laws
affording relief to debtors, may interfere with or affect the ability of a
secured mortgage lender to realize upon its security. For example, in a Chapter
13 case under the federal Bankruptcy Code, if a court determines that the value
of a debtor's principal residence is less than the principal balance of the
loan, the court may, as part of the rehabilitation plan, unless the home is the
sole collateral for the mortgage loan, reduce the amount of the secured
indebtedness to the value of the home as it exists at the time of the case,
leaving the lender as a general unsecured creditor for the difference between
that value and the amount of outstanding indebtedness. A bankruptcy court may
grant the debtor a reasonable time to cure a payment default, and in the case of
a mortgage loan not secured by the debtor's principal residence, also may reduce
the monthly payments due under such mortgage loan, change the rate of interest
and alter the mortgage loan repayment schedule. Regardless of whether a mortgage
loan is secured by the debtor's principal residence, the rehabilitation plan may
provide for the reinstatement of any payment defaults over a period of up to 5
years. In addition, the federal Soldiers' and Sailors' Civil Relief Act of 1940
may reduce the rate of interest payable on any mortgage loan as to which the
mortgagor is a military reservist called to active duty, and may interfere with
the lender's right to foreclose upon the related mortgage or deed of trust. In a
Chapter 7, Chapter 11 or Chapter 13 case under the federal Bankruptcy Code, the
lender is precluded from foreclosing without authorization from the bankruptcy
court. If the debtor's principal residence is not the only security for the
mortgage loan, the lender's lien may be transferred to other collateral and/or
be limited in amount to the value of
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the lender's interest in the collateral as of the date of the bankruptcy. The
loan term may be extended, the interest rate may be adjusted to market rates in
confirmed Chapter 11 and Chapter 13 plans and the priority of the loan may be
subordinated to bankruptcy court-approved financing. The bankruptcy court can,
in effect, invalidate due-on-sale clauses through confirmed Chapter 11 and
Chapter 13 plans of reorganization. The laws of some states provide priority to
certain tax liens over the lien of the mortgage or deed of trust.
Numerous federal and some state consumer protection laws and environmental
laws impose substantive requirements upon mortgage lenders in connection with
the origination, servicing and the enforcement of mortgage loans. The consumer
protection laws include the federal Truth in Lending Act, Real Estate Settlement
Procedures Act, Equal Credit Opportunity Act, Fair Credit Billing Act, Fair
Credit Reporting Act, and related statutes and regulations. These federal laws
and state laws impose specified statutory liability upon lenders who originate
or service mortgage loans and who fail to comply with the provisions of the law.
In some cases, this liability may affect assignees of the mortgage loans.
Junior Liens; Rights of Senior Lienholders
The rights of the Trust Fund (and therefore the Certificateholders) as
beneficiary under a junior deed of trust or as mortgagee under a junior mortgage
are subordinate to those of the mortgagee or beneficiary under the senior
mortgage or deed of trust, including the prior rights of the senior mortgagee or
beneficiary to receive hazard insurance and condemnation proceeds and to cause
the property securing the junior mortgage loan to be sold upon default of the
mortgagor or trustor, thereby extinguishing the junior mortgagee's or junior
beneficiary's lien unless the holders thereof assert their subordinate interest
in a property in foreclosure litigation or satisfy the defaulted senior loan. As
discussed more fully below, in many states a junior mortgagee or beneficiary may
satisfy a defaulted senior loan in full, or may cure such default and bring the
senior loan current, in either event adding the amounts expended to the balance
due on the junior loan.
The standard form of the mortgage or deed of trust used by most
institutional lenders confers on the mortgagee or beneficiary the right both to
receive all proceeds collected under any hazard insurance policy and all awards
made in connection with any condemnation proceedings, and to apply such proceeds
and awards to any indebtedness secured by the mortgage or deed of trust, in such
order as the mortgagee or beneficiary may determine. Thus, in the event
improvements on the property are damaged or destroyed by fire or other casualty,
or in the event the property is taken by condemnation, the mortgagee or
beneficiary under the underlying first mortgage or deed of trust will have the
prior right to collect any insurance proceeds payable under a hazard insurance
policy and any award of damages in connection with the condemnation and to apply
the same to the indebtedness secured by the first mortgage or deed of trust.
Proceeds in excess of the amount of first mortgage indebtedness will, in most
cases, be applied to the indebtedness of a junior mortgage or trust deed.
The form of mortgage or deed of trust used by most institutional lenders
typically contains a "future advance" clause, which provides, in essence, that
additional amounts advanced to or on behalf of the mortgagor or trustor by the
mortgagee or beneficiary are to be secured by the mortgage or deed of trust.
While such a clause is valid under the laws of most states, the priority of any
advance made under the clause depends, in some states, on whether the advance
was an "obligatory" or "optional" advance. If the mortgagee or beneficiary is
obligated to advance the additional amounts, the advance is entitled to receive
the same priority as amounts initially made under the mortgage or deed of trust,
notwithstanding that there may be intervening junior mortgages or deeds of trust
and other liens between the date of recording of the mortgage or deed of trust
and the date of the future advance, and notwithstanding that the mortgagee or
beneficiary had actual knowledge of such intervening junior mortgages or deeds
of trust and other liens at the time of the advance. Where the mortgagee or
beneficiary is not obligated to advance the additional amounts and has actual
knowledge of the intervening
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junior mortgages or deeds of trust and other liens, the advance will be
subordinate to such intervening junior mortgages or deeds of trust and other
liens. Priority of advances under the clause rests, in many other states, on
state statutes giving priority to all advances made under the loan agreement to
a "credit limit" amount stated in the recorded mortgage.
Another provision typically found in the form of the mortgage or deed of
trust used by most institutional lenders obligates the mortgagor or trustor to
pay before delinquency all taxes and assessments on the property and, when due,
all encumbrances, charges and liens on the property which appear prior to the
mortgage or deed of trust, to provide and maintain fire insurance on the
property, to maintain and repair the property and not to commit or permit any
waste thereof, and to appear in and defend any action or proceeding purporting
to affect the property or the rights of the mortgagee or beneficiary under the
mortgage or deed of trust. Upon a failure of the mortgagor or trustor to perform
any of these obligations, the mortgagee or beneficiary is given the right under
the mortgage or deed of trust to perform the obligation itself, at its election,
with the mortgagor or trustor agreeing to reimburse the mortgagee or beneficiary
for any sums expended by the mortgagee or beneficiary on behalf of the trustor.
All sums so expended by the mortgagee or beneficiary become part of the
indebtedness secured by the mortgage or deed of trust.
"Due-on-Sale" Clauses
The Agreement will provide that, when any mortgaged property underlying a
Mortgage Loan is about to be conveyed by the mortgagor, the Master Servicer
will, to the extent it has knowledge of such prospective conveyance, exercise
its rights to accelerate the maturity of such Mortgage Loan under the "due-on-
sale" clause applicable thereto, if any, unless it is not exercisable under
applicable law or if such exercise would result in loss of insurance coverage
with respect to such Mortgage Loan or would, in the Master Servicer's judgment,
be reasonably likely to result in litigation by the mortgagor. In either case,
the Master Servicer is authorized to take or enter into an assumption and
modification agreement from or with the person to whom such Mortgaged Property
has been or is about to be conveyed, pursuant to which such person becomes
liable under the Mortgage Note and, unless prohibited by applicable state law,
the mortgagor remains liable thereon, provided that the Mortgage Loan will
continue to be covered by any related primary mortgage insurance policy and the
Mortgage Interest Rate with respect to such Mortgage Loan and the payment terms
shall remain unchanged. The Master Servicer will also be authorized, with the
prior approval of any primary mortgage insurer (unless such approval is
precluded by the terms of the Mortgage Loan) to enter into, on behalf of the
Trustee, a substitution of liability agreement with such person, pursuant to
which the original mortgagor is released from liability and such person is
substituted as mortgagor and becomes liable under the Mortgage Note.
By virtue of the Garn-St Germain Depository Institutions Act of 1982 (the
"Act"), a Servicer or the Master Servicer may generally be permitted to
accelerate any Mortgage Loan which contains a "due-on-sale" clause upon transfer
of an interest in the property subject to the deed of trust or mortgage. With
respect to any Mortgage Loan secured by a residence occupied or to be occupied
by the borrower, this ability to accelerate will not apply to certain types of
transfers, including (i) the granting of a leasehold interest which has a term
of three years or less and which does not contain an option to purchase, (ii) a
transfer to a relative resulting from the death of a borrower, or a transfer
where the spouse or child(ren) becomes an owner of the property in each case
where the transferee(s) will occupy the property, (iii) a transfer resulting
from a decree of dissolution of marriage, legal separation agreement or from an
incidental property settlement agreement by which the spouse becomes an owner of
the property, (iv) the creation of a lien or other encumbrance subordinate to
the lender's security instrument which does not relate to a transfer of rights
of occupancy in the property (provided that such lien or encumbrance is not
created pursuant to a contract for deed), (v) a transfer by devise, descent or
operation of law on the death of a joint tenant or tenant by the entirety, and
(vi) other transfers as set forth in the Act and the regulations thereunder. As
a result, a lesser number of Mortgage Loans which contain "due-on-sale"
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clauses may extend to full maturity than recent experience would indicate with
respect to single-family mortgage loans. The extent of the effect of the Act on
the average lives and delinquency rates of the Mortgage Loans, however, cannot
be predicted. See "Maturity Considerations -- Prepayment Considerations."
Environmental Legislation
Under the federal Comprehensive Environmental Response, Compensation and
Liability Act of 1980 ("CERCLA") and under state law in certain states, a
secured party which takes a deed in lieu of foreclosure, purchases a mortgaged
property at a foreclosure sale or operates a mortgaged property may become
liable in certain circumstances for the costs of remedial action ("Cleanup
Costs") if hazardous wastes or hazardous substances have been released or
disposed of on the property. Such Cleanup Costs may be substantial. For any
particular Series of Certificates, it is possible that such Cleanup Costs could
become a liability of the related Trust Fund and reduce the amounts otherwise
distributable to the related Certificateholders if such Cleanup Costs are
incurred in connection with a Mortgaged Property held by such Trust Fund.
Moreover, certain states by statute impose a lien for any Cleanup Costs incurred
by such state on the property that is the subject of such Cleanup Costs (a
"Superlien"). All subsequent liens on such property are subordinated to such
Superlien and, in some states, even prior recorded liens are subordinated to
such Superliens. In the latter states, the security interest of the Trustee in a
property that is subject to such a Superlien could be adversely affected.
Traditionally, residential mortgage lenders have not taken steps to
evaluate whether hazardous wastes or hazardous substances are present with
respect to any mortgaged property prior to the origination or the mortgage loan
or prior to foreclosure or accepting a deed-in-lieu of foreclosure. Accordingly,
unless otherwise specified in the Prospectus Supplement, the Qualified Lenders
will not have made such evaluation prior to the origination of the Mortgage
Loans nor will the Mortgage Asset Seller or the Depositor have required that
such evaluation be made by the originators who have sold the Mortgage Loans to
them. Neither the applicable Servicer nor the Master Servicer will be required
to undertake any such evaluations prior to foreclosure or accepting a deed-in-
lieu of foreclosure. Neither the Depositor, the Trustee nor the Master Servicer
makes any representations or warranties or assumes any liability with respect to
the absence or effect of hazardous wastes or hazardous substances on any
Mortgaged Property or any casualty resulting from the presence or effect of
hazardous wastes or hazardous substances. See "Description of the Certificates--
Realization Upon Defaulted Mortgage Loans."
Subordinate Financing
Certain of the Mortgage Loans may not restrict the ability of the borrower
to use the Mortgaged Property as security for one or more additional loans.
Where a borrower encumbers a mortgage property with one or more junior liens,
the senior lender is subjected to additional risk. First, the borrower may have
difficulty servicing and repaying multiple loans. Moreover, if the subordinate
financing permits recourse to the borrower (as is frequently the case) and the
senior loan does not, a borrower may have more incentive to repay sums due on
the subordinate loan. Second, acts of the senior lender that prejudice the
junior lender or impair the junior lender's security may create a superior
equity in favor of the junior lender. For example, if the borrower and the
senior lender agree to an increase in the principal amount of or the interest
rate payable on the senior loan, the senior lender may lose its priority to the
extent any existing junior lender is harmed or the borrower is additionally
burdened. Third, if the borrower defaults on the senior loan and/or any junior
loan or loans, the existence of junior loans and actions taken by junior lenders
can impair the security available to the senior lender and can interfere with or
delay the taking of action by the senior lender. Moreover, the bankruptcy of a
junior lender may operate to stay foreclosure or similar proceedings by the
senior lender.
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Applicability of Usury Laws
Title V of the Depository Institutions Deregulation and Monetary Control
Act of 1980 ("Title V"), provides that state usury limitations shall not apply
to certain types of residential first mortgage loans originated by certain
lenders after March 31, 1980. The Office of Thrift Supervision is authorized to
issue rules and regulations and to publish interpretations governing
implementation of Title V. The statute authorized any state to reimpose interest
rate limits by adopting before April 1, 1983, a law or constitutional provision
which expressly rejects application of the federal law. Fifteen states have
adopted laws reimposing or reserving the right to reimpose interest rate limits.
In addition, even where Title V is not so rejected, any state is authorized to
adopt a provision limiting certain other loan charges.
The Depositor will represent and warrant for the benefit of
Certificateholders that the Mortgage Loans were originated in full compliance
with applicable state laws, including usury laws.
Enforceability of Certain Provisions
Standard forms of note, deed of trust and mortgage generally contain
provisions obligating the borrower to pay a late charge if payments are not
timely made and in some circumstances may provide for prepayment fees or
penalties if the obligation is paid prior to maturity. In certain states, there
are or may be specific limitations upon late charges which a lender may collect
from a borrower for delinquent payments. Certain states also limit the amounts
that a lender may collect from a borrower as an additional charge if the loan is
prepaid. Under the Agreement, late charges and prepayment fees (to the extent
permitted by law and not waived by the Master Servicer or the Servicers) will be
retained by the Master Servicer or the Servicers as additional servicing
compensation.
Courts have imposed general equitable principles upon foreclosure. These
equitable principles are generally designed to relieve the borrower from the
legal effect of defaults under the loan documents. Examples of judicial remedies
that may be fashioned include judicial requirements that the lender undertake
affirmative and expensive actions to determine the causes for the borrower's
default and the likelihood that the borrower will be able to reinstate the loan.
In some cases, courts have substituted their judgment for the lender's judgment
and have required lenders to reinstate loans or recast payment schedules to
accommodate borrowers who are suffering from temporary financial disability. In
some cases, courts have limited the right of lenders to foreclose if the default
under the mortgage instrument is not monetary, such as the borrower failing to
adequately maintain the property or the borrower executing a second mortgage or
deed of trust affecting the property. In other cases, some courts have been
faced with the issue of whether federal or state constitutional provisions
reflecting due process concerns for adequate notice require that borrowers under
the deeds of trust receive notices in addition to the statutorily-prescribed
minimum requirements. For the most part, these cases have upheld the notice
provisions as being reasonable or have found that the sale by a trustee under a
deed of trust or under a mortgage having a power of sale does not involve
sufficient state action to afford constitutional protections to the borrower.
Co-op Loans
To the extent set forth in the Prospectus Supplement, certain of the
Mortgage Loans may have been made in connection with a purchase or refinance of
cooperative apartments. Such Co-op Loans are not secured by liens on real
estate. The "owner" of a cooperative apartment does not own the real estate
constituting the apartment but owns shares of stock in a corporation which holds
title to the building in which the apartment is located, and by virtue of owning
such stock is entitled to a proprietary lease to occupy the specific apartment
(the "Lease"). Thus, a Co-op Loan is a personal loan secured by a lien on the
shares and an assignment of the Lease. If the borrower defaults on a Co-op Loan,
the lender's
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remedies are similar to the remedies which apply to a foreclosure of a mortgage
or deed of trust, in that the lender can foreclose the loan and assume
"ownership" of the apartment.
There are certain risks which arise as a result of the cooperative form of
ownership which differentiate Co-op Loans from other types of mortgage loans.
For example, the power of the board of directors of most cooperative
corporations to reject a proposed purchaser of a unit owner's shares (and
prevent the sale of an apartment) for any reason (other than reasons based upon
unlawful discrimination) or for no reason, significantly reduces the universe of
potential purchasers in the event of a foreclosure. Moreover, cooperative
apartment owners run a special risk in buildings where the "sponsor" (i.e., the
owner of the unsold shares in the corporation) holds a significant number of
unsold apartments if the sponsor were to go into default on a loan which is
secured by a mortgage on the building. In such event the unit owners would be
forced by special assessment to make the payments on the delinquent loan or risk
losing their apartments in a foreclosure proceeding brought by the holder of the
mortgage on the building. Not only would the value attributable to the right to
occupy a particular apartment be adversely affected by the special assessment,
but the foreclosure of a mortgage on the building in which the apartment is
located could result in a total loss of the shareholder's equity in the building
(and a corresponding loss of the lender's security for its Co-op Loan).
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CERTAIN FEDERAL INCOME TAX CONSEQUENCES
General
The Federal income tax consequences of an investment in a Certificate of a
Series or a Class thereof will vary depending on the characteristics of such
Certificate. The following is a general discussion of the anticipated material
Federal income tax consequences of the purchase, ownership and disposition of
the Certificates offered hereunder. The discussion is based upon the Internal
Revenue Code of 1986, as amended (the "Code"), its legislative history, existing
and proposed regulations thereunder, including regulations (the "REMIC
Regulations" and "OID Regulations") promulgated under the real estate mortgage
investment conduit and original issue discount provisions of the Code, published
rulings and court decisions, all as in effect and existing on the date hereof
and all of which are subject to change at any time, possibly on a retroactive
basis, and to differing interpretations. The OID Regulations do not provide
guidance on the computation of the accrual of original issue discount under
section 1272(a)(6) of the Code with respect to regular interests in a REMIC.
The following discussion applies only to those persons who are the original
holders of the Certificates and who hold Certificates as capital assets, and
does not address the tax consequences to taxpayers who are subject to special
rules (such as foreign persons, tax-exempt organizations and insurance
companies) or aspects of Federal income taxation that may be relevant to a
prospective investor based upon such investor's particular tax situation. This
discussion generally does not address the state, local or foreign tax
consequences of the purchase, ownership and disposition of such Certificates.
Investors should consult their tax advisors in determining the Federal, state,
local, foreign or other tax consequences to them of the purchase, ownership and
disposition of the Certificates offered hereunder. The following discussion
addresses securities of two general types: (i) certificates representing
interests in a Trust Fund, or a portion thereof, which the Master Servicer will
covenant to elect to have treated as a REMIC under Code Sections 860A through
860G and (ii) certificates representing certain interests in a Trust Fund for
which an election to be treated as a REMIC will not be made. The Prospectus
Supplement for each Series of Certificates will indicate whether a REMIC
election will be made for the related Trust Fund and, if such an election is
made for the Trust Fund, will designate the related series of Certificates as
either "regular interests" or "residual interests" in the REMIC. For purposes
of this tax discussion, references to a "Certificateholder" are references to
the beneficial owner of a Certificate.
REMIC
Classification of REMICs
An election to be treated as a REMIC for federal income tax purposes may be
made for a Trust Fund relating to a Series of Certificates. Upon issuance of
each Series of Certificates for which an election to be treated as a REMIC is
made, Mayer, Brown & Platt, counsel to the Depositor, will deliver its opinion
to the Depositor generally to the effect that, assuming (i) ongoing compliance
with all provisions of the Agreement which include requirements, among other
things, that a REMIC election be made timely in the required form, certain
representations set forth in the Agreement be true, and there be continued
compliance with the applicable provisions of the Code, as it may be amended from
time to time, and the applicable Treasury Regulations issued thereunder, and
(ii) the accuracy of information contained in certain other documents, the Trust
Fund issuing a Series of Certificates, under current Federal income tax law,
will qualify as a REMIC for Federal income tax purposes, and the Certificates
offered thereby will be considered to be "regular interests" ("Regular
Certificates") or "residual interests" ("Residual Certificates") in a REMIC.
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Qualification as a REMIC
In order for the Trust Fund to qualify as a REMIC, there must be ongoing
compliance on the part of the Trust Fund with certain requirements set forth in
the Code. First, the Trust Fund must fulfill an asset test, which requires that
no more than a de minimis amount of the assets of the Trust Fund, as of the
close of the third calendar month beginning after the "Startup Day" (which for
purposes of this discussion is the date of issuance of the Certificates) and at
all times thereafter, may consist of assets other than "qualified mortgages" and
"permitted investments." The REMIC Regulations provide a "safe harbor" pursuant
to which the de minimis requirement is met at any time when the aggregate
adjusted basis of the nonqualified assets is less than 1% of the aggregate
adjusted basis of all the Trust Fund's assets. An entity that fails to meet the
safe harbor may nevertheless demonstrate that it holds no more than a de minimis
amount of nonqualified assets.
A qualified mortgage is any obligation (including any participation or
certificate of beneficial ownership therein) that is principally secured by an
interest in real property and, generally, that is (i) transferred to the Trust
Fund on the Startup Day, (ii) purchased by the Trust Fund within a three-month
period thereafter pursuant to a fixed price contract in effect on the Startup
Day or (iii) received by the REMIC within such three-month period in replacement
of an obligation transferred to the REMIC on the Startup Day. Qualified
mortgages also include a regular interest in another REMIC if the interest is
transferred to the Trust Fund on the start-up day in exchange for regular or
residual interests in the Trust Fund. An obligation is "principally secured by
an interest in real property" if (i) the fair market value of the real property
security is at least 80% of the principal amount of the related Mortgage Loan
either at origination or as of the Startup Day (an original loan-to-value ratio
of not more than 125% with respect to the real property security) or (ii)
substantially all the proceeds of the Mortgage Loan were used to acquire,
improve or protect an interest in real property that, at the origination date,
was the only security for the Mortgage Loan. In rendering its opinion with
respect to classification of the Trust Fund as a REMIC, Mayer, Brown & Platt
will rely on certain representations in the Agreement and other documents
regarding qualification of the Mortgage Loans as "qualified mortgages."
Permitted investments include cash flow investments, qualified reserve
assets and foreclosure property. A cash flow investment is generally an
investment of amounts received on or with respect to qualified mortgages for a
temporary period, not exceeding thirteen months, which investment must earn a
return in the nature of interest. A qualified reserve asset is any intangible
property held for investment that is part of any reserve reasonably required to
be maintained to provide for payments of expenses or to provide security for
payments due on regular or residual interests that otherwise may be delayed or
defaulted upon because of default (including delinquencies) on the qualified
mortgages or lower than expected reinvestment returns. Foreclosure property is
real property acquired in connection with the default or imminent default of a
qualified mortgage and generally held for not more than two years, plus
extensions permitted by the Code.
In addition to the foregoing requirements, the various interests in the
Trust Fund also must meet certain requirements. A REMIC meets the interests test
if all of the interests in the REMIC are either regular interests or residual
interests, and there is one (and only one) class of residual interests (and all
distributions with respect to the residual interests are made pro rata). A
regular interest is an interest in a REMIC that is issued on the Startup Day
with fixed terms, is designated as a regular interest, unconditionally entitles
the holder to receive a specified principal amount (or other similar amount),
and provides that interest payments (or other similar amounts), if any, at or
before maturity either are payable based on a fixed rate or a qualified variable
rate, or consist of a specified, nonvarying portion of the interest payments on
qualified mortgages. The REMIC Regulations provide that an interest in a REMIC
may be treated as a regular interest even if payments with respect to such
interest are subordinated to payments on other interests in the REMIC, and are
dependent on the absence of defaults or delinquencies on qualified mortgages or
permitted investments, lower than reasonably expected returns on permitted
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investments, or expenses incurred by the REMIC. A residual interest is an
interest in a REMIC other than a regular interest that is issued on the Startup
Day and that is designated as a residual interest. The Trust Fund must also
adopt reasonable arrangements designed to ensure that "disqualified
organizations" do not hold residual interests and that tax information is
furnished if this restriction is violated.
The following discussion assumes that all requirements for REMIC
qualification will be satisfied by the Trust Fund while there are any Regular
Certificates outstanding. If a Trust Fund with respect to which a REMIC election
is made fails to comply with one or more of the ongoing requirements of the Code
for REMIC status during any taxable year, the Code provides that the Trust Fund
will not be treated as a REMIC for such year and thereafter. In that event, the
Trust Fund may be taxable as a separate corporation, and the related
Certificates would not be accorded the status or given the tax treatment
described below. The Code provides that if (i) an entity ceases to be a REMIC,
(ii) the Secretary of the Treasury determines that such cessation was
inadvertent, (iii) no later than a reasonable time after the discovery of the
event resulting in such cessation, steps are taken so that such entity is once
more a REMIC, and (iv) such entity, and each person holding an interest in such
entity at any time during a period specified, agrees to make such adjustments as
may be required by the Secretary of the Treasury with respect to such period,
then, notwithstanding such terminating event, the entity will be treated as
continuing to be a REMIC or such cessation will be disregarded, whichever the
Secretary of the Treasury determines to be appropriate. While the Code
authorizes the Treasury Department to issue Treasury Regulations providing
relief in the event of an inadvertent termination of the status as a REMIC, no
such Treasury Regulations have been issued. Any such relief, moreover, may be
accompanied by sanctions, such as the imposition of a corporate tax on all or a
portion of the REMIC's income for the period in which the requirements for such
status are not satisfied.
Characterization of Investments in Certificates
In general, (i) subject to the satisfaction of either the applicable
holding period or the bona fide business purpose requirement of Code Section
593(d)(1)(D), Certificates owned by a "domestic building and loan association,"
a "mutual savings bank," or "any cooperative bank without capital stock
organized and operated for mutual purposes and without profit" within the
meaning of Code Section 593(a) will be treated as "qualifying real property
loans" within the meaning of Code Section 593(d), in the same proportion that
the assets of the Pool underlying such Certificates ("Assets") would be so
treated; (ii) Certificates held by a domestic building and loan association
will, under Code Section 7701(a)(19)(C)(xi), count toward satisfying the 60%
asset test applicable to those institutions under 7701(a)(19)(C) in the same
proportion that the Assets would be treated as falling within one of the classes
enumerated in 7701(a)(19)(C)(i) - (x) (including without limitation "loans
secured by an interest in real property" within the meaning of Section
7701(a)(19)(C)(v)); and (iii) Certificates held by a real estate investment
trust will constitute "real estate assets" within the meaning of Code Section
856(c)(5)(B), and interest on the REMIC Certificates will be considered
"interest on obligations secured by mortgages on real property or on interests
in real property" within the meaning of Code Section 856(c)(3)(B) in the same
proportion that the Assets would be so treated. Moreover, if 95% or more of the
Assets qualify for any of the foregoing treatments at all times during the
calendar year, the Certificates will qualify for the corresponding status in
their entirety for that calendar year. Certificates held by certain financial
institutions will constitute an "evidence of indebtedness" within the meaning of
Code Section 582(c)(1).
Certificateholders should be aware that (i) Certificates held by a real
estate investment trust will not constitute "Government securities" within the
meaning of Code Section 856(c)(5)(A) and (ii) Certificates held by a regulated
investment company will not constitute "Government securities" within the
meaning of Code Section 851(b)(4)(A)(i).
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Taxation of Owners of Regular Certificates
For Federal income tax purposes, a Regular Certificate will be treated as a
debt instrument issued by the REMIC and not as an ownership interest in the
REMIC or the assets of the REMIC. The amounts includible in the income of a
Regular Certificateholder will be determined under the accrual method.
Original Issue Discount. The Regular Certificates may be issued with
"original issue discount" within the meaning of Code Section 1273(a). Holders
of any Class of Regular Certificates issued with original issue discount will be
required to include such original issue discount in gross income for Federal
income tax purposes as it is deemed to accrue, in advance of the receipt of the
cash attributable to such income.
Rules governing original issue discount are set forth generally in Code
Sections 1272, 1273 and 1275, and the OID Regulations. Code Section 1272(a)(6)
provides special original issue discount rules applicable to regular interests
in a REMIC, such as Regular Certificates. However, as discussed above, no
Treasury Regulations have as yet been proposed or adopted regarding the
computation of the accrual of original issue discount under Code Section
1272(a)(6). Further, the application of the OID Regulations to the Regular
Certificates remains unclear in other respects because the OID Regulations
either do not address, or are subject to varying interpretations with regard to,
several relevant issues.
Under the Code, the total amount of original issue discount on a Regular
Certificate is the excess of the "stated redemption price at maturity" of the
Regular Certificate over its "issue price." Except as discussed in the
following paragraph, in general, the issue price of a Regular Certificate
offered hereunder will be determined with reference to the first price at which
a substantial amount of the Certificates is sold for money (other than to bond
houses or brokers). The stated redemption price at maturity of a Regular
Certificate will be the sum of all payments to be made on such Regular
Certificate other than "qualified stated interest payments." Qualified stated
interest is stated interest that is unconditionally payable at least annually at
a single fixed rate that appropriately takes into account the length of the
interval between payments. Qualified stated interest also includes certain
stated interest on "variable rate debt instruments" if the interest is
unconditionally payable at least annually. The requirements for qualification
of a debt instrument bearing a rate of interest other than a fixed rate as a
"variable rate debt instrument" and for qualification of stated interest on a
variable rate debt instrument as "qualified stated interest" are complex, and no
assurance can be given that all stated interest on Regular Certificates will
constitute qualified stated interest. For a general discussion of the treatment
of variable rate interest, see "Investment in Certificates Not Representing
Interests in a REMIC -- Taxation of Owners of P&I Certificates -- Variable Rate
Certificates," below. Generally, the stated redemption price at maturity of a
Regular Certificate will be its initial Certificate Balance. Under the OID
Regulations, if any portion of the initial purchase price of a Regular
Certificate is allocable to interest that has accrued prior to the issue date of
such Regular Certificate, and if such pre-issuance accrued interest will be paid
on the first payment date within one year of the issue date, the issue price of
the Regular Certificate may be computed by subtracting from the issue price (as
otherwise determined) such pre-issuance accrued interest. If the issue price is
so computed, the actual payment of such pre-issuance accrued interest will be
treated as a return of the excluded pre-issuance accrued interest, rather than
as an amount payable on the debt instrument.
Under a de minimis rule in the Code, as interpreted in the OID Regulations,
original issue discount on a Regular Certificate will be considered to be zero,
and all stated interest will be treated as qualified stated interest includible
under the accrual method of accounting, if such original issue discount is less
than 0.25% of the stated redemption price at maturity of the Regular Certificate
multiplied by the weighted average life of the Regular Certificate. However,
under the OID Regulations, the holder of a Regular Certificate that has de
minimis OID would be required to include such de minimis OID in income as
principal payments are made in proportion to the ratio that each such principal
payment bears to the
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stated principal amount of such Regular Certificate. For this purpose, the
weighted average life of the Regular Certificate is computed as the sum of the
amounts determined by multiplying (i) the number of complete years (rounding
down for partial years) until each payment included in the stated redemption
price at maturity is expected to be made by (ii) a fraction, the numerator of
which is the amount of such payment and the denominator of which is the total
amount of payments included in the stated redemption price at maturity of such
Regular Certificate. The Internal Revenue Service may take the position that
this rule should be applied taking into account the Prepayment Assumption
(described below) and the effect of any anticipated investment income.
For purposes of computing the accrual of original issue discount on the
Regular Certificates issued by a REMIC, Code Section 1272(a)(6) requires that a
reasonable assumed prepayment rate (the "Prepayment Assumption") be used with
respect to mortgage loans held by a REMIC, and that adjustments be made in the
amount and rate of accrual of such discount to reflect differences between the
actual prepayment rate and the Prepayment Assumption. Code Section 1272(a)(6)
provides that the Prepayment Assumption is to be determined in the manner
prescribed in Treasury Regulations. As noted above, those Treasury Regulations
have not been issued. The Conference Committee Report discussing Code Section
1272(a)(6) (the "Committee Report") indicates that the Treasury Regulations will
provide that the Prepayment Assumption used in determining the amount and rate
of accrual of discount with respect to a Regular Certificate must be the same as
that used in pricing the initial offering of such Regular Certificate. The
Prepayment Assumption used by the Master Servicer in reporting original issue
discount for each series will be consistent with this standard and will be
disclosed in the related Prospectus Supplement. However, neither the Master
Servicer nor the Trustee will make any representation that the Mortgage Loans
will in fact prepay at a rate conforming to the Prepayment Assumption or at any
other rate. Each investor must make its own decision as to the appropriate
Prepayment Assumption to be used in deciding whether or not to purchase any of
the Regular Certificates.
Original issue discount is accrued by a Regular Certificateholder by
including in its gross income the sum of the "daily portions" of original issue
discount, if any, on its Regular Certificate for each day during its taxable
year on which it held such Regular Certificate. In general, in the case of an
original holder of a Regular Certificate, the daily portions of original issue
discount will be determined based on the excess, if any, of (i) the sum of (A)
the present value, as of the end of the accrual period, of all of the
distributions remaining to be made on the Regular Certificate in future periods
and (B) the distributions made on such Regular Certificate during the accrual
period of amounts included in the stated redemption price at maturity, over (ii)
the adjusted issue price of such Regular Certificate at the beginning of the
accrual period. The excess will then be allocated ratably to each day during the
period to determine the daily portion of original issue discount for that day.
Although the OID Regulations allow Certificateholders to use interest accrual
periods of any length as long as each distribution date falls on either the
first day or final day of an accrual period, a Trust Fund with respect to which
a REMIC election is made will report original issue discount to
Certificateholders based on the assumption that each accrual period ends on a
date that corresponds to a Distribution Date and begins on the first day
following the immediately preceding accrual period (or in the case of the first
such period, begins on the Closing Date). The present value of the remaining
distributions will be calculated (i) assuming that distributions on the Regular
Certificate will be received in future periods based on the Mortgage Loans being
prepaid at a rate equal to the Prepayment Assumption, (ii) using a discount rate
equal to the original yield to maturity of the Regular Certificate and (iii)
taking into account events (including actual prepayments) that have occurred
before the close of the accrual period. The original yield to maturity of the
Regular Certificate will be calculated based on its issue price and the
assumption that distributions on the Regular Certificate will be made in all
periods as if the Mortgage Loans prepaid at a rate equal to the Prepayment
Assumption. The adjusted issue price of a Regular Certificate at the beginning
of any accrual period will equal the issue price of such Certificate, increased
by the aggregate amount of the daily portions with respect to such Regular
Certificate that accrued in prior accrual periods, and reduced by the amount of
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any distributions made on such Regular Certificate in prior accrual periods of
amounts included in the stated redemption price at maturity.
A subsequent purchaser of a Regular Certificate that purchases the Regular
Certificate at a cost less than its remaining stated redemption price at
maturity will also be required to include in gross income the daily portions of
any original issue discount with respect to the Regular Certificate. However,
if the cost of the Regular Certificate to such subsequent purchaser is in excess
of its "adjusted issue price," each such daily portion will be reduced in
proportion to the ratio such excess bears to the aggregate original issue
discount remaining to be accrued on the Regular Certificate. The adjusted issue
price of a Regular Certificate on any given day equals the issue price,
increased by the amount of original issue discount previously includible in the
gross income of any holder, and decreased by the amount of any payment
previously made other than a payment of qualified stated interest.
Variable Rate Certificates. A Regular Certificate may provide for
payments of interest based on a variable interest rate formula, and may provide
for minimum or maximum rates or other adjustments. For a general discussion of
the treatment of variable rate interest, see "Investment in Certificates Not
Representing Interests in a REMIC -- Taxation of Owners of P&I Certificates --
Variable Rate Certificates."
Market Discount. A Certificateholder that purchases a Regular
Certificate at a market discount, that is, at a purchase price less than its
remaining stated principal amount, or in the case of a Regular Certificate
issued with original issue discount, less than its "revised issued price" (which
generally has the same meaning as "adjusted issue price," as defined above) will
recognize market discount income upon receipt of each principal distribution.
See "Investment in Certificates Not Representing Interests in a REMIC --
Taxation of Owners of P&I Certificates -- If Stripped Bond Rules Do Not Apply
and -- Premium and Market Discount" below, for a general discussion of market
discount. Treasury regulations implementing the market discount rules have not
yet been issued. Investors should consult their own tax advisors regarding the
application of the market discount rules and the advisability of making any of
the elections provided by the Code relating to the timing of recognition of
market discount. The market discount rules will not be applicable to a Regular
Certificate so long as it is held by its initial purchaser.
Premium. A Regular Certificateholder that purchased its Regular
Certificate at a premium may elect under Code Section 171 to amortize such
premium under a constant yield method over the life of the Certificate as an
offset to interest income, rather than as a separate deduction item. It is not
clear whether the Prepayment Assumption would be taken into account in
determining the life of the Regular Certificate for this purpose. However, the
Committee Report states that the same rules that apply to accrual of market
discount (which rules will require use of a Prepayment Assumption in accruing
market discount with respect to Regular Certificates without regard to whether
such Certificates have original issue discount) will also apply in amortizing
bond premium under Code Section 171. If made, such an election will apply to
all debt instruments having amortizable bond premium that the holder owns or
subsequently acquires. See "Constant Yield Election" below regarding an
alternative manner in which the Code Section 171 election may be deemed to be
made.
Constant Yield Election
The OID Regulations permit Certificateholders to elect to include all
interest that accrues on a debt instrument by using a constant yield method.
For this purpose, "interest" includes stated interest, acquisition discount,
OID, de minimis OID, market discount, de minimis market discount, and unstated
interest, as adjusted by any amortizable bond premium or acquisition premium.
This election would, in some cases, simplify the calculation of interest income
for Certificateholders to whom it is available. However, if the holder makes
such an election with respect to a debt instrument with amortizable bond
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premium or market discount, the holder is deemed to have made elections to
amortize bond premium or to report market discount income currently as it
accrues under the constant yield method, respectively, for all debt instruments
acquired by the holder in the same taxable year or thereafter. The election is
irrevocable except with approval of the Internal Revenue Service. Investors
should consult their own tax advisors regarding the advisability of making such
an election.
Effects of Defaults and Delinquencies
Certain Series of Certificates may contain one or more Classes of
Subordinate Certificates, and in the event there are defaults or delinquencies
on the Mortgage Loans, amounts that would otherwise be distributed on the
Subordinate Certificates may instead be distributed on the Senior Certificates.
Holders of Subordinate Certificates nevertheless will be required to report
income with respect to such Certificates under an accrual method without giving
effect to delays and reductions in distributions on such Subordinate
Certificates attributable to defaults and delinquencies on the Mortgage Loans,
except to the extent that it can be established that such amounts are
uncollectible. As a result, the amount of income reported by a holder of a
Subordinate Certificate in any period could significantly exceed the amount of
cash distributed to such holder in that period. The holder will eventually be
allowed a loss (or will be allowed to report a lesser amount of income) to the
extent that the aggregate amount of distributions on the Subordinate Certificate
is reduced as a result of defaults and delinquencies on the Mortgage Loans.
However, the timing and character of such losses or reductions in income are
uncertain, and, accordingly, holders of Subordinate Certificates should consult
their own tax advisors on this point.
Taxation of Owners of Residual Certificates
Daily Portions. A Residual Certificateholder generally will be
required to report its daily portion of the taxable income or, subject to the
limitation described in "-- Basis Rules and Distributions" below, the net loss
of the REMIC for each day during a calendar quarter that the Residual
Certificate holder owned such Residual Certificate. For this purpose, the daily
portion will be determined by allocating to each day in the calendar quarter its
ratable portion of the taxable income or net loss of the REMIC for such quarter
and then by allocating the amount so allocated among the Residual
Certificateholders in accordance with their percentage of ownership interests on
such day. Any amount included in the gross income of or allowed as a loss to any
Residual Certificateholder by virtue of the rules described in this paragraph
will be treated as ordinary income or loss. Each Residual Certificate holder
should be aware that taxable income with respect to its Residual Certificate may
exceed cash distributions with respect thereto in any taxable year.
Taxable Income of the REMIC. The taxable income of the REMIC will
reflect a netting of (i) the income from the Mortgage Loans and other assets of
the REMIC and (ii) the deductions allowed to the REMIC for interest (including
original issue discount) on the Regular Certificates (and any other class of
Certificates constituting "regular interests" in the REMIC not offered hereby)
and, except as described below, for servicing, administrative and other
expenses. The limitation on miscellaneous itemized deductions imposed on
individuals by Code Section 67 will not be applied at the Pool level to such
expenses. See "-- Pass-Through of Miscellaneous Itemized Deductions" below.
As a general rule, the taxable income of the REMIC will be determined in
the same manner as if the REMIC were an individual using the accrual method of
accounting, with certain modifications. The first modification is that a
deduction will be allowed for accruals of interest (including original issue
discount) on the "regular interests" in the REMIC. If a Regular Certificate is
issued at a price in excess of its aggregate principal amount, the net amount of
interest deductions that are allowed the REMIC in each taxable year with respect
to the Regular Certificate will be reduced by an amount equal to the portion of
the excess that is considered to be amortized or prepaid in that year. Although
the matter is
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not entirely certain, it is likely that any such excess would be amortized under
a constant yield method in a manner analogous to the method for accruing
original issue discount described under "Taxation of Owners of Regular
Certificates -- Original Issue Discount" above.
The second modification relates to the accrual of income on a Mortgage Loan
deemed to have been acquired with market discount or premium. Any such market
discount will be includible in the income of the REMIC as it accrues, in advance
of receipt of the cash attributable to such income, under a method similar to
the method described above for accruing original issue discount on the Regular
Certificates. If the REMIC elects under Code Section 171 to amortize any
premium on the Mortgage Loans, the premium may be amortized under a constant
yield method. See "-- Taxation of Owners of Regular Certificates -- Market
Discount" and "-- Premium" above.
The third modification is that no item of income, gain, loss or deduction
allocable to a prohibited transaction (see "-- Prohibited Transactions and other
REMIC -- Level Taxes," below) will be taken into account.
The fourth modification is that the REMIC generally may not deduct any item
that would be disallowed in calculating the taxable income of a partnership by
virtue of Code Section 703(a)(2).
The fifth modification is that the amount of the net income from
"foreclosure property" (if any) must be reduced by the amount of tax imposed
under Code Section 860G(c) with respect to such "foreclosure property."
The REMIC will have an initial aggregate basis in its assets equal to the
aggregate issue price of the "regular interests" and "residual interests" in the
REMIC. Such aggregate basis will be allocated among the individual Mortgage
Loans and other assets of the REMIC in proportion to their respective fair
market values. Accordingly, the Master Servicer will be required to estimate
the fair market value of such interests in order to determine the basis of the
REMIC in the Mortgage Loans and other property held by the REMIC. Generally
with respect to any Certificate offered hereby, its fair market value will be
its issue price as determined in the manner described above under "Taxation of
Owners of Regular Certificates -- Original Issue Discount" above.
Basis Rules and Distributions. Any distribution by a REMIC to a
Residual Certificate holder will not be included in the gross income of such
Residual Certificateholder to the extent it does not exceed the adjusted basis
of such Residual Certificateholder's interest in a Residual Certificate. Such
distribution will reduce the adjusted basis of such interest, but not below
zero. To the extent a distribution exceeds the adjusted basis of the Residual
Certificate, it will be treated as gain from the sale of the Residual
Certificate. See "-- Sales of Certificates," below. The adjusted basis of a
Residual Certificate is equal to the amount paid for such Residual Certificate,
increased by amounts included in the income of the Residual Certificateholder
(see "-- Taxation of Owners of Residual Certificates -- Daily Portions," above)
and decreased by distributions and by net losses taken into account with respect
to such interest.
A Residual Certificateholder is not allowed to take into account any net
loss for any calendar quarter to the extent such net loss exceeds such Residual
Certificateholder's adjusted basis in its Residual Certificate as of the close
of such calendar quarter (determined without regard to such net loss). Any loss
allowed will reduce the adjusted basis of such interest, but not below zero. Any
loss disallowed by reason of this limitation may be carried forward indefinitely
to future calendar quarters and, subject to the same limitation, may be used
only to offset income from the Residual Certificate. The effect of these basis
and distribution rules is that a Residual Certificateholder may not amortize its
basis in a Residual Certificate, but may only recover its basis through
distributions, and through the deduction of any net losses of the REMIC or upon
the sale of its Residual Certificate. See "-- Sales of Certificates" below.
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Excess Inclusions. Any "excess inclusion" with respect to a Residual
Certificate is subject to certain special tax rules. With respect to a Residual
Certificateholder, the excess inclusion for any calendar quarter is defined as
the excess (if any) of the daily portions of taxable income over the sum of the
"daily accruals" for each day during such quarter that such Residual Certificate
was held by such Residual Certificateholder. The daily accruals are determined
by allocating to each day during a calendar quarter its ratable portion of the
product of the "adjusted issue price" of the Residual Certificate at the
beginning of the calendar quarter and 120 percent of the long-term "applicable
Federal rate" (generally, an average of current yields on Treasury securities of
comparable maturity) in effect at the time of issuance of the Residual
Certificate. For this purpose, the adjusted issue price of a Residual
Certificate offered hereby, if any, as of the beginning of any calendar quarter
is the issue price of the Residual Certificate, (see "-- Taxable Income of the
REMIC" above) increased by the amount of daily portions of income for all prior
quarters and decreased (but not below zero) by any distributions made with
respect to such Residual Certificate and any net losses taken into account with
respect to such Residual Certificates before the beginning of such quarter.
As an exception to the general rules described above, the Treasury
Department has authority to issue regulations that would treat the entire amount
of income accruing on a Residual Certificate as an excess inclusion if the
aggregate Residual Certificates in the REMIC did not have "significant value."
The REMIC Regulations do not provide for such an exception.
For Residual Certificateholders, other than thrift institutions described
in Code Section 593, an excess inclusion cannot be offset by losses from other
sources. For Residual Certificateholders that are subject to tax on unrelated
business taxable income (as defined in Code Section 511), an excess inclusion is
treated as unrelated business taxable income. With respect to Residual
Certificateholders that are nonresident alien individuals or foreign
corporations generally subject to United States 30% withholding tax, an excess
inclusion will be subject to such tax and no tax treaty rate reduction or
exemption may be claimed with respect thereto. See "-- Foreign Investors" below.
If a thrift institution described in Code Section 593 holds a Residual
Certificate that has "significant value," the thrift institution may offset its
losses against its excess inclusion income. In general, a Residual Certificate
has significant value if (i) the aggregate of the issue prices of the Residual
Certificates in the REMIC is at least equal to 2 percent of the aggregate of the
issue prices of all Regular Certificates and Residual Certificates in the REMIC,
and (ii) the anticipated weighted average life of the Residual Certificates is
at least 20 percent of the anticipated weighted average life of the REMIC.
However, a net operating loss of any other member of an affiliated group of
which the thrift institution is a member may not be used to offset an excess
inclusion attributable to the thrift institution. In addition, a thrift
institution may not offset its losses against an excess inclusion attributable
to a Residual Certificate held by any other member of an affiliated group of
which the thrift institution is a member.
In the case of any Residual Certificate held by a real estate investment
trust, the aggregate excess inclusions with respect to such Residual
Certificate, reduced (but not below zero) by the real estate investment trust's
taxable income (within the meaning of Code Section 857(b)(2), excluding any net
capital gain), will be allocated among the shareholders of such trust in
proportion to the dividends received by such shareholders from such trust, and
any amount so allocated will be treated as an excess inclusion with respect to
the Residual Certificate as if held directly by such shareholders.
Pass-Through of Miscellaneous Itemized Deductions
Under temporary Treasury regulations, if the REMIC is considered to be a
"single-class REMIC," a portion of the REMIC's servicing, administrative and
other non-interest expenses will be allocated as a separate item to those
Regular Certificateholders that are "pass-through interest holders." Generally,
a single class REMIC is defined as (i) a REMIC that is substantially similar to
an investment trust under
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Treasury regulations but for its qualification as a REMIC, or (ii) a REMIC that
is substantially similar to an investment trust but is structured with the
principal purpose of avoiding this allocation requirement imposed by the
temporary regulations. Such a pass-through interest holder would be required to
add its allocable share, if any, of such expenses to its gross income and to
treat the same amount as an item of investment expense. An individual generally
would be allowed a deduction for such expenses only as a miscellaneous itemized
deduction subject to the limitations under Code Section 67, which allows such
deductions only to the extent that in the aggregate such expenses exceed two
percent of the holder's adjusted gross income. In addition, Code Section 68
provides that the amount of itemized deductions otherwise allowable for an
individual whose adjusted gross income exceeds a certain amount (the "Applicable
Amount") will be reduced by the lesser of (i) 3% of the excess of the
individual's adjusted gross income over the Applicable Amount or (ii) 80% of the
amount of itemized deductions otherwise allowable for the taxable year. The
amount of additional taxable income recognized by Regular Certificateholders who
are subject to the limitations of either Code Section 67 or Code Section 68 may
be substantial. The REMIC is required to report to each pass-through interest
holder and to the IRS such holder's allocable share, if any, of the REMIC's non-
interest expenses. The term "pass-through interest holder" generally refers to
individuals, entities taxed as individuals and certain pass-through entities
including regulated investment companies, but does not include real estate
investment trusts. Certificate holders that are "pass-through interest
holders" should consult their own tax advisors about the impact of these rules
on an investment in the Regular Certificates.
In addition, in a REMIC that is not considered to be a "single-class REMIC"
as well as a REMIC that is considered to be a "single-class REMIC," all or a
portion of the REMIC's servicing, administrative and other non-interest expenses
will be allocated as a separate item to Residual Certificateholders that are
"pass-through interest holders." Such a holder would be required to add its
allocable share, if any, of such expenses to its gross income and to treat the
same amount as an item of investment expense and an individual Residual
Certificateholder would be subject to the same limitations and adjustments as
described above for Regular Certificateholders.
Sales of Certificates
If a Certificate is sold, the selling Certificateholder will recognize gain
or loss equal to the difference between the amount realized on the sale and its
adjusted basis in the Certificate. The adjusted basis of a Regular Certificate
generally will equal the cost of such Regular Certificate to such
Certificateholder, increased by income reported by such Certificateholder with
respect to such Regular Certificate and reduced (but not below zero) by
distributions on such Regular Certificate received by such Certificateholder and
by any amortized premium. The adjusted basis of a Residual Certificate will be
determined as described under "Taxation of Owners of Residual Certificates --
Basis Rules and Distributions," above. Except as provided in the following two
paragraphs, any such gain or loss will be capital gain or loss, provided such
Certificate is held as a capital asset (generally, property held for investment)
within the meaning of Code Section 1221. The Federal income tax rates applicable
to capital gains for taxpayers other than individuals, estates, and trusts are
currently the same as those applicable to ordinary income. However, the maximum
ordinary income tax rate for individuals, estates, and trusts is generally
39.6%, whereas the maximum long-term capital gains rate for such taxpayers is
20% for capital assets held for more than 18 months, and 28% for capital assets
held for more than 12 months and not more than 18 months. Capital losses
generally may be used by a corporate taxpayer only to offset capital gains, and
by an individual taxpayer only to the extent of capital gains plus $3,000 of
other income.
Gain from the sale of a Regular Certificate that might otherwise be capital
gain will be treated as ordinary income to the extent such gain does not exceed
the excess, if any, of (i) the amount that would have been includible in the
seller's income with respect to such Regular Certificate assuming that income
had accrued thereon at a rate equal to 110% of the applicable Federal rate
determined as of the
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date of purchase of such Regular Certificate, over (ii) the amount of ordinary
income actually includible in the seller's income prior to such sale.
Certificates will be "evidences of indebtedness" within the meaning of
Section 582(c)(1) of the Code, so that gain or loss recognized from the sale of
a Certificate by a bank or thrift institution to which such section applies will
be ordinary income or loss.
Except as provided in Treasury regulations, if the seller of a Residual
Certificate reacquires a Residual Certificate, any other residual interest in a
REMIC or any similar interest in a "taxable mortgage pool" (as defined in Code
Section 7701(i)) during the period beginning six months before, and ending six
months after, the date of such sale, such sale will be subject to the "wash
sale" rules of Code Section 1091. In that event, any loss realized by the
Residual Certificateholder on the sale will not be deductible, but instead will
be added to such Residual Certificateholder's adjusted basis in the newly-
acquired asset.
Prohibited Transactions and Other REMIC-Level Taxes
A REMIC is subject to a tax at a rate equal to 100 percent of the net
income derived from "prohibited transactions." In general, a prohibited
transaction means (i) the disposition of a Mortgage Loan other than pursuant to
certain specified exceptions, (ii) the receipt of investment income from a
source other than a Mortgage Loan or certain other permitted investments, (iii)
the receipt of compensation for services, or (iv) gain from the disposition of
an asset purchased with the payments on the Mortgage Loans for temporary
investment pending distribution on the Certificates. It is not anticipated that
a Trust Fund that makes an election to be taxed as a REMIC will engage in any
prohibited transactions. In addition, under the Code, a REMIC generally will be
taxed at a 100% rate on any contribution made to the REMIC after the Start-Up
Date unless such contribution is a cash contribution that (i) takes place within
the three-month period beginning on the closing date, (ii) is made to facilitate
a clean-up call or a qualified liquidation, (iii) is a payment in the nature of
a guarantee, or (iv) constitutes a contribution by the holder of the Residual
Certificates in the REMIC to a qualified reserve fund. The structure and
operation of a Trust Fund that makes an election to be taxed as a REMIC will be
designed to avoid the imposition of the 100% tax on contributions.
To the extent that a REMIC derives certain types of income from foreclosure
property (generally, income relating to dealer activities of the REMIC), it will
be taxed on such income at the highest corporate income tax rate. It is not
anticipated that a Trust Fund that makes an election to be taxed as a REMIC will
receive significant amounts of such income.
Tax on Transfers of Residual Certificates to Certain Organizations
If a Residual Certificate is transferred to a "disqualified organization"
(as defined below), a tax would be imposed in an amount, determined under the
REMIC Regulations, generally equal to the product of (i) the present value of
the total anticipated excess inclusions with respect to such Residual
Certificate for periods after the transfer (determined by discounting the
anticipated excess inclusions from the end of each remaining calendar quarter in
which those excess inclusions are expected to accrue at the applicable Federal
rate based on the date on which the transfer occurs to the date the disqualified
organization acquires the residual interest) and (ii) the highest marginal
federal income tax rate applicable to corporations. Such a tax would generally
be imposed on the transferor of the Residual Certificate, except that where such
transfer is through an agent for a disqualified organization, the tax would
instead be imposed on such agent. However, a transferor of a Residual
Certificate would in no event be liable for such tax with respect to a transfer
if the transferee furnished to the transferor an affidavit stating the
transferee's social security number and that the transferee is not a
disqualified organization, and as of the time of the transfer, the transferor
does not have actual knowledge that such affidavit is false. An entity will not
qualify as a REMIC unless there are reasonable arrangements designed to ensure
that residual
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interests in such entity are not held by disqualified organizations and that
information needed for the application of the tax described herein will be made
available. Restrictions on the transfer of the Residual Certificate and certain
other provisions that are intended to meet these requirements are contained in
the Agreement. Certificateholders should consult their advisors regarding the
potential impact on them of such restrictions.
For these purposes, a "disqualified organization" means (i) the United
States, any State or political subdivision thereof, any foreign government, any
international organization, or any agency or instrumentality of the foregoing
(but would not include instrumentalities described in Code Section
168(h)(2)(D)), (ii) any organization (other than a cooperative described in Code
Section 521) which is exempt from tax unless such organization is subject to the
tax imposed by Code Section 511 or (iii) any organization described in Code
Section 1381(a)(2)(C).
In addition, if a "pass-through entity" (as defined below) includes in
income excess inclusions with respect to a Residual Certificate, and a
disqualified organization is the record holder of an interest in such entity,
then a tax will be imposed on such pass-through entity equal to the product of
(i) the amount of excess inclusions on the Residual Certificate that are
allocable to the interest in the pass-through entity held by such disqualified
organization and (ii) the highest marginal federal income tax rate imposed on
corporations. A pass-through entity will not be subject to this tax for any
period, however, if the record holder of such interest furnishes to such pass-
through entity an affidavit that such record holder is not a disqualified
organization and, during such period, the pass-through entity does not have
actual knowledge that such affidavit is false. For these purposes, a "pass-
through entity" means any regulated investment company, real estate investment
trust, trust, partnership or certain other entities described in Code Section
860E(e)(6).
Disregard of Certain Transfers
The REMIC Regulations provide that the transfer of a "non-economic residual
interest" to a United States person will be disregarded for tax purposes if a
significant purpose of the transfer was to impede the assessment or collection
of tax. A Residual Certificate will constitute a non-economic residual interest
unless, at the time the interest is transferred, (i) the present value of the
expected future distributions with respect to the Residual Certificate equals or
exceeds the product of the present value of the anticipated excess inclusion
income and the highest corporate tax rate for the year in which the transfer
occurs, and (ii) the transferor reasonably expects that the transferee will
receive distributions from the REMIC in amounts sufficient to satisfy the taxes
on excess inclusion income as they accrue. A significant purpose to impede the
assessment or collection of tax exists if the transferor, at the time of the
transfer, either knew or should have known that the transferee would be
unwilling or unable to pay taxes due on its share of the taxable income of the
REMIC. A transferor is presumed not to have knowledge if (i) the transferor
conducted, at the time of the transfer, a reasonable investigation of the
financial condition of the transferee and, as a result of the investigation, the
transferor found that the transferee had historically paid its debts as they
came due and found no significant evidence to indicate that the transferee will
not continue to pay its debts as they come due in the future; and (ii) the
transferee represents to the transferor that it understands that, as the holder
of the noneconomic residual interest, the transferee may incur tax liabilities
in excess of any cash flows generated by the interest and that the transferee
intends to pay taxes associated with holding the residual interest as they
become due.
A transfer of a Residual Certificate to a foreign person will be
disregarded if the Residual Certificate has tax avoidance potential. A Residual
Certificate will have tax avoidance potential unless, at the time of the
transfer, the transferor reasonably expects that, for each excess inclusion, the
REMIC will distribute to the transferee Residual Certificateholder an amount
that will equal at least 30 percent of the excess inclusion, and that each such
amount will be distributed at or after the time at which the excess inclusion
accrues and not later than the close of the calendar year following the calendar
year of
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accrual. Under the REMIC Regulations a safe harbor is provided under which a
transferor is treated as having a reasonable expectation if the 30 percent test
would be satisfied were the mortgages held by a REMIC to prepay at each rate
within a range of rates from 50 percent to 200 percent of the rate assumed under
Code Section 1272(a)(6) with respect to the qualified mortgages (or the rate
that would have been assumed had the mortgages been issued with original issue
discount). If a transfer of a residual interest is disregarded, the transferor
would be liable for any Federal income tax imposed upon taxable income that
otherwise would be derived by the transferee from the REMIC.
Termination
A REMIC will terminate shortly following receipt by the REMIC of the final
payment in respect of the Mortgage Loans or upon a sale of the REMIC's assets
following the adoption by the REMIC of a plan of complete liquidation. The last
distribution on a Regular Certificate will be treated as a payment in retirement
of a debt instrument. In the case of a Residual Certificate, if the last
distribution on such Residual Certificate is less than the Residual
Certificateholder's adjusted basis in such Residual Certificate, such Residual
Certificateholder should be allowed a loss equal to the amount of such
difference.
Reporting and Other Administrative Matters
Solely for purposes of the administrative provisions of the Code, the REMIC
will be treated as a partnership and Residual Certificateholders will be treated
as partners. Unless otherwise stated in the related Prospectus Supplement, the
Master Servicer, which will hold at least a nominal amount of Residual
Certificates, will file REMIC federal income tax returns on behalf of the
related REMIC, and will be designated as and will act as the "tax matters
person" with respect to the REMIC in all respects.
As the tax matters person, the Master Servicer will, subject to certain
notice requirements and various restrictions and limitations, generally have the
authority to act on behalf of the REMIC and the Residual Certificateholders in
connection with the administrative and judicial review of items of income,
deduction, gain or loss of the REMIC, as well as the REMIC's classification.
Residual Certificateholders will generally be required to report such REMIC
items consistent with their treatment on the REMIC's tax return and may in some
circumstances be bound by a settlement agreement between the Master Servicer, as
tax matters person, and the Internal Revenue Service concerning any such REMIC
item. Any person that holds a Residual Certificate as a nominee for another
person may be required to furnish the REMIC, in a manner to be provided in
Treasury Regulations, with the name and address of such person and other
information.
Reporting of interest income, including any original issue discount, with
respect to Regular Certificates is required annually, and may be required more
frequently under Treasury Regulations. This requirement extends to certain
holders of Regular Certificates who are generally exempt from information
reporting on debt instruments. The REMIC also must comply with rules requiring
a Regular Certificate issued with original issue discount to disclose on its
face the amount of original issue discount and the issue date and requiring such
information to be reported to the Internal Revenue Service.
Because the particular applications of the general method for computing
accrued income are varied and complex and involve factual as well as legal
uncertainties, the extent to which income will be recognized in advance of the
receipt of cash under the original issue discount rules is uncertain. Additional
guidance is required from the Internal Revenue Service or other legal authority
before it is possible to determine definitely the proper methods for accruing
income on the Certificates. In the absence of additional guidance from the
Internal Revenue Service or other legal authority, the Master Servicer intends
to compute and report accrued income on the Certificates for tax purposes in a
manner that it believes to be consistent with the principles of the Code and the
OID Regulations described above.
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Because of the uncertainties discussed above, there can be no assurance that the
method adopted by the Master Servicer for reporting to holders of Certificates
will coincide with that ultimately adopted in final Treasury Regulations.
Accordingly, holders of Certificates should consult their tax advisors regarding
the method for reporting the amounts received or accrued with respect to the
Certificates. As long as the only "Certificateholder" of record is CEDE & Co.,
as nominee for DTC, Certificateholders and the IRS will receive tax and other
information from DTC Participants and indirect participants of DTC rather than
from the Master Servicer. (The Master Servicer, however, will respond to
requests for necessary information to enable DTC Participants, indirect
participants and certain other persons to complete their reports.)
The Regular Certificate information reports will include a statement of the
adjusted issue price of the Regular Certificate at the beginning of each accrual
period. In addition, the reports will include information necessary to compute
the accrual of any market discount that may arise upon secondary trading of
Regular Certificates. Because exact computation of the accrual of market
discount on a constant yield method would require information relating to the
Certificateholder's purchase price which the REMIC may not have, it appears that
only information pertaining to the appropriate proportionate method of accruing
market discount should be required to be reported.
Backup Withholding
Payments of interest and principal, as well as payments of proceeds from
the sale of Certificates, may be subject to "backup withholding" under Code
Section 3406 at a rate of 31% if recipients of such payments fail to furnish to
the payor certain information, including their taxpayer identification numbers,
or otherwise fail to establish an exemption from such withholding. Any amounts
deducted and withheld from a distribution to a recipient would be allowed as a
credit against such recipient's Federal income tax. Furthermore, certain
penalties may be imposed by the Internal Revenue Service on a recipient of
payments that is required to supply information to the payor but that does not
do so in the proper manner.
Foreign Investors
A Regular Certificateholder that is not a "United States person" (as
defined below) and is not subject to Federal income tax as a result of any
direct or indirect connection to the United States in addition to its ownership
of a Regular Certificate may be eligible for an exception to United States
Federal income or withholding tax in respect of a distribution on a Regular
Certificate, provided that the Certificateholder complies to the extent
necessary with certain identification requirements (including delivery of a
statement, signed by the Certificateholder under penalties of perjury,
certifying that such Certificateholder is not a United States person and
providing the name and address of such Certificate holder) and provided that the
Certificateholder is not (i) a "10 percent shareholder" within the meaning of
Code Section 871(h)(3)(B) or a controlled foreign corporation described in Code
Section 881(c)(3)(C). The application of these requirements in the REMIC context
is not entirely clear, and foreign investors seeking to qualify for this
exemption should consult their own tax advisors. While the matter is not free
from doubt, the foregoing tax exemption may not apply with respect to a Regular
Certificate held by a Residual Certificateholder, or by a Certificateholder that
owns directly or indirectly a 10% or greater interest in, or is a "controlled
foreign corporation" as defined under the Code related to, a Residual
Certificateholder. If the Certificateholder does not qualify for exemption,
distributions of interest, including distributions in respect of accrued
original issue discount, to such Certificateholder may be subject to a tax rate
of 30%, subject to reduction under any applicable tax treaty. For these
purposes, "United States person" means a citizen or resident of the United
States, a corporation, partnership or other entity created or organized in or
under the laws of the United States or any political subdivision thereof, or an
estate or trust whose income is subject to United States Federal income taxation
regardless of its source.
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Unless otherwise stated in the related Prospectus Supplement, Residual
Certificateholders that are not United States persons should assume that
distributions of income on their Residual Certificates will be subject to a 30%
withholding tax (or such lesser rate as may be provided under any applicable tax
treaty). In the case of any income on a Residual Certificate that is an excess
inclusion, however, the rate of withholding will not be subject to reduction
under any applicable tax treaties. (See "-- Taxation of Owners of Residual
Certificates -- Excess Inclusions" above.)
Purchase of Both Regular and Residual Certificates
Any Certificateholder holding a "regular interest" in the REMIC and persons
related to such Certificateholders should not acquire any interest identified as
a "residual interest" in the REMIC and any Certificateholders holding a
"residual interest" in the REMIC and persons related to such Certificate
holders should not acquire any interest identified as a "regular interest" in
the REMIC, without consulting their tax advisors as to any possible adverse tax
consequences.
Investment in Certificates Not Representing Interests in a REMIC
Classification of Trust Fund and Characterization of Investment in
Certificates
For purposes of the following discussion, Certificates of a Series
evidencing undivided ownership interests in a notional amount of principal of
each Mortgage Loan in a related Trust Fund together with interest thereon are
referred to as "P&I Certificates," and Certificates of a Series evidencing an
undivided ownership interest in a portion of the interest payable on a Notional
Amount of the Mortgage Loans in the related Trust Fund are referred to as "IO
Certificates."
Upon issuance of each Series of Certificates, unless a REMIC election is
made with respect to such Series, Mayer, Brown & Platt, counsel to the
Depositor, will deliver its opinion to the Depositor generally to the effect
that the related Trust Fund will be treated as a grantor trust under subpart E,
Part I of Subchapter J of the Code and not as an association taxable as a
corporation. Moreover, each Certificateholder of a Series will be treated as the
owner of the undivided interest specified in its Certificate in each of the
Mortgage Loans in the related Trust Fund for each Series. Accordingly, in the
case of P&I Certificates, counsel to the Depositor will deliver its opinion
that, to the extent that the Trust Fund holds assets described in the Code
sections set forth below, (i) subject to the satisfaction of either the
applicable holding period or the bona fide business requirement of Code Section
593(d)(1)(D), P&I Certificates owned by a "domestic building and loan
association," a "mutual savings bank," or "any cooperative bank without capital
stock organized and operated for mutual purposes and without profit" within the
meaning of Code Section 593(a) will represent an interest in "qualifying real
property loans" within the meaning of Code Section 593(d); (ii) P&I Certificates
owned by a "domestic building and loan association" will represent "loans . . .
secured by an interest in real property" within the meaning of Code Section
7701(a)(19)(C)(v); (iii) P&I Certificates owned by a real estate investment
trust will represent "real estate assets" within the meaning of Code Sections
856(c)(5)(A) and 856(c)(6)(B) and interest in respect of P&I Certificates will
represent "interest on obligations secured by mortgages on real property or on
interests in real property" within the meaning of Code Section 856(c)(3)(B); and
(iv) P&I Certificates owned by a REMIC will represent an interest in
"obligation[s] (including any participation or certificate of beneficial
ownership therein) which [are] principally secured by an interest in real
property" within the meaning of Code Section 860G(a)(3). It is unclear, however,
to what extent, if any, an IO Certificate will be considered to represent such
interests. Prospective purchasers should consult their tax advisors regarding
whether an IO Certificate will be characterized as representing such assets and
whether the income therefrom will be characterized as derived from such assets.
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Taxation of Owners of P&I Certificates
Treatment as Stripped Bonds. The rate at which a Certificateholder
will be required to recognize income on its Certificate may be affected by a
separation of the right to receive a portion of the interest on each Mortgage
Loan in the Trust Fund from the right to receive a portion of the principal.
Such a separation will occur with respect to each Mortgage Loan having a
Retained Yield or a Trust Fund issuing IO Certificates. Such a separation also
will occur if the amount of the Administration Fee exceeds reasonable
compensation such that the Master Servicer is treated as the owner of a portion
of the interest payments on the Mortgage Loans. There are no authoritative
guidelines for Federal income tax purposes regarding the maximum amount of
servicing compensation that may be considered reasonable in the context of this
or similar transactions. However, the Service has issued guidance establishing
an elective "safe harbor" for determining the extent to which amounts that a
taxpayer is entitled to receive under certain mortgage servicing contracts
represent reasonable compensation. If the safe harbor is potentially applicable
in a particular situation, the Mortgage Servicer will disclose in the Prospectus
Supplement relating to each Series of Certificates whether it will elect to
limit its compensation to an amount that will qualify as reasonable compensation
under such safe harbor. Such a separation also may occur upon the issuance of a
Certificate that represents an interest in principal payments to be made on
Mortgage Loans together with interest payable thereon at a rate in excess of the
rate at which interest is payable on such Mortgage Loans. Such
Certificateholders may be treated as having purchased two separate instruments:
first, a P&I Certificate representing their undivided interests in payments of
principal on such Mortgage Loans together with interest payments at a rate at or
below the rate at which interest is payable on such Mortgage Loans; and, second,
an IO Certificate representing their undivided interests in the remainder of the
payments of interest to be made on such Mortgage Loans to which their
Certificate entitles them.
Each Certificateholder in such a Trust Fund will be subject to the
"stripped debt" rules of Code Section 1286. As a result, the market discount
rules generally would not be applicable to the initial Certificateholders.
However, the Service has recently provided guidance under which certain mortgage
loans that are stripped bonds may be treated as market discount bonds governed
by Code Section 1278. This treatment is available only if the amount of the
original issue discount with respect to the stripped bond is determined to be de
minimis (see "-- Qualification as a REMIC -- Taxation of Owners of Regular
Certificates-- Original Issue Discount") or the annual stated rate of interest
payable on the stripped bond is no more than 100 basis points lower than the
annual stated rate of interest payable on the original bond from which it (and
any other stripped bonds or coupons) were stripped. If these requirements are
met, and if the stripped bond has market discount (see "-- Qualification as a
REMIC --Taxation of Owners of Regular Certificates -- Market Discount"), the
Certificateholder may include such market discount as principal is repaid or
upon disposition of the Certificate at a gain or may elect to include such
income currently on the basis of either ratable accrual or a constant instant
rate method. If the market discount rules do not apply, each Certificateholder
in such a Trust Fund (whether a cash or accrual method taxpayer) will be
required to report the income (including interest that is added to principal as
Deferred Interest resulting from negative amortization) that is deemed to accrue
for each day with respect to the Certificate under a constant yield to maturity
method, in accordance with the original issue discount rules of the Code.
In general, the amount of such income that accrues for each day would equal
(i) the product of such Certificateholder's adjusted issue price of such P&I
Certificate at the beginning of an accrual period and the yield of such P&I
Certificate to such holder (ii) allocated ratably to each day in the accrual
period. See "-- Qualification as a REMIC -- Taxation of Owners of Regular
Certificates -- Original Issue Discount" above. Such yield would be computed as
the rate (assuming monthly compounding) that, if used to discount the
Certificateholder's share of future payments on the Mortgage Loans, would cause
the present value of those future payments to equal the price at which the
Certificateholder purchased such Certificate. In computing accrued income under
the stripped debt rules, a Certificateholder's share
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of future payments on the Mortgage Loans will not include any payments made in
respect of any Retained Yield or any other ownership interest in the Mortgage
Loans retained by the Depositor or its affiliates, but will include such
Certificateholder's share of any reasonable servicing fees and other expenses.
There is considerable uncertainty, however, concerning the application of
Code Section 1272(a)(6) and the OID Regulations to instruments such as the P&I
Certificates. Among other things, it is unclear whether provisions of the 1986
Act requiring use of a prepayment assumption in accruing original issue discount
would be applicable to the P&I Certificates in the absence of Treasury
Regulations or whether use of a prepayment assumption may be permitted without
reliance on these rules. It also is not clear whether any other adjustments
would be required to reflect differences between an assumed prepayment rate and
the actual rate of prepayments. Certificateholders are advised to consult their
tax advisors concerning whether a prepayment assumption should be used in
reporting original issue discount with respect to P&I Certificates.
In the case of a P&I Certificate acquired at a price approximately equal to
the principal amount of the Mortgage Loans allocable to such Certificate, the
use or non-use of a reasonable prepayment assumption would not cause the income
required to be reported under the stripped debt rules to differ materially from
the income such Certificateholder would be required to report under an accrual
method of accounting if the stripped debt rules did not apply. In the case,
however, of a P&I Certificate acquired at a discount from, or premium over, such
principal amount, the use of a reasonable prepayment assumption would increase
or decrease the yield used in calculating accruals of income, and thus
accelerate or decelerate, respectively, the reporting of income.
If no prepayment assumption is used, then when a Mortgage Loan prepays in
full, the holder of a P&I Certificate acquired at a discount generally will
recognize ordinary income equal to the difference between the portion of the
prepaid principal amount of the Mortgage Loan that is allocable to such
Certificate and the portion of the adjusted basis of such Certificate that is
allocable to such Certificate holder's interests in the Mortgage Loan. If a
prepayment assumption is used, it appears that no income or loss should be
recognized upon a prepayment unless prepayments have occurred at a rate
different than the assumed prepayment rate.
Variable Rate Certificates. Although the OID Regulations are subject
to a different interpretation, in the absence of substantial legal authority to
the contrary the Master Servicer intends to treat Mortgage Loans subject to the
stripped debt rules and bearing a variable rate of interest as subject to the
provisions of the OID Regulations governing variable rate debt instruments. In
computing the accrual or original issue discount, the Master Servicer may be
required to use the methods described in Code Section 1272(a)(6). With respect
to the application of Code Section 1272(a)(6) to the accrual of original issue
discount, see generally "-- Qualification as a REMIC -- Taxation of Owners of
Regular Certificates -- Original Issue Discount" above. Under the OID
Regulations, interest payments on a variable rate debt instrument may be
characterized as qualified stated interest includible in income when accrued,
original issue discount includible in income when accrued under the original
issue discount rules, or contingent interest payments generally includible in
income in the taxable year in which the payments become fixed. Although the OID
Regulations generally permit a variety of interest rate adjustment mechanisms to
produce "qualified stated interest" (e.g., one or more "qualified floating
rates," "qualified inverse floating rates," or "objective rates") where each
qualified floating rate or objective rate in effect during an accrual period is
set at a current value of that rate, the use of these formulas may in some cases
produce accelerated or deferred interest which must be accrued under a constant
yield method (which could require accrual in advance of the receipt of a
corresponding payment of cash). Moreover, prospective purchasers of P&I
Certificates bearing a variable rate of interest should be aware that the
provisions in the OID Regulations applicable to variable rate instruments may
not apply to the particular rate adjustment mechanisms for the Mortgage Loans or
Mortgage Certificates. If variable rate P&I Certificates are not governed by the
provisions applicable to variable rate debt instruments, the OID
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Regulations provide that such Certificates would be subject to the provisions
applicable to instruments having contingent payments. See "-- Taxation of
Owners of IO Certificates -- Possible Application of Proposed Contingent Payment
Rules" below. The application of those provisions to instruments such as the
P&I Certificates is subject to differing interpretations. Prospective
purchasers of variable rate P&I Certificates are advised to consult their tax
advisors concerning the tax treatment of such Certificates.
If Stripped Bond Rules Do Not Apply. If the stripped bond rules do not
apply to a P&I Certificate, the Certificateholder will be required to report its
pro rata share of the interest income on the Mortgage Loans in accordance with
such Certificateholder's normal method of accounting. However, if the rules
relating to market discount, original issue discount, or premium are applicable,
the amount includible in income on account of a P&I Certificate may differ
significantly from the amount payable thereon from payments of interest on the
Mortgage Loans.
The original issue discount rules will apply to a P&I Certificate to the
extent it evidences an interest in Mortgage Loans or Mortgage Certificates
issued with original issue discount. Under the OID Regulations a Mortgage Loan
would have original issue discount if the points charged at origination (or
other loan discount) exceeded a specified de minimis amount (generally, the
greater of one-sixth of one percent times the number of full years to final
maturity or one-fourth of one percent times the weighted average maturity). The
OID Regulations also treat certain variable rate mortgage loans as having
original issue discount if the loan has an initial rate of interest that differs
from that determined by the formula for setting the interest rate during the
remainder of the loan or if the loan uses an index that does not vary in a
manner approved in the OID Regulations. For a general discussion of the
treatment of variable rate interest, see "-- Taxation of Owners of P&I
Certificates -- Variable Rate Certificates" above. Generally, original issue
discount would be accrued on the basis of a constant yield to maturity.
However, the application of the original issue discount rules to the Mortgage
Loans is unclear in certain respects. See "-- Treatment as Stripped Bonds,"
above.
Premium and Market Discount. Determination of adjustments to a
Certificateholder's income based on premium or market discount with respect to a
Certificate requires that the purchase price of the Certificate be allocated
among the Mortgage Loans constituting the Trust Fund. Generally, such
allocation will provide a tax basis for the Certificateholder's undivided
interest in each Mortgage Loan and will be made on the basis of the relative
fair market values of the Certificateholder's undivided interest in the Mortgage
Loans.
A Certificateholder that acquires an interest in a Mortgage Loan at a
premium may elect under Code Section 171 to amortize such premium under a
constant yield to maturity method over the life of the Mortgage Loan.
Certificateholders should consult their tax advisors concerning whether a
prepayment assumption should be used in calculating yield and concerning
possible alternative methods for amortizing premium.
An investor also should be aware that the Internal Revenue Service may take
the position that the method described below for accruing income under the
current proposed Treasury Regulations applicable to debt instruments providing
for contingent payments applies to a P&I Certificate purchased at such a premium
because all or a portion of its issue price (the "Contingent Principal") may not
be recovered if the related Mortgage Loans were prepaid. See "-- Taxation of
Owners of IO Certificates -- Possible Application of Proposed Contingent Payment
Rules" below. The method of accruing income under the contingent payment rules
may be more likely to be applied if the difference between the issue price of
the Certificate and the amount of Contingent Principal is substantial.
If the portion of a P&I Certificate's purchase price allocable to a
Mortgage Loan in the Trust Fund is less than the Certificateholder's undivided
interest in the Mortgage Loan's "revised issue price" (the sum of the issue
price and the previously accrued original issue discount reduced by the sum of
all
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prior payments of the stated redemption price at maturity), such excess is
"market discount." A Certificateholder that acquires an interest in a Mortgage
Loan with market discount generally will be required under Code Section 1276 to
include accrued and previously unrecognized market discount in income as
ordinary income to the extent of payments of the stated redemption price at
maturity received on the Mortgage Loan at the time that each such payment is
received. In addition, on a sale or other disposition of the P&I Certificate, a
Certificateholder will be required to include as ordinary income any gain to the
extent of accrued and previously unrecognized market discount. Pending the
issuance of Treasury Regulations, market discount may be treated as accruing
either (i) under a constant yield to maturity method, (ii) in proportion to the
original issue discount accruing on a Mortgage Loan, or (iii) in proportion to
the stated interest in the absence of original issue discount. Alternatively, a
Certificate holder may elect to include accrued market discount in income
currently on all market discount obligations acquired by such Certificateholder
during the taxable year in which such election is made and thereafter. A
Certificateholder should be aware that Code Section 1277 may limit the
deductibility of interest paid or accrued to purchase or carry a Mortgage Loan
that is acquired at a market discount unless the election is made to include
accrued market discount in income currently. Certificateholders should consult
their tax advisors as to the application of this rule and the advisability of
making any elections under the market discount rules in their particular
circumstances.
Taxation of Owners of IO Certificates
Because the "stripped debt" rules of Code Section 1286 will apply to the IO
Certificates, income on the IO Certificates must be accrued under the original
issue discount provisions of the Code. The regulations that have been issued to
date under Code Section 1286 do not address the treatment of stripped coupons,
and it is uncertain how the section will be applied to securities such as the IO
Certificates. The OID Regulations do not include rules relating specifically to
"stripped coupons," although they provide guidance as to how the original issue
discount sections of the Code will generally be applied. The discussion below
assumes that an IO Certificateholder will not own any P&I Certificates. IO
Certificateholders should consult their tax advisors concerning the method to be
used in reporting income or loss with respect to the IO Certificates.
Under the stripped coupon rules, it appears that original issue discount
will be required to be accrued for each day on the IO Certificates based on a
constant yield to maturity method. See "--Taxation of Owners of P&I
Certificates -- Treatment as Stripped Bonds," above. It is unclear in the
absence of Treasury Regulations whether a reasonable prepayment assumption is
required or permitted to be applied to calculate such yield to maturity under a
provision of the Tax Reform Act of 1986 (the "1986 Act"). The accrual of income
on the IO Certificates will be significantly slower if a reasonable prepayment
assumption is permitted to be made than if yield is computed assuming no
prepayments.
Possible Application of Contingent Payment Rules. Under the OID
Regulations, debt instruments providing for contingent payments are subject to
different rules than debt instruments providing for non-contingent payments. To
the extent that all or a portion of the issue price ("Contingent Principal") of
the IO Certificates would not be recovered if the related Mortgage Loans were
prepaid, the IO Certificates could be considered to be debt instruments
providing for contingent payments within the meaning of the current Treasury
Regulations dealing with debt instruments that provide for contingent payments.
Treasury Regulations concerning the treatment of debt instruments providing
for one or more contingent payments became effective on June 14, 1996 (the
"Contingent Payment Regulations") for debt instruments issued on or after August
13, 1996. Although the Assets may include debt instruments issued before August
13, 1996 (and thus not technically subject to the Contingent Payment
Regulations), the issuer expects to treat any contingent payments on both sets
of instruments in accordance with the Contingent Payment Regulations.
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The Contingent Payment Regulations establish a "noncontingent bond method"
for the treatment of debt instruments providing for contingent payments that are
issued for money or other publicly traded property. Under this method, the
holder of a contingent payment debt instrument will generally be required to
accrue interest on the debt instrument on the basis of a projected schedule of
the contingent and noncontingent payments to be made on the debt instrument
prepared by the issuer. Such interest accruals will be required to be calculated
on an economic accrual basis applying rules similar to those applicable to
noncontingent debt instruments issued with original issue discount treating none
of the payments on the debt instrument as "qualified stated interest." In
formulating the projected payment schedule, the issuer will be required to take
into account the noncontingent payments provided by the debt instrument, any
readily available forward price quotes for property rights that are
substantially similar to the right to any contingent payments on the debt
instrument and any readily available spot price quotes for an option or
combination of options that are substantially similar to the right to any
contingent payments on the debt instrument. If the debt instrument contains
contingent payments for which such forward or spot quotes are not readily
available, the payment schedule will be required to result in a reasonable yield
for the debt instrument that reflects any quotable contingent payments and the
relative expected values of any nonquotable contingent payments.
In the event that the amount of a contingent payment varied from its
projected amount, the holder will generally be required to include such variance
as a positive or negative adjustment to income in the year in which the payment
is made. Positive adjustments will be treated as ordinary interest income while
negative adjustments will result in ordinary loss. The amount of such ordinary
loss allowable for the year will be limited to the excess of the total interest
accrued to date on the debt instrument over the total amount of any negative
adjustments included as ordinary loss in previous years.
The Contingent Payment Regulations generally treat any gain on sale of a
contingent payment debt instrument as ordinary interest income. Loss realized
on sale of a contingent payment debt instrument is treated as ordinary loss to
the extent of the excess of the total interest accrued on the debt instrument to
the date of sale over the total amount of any negative adjustments previously
included in income. Any remaining loss is treated as capital loss.
Under such provisions, each holder of an IO Certificate which has
Contingent Principal will generally be required to accrue interest under the
"noncontingent bond method." Although the issuer intends to provide to holders a
projected schedule under the "noncontingent bond method," holders should consult
their own tax advisers regarding the application of the Contingent Payment
Regulations.
Administration Fee, Voluntary Advances and Subordinated Amount
The income received with respect to a Certificate generally includes
amounts not paid to the Certificateholder because they are used to pay the
Administration Fee. Subject to certain limitations on the deductibility by
individual Certificateholders of certain categories of expenses under Code
Section 67 and the reduction of certain deductible expenses for individual
Certificateholders under Code Section 68 (see "-- Qualification as a REMIC --
Pass-Through of Miscellaneous Itemized Deductions" above), each
Certificateholder may deduct its allocable share of the Administration Fee paid
to or retained by the Master Servicer (to the extent such fee constitutes
reasonable compensation for the services rendered by the Master Servicer) at
such times and in such manner as it would have been deducted under such
Certificateholder's tax accounting method had it actually received such amounts
and paid them to the Master Servicer. Payments of Voluntary Advances and
payments in respect of the Subordinated Amount, if any, to Certificateholders
should be treated as having the same character as the payments they replace.
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Sales of Certificates
Except as provided above with respect to accrued market discount (under "--
Taxation of Owners of P&I Certificates -- If Stripped Bond Rules Do Not Apply,"
above, and, in the case of banks and other financial institutions, except as
provided under Code Section 582(c)), any gain or loss, equal to the difference
between the amount realized on the sale and the adjusted basis of such
Certificate, recognized on the sale or exchange of a Certificate by an investor
who holds such Certificate as a capital asset, will be capital gain or loss.
The Federal income tax rates applicable to capital gains for taxpayers other
than individuals, estates, and trusts are currently the same as those applicable
to ordinary income. However, the maximum ordinary income tax rate for
individuals, estates, and trusts is generally 39.6%, whereas the maximum long-
term capital gains rate for such taxpayers is 20% for capital assets held for
more than 18 months, and 28% for capital assets held for more than 12 months and
not more than 18 months. Capital losses generally may be used by a corporate
taxpayer only to offset capital gains, and by an individual taxpayer only to the
extent of capital gains plus $3,000 of other income.
The adjusted basis of a Certificate will generally equal its cost,
increased by any income reported by the seller and reduced (but not below zero)
by any previously reported losses and by any distributions with respect to such
Certificate.
Purchasers of Certificates should be aware that, if income must be accrued
with respect to such a Certificate as if it were a separate instrument, it may
not be possible to determine whether the adjusted tax basis of the Certificate
will be recovered in full until all of the Mortgage Loans in the related Trust
Fund have been paid or otherwise discharged. Conversely, if income must be
accrued with respect to each such Certificateholder's undivided interest in each
Mortgage Loan in the related Trust Fund, it is likely that a portion of such
Certificateholder's adjusted tax basis will have to be allocated to each such
undivided interest. It then should be possible to determine whether the adjusted
tax basis allocable to an undivided interest in a Mortgage Loan in the
related Trust Fund has been recovered at the time the Mortgage Loan is paid or
discharged. Such an approach may result in the earlier recognition of any
losses attributable to such a Certificateholder's unrecovered adjusted tax basis
than if the Certificate were treated as a separate instrument. However, because
of the uncertainties involved and in the absence of substantial legal authority
to the contrary, the Master Servicer does not intend to allocate the adjusted
tax basis of such a Certificateholder in its Certificate to the undivided
interest in each Mortgage Loan represented by the Certificate nor to determine
and report whether any such allocable adjusted tax basis has been recovered at
the time a Mortgage Loan in the related Trust Fund is paid or discharged. Due
to the existence of the Subordinated Amount, the effect of such treatment by the
Master Servicer is not expected to be significant with respect to a P&I
Certificateholder.
Reporting
The Master Servicer will furnish to each holder of a P&I Certificate with
each distribution a statement setting forth the amount of such distribution
allocable to principal on the underlying Mortgage Loans and to interest thereon
at the related Pass-Through Rate. In addition, the Master Servicer will furnish,
within a reasonable time after the end of each calendar year, to each holder of
a Certificate who was such a holder at any time during such year, information
regarding the amount of servicing compensation received by the Master Servicer
and sub-servicers (if any) and such other customary factual information as the
Master Servicer deems necessary or is required by law to enable holders of
Certificates to prepare their tax returns. However, as long as the only
"Certificateholder" of record is CEDE & Co., as nominee for DTC,
Certificateholders and the IRS will receive tax and other information from DTC
Participants and indirect participants rather than the Master Servicer. (The
Master Servicer, however, will respond to requests for necessary information to
enable DTC Participants, indirect participants and certain other persons to
complete their reports.)
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Because the particular applications of the general method for computing
accrued income are varied and complex and involve factual as well as legal
uncertainties, the extent to which income will be recognized in advance of the
receipt of cash under the original issue discount rules is uncertain. Additional
guidance is required from the Internal Revenue Service or other legal authority
before it is possible to determine definitely the proper methods for accruing
income on the Certificates. In the absence of additional guidance from the
Internal Revenue Service or other legal authority, the Master Servicer intends
to compute and report accrued income on the Certificates for tax purposes in a
manner that it believes to be consistent with the principles of the Code and the
OID Regulations described above. Because of the uncertainties discussed above,
there can be no assurance that the method adopted by the Master Servicer for
reporting to holders of Certificates will coincide with that ultimately adopted
in final Treasury Regulations. Accordingly, holders of Certificates should
consult their tax advisors regarding the method for reporting the amounts
received or accrued with respect to the Certificates. The Trustee intends in
reporting information relating to original issue discount to Certificateholders
of record (which, in the case of Certificates registered to CEDE & Co., as
nominee of DTC, shall be distributed to Certificate Owners by DTC Participants
and indirect participants of DTC) to provide such information on an aggregate
pool-wide basis. Although there are provisions in the OID Regulations that
suggest that the computation of original issue discount on such a basis is
either appropriate or required, it is possible that investors may be required to
compute original issue discount on a Mortgage Loan by Mortgage Loan basis taking
account of an allocation of their basis in the Certificates among the interests
in the various Mortgage Loans represented by such Certificates according to
their respective fair market values. Investors should be aware that it may not
be possible to reconstruct after the fact sufficient Mortgage Loan by Mortgage
Loan information should the Internal Revenue Service require computation on that
basis. See "-- Sales of Certificates" above.
Backup Withholding
In general, the rules described in "-- Qualification as a REMIC -- Backup
Withholding" above, will also apply to Certificates.
Foreign Investors
In general, the discussion with respect to Regular Certificates in "--
Qualification as a REMIC -- Foreign Investors" above, applies to Certificates.
STATE TAX CONSIDERATIONS
In addition to the Federal income tax consequences described in "Certain
Federal Income Tax Considerations" above, potential investors should consider
the state income tax consequences of the acquisition, ownership, and disposition
of the Certificates. State income tax law may differ substantially from the
corresponding federal law, and this discussion does not purport to describe any
aspect of the income tax laws of any state. Therefore, potential investors
should consult their own tax advisors with respect to the various tax
consequences of investments in the Certificates.
ERISA CONSIDERATIONS
The Employee Retirement Income Security Act of 1974, as amended ("ERISA")
imposes requirements on employee benefit plans (and on certain other retirement
plans and arrangements, including individual retirement accounts and annuities,
Keogh plans and collective investment funds and separate accounts in which such
plans, accounts or arrangements are invested) (collectively "Plans") subject to
ERISA and on persons who are fiduciaries with respect to such Plans. Generally,
ERISA applies to investments made by Plans. Among other things, ERISA requires
that the assets of Plans be held in trust and that the trustee, or other duly
authorized fiduciary, have exclusive authority and
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discretion to manage and control the assets of such Plans. ERISA also imposes
certain duties on persons who are fiduciaries of Plans. Under ERISA, any person
who exercises any authority or control respecting the management or disposition
of the assets of a Plan is considered to be a fiduciary of such Plan (subject to
certain exceptions not here relevant). Certain employee benefit plans, such as
governmental plans (as defined in ERISA Section 3(32)) and, if no election has
been made under Section 410(d) of the Code, church plans (as defined in ERISA
Section 3(33)), are not subject to ERISA requirements. Accordingly, assets of
such plans may be invested in Certificates without regard to the ERISA
considerations described herein, subject to the provisions of applicable state
law. Any such plan which is qualified and exempt from taxation under Code
Sections 401(a) and 501(a), however, is subject to the prohibited transaction
rules set forth in Code Section 503.
On November 13, 1986, the United States Department of Labor (the "DOL")
issued a final regulation concerning the definition of what constitutes the
assets of a Plan. (29 C.F.R. (S) 2510.3-101.) Under this regulation, the
underlying assets and properties of corporations, partnerships and certain other
entities in which a Plan makes an "equity" investment could be deemed for
purposes of ERISA to be assets of the investing Plan in certain circumstances.
However, the regulation provides that, generally, the assets of an entity in
which a Plan invests will not be deemed for purposes of ERISA to be assets of
such Plan if the equity interest acquired by the investing Plan is a publicly-
offered security. A publicly-offered security, as defined in the regulation, is
a security that is widely held, freely transferable and registered under the
Exchange Act. The related Prospectus Supplement will indicate whether the
Certificates constitute publicly-offered securities for the purpose of this
exception.
In addition to the imposition of general fiduciary standards of investment
prudence and diversification, ERISA prohibits a broad range of transactions
involving Plan assets and persons ("Parties in Interest") having certain
specified relationships to a Plan and imposes additional prohibitions where
Parties in Interest are fiduciaries with respect to such Plan. For example, an
investment in the Certificates by a Plan to which the Depositor, the Master
Servicer or Trustee is a Party in Interest would constitute a prohibited
transaction unless an exemption is available. In addition, because the Mortgage
Loans may be deemed Plan assets of each Plan that purchases Certificates, an
investment in the Certificates by a Plan might be a prohibited transaction if
any of the mortgagors is a Party in Interest to the Plan unless an exemption
applies.
In Prohibited Transaction Exemption 83-1 ("PTE 83-1"), which amended
Prohibited Transaction Exemption 81-7, the DOL exempted from ERISA's prohibited
transaction rules certain transactions relating to the operation of residential
mortgage pool investment trusts and the purchase, sale and holding of "mortgage
pool pass-through certificates" (as defined below) in the initial issuance of
such certificates. PTE 83-1 permits, subject to certain conditions, transactions
which might otherwise be prohibited between Plans and Parties in Interest with
respect to those Plans related to the origination, maintenance and termination
of mortgage pools consisting of mortgage loans secured by first or second
mortgages or deeds of trust on "single-family residential property" (as defined
below), and the acquisition and holding of certain mortgage pool pass-through
certificates representing an interest in such mortgage pools by Plans. If the
general conditions (discussed below) of PTE 83-1 are satisfied, investments by a
Plan in Certificates will be exempt from the prohibitions of ERISA Sections
406(a) and 407 (relating generally to transactions with Parties in Interest who
are not fiduciaries) if the Plan purchases the Certificates at no more than fair
market value, and will be exempt from the prohibitions of ERISA Sections
406(b)(1) and (2) (relating generally to transactions with fiduciaries) if, in
addition, the purchase is approved by an independent fiduciary, no sales
commission is paid to the pool sponsor, the Plan does not purchase more than 25%
of all Certificates, and at least 50% of the Certificates are purchased by
persons independent of the pool sponsor or pool trustee.
A "mortgage pool pass-through certificate" for the purpose of PTE 83-1 is
defined as a certificate representing a beneficial undivided fractional interest
in a mortgage pool and entitling the holder of such
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certificate to pass-through payments of principal and interest from the pooled
mortgage loans, less any fees retained by the pool sponsor. Certain Classes of
Certificates may, if specified in the related Prospectus Supplement, not qualify
as mortgage pool pass-through certificates as so defined, and therefore PTE 83-1
may not be applicable with respect to such Classes of Certificates, including:
(i) Classes of Certificates, such as Subordinated Certificates, entitled to
receive payments of interest and principal on the Mortgage Loans only after
payments to other Classes or after the occurrence of certain specified events;
(ii) Classes of Certificates that evidence the beneficial ownership in a Trust
Fund divided into Mortgage Loan Groups; (iii) Classes of Certificates that
evidence beneficial ownership of a specified percentage of interest payments
only or principal payments only, or a notional amount of either principal or
interest payments; and (iv) Classes of Certificates that evidence an interest in
a Pool organized as a REMIC. In addition, PTE 83-1 applies only where the
mortgage pool is limited to single-family residential property. PTE 83-1
defines "single-family residential property" as non-farm property comprising one
to four dwelling units, and condominiums. Therefore, PTE 83-1 may not be
available for Classes of Certificates representing a beneficial interest in a
mortgage pool which includes: (i) multifamily mortgage loans; or (ii) loans
secured by shares issued by a cooperative housing association.
PTE 83-1 sets forth three general conditions which must be satisfied for
any transaction to be eligible for exemption: (i) the maintenance of a system of
insurance or other protection for the pooled mortgage loans and property
securing such loans, and for indemnifying Certificateholders against reductions
in pass-through payments due to property damage or defaults in loan payments in
an amount not less than the greater of one percent of the aggregate principal
balance of all covered pooled mortgage loans or the principal balance of the
largest covered pooled mortgage loan; (ii) the existence of a pool trustee who
is not an affiliate of the pool sponsor; and (iii) a limitation on the amount of
the payment retained by the pool sponsor, together with other funds inuring to
its benefit, to not more than adequate consideration for selling the mortgage
loans plus reasonable compensation for services provided by the pool sponsor to
the Pool. Certain Series or Classes of Certificates may be protected though a
subordination of other Classes of Certificates, a subordination by shifting of
interests, a reserve fund or other form of credit enhancement described in the
related Prospectus Supplement. In the absence of a ruling that the system of
insurance or other protection with respect to a Series or Class of Certificates
satisfies the first general condition referred to above, there can be no
assurance that these features will be so viewed by the DOL. In addition, such
subordination or other form of credit enhancement maintained with respect to a
Series or Class of Certificates will not satisfy the first general condition
referred to above unless it is maintained in an amount not less than the greater
of one percent of the aggregate principal balance of the Mortgage Loans or the
principal balance of the largest Mortgage Loan. With respect to the second
general condition referred to above, the Trustee will not be affiliated with the
Depositor. There can be no assurance that the third general condition will be
satisfied with respect to the Certificates.
One or more exemptions may be available, however, with respect to certain
transactions to which PTE 83-1 is not applicable, depending in part upon the
type of Plan fiduciary making the decision to acquire a Certificate and the
circumstances under which such decision is made, including but not limited to:
Prohibited Transaction Exemption 90-1, regarding investments by insurance
company pooled separate accounts; Prohibited Transaction Exemption 91-38,
regarding investments by bank collective investment funds; Prohibited
Transaction Exemption 84-14, regarding transactions effected by a "qualified
professional asset manager," or Prohibited Transaction Exemption 95-60,
regarding investments by insurance company general account. However, even if the
conditions specified in one or more of these exemptions are met, the scope of
the relief provided by these exemptions might not cover all of the transactions
involved.
The DOL has issued individual exemptions to a number of firms that may
serve as underwriter for a particular Series of Certificates (collectively
referred to as the "Underwriter Exemption") which
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apply to certain sales and servicing of "certificates" that are obligations of a
"trust" with respect to which such firm is the placement agent or underwriter,
manager or co-manager of an underwriting syndicate. The Underwriter Exemption
provides relief which is generally similar to that provided by PTE 83-1, but is
broader in several respects. The related Prospectus Supplement will indicate
whether the particular underwriter has been granted an Underwriter Exemption.
The Underwriter Exemption contains several requirements, some which differ
from those in PTE 83-1. The Underwriter Exemption contains an expanded
definition of "certificate" which includes an interest which entitles the holder
to pass-through payments of principal, interest and/or other payments and a
certificate denominated as debt that represents an interest in a REMIC. The
Underwriter Exemption contains an expanded definition of "trust", which may
include obligations secured by shares issued by a cooperative housing
association and loans secured by multi-family residential and commercial real
property, as well as loans secured by single-family residential real property.
In addition, the Underwriter Exemption does not require the loans, the property
securing the loans or the Certificate holders to be covered by a system of
Insurance. The definition of "trust," however, does not include any investment
pool unless, inter alia, (i) the Investment pool consists only of assets of the
type which have been included in other investment pools, (ii) certificates
evidencing interests in such other investment pools have been purchased by
investors other than Plans for at least one year prior to the Plan's acquisition
of certificates pursuant to the Underwriter Exemption, and (iii) certificates in
such other investment pools have been rated in one of the three highest generic
rating categories of the four credit rating agencies noted below. The general
conditions applicable to the Underwriter Exemption include: (i) the acquisition
of the certificates by a Plan must be on terms (including the price for the
certificates) that are at least as favorable to the Plan as they would be in an
arm's length transaction with an unrelated party; (ii) the rights and interests
evidenced by the certificates must not be "subordinated" to the rights and
interests evidenced by other certificates of the same trust; (iii) certificates
acquired by a Plan must have received a rating at the time of their acquisition
that it is in one of the three highest generic rating categories of Standard &
Poor's Corporation, Moody's Investors Service, Inc., Duff & Phelps Inc. or
Fitch Investors Service, Inc.; (iv) the pool trustee must not be an affiliate of
the pool sponsor, nor an affiliate of the underwriter, the pool servicer, any
obligor with respect to mortgage loans included in the trust constituting more
than five percent of the aggregate unamortized principal balance of the assets
in the trust, or any affiliate of such entities; and (v) any Plan investing in
the certificates must be an "accredited investor" as defined in Rule 501(a)(1)
of Regulation D of the Securities and Exchange Commission under the Securities
Act.
It is not clear whether the exemptions referenced above apply to
participant directed plans as described in Section 404(c) of ERISA or plans that
are subject to Section 4975 of the Code but that are not subject to Title I of
ERISA, such as certain Keogh plans and certain individual retirement accounts.
Any Plan fiduciary which proposes to cause a Plan to purchase Certificates
should consult with its counsel concerning the impact of ERISA and the Code, the
applicability of an exemption, and the potential consequences in the specific
circumstances, prior to making such investment. Moreover, each Plan fiduciary
should determine whether under the general fiduciary standards of investment
procedure and diversification an investment in the Certificates is appropriate
for the Plan, taking into account the overall investment policy of the Plan and
the composition of the Plan's investment portfolio.
PLAN OF DISTRIBUTION
The Depositor may sell the Certificates in any of three ways: (i) through
underwriters or dealers; (ii) directly to a limited number of purchasers or to a
single purchaser, or (iii) through agents. The Prospectus Supplement relating
to a Series of Certificates will set forth the terms of the offering of such
Series of Certificates including the name or names of any underwriters, dealers
or agents, the purchase
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price of such Certificates and the proceeds to the Depositor from such sale, any
underwriting discounts and other items constituting underwriters' compensation
and any discounts and commissions allowed or paid to dealers. Any initial
public offering prices and any discounts or concessions allowed or reallowed or
paid to dealers may be changed from time to time.
If so specified in the Prospectus Supplement relating to a Series of
Certificates, the Depositor or any affiliate thereof may purchase or retain some
or all of one or more Classes of Certificates of such Series. Such purchaser
may thereafter from time to time offer and sell, pursuant to this Prospectus,
some or all of such Certificates so purchased directly, through one or more
underwriters to be designated at the time of the offering of such Certificates
or through broker-dealers acting as agent and/or principal. Such offering may be
restricted in the manner specified in the related Prospectus Supplement. Such
transactions may be effected at market prices prevailing at the time of sale, at
negotiated prices or at fixed prices. In addition, the Depositor or an
affiliate of the Depositor may pledge Certificates retained or purchased by the
Depositor in connection with borrowings or use them in repurchase transactions.
If any Certificates of any Series are sold through underwriters, the
Prospectus Supplement relating thereto will describe the nature of the
obligation of the underwriters to purchase such Certificates. The Certificates
may be offered to the public either through underwriting syndicates represented
by one or more managing underwriters or directly by one or more underwriting
firms acting alone. The underwriter or underwriters with respect to a
particular underwritten offering of Certificates will be named in the Prospectus
Supplement relating to such offering, and, if an underwriting syndicate is used,
the managing underwriter or underwriters will be set forth on the cover of the
related Prospectus Supplement. Unless otherwise set forth in a Prospectus
Supplement, the obligation of the underwriters to purchase any Certificates of
the related Series will be subject to certain conditions precedent, and the
underwriters will be obligated to purchase all of such Certificates if any are
purchased.
Underwriters and agents who participate in the distribution of a Series of
Certificates may be entitled under agreements which may be entered into by the
Depositor to indemnification by the Depositor against certain liabilities,
including liabilities under the Securities Act, as amended, or to contribution
with respect to payments which the underwriters or agents may be required to
make in respect thereof.
The Prospectus Supplement with respect to any Series of Certificates
offered other than through underwriters will contain information regarding the
nature of such offering and any agreements to be entered into between the
Depositor and dealers for the Certificates of such Series.
Certain affiliates of the Depositor, including ABN AMRO Chicago Corp
("AACC"), may act as agents or underwriters in connection with the sale of a
Series of Certificates. AACC is a separately incorporated, wholly-owned indirect
non-bank subsidiary of ABN AMRO Bank N.V. ("ABN AMRO"). AACC is not a bank.
Securities sold, offered or recommended by AACC are not deposits, are not
insured by the Federal Deposit Insurance Corporation, are not guaranteed by, and
are not otherwise obligations of, any bank or thrift affiliate of AACC and
involve investment risks, including the possible loss of principal.
Any affiliate of the Depositor acting as agent or underwriter in connection
with the sale of a Series of Certificates will be named, and its affiliation
with the Depositor described, in the Prospectus Supplement with respect to such
Series. With respect to underwritten offerings, any such affiliates not named
in the Prospectus Supplement will not be parties to the related underwriting
agreement, will not be purchasing the related Certificates from the Depositor
and will have no direct or indirect participation in the underwriting of such
Certificates, although such affiliates may participate in the distribution of
such Certificates under circumstances entitling it to a dealer's commission. An
affiliate of the Depositor may act as a placement agent with respect to
Certificates not offered through underwriters. If an affiliate does act as
placement agent on behalf of the Depositor in the sale of Certificates, it will
receive a selling
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commission which will be disclosed in the related Prospectus Supplement. To the
extent permitted by law, certain affiliates of the Depositor, including AACC,
may purchase Certificates acting as principal.
The Depositor anticipates that the Certificates will be sold primarily to
institutional investors. Purchasers of Certificates, including dealers, may,
depending on the facts and circumstances of such purchases, be deemed to be
"underwriters" within the meaning of the Securities Act in connection with re-
offers and sales by them of Certificates. Certificateholders should consult
with their legal advisors in this regard prior to any such re-offer or sale.
There is currently no secondary market for the Certificates. The Depositor
does not intend to make a secondary market for the Certificates. There can be
no assurance that a secondary market for the Certificates will develop or, if it
does develop, that it will continue. The Certificates will not be listed on any
securities exchange.
LEGAL INVESTMENT
Unless otherwise specified in the Prospectus Supplement for a Series, the
Certificates rated in one of the two highest rating categories by one or more
Rating Agencies will constitute "mortgage-related securities" for purposes of
the Secondary Mortgage Market Enhancement Act of 1984 ("SMMEA") and, as such,
will be legal investments for persons, trusts, corporations, partnerships,
associations, business trusts and business entities (including depository
institutions, life insurance companies and pension funds) created pursuant to or
existing under the laws of the United States or of any state (including the
District of Columbia and Puerto Rico) whose authorized investments are subject
to state regulation to the same extent as, under applicable law, obligations
issued by or guaranteed as to principal and interest by the United States or any
such entities. Under SMMEA, if a state enacted legislation prior to October 4,
1991 specifically limiting the legal investment authority of any such entities
with respect to "mortgage-related securities" the Certificates will constitute
legal investments for entities subject to such legislation only to the extent
provided therein. SMMEA provides, however, that in no event will the enactment
of any such legislation affect the validity of any contractual commitment to
purchase, hold or invest in Certificates, or require the sale or other
disposition of Certificates, so long as such contractual commitment was made or
such Certificates acquired prior to the enactment of such legislation. Pursuant
to SMMEA, a number of states enacted legislation, on or before the October 3,
1991 cut-off for such enactments, limiting to varying extents the ability of
certain entities to invest in "mortgage-related securities," in most cases by
requiring the affected investors to rely solely upon existing state law, and not
SMMEA. Accordingly, the investors affected by such legislation will be
authorized to invest in the Securities only to the extent provided in such
legislation.
SMMEA also amended the legal investment authority of federally-chartered
depository institutions as follows: federal savings and loan associations and
federal savings banks may invest in, sell or otherwise deal in Certificates
without limitation as to the percentage of their assets represented thereby;
federal credit unions may invest in the Certificates; and national banks may
purchase Certificates for their own account without regard to the limitations
generally applicable to investment securities set forth in 12 U.S.C. (S) 24
(Seventh), subject in each case to such regulations as the applicable federal
authority may prescribe.
There may be other restrictions on the ability of certain investors,
including depository institutions, either to purchase Certificates or to
purchase Certificates representing more than a specified percentage of the
investor's assets. Investors should review any applicable or proposed rules,
regulations and guidelines and consult their own legal advisors in determining
whether and to what extent the Certificates constitute legal investments for
such investors.
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Securities that do not constitute "mortgage-related securities" under SMMEA
will require registration, qualification or an exemption under applicable state
securities laws to meet requirements for legal investments.
LEGAL MATTERS
The legality of the Certificates of each Series, including certain Federal
income tax consequences with respect thereto, will be passed upon for the
Depositor by Mayer, Brown & Platt, Chicago, Illinois and, as to certain matters
relating to corporate law, Kirk P. Flores, Esq., in-house counsel to the
Depositor and the Master Servicer.
RATING
It is a condition to the issuance of the Certificates offered by means of
this Prospectus and the related Prospectus Supplement that they shall have
received a rating of not less than Investment Grade by the Rating Agency or
Agencies identified in such Prospectus Supplement.
Ratings on mortgage pass-through certificates address the likelihood of
receipt by certificateholders of all distributions of payments required pursuant
to the Agreement pursuant to which the certificates are issued on the underlying
mortgage loans. These ratings address the structural, legal and issuer tax-
related aspects associated with such certificates, the nature of the underlying
mortgage loans and the credit quality of the guarantor, if any. Ratings on
mortgage pass-through certificates do not represent any assessment of the
likelihood of principal prepayments by mortgagors or of the degree by which such
prepayments might differ from those originally anticipated. As a result,
certificateholders might suffer a lower than anticipated yield, and, in
addition, holders of stripped pass-through certificates in extreme cases might
fail to recoup their underlying investments.
A 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 Agency.
Each rating should be evaluated independently of similar ratings on different
securities.
102
<PAGE>
ANNEX I
GLOBAL CLEARANCE, SETTLEMENT AND TAX DOCUMENTATION PROCEDURES
Except in certain limited circumstances, globally offered Certificates (the
"Global Securities") will be available only in book-entry form. Investors in
the Global Securities may hold such Global Securities through any of DTC, CEDEL
or Euroclear. The Global Securities will be tradeable as home market
instruments in both the European and United States domestic markets. Initial
settlement and all secondary trades will settle in same-day funds.
Secondary market trading between investors holding Global Securities
through CEDEL and Euroclear will be conducted in the ordinary way in accordance
with their normal rules and operating procedures and in accordance with
conventional eurobond practice (i.e., seven calendar day settlement).
Secondary market trading between investors holding Global Securities
through DTC will be conducted according to the rules and procedures applicable
to United States corporate debt obligations.
Secondary cross-market trading between CEDEL or Euroclear and DTC
Participants holding Certificates will be effected on a delivery-against-payment
basis through the respective Depositaries of CEDEL and Euroclear (in such
capacity) and as Participants.
Non-United States holders (as described below) of Global Securities will be
subject to United States withholding taxes unless such holders meet certain
requirements and deliver appropriate United States tax documents to the
securities clearing organizations or their participants.
Initial Settlement
All Global Securities will be held in book-entry form by DTC in the name of
CEDE & Co. as nominee of DTC. Investors' interests in the Global Securities
will be represented through financial institutions acting on their behalf as
direct and indirect participants in DTC. As a result, CEDEL and Euroclear will
hold positions on behalf or their participants through their respective
Depositaries, which in turn will hold such positions in accounts as DTC
Participants.
Investors electing to hold their Global Securities through DTC will follow
the settlement practices applicable to United States corporate debt obligations.
Investor securities custody accounts will be credited with their holdings
against payment in same-day funds on the settlement date.
Investors electing to hold their Global Securities through CEDEL or
Euroclear accounts will follow the settlement procedures applicable to
conventional eurobonds, except that there will be no temporary global security
and no "lock-up" or restricted period. Global Securities will be credited to the
securities custody accounts on the settlement date against payment in same-day
funds.
Secondary Market Trading
Since the purchaser determines the place of delivery, it is important to
establish at the time of the trade where both the purchaser's and seller's
accounts are located to ensure that settlement can be made on the desired value
date.
Trading between DTC Participants. Secondary market trading between DTC
Participants will be settled using the procedures applicable to United States
corporate debt obligations issued in same-day funds.
103
<PAGE>
Trading between CEDEL and/or Euroclear Participants. Secondary market
trading between CEDEL Participants or Euroclear Participants will be settled
using the procedures applicable to conventional eurobonds in same-day funds.
Trading between DTC seller and CEDEL or Euroclear purchaser. When Global
Securities are to be transferred from the account of a DTC Participant to the
account of a CEDEL Participant or a Euroclear Participant, the purchaser will
send instructions to CEDEL or Euroclear through a CEDEL Participant or Euroclear
Participant at least one Business Day prior to settlement. CEDEL or Euroclear
will instruct the respective Depositary, as the case may be, to receive the
Global Securities against payment. Payment will include interest accrued on the
Global Securities from and including the last coupon payment date to and
excluding the settlement date, on the basis of (i) the actual number of days in
such accrual period and a year assumed to consist of 360 days. For transactions
settling on the 31st of the month, payment will include interest accrued to and
excluding the first day of the following month. Payment will then be made by the
respective Depositary of the DTC Participant's account against delivery of the
Global Securities. After settlement has been completed, the Global Securities
will be credited to the respective clearing system and by the clearing system,
in accordance with its usual procedures, to the CEDEL Participant's or Euroclear
Participant's account. The securities credit will appear the next day (European
time) and the cash debt will be back-valued to, and the interest on the Global
Securities will accrue from, the value date (which would be the preceding day
when settlement occurred in New York). If settlement is not completed on the
intended value date (i.e., the trade fails), the CEDEL or Euroclear cash debt
will be valued instead as of the actual settlement date.
CEDEL Participants and Euroclear Participants will need to make available
to the respective clearing systems the funds necessary to process same-day funds
settlement. The most direct means of doing so is to preposition funds for
settlement, either from cash on hand or existing lines of credit, as they would
for any settlement occurring within CEDEL or Euroclear. Under this approach,
they may take on credit exposure to CEDEL or Euroclear until the Global
Securities are credited to their accounts one day later.
As an alternative, if CEDEL or Euroclear has extended a line of credit to
them, CEDEL Participants or Euroclear Participants can elect not to preposition
funds and allow that credit line to be drawn upon the finance settlement. Under
this procedure, CEDEL Participants or Euroclear Participants purchasing Global
Securities would incur overdraft charges for one day, assuming they cleared the
overdraft when the Global Securities were credited to their accounts. However,
interest on the Global Securities would accrue from the value date. Therefore,
in many cases the investment income on the Global Securities earned during that
one-day period may substantially reduce or offset the amount of such overdraft
charges, although this result will depend on each CEDEL Participant's or
Euroclear Participant's particular cost of funds.
Since the settlement is taking place during New York business hours, DTC
Participants can employ their usual procedures for sending Global Securities to
the respective Depositary for the benefit of CEDEL Participants or Euroclear
Participants. The sale proceeds will be available to the DTC seller on the
settlement date. Thus, to the DTC Participant a cross-market transaction will
settle no differently than a trade between two DTC Participants.
Trading between CEDEL or Euroclear seller and DTC purchaser. Due to time
zone differences in their favor, CEDEL Participants and Euroclear Participants
may employ their customary procedures for transactions in which Global
Securities are to be transferred by the respective clearing system, through the
respective Depositary, to a DTC Participant. The seller will send instructions
to CEDEL or Euroclear through a CEDEL Participant or Euroclear Participant at
least one Business Day prior to settlement. In these cases, CEDEL or Euroclear
will instruct the respective Depositary, as appropriate, to deliver the Global
Securities to the DTC Participant's account against payment. Payment will
include
104
<PAGE>
interest accrued on the Global Securities from and including the last coupon
payment to and excluding the settlement date on the basis of (i) the actual
number of days in such accrual period and a year assumed to consist of 360 days.
For transactions settling on the 31st of the month, payment will include
interest accrued to and excluding the first day of the following month. The
payment will then be reflected in the account of the CEDEL Participant or
Euroclear Participant the following day, and receipt of the cash proceeds in the
CEDEL Participant's or Euroclear Participant's account would be backed-valued to
the value date (which would be the preceding day, when settlement occurred in
New York). Should the CEDEL Participant or Euroclear Participant have a line of
credit with its respective clearing system and elect to be in debt in
anticipation of receipt of the sale proceeds in its account, the back-valuation
will extinguish any overdraft incurred over that one-day period. If settlement
is not completed on the intended value date (i.e., the trade fails), receipt of
the cash proceeds in the CEDEL Participant's or Euroclear Participant's account
would instead be valued as of the actual settlement date.
Finally, day traders that use CEDEL or Euroclear and that purchase Global
Securities from DTC Participants for delivery to CEDEL Participants or Euroclear
Participants should note that these trades would automatically fail on the sale
side unless affirmative action were taken. At least three techniques should be
readily available to eliminate this potential problem:
(a) borrowing through CEDEL or Euroclear for one day (until the purchase
side of the day trade is reflected in their CEDEL or Euroclear accounts) in
accordance with the clearing system's customary procedures;
(b) borrowing the Global Securities in the United States from a DTC
Participant no later than one day prior to settlement, which would give the
Global Securities sufficient time to be reflected in their CEDEL or Euroclear
account in order to settle the sale side of the trade; or
(c) staggering the value dates for the buy and sell sides of the trade so
that the value date for the purchase from the DTC Participant is at least one
day prior to the value date for the sale to the CEDEL Participant or Euroclear
Participant.
Certain U.S. Federal Income Tax Documentation Requirements
A beneficial owner of Global Securities holding securities through CEDEL or
Euroclear (or through DTC if the holder has an address outside the United
States) will be subject to the 30% United States withholding tax that generally
applies to payments of interest (including original issue discount) on
registered debt issued by United States persons, unless (i) each clearing
system, bank or other financial institution that holds customers' securities in
the ordinary course of its trade or business in the chain of intermediaries
between such beneficial owner and the United States entity required to withhold
tax complies with applicable certification requirements and (ii) such beneficial
owner takes one of the following steps to obtain an exemption or reduced tax
rate:
Exemption for non-United States Persons (Form W-8). Beneficial owners of
Global Securities that are non-United States persons can obtain a complete
exemption from the withholding tax by filing a signed Form W-8 (Certificate of
Foreign Status). If the information shown on Form W-8 changes, a new Form W-8
must be filed within 30 days of such change.
Exemption for non-United States Persons with effectively connected income
(Form 4224). A non-United States person, including a non-United States
corporation or bank with a United States branch, for which the interest income
is effectively connected with its conduct of a trade or business in the United
States, can obtain an exemption from the withholding tax by filing Form 4224
(Exemption from Withholding of Tax on Income Effectively Connected with the
Conduct of a Trade or Business in the United States).
105
<PAGE>
Exemption or reduced rate for non-United States Persons resident in treaty
countries (Form 1001). Non-United States persons that are Certificate Owners
residing in a country that has a tax treaty with the United States can obtain an
exemption or reduced tax rate (depending on the treaty terms) by filing Form
1001 (Ownership, Exemption or Reduced Rate Certificate). If the treaty provides
only for a reduced rate, withholding tax will be imposed at that rate unless the
filer alternatively files Form W-8. Form 1001 may be filed by the Certificate
Owners or their agent.
Exemption for United States Persons (Form W-9). United States persons can
obtain a complete exemption from the withholding tax by filing Form W-9 (Payer's
Request for Taxpayer Identification Number and Certification).
United States Federal Income Tax Reporting Procedure. The Certificate
Owners of a Global Security or, in the case of a Form 1001 or a Form 4224 filer,
his agent, file by submitting the appropriate form to the person through whom it
holds (the clearing agent, in the case of persons holding directly on the books
of the clearing agency). Form W-8 and Form 1001 are effective for three calendar
years and Form 4224 is effective for one calendar year.
This summary does not deal with all aspects of United States Federal income
tax withholding that may be relevant to foreign holders of the Global
Securities. Investors are advised to consult their own tax advisors for
specific tax advice concerning their holding and disposing of the Global
Securities.
106
<PAGE>
INDEX OF SIGNIFICANT DEFINITIONS
Set forth below is a list of certain of the more significant terms used in
this Prospectus and the pages on which the definitions of such terms may be
found herein.
<TABLE>
<CAPTION>
Page
----
<S> <C>
10 percent shareholder.................................................... 88
1986 Act.................................................................. 93
AACC..................................................................... 100
ABN AMRO................................................................. 100
Accelerated amortization.............................................. 22, 65
Accredited investor....................................................... 99
Accrual Period........................................................ 47, 71
Act.................................................................. 71, 101
Adjusted issue price.................................................. 79, 80
Administration Fee........................................................ 11
Advances............................................................... 8, 14
Agreement................................................... 1, 8, 20, 38, 61
Anti-deficiency........................................................... 26
Applicable Amount......................................................... 84
Applicable Federal rate................................................... 83
Appraised value........................................................... 26
ARMs................................................................... 7, 21
Asset Group................................................................ 6
Assets.................................................................... 77
Assumed Reinvestment Rate................................................. 48
Back-Up Master Servicer................................................ 6, 61
Backup Withholding........................................................ 88
Balloon Payment........................................................... 24
Bankruptcy Bond........................................................... 66
BIF....................................................................... 24
Business Day.............................................................. 40
Buydown Fund.............................................................. 22
Buydown Loans............................................................. 22
Cash Flow Agreement....................................................... 40
CEDEL..................................................................... 10
CEDEL Participants........................................................ 53
CERCLA.................................................................... 72
Certificate............................................................... 99
Certificate Account........................................................ 9
Certificate Balance....................................................... 47
Certificate Owners......................................................... 3
Certificate Registrar..................................................... 41
Certificateholder............................................. 53, 75, 88, 95
Certificates........................................................ 1, 9, 99
Citibank.................................................................. 10
Classes................................................................... 1
Cleanup Costs............................................................. 72
Clearing agency........................................................... 53
Clearing corporation................................................... 8, 26
Closing Date.............................................................. 44
Co-op Loans............................................................... 21
</TABLE>
107
<PAGE>
<TABLE>
<S> <C>
Code.................................................................. 15, 75
Commission................................................................. 3
Committee Report.......................................................... 79
Compounding Certificates.............................................. 11, 39
Contingent Payment Regulations............................................ 93
Contingent Principal.................................................. 92, 93
Controlled foreign corporation............................................ 88
Cooperative............................................................... 54
Custodians................................................................ 41
Cut-off Date.............................................................. 15
Daily accruals............................................................ 83
Daily portions........................................................ 79, 81
Debt Service Coverage Ratio............................................... 24
Defective obligation.................................................. 42, 44
Deferred Interest..................................................... 11, 22
Depositaries.......................................................... 10, 52
Depositor............................................................... 1, 6
Determination Date........................................................ 46
Disqualified organization................................................. 86
Distribution Date......................................................... 40
DOL....................................................................... 97
Domestic building and loan association................................ 77, 89
DTC........................................................................ 3
DTC Participants.......................................................... 53
Due-on-sale....................................................... 23, 36, 71
Eligible Investments...................................................... 45
Equity.................................................................... 97
ERISA................................................................. 16, 96
Euroclear................................................................. 10
Euroclear Operator........................................................ 54
Euroclear Participants.................................................... 54
Event of Default.......................................................... 62
Evidence of indebtedness.............................................. 77, 85
Excess inclusion...................................................... 19, 83
Exchange Act............................................................... 3
FDIC...................................................................... 24
FHA....................................................................... 27
FHA Loans................................................................. 27
FHLMC................................................................. 24, 28
FHLMC Act................................................................. 28
FHLMC Certificates........................................................ 28
First of the Month Mortgage Loans......................................... 40
Fixed-Rate Mortgage Loans................................................. 23
FNMA.................................................................. 24, 29
FNMA Certificates......................................................... 29
Foreclosure property.................................................. 76, 82
Forward Purchase Agreement............................................. 8, 44
Fractional Undivided Interest............................................. 40
Global Securities........................................................ 103
GNMA...................................................................... 27
GNMA Certificates......................................................... 27
GNMA I Certificates....................................................... 27
</TABLE>
108
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
GNMA II Certificates....................................................... 27
Government securities...................................................... 77
Guide...................................................................... 24
Hazard Insurance........................................................... 57
Housing Act................................................................ 27
HUD........................................................................ 24
Index...................................................................... 21
Indirect participants...................................................... 53
Initial Deposit........................................................ 13, 65
Initial Mortgage Interest Rates............................................ 21
Installment Due Date....................................................... 21
Interest Remittance Amount................................................. 34
Investment Grade........................................................... 10
IO Certificates........................................................ 12, 89
Issue price................................................................ 78
L/C Bank................................................................... 65
Lease...................................................................... 73
Legal investments.......................................................... 16
Limited Mortgage Documentation Program..................................... 25
Loan-to-Value Ratio........................................................ 26
Lock-in.................................................................... 36
Market Discount............................................................ 80
Master Servicer.......................................................... 1, 6
Maximum Adjustment......................................................... 22
Maximum Rate............................................................... 23
Minimum Rate............................................................... 23
Monthly Payments........................................................ 7, 21
Morgan..................................................................... 10
Mortgage Asset Seller....................................................... 1
Mortgage Assets.......................................................... 1, 6
Mortgage Certificates.................................................... 1, 7
Mortgage Interest Rates................................................. 7, 22
Mortgage Loans........................................................... 1, 7
Mortgage Note.............................................................. 41
Mortgage Pass-Through Rate................................................. 32
Mortgage pool pass-through certificate..................................... 97
Mortgage related securities.......................................... 101, 102
Mortgage-related securities........................................... 16, 101
Mortgagor.................................................................. 11
Mutual savings bank.................................................... 77, 89
Negatively Amortizing ARMs................................................. 22
Net operating income....................................................... 24
Non United States Persons................................................. 105
Non-Accelerated Certificates............................................... 39
Non-economic residual interest............................................. 86
Noncontingent bond method.................................................. 94
Nonrecoverable Advances.................................................... 50
Notional Balance........................................................... 49
OID Regulations............................................................ 75
Original issue discount................................................ 15, 78
P&I Certificates........................................................... 89
Parties in Interest........................................................ 97
</TABLE>
109
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
Pass-through entity........................................................ 86
Pass-through interest holder............................................... 84
Pass-through interest holders.............................................. 84
Pass-Through Rate....................................................... 1, 10
Paying Agent............................................................... 40
Payment Caps............................................................... 22
Percentage Interest.....................................................40, 47
Permitted investments...................................................... 45
Plan....................................................................... 96
PO Certificates.........................................................11, 49
Pool.................................................................... 1, 20
Pool Distribution.......................................................... 46
Pre-Funding Account..................................................... 9, 44
Prepayment Assumption...................................................... 79
Prepayment Certificates................................................ 39, 49
Prepayment Interest Shortfall.............................................. 11
Prepayment Period.......................................................... 46
Prepayment Premium......................................................... 24
Principal Balance.......................................................... 40
Private Certificates....................................................... 30
Prohibited transactions.................................................... 85
Prospectus Supplement....................................................... 1
PTE 83-1................................................................... 97
PUDs....................................................................... 21
Qualified Lender............................................................ 1
Qualified mortgage......................................................... 76
Qualified stated interest.................................................. 78
Qualifying real property loans............................................. 77
Rating Agency......................................................... 10, 102
Real estate assets..................................................... 77, 89
Realized Losses............................................................ 14
Record Date................................................................ 40
Registration Statement...................................................... 4
Regular Certificates................................................... 15, 75
Regular interest....................................................... 76, 89
REMIC................................................................... 2, 15
REMIC Regulations.......................................................... 75
Replacement Certificates................................................... 54
Repository................................................................. 39
Reserve Fund........................................................... 13, 65
Residual Certificates.................................................. 49, 75
Residual Holder............................................................ 40
Residual interest.................................................. 40, 77, 89
Retained Yield......................................................... 11, 59
Rules...................................................................... 53
SAIF....................................................................... 24
Scheduled Amortization Date............................................ 48, 49
Securities Act.............................................................. 4
Senior Certificates...................................................... 1, 9
Sequential Pay Certificates............................................ 39, 49
Series...................................................................... 1
Servicers.................................................................. 57
</TABLE>
110
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
Servicing Agreement........................................................ 21
Shifting Interest Certificates............................................. 39
Shifting Interest Credit Enhancement................................... 13, 64
Shortfall.................................................................. 13
Significant value.......................................................... 83
Single Family Mortgage Loans................................................ 1
Single-class REMIC..................................................... 83, 84
Single-family residential property......................................... 98
SMMEA..................................................................16, 101
Special Hazard Amount...................................................... 66
Special Hazard Insurance Policy............................................ 66
Special Hazard Insurer..................................................... 66
Specified Reserve Fund Balance......................................... 13, 65
Sponsor.................................................................... 74
Startup Day................................................................ 76
Stripped Bonds............................................................. 90
Stripped Certificates.................................................. 39, 48
Stripped debt.............................................................. 90
Subordinate Certificates................................................. 1, 9
Subordinated Amount........................................................ 13
Superlien.................................................................. 72
Surplus.................................................................... 49
Tax matters person......................................................... 87
Taxable mortgage pool...................................................... 85
Terms and Conditions....................................................... 54
Title V.................................................................... 73
Trust...................................................................... 99
Trust Fund............................................................... 1, 9
Trustee................................................................. 6, 20
Underwriter Exemption...................................................... 98
Underwriters.............................................................. 101
United States person....................................................... 88
USA......................................................................... 7
VA......................................................................... 27
Variable rate debt instrument.............................................. 78
</TABLE>
111
<PAGE>
TABLE OF CONTENTS
-----------------
<TABLE>
<CAPTION>
Page
----
<S> <C>
PROSPECTUS SUPPLEMENT...................................................... 3
REPORTS TO CERTIFICATEHOLDERS.............................................. 3
INCORPORATION OF CERTAIN INFORMATION BY REFERENCE.......................... 3
ADDITIONAL INFORMATION..................................................... 4
SUMMARY.................................................................... 6
SPECIAL CONSIDERATIONS..................................................... 17
THE POOLS.................................................................. 20
General............................................................... 20
The Mortgage Loans.................................................... 20
General.......................................................... 20
General Characteristics of the Mortgage Loans.................... 21
Description of ARMs.............................................. 22
Description of the Fixed-Rate Mortgage Loans..................... 23
Assumption....................................................... 23
Description of Qualified Lenders................................. 24
Payment Provisions of the Mortgage Loans......................... 24
Underwriting Policies............................................ 24
Mortgage Certificates................................................. 26
General.......................................................... 26
GNMA, FHLMC and FNMA Certificates................................ 26
Private Certificates............................................. 30
THE DEPOSITOR.............................................................. 30
USE OF PROCEEDS............................................................ 31
PREPAYMENT AND YIELD CONSIDERATIONS........................................ 32
General............................................................... 32
Determination of Mortgage Pass-Through Rates..................... 32
Determination of Certificate Pass-Through Rate................... 32
Yield................................................................. 32
Price............................................................ 33
Effective Pass-Through Rate...................................... 33
Other Yield Considerations....................................... 34
Maximum and Minimum Rates, Maximum Adjustment, Payment Caps and
Deferred Interest................................................... 34
Distribution Shortfalls............................................... 34
Classes of Certificates............................................... 35
MATURITY CONSIDERATIONS.................................................... 35
General............................................................... 35
Maturity.............................................................. 35
Prepayment Considerations............................................. 35
</TABLE>
i
<PAGE>
<TABLE>
<S> <C>
DESCRIPTION OF THE CERTIFICATES............................................ 38
General............................................................... 38
Assignment of Mortgage Loans.......................................... 41
General.......................................................... 41
Representations and Warranties........................................ 42
Forward Commitments: Pre-Funding Account.............................. 44
Payments on Mortgage Loans............................................ 44
Distributions on the Certificates..................................... 46
Advances and Limitations Thereon...................................... 50
Adjustment to Master Servicing Fees in Connection with Prepayment
Interest Shortfall.................................................. 50
Example of Distribution............................................... 51
Registration of Certificates.......................................... 52
Reports to Certificateholders......................................... 55
Reports to the Trustee................................................ 56
Collection and Other Servicing Procedures............................. 56
Hazard Insurance...................................................... 57
Realization Upon Defaulted Mortgage Loans............................. 58
Retained Yield, Administration Fees, Compensation and Payment of
Expenses............................................................ 59
Evidence as to Compliance............................................. 60
Certain Matters Regarding the Master Servicer......................... 60
[Back-Up Master Servicer.............................................. 61
Special Servicing Agreements............................................... 61
Events of Default..................................................... 61
Rights Upon Default................................................... 62
Amendment............................................................. 63
Termination........................................................... 63
CREDIT ENHANCEMENTS........................................................ 64
General............................................................... 64
Subordination......................................................... 64
Shifting Interest Credit Enhancement.................................. 64
Overcollateralization................................................. 65
Reserve Fund.......................................................... 65
Letter of Credit...................................................... 65
Surety Bond........................................................... 66
Special Hazard Insurance Policy....................................... 66
Bankruptcy Bond....................................................... 66
Cross-Support Features................................................ 66
Other Arrangements for Credit Enhancements............................ 67
CERTAIN LEGAL ASPECTS OF THE MORTGAGE LOANS................................ 67
General............................................................... 67
Foreclosure........................................................... 67
Rights of Redemption.................................................. 68
Anti-Deficiency Legislation and Other Limitations on Lenders.......... 69
Junior Liens; Rights of Senior Lienholders............................ 70
"Due-on-Sale" Clauses................................................. 71
Environmental Legislation............................................. 72
Subordinate Financing................................................. 72
Applicability of Usury Laws........................................... 73
Enforceability of Certain Provisions.................................. 73
Co-op Loans........................................................... 73
</TABLE>
ii
<PAGE>
<TABLE>
<S> <C>
CERTAIN FEDERAL INCOME TAX CONSEQUENCES.................................... 75
General............................................................... 75
REMIC................................................................. 75
Qualification as a REMIC.............................................. 76
Investment in Certificates Not Representing Interests in a REMIC...... 89
STATE TAX CONSIDERATIONS................................................... 96
ERISA CONSIDERATIONS....................................................... 96
PLAN OF DISTRIBUTION....................................................... 99
LEGAL INVESTMENT........................................................... 101
LEGAL MATTERS.............................................................. 102
RATING..................................................................... 102
ANNEX I.................................................................... 103
INDEX OF SIGNIFICANT DEFINITIONS........................................... 107
</TABLE>
iii
<PAGE>
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- --------------------------------------------------------------------------------
No person has been authorized to give any information or to make any
representations other than those contained in this Prospectus Supplement or the
Prospectus and, if given or made, such information or representations must not
be relied upon as having been authorized. This Prospectus Supplement and the
Prospectus do not constitute an offer to sell or the solicitation of an offer to
buy any securities other than the securities described in this Prospectus
Supplement or an offer to sell or the solicitation of an offer to buy such
securities in any circumstances in which such offer or solicitation is unlawful.
Neither the delivery of this Prospectus Supplement or the Prospectus nor any
sale made hereunder or thereunder shall, under any circumstances, create any
implication that the information contained herein or therein is correct as of
any time subsequent to the date of such information.
-------------
TABLE OF CONTENTS
PROSPECTUS SUPPLEMENT
<TABLE>
<CAPTION>
Page
----
<S> <C>
Summary.................................................................... S-4
Special Considerations..................................................... S-13
Description of the Mortgage Notes.......................................... S-13
The Mortgage Pool.......................................................... S-15
Yield Considerations and Risks............................................. S-21
Description of the Certificates............................................ S-24
Federal Income Tax Considerations.......................................... S-37
ERISA Considerations....................................................... S-37
Use of Proceeds............................................................ S-37
Underwriting............................................................... S-37
Legal Matters.............................................................. S-38
Rating..................................................................... S-38
Index of Significant Definitions........................................... S-39
PROSPECTUS
Prospectus Supplement...................................................... 3
Reports to Certificateholders.............................................. 3
Incorporation of Certain Information by Reference.......................... 3
Additional Information..................................................... 4
Summary.................................................................... 6
Special Considerations..................................................... 17
The Pools.................................................................. 20
The Depositor.............................................................. 30
Use of Proceeds............................................................ 31
Yield Considerations....................................................... 32
Maturity Considerations.................................................... 35
Description of the Certificates............................................ 38
Credit Enhancements........................................................ 64
Certain Legal Aspects of the Mortgage Loans................................ 67
Certain Federal Income Tax
Consequences............................................................... 75
State Tax Considerations................................................... 96
ERISA Considerations....................................................... 96
Plan of Distribution....................................................... 99
Legal Investment........................................................... 101
Legal Matters.............................................................. 102
Rating..................................................................... 102
Annex...................................................................... 103
Index of Significant Definitions........................................... 107
</TABLE>
- --------------------------------------------------------------------------------
================================================================================
================================================================================
- --------------------------------------------------------------------------------
$
(approximate)
ABN AMRO Mortgage
Corporation
Seller [and Master Servicer]
Mortgage Pass-Through
Certificates, Class ___,
Series 199_ - _
-------------
PROSPECTUS SUPPLEMENT
-------------
[Underwriter]
- --------------------------------------------------------------------------------
================================================================================
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 30. Other Expenses of Issuance and Distribution
The expenses expected to be incurred in connection with the issuance and
distribution of the securities being registered, other than underwriting
compensation, are as set forth below. All such expenses except for the
registration and filing fees are estimated.
SEC Registration Fee................................. $ *
Blue Sky Fees and Expenses........................... *
Legal Fees and Expenses.............................. *
Accounting Fees and Expenses......................... *
Trustee's Fees and Expenses (including counsel fees). *
Printing and Engraving Fees.......................... *
Rating Agency Fees................................... *
Miscellaneous........................................ *
-----
Total............................................ $ *
____________
* To be filed by Pre-Effective Amendment
Item 31. Sales to Special Parties
Not applicable.
Item 32. Recent Sales of Unregistered Securities
Not applicable.
Item 33. Indemnification of Directors and Officers
The Pooling and Servicing Agreement will provide that neither the
Registrant nor any of its directors, officers, employees or agents shall have
any liability to the trust fund (the "Trust Fund") created thereunder or to any
of the holders of the Certificates, except with respect to liabilities resulting
from willful misfeasance, bad faith or gross negligence. The Agreement will
further provide that, with the exceptions stated above, the Registrant and its
directors, officers, employees and agents are entitled to be indemnified and
held harmless by the Trust Fund against any loss, liability or expense incurred
in connection with legal actions relating to the Pooling and Servicing Agreement
or the Certificates.
It is expected that the Underwriting Agreement will provide, under certain
circumstances, for indemnification of the Registrant and other certain persons.
Item 34. Treatment of Proceeds from Stock Being Registered
Not applicable.
Item 35. Financial Statements and Exhibits
(a) Financial Statements. Not applicable.
(b) Exhibits:
1.1* Form of Underwriting Agreement.
3.1 Certificate of Incorporation of Registrant
3.2 Bylaws of Registrant
4.1 Form of Pooling and Servicing Agreement, including forms of Class
A and Class B Certificates and Residual Certificates attached as
Exhibits A, B and C thereto.
4.2* Form of Mortgage Loan Purchase Agreement
II-1
<PAGE>
5.1 Opinion of Mayer, Brown & Platt re legality.
8.1 Opinion of Mayer, Brown & Platt as to tax matters (included as part
of Exhibit 5.1).
23.1 Consent of Mayer, Brown & Platt (included as part of Exhibit 5.1).
24.1 Power of Attorney (included at page II-4).
* to be filed by Pre-Effective Amendment
Item 36. Undertakings
(a) Undertaking in respect of indemnification.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Securities and Exchange Commission
that such indemnification is against public policy as expressed in the Act and
is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Registrant of expenses
incurred or paid by a director, officer or controlling person of the Registrant
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
(b) Undertakings pursuant to Rule 415.
The Registrant hereby undertakes:
1. To file, during any period in which offers or sales are being made, a
post-effective amendment to this Registration Statement:
(i) to include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) to reflect in the Prospectus any facts or events arising after
the effective date of the Registration Statement (or the most recent post-
effective amendment thereof) which, individually or in the aggregate,
represent a fundamental change in the information set forth in the
Registration Statement;
(iii) to include any material information with respect to the plan of
distribution not previously disclosed in the Registration Statement or any
material change of such information in the Registration Statement;
provided, however, that paragraphs (i) and (ii) do not apply if the information
required to be included in the post-effective amendment by those paragraphs is
contained in periodic reports filed by the Registrant pursuant to Section 13 or
Section 15(d) of the Securities Exchange Act of 1934 that are incorporated by
reference in the Registration Statement;
2. That, for the purpose of determining any liability under the Securities
Act of 1933, each such post-effective amendment shall be deemed to be a new
registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof; and
3. To remove from registration by means of a post-effective amendment any
of the securities being registered which remain unsold at the termination of the
offering.
(c) Undertakings pursuant to Rule 430A.
The Registrant hereby undertakes:
II-2
<PAGE>
1. For purposes of determining any liability under the Securities Act of
1933, the information omitted from the form of prospectus filed as part of the
Registration Statement in reliance upon Rule 430A and contained in the form of
prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4) or 497(h)
under the Securities Act shall be deemed to be part of the Registration
Statement as of the time it was declared effective; and
2. For the purposes of determining any liability under the Securities Act
of 1933, each post-effective amendment that contains a form of prospectus shall
be deemed to be a new Registration Statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
(d) Undertakings in connection with incorporation by reference of certain
filings under the Securities Exchange Act of 1934.
The Registrant hereby undertakes that, for purposes of determining any
liability under the Securities Act of 1933, each filing of the Registrant's
annual report pursuant to Section 13(a) or Section 15(d) of the Securities
Exchange Act of 1934 that is incorporated by reference in the Registration
Statement shall be deemed to be a new registration statement relating to the
securities offered therein, and the offering of such securities at that time
shall be deemed to be the initial bona fide offering thereof.
II-3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-3 and has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of _________, State of __________, on the __th day of
December, 1997.
ABN AMRO Mortgage Corporation
By /s/ Stewart W. Fleming
-----------------------------------------
Name: Stewart W. Fleming
Title: Vice President and Director
POWER OF ATTORNEY
Each person whose signature appears below constitutes and appoints Stewart
W. Fleming, his or her true and lawful attorney-in-fact and agent, with full
power of substitution and resubstitution for him or her and in his or her name,
place and stead, in any and all capacities (including his or her capacity as a
director and/or officer of ABN AMRO Mortgage Corporation), to sign this
Registration Statement and any or all amendments (including post-effective
amendments) to this Registration Statement, and to file the same, with all
exhibits thereto, and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorney-in-fact and
agent, full power and authority to do and perform each and every act and thing
requisite and necessary to be done in and about the premises, as fully to all
intents and purposes as he or she might or could do in person, hereby ratifying
and confirming all that said attorney-in fact and agent of any of them, or their
or his or her substitute or substitutes, may lawfully do or cause to be done by
virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/Joseph Krul Chairman of the Board and President December 12, 1997
- ---------------------
Joseph Krul
/s/Michael Maher Chief Financial Officer and Treasurer December 12, 1997
- ---------------------
Michael Maher
/s/Stanley H. Rhodes Senior Vice President and Director December 12, 1997
- ---------------------
Stanley H. Rhodes
/s/Stewart W. Fleming Vice President and Director December 12, 1997
- ---------------------
Stewart W. Fleming
/s/Martin Eisenberg Vice President December 12, 1997
- ---------------------
Martin Eisenberg
</TABLE>
II-4
<PAGE>
EXHIBIT INDEX
Sequentially
Exhibit No. Description Numbered Page
- ---------- ----------- -------------
1.1* Form of Underwriting Agreement.
3.1 Certificate of Incorporation of Registrant
3.2 Bylaws of Registrant
4.1 Form of Pooling and Servicing Agreement, including
forms of Class A and Class B Certificates and
Residual Certificates attached as Exhibits A, B
and C thereto.
4.2* Form of Mortgage Loan Purchase Agreement
5.1* Opinion of Mayer, Brown & Platt re legality.
8.1* Opinion of Mayer, Brown & Platt as to tax matters
(included as part of Exhibit 5.1).
23.1* Consent of Mayer, Brown & Platt (included as part
of Exhibit 5.1).
24.1 Power of Attorney (included at page II-4).
- ---------------------------------
/*/ To be filed as Amendment
<PAGE>
Exhibit 3.1
Certificate of Incorporation of Registrant
<PAGE>
CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION
* * * *
The undersigned, being the sole stockholder of ABN AMRO Mortgage Corp. (the
"Corporation"), a corporation organized and existing under and by virtue of the
General Corporation Law of the State of Delaware, does hereby certify:
1. That the following resolution amending the Certificate of Incorporation
of the Corporation to change the name of the Corporation has been duly adopted
in accordance with Section 242 of the Delaware General Corporation Law:
RESOLVED, that Article First of the Certificate of Incorporation of ABN
AMRO Mortgage Corp. is amended effective immediately, and as so amended shall
read and provide in its entirety as follows:
"The name of the Corporation is:
ABN AMRO Mortgage Corporation."
IN WITNESS WHEREOF, the undersigned has caused this Certificate to be duly
executed this 8th day of May, 1995.
ABN AMRO ACCEPTANCE CORPORATION
/s/ David K. Korslund
Senior Vice President
ATTEST:
/s/ Kirk P. Flores
<PAGE>
RESTATED
CERTIFICATE OF INCORPORATION
OF
ABN AMRO MORTGAGE CORP.
ABN AMRO Mortgage Corp., a corporation organized and existing under the
laws of the State of Delaware, hereby certifies as follows:
1. The name of the Corporation is ABN AMRO Mortgage Corp.
The date of filing of its original Certificate of Incorporation with the
Secretary of State was August 5, 1991, and the name under which the Corporation
was originally incorporated was ABN AMRO Acquisition Corp.
2. This restated Certificate of Incorporation restates and integrates and
further amends the Certificate of Incorporation of the Corporation by (a)
limiting nature of the business and the objects and purposes to be transacted,
promoted or carried on by the Corporation; (b) requiring that at all times
following the initial issuance of Securities (as hereinafter defined), the board
of directors shall include at least two individuals who are Independent
Directors; (c) eliminating certain shareholder subscription rights; (d) revising
the provisions relating to personal liability of directors and indemnification
of persons eligible therefor; (e) requiring the affirmative vote of all
Independent Directors to institute voluntary bankruptcy or similar proceedings,
to liquidate the Corporation or transfer substantially all of its assets or to
incur indebtedness for certain purposes other than those referred to in Article
III.
3. The text of the Certificate of Incorporation as amended or supplemented
as described above is further amended to read and provide in its entirety as
follows:
ARTICLE I
---------
The name of the Corporation is
ABN AMRO Mortgage Corp.
ARTICLE II
----------
The address of the Corporation's registered office in the State of Delaware
is Corporation Trust Center, 1209 Orange Street, in the City of Wilmington,
County of New Castle. The name of its registered agent at such address is The
Corporation Trust Company.
<PAGE>
ARTICLE III
-----------
The nature of the business and the objects and purposes to be transacted,
promoted or carried on by the Corporation are to be limited solely as follows:
(a) to acquire, own, hold, transfer, sell, assign and pledge:
(i) loans secured by real property ("Mortgage Loans")
(ii) Federal Home Loan Mortgage Corporation ("FHLMC") mortgage
participation certificates with respect to which FHLMC guarantees the timely
payment of scheduled interest (at the applicable certificate rate) and the full
collection of principal on the mortgages and which may or may not be guaranteed
as to timely payment of scheduled principal;
(iii) Federal National Mortgage Association ("FNMA") mortgage pass-
through certificates with respect to which FNMA guarantees the timely payment of
scheduled principal and interest (at the applicable certificate rate) and full
collection of principal on the mortgages;
(iv) Government National Mortgage Association ("GNMA") fully modified
pass-through mortgage-backed certificates with respect to which the full and
timely payment of principal of, and interest on, the mortgages is guaranteed by
GNMA; and
(v) Private certificates representing beneficial interests in mortgage
loans or mortgage-backed securities including (A) mortgage participations, pass-
through certificates or REMIC certificates representing beneficial interests in
certain loans, (B) collateralized mortgage obligations secured by such loans or
(C) pass-through or REMIC certificates representing beneficial interests in
certain securities consisting in whole or in part of interests in governmental
certificates (e.g. those described in subsections (ii), (iii) and (iv) above) or
certain mortgage loans or other REMIC certificates, or any combination thereof;
(vi) Interests in, or interests in pools of, monies due or to become
due under Mortgage Loans or other property authorized under this section,
together with certain accounts, reserve funds, insurance policies, credit
enhancements and related agreements; and
(vii) Any proceeds or further rights associated with any of the
foregoing (such Mortgage Loans, certificates, interests, monies, insurance
policies, proceeds, and other rights being referred to collectively as the
"Assets");
(b) to borrow money to facilitate any activity authorized herein subject
always to the terms of subsection (c) below, which borrowing may be (i) an
unsecured borrowing or (ii) secured by a pledge or grant of a security interest
in the Mortgage Loans and/or the other Assets;
(c) to issue and sell from time to time one or more series of certificates,
bonds, notes and other securities and to incur other indebtedness, including,
without limitation, certificates
<PAGE>
representing interests in trusts formed by the Corporation (collectively the
"Securities"), which Securities shall either be rated at least investment grade
by one or more nationally recognized rating agencies (the "Rated Securities") or
shall (i) be fully subordinated to the Corporation's Rated Securities with
respect to the specific collateral securing or the designated assets underlying
the Rated Securities, (ii) be nonrecourse to the Corporation and (iii) not
constitute a claim against the Corporation to the extent that funds are
insufficient to pay such Securities and to pay principal and interest thereon in
accordance with the terms thereof;
(d) to use the proceeds of the sale of Securities and of the transfer, sale
assignment or pledge of Assets (i) to acquire Assets, (ii) to return to its
seller the amounts previously used by the Corporation to effect such an
acquisition, or (iii) to make loans to entities which may be affiliated with the
Corporation or to make dividend payments to the extent permitted by law;
(e) to invest cash balances from time to time as provided in any agreement
or similar document that the Corporation may be a party to in connection with
the issuance of Securities or any other transaction permitted by this Article;
(f) to make deposits of money in bank accounts and to grant security
interests in such deposits for its own benefit or the benefit of others in
connection with any transaction permitted by this Article and to purchase or
otherwise acquire securities evidencing ownership of, or other interest in,
assets securitized by third parties, which securities have a rating of at least
investment grade by one or more nationally recognized rating agencies and to
grant security interests in such securities in connection with any transactions
permitted by this Article; and
(g) to engage in any activity, enter into any agreement, undertaking,
contract, indenture, assignment, security agreement or certificate, appoint any
underwriter, agent or dealer with respect to the Securities or any other
transaction permitted by this Article and to exercise any powers permitted to
corporations organized under the General Corporation Law of the State of
Delaware that are incidental to the foregoing or necessary, suitable or
convenient to accomplish the foregoing.
The limitations on the Corporation's business and investment activities as set
out in this Article may not be altered except upon the vote of the holders of
100% of the outstanding common stock and the unanimous affirmative consent of
all the directors of the Corporation. Accordingly, this Article III may not be
amended except upon the vote of the holders of 100% of the outstanding common
stock and the unanimous affirmative consent of all the directors of the
Corporation.
ARTICLE IV
----------
At all times following the initial issuance of Securities, the board of
directors shall include at least two individuals who are Independent Directors.
"Independent Director" shall mean a director who (i) is not employed by the
Corporation as an officer or employee or by any Affiliate of the Corporation as
a director, officer or employee; (ii) is not (and is not an Affiliate of a
Person that is) a significant advisor or consultant to the Corporation or any
Affiliate of the
<PAGE>
Corporation; (iii) is not an Affiliate of a significant customer or supplier of
the Corporation or any Affiliate of the Corporation; (iv) is not an Affiliate of
a Person of which the Corporation or any Affiliate of the Corporation is a
significant customer; (v) does not have significant personal services
contract(s) with the Corporation or any Affiliate of the Corporation; (vi) is
not the beneficial owner at the time of such individual's appointment as an
Independent Director, or at any time thereafter while serving as an Independent
Director, of any capital stock of the Corporation; and (vii) is not a spouse,
parent, sibling or child of any Person covered by any of clauses (i) through
(vi).
As used in this Article, the following terms shall have the following
meanings: (a) an "Affiliate" of any Person shall mean any other Person
controlling, controlled by or under common control with such Person or, in any
event, a Person which has the power to vote 25% or more of the securities having
ordinary voting power for the election of directors of the specified Person, and
"control" of a specified Person shall mean the ability to direct or cause the
direction of the management and policies of the specified Person, whether
through the direct or indirect ownership of the voting securities of such
specified Person, by contract or otherwise; (b) a Person shall be deemed to be a
"significant advisor or consultant to the Corporation or any Affiliate of the
Corporation" if such Person received during the preceding fiscal year of the
Corporation (or is expected to receive during the then current fiscal year of
the Corporation) fees or similar compensation from the Corporation or any
Affiliate of the Corporation in excess of the lesser of (I) 3% of the
consolidated gross revenues of the Corporation and its Affiliates during the
preceding fiscal year of the Corporation; (II) 5% of the gross revenues of such
Person during the preceding calendar year, if such Person is an individual; and
(III) 5% of the consolidated gross revenues of such Person during its preceding
fiscal year, if such Person is not an individual; provided, however, that an
individual's fees and expense reimbursements in such individual's capacity as a
director shall not be included in the gross revenues of an individual for
purposes of this determination; (c) a "significant customer of the Corporation
or any Affiliate of the Corporation" shall mean a customer from which the
Corporation and any Affiliate of the Corporation collectively in the preceding
fiscal year of the Corporation received payments which are in excess of 3% of
the consolidated gross revenues of the Corporation and its Affiliates during
such fiscal year; (d) a "significant supplier of the Corporation or any
Affiliate of the Corporation" shall mean a supplier to which the Corporation and
any Affiliate of the Corporation collectively in the preceding fiscal year of
the Corporation made payments in consideration for the supplier's products and
services in excess of 3% of the consolidated gross revenues of the Corporation
and its Affiliates during such fiscal year; (e) the Corporation or any Affiliate
of the Corporation shall be deemed a "significant customer" of a Person if the
Corporation and any Affiliate of the Corporation collectively were the direct
source during such Person's preceding fiscal year of in excess of 5% of the
gross revenues which such Person received for the sale of its products and
services during such fiscal year; (f) an individual shall be deemed to have
"significant personal services contract(s) with the Corporation or any Affiliate
of the Corporation" if the fees and other compensation received by such
individual pursuant to personal services contract(s) with the Corporation and
any Affiliate of the Corporation exceeded or would exceed 5% of such
individual's gross revenue during the preceding calendar year; and (g) for
purposes of convenience, and recognizing that the Corporation will not have a
fiscal year prior to
<PAGE>
the filing of this Certificate of Incorporation, "the preceding fiscal year of
the Corporation" shall mean (I) on any date of determination during 1995,
calendar year 1994, and (II) on any date of determination during 1996, calendar
year 1995.
ARTICLE V
---------
The total number of shares of stock which the Corporation shall have
authority to issue is One Hundred Fifty Thousand (150,000), all of which shall
be Common Stock, $.01 par value per share.
ARTICLE VI
----------
The number of directors of the Corporation shall be fixed from time to
time by the bylaws of the Corporation. Election of directors need not be by
written ballot unless the bylaws so provide.
ARTICLE VII
-----------
In furtherance and not in limitation of the powers conferred by
statute, the Board of Directors is expressly authorized to make, alter or repeal
the bylaws of the Corporation.
ARTICLE VIII
------------
The Corporation shall indemnify, to the full extent permitted by
Section 145 of the General Corporation Law of Delaware, or any amendment thereto
or successor provision thereto, all Persons who may be indemnified pursuant
thereto.
ARTICLE IX
----------
Personal liability of the directors of the Corporation is hereby
eliminated to the fullest extent permitted by paragraph (7) of subsection (b) of
Section 102 of the General Corporation Law of the State of Delaware, as the same
is in effect on the date hereof or may hereafter be amended from time to time to
further restrict the personal liability of directors; provided, that no
amendment of said provision shall expand the personal liability of the directors
beyond the extent permitted by such provision on the date hereof.
ARTICLE X
---------
The Corporation shall be operated in such a manner that it shall not
be substantively consolidated in the trust estate of any other Person in the
event of the bankruptcy or insolvency of the Corporation or such other Person.
<PAGE>
ARTICLE XI
----------
Without the unanimous affirmative vote of all of its directors,
including, without limitation, the Independent Directors, the Corporation shall
not:
(a) institute proceedings to be adjudicated bankrupt or insolvent, or
consent to the institution of bankruptcy or insolvency proceedings against it,
or file a petition or consent to a petition seeking reorganization or relief
under any applicable federal or state law relating to bankruptcy or insolvency,
or consent to the appointment of a receiver, liquidator, assignee, trustee,
sequestrator (or other similar official) of the Corporation or a substantial
part of its property, or make any assignment for the benefit of creditors, or,
except as required by law, admit in writing its inability to pay its debts
generally as they become due, or take any corporate action in furtherance of any
such action;
(b) dissolve or liquidate, in whole or in part; merge or consolidate
with or into any other Person; or convey or transfer all or substantially all of
its properties and assets (other than Receivables Assets pursuant to an
Agreement) to any other Person; or
(c) incur, assume or guarantee any indebtedness for borrowed money or
for the deferred purchase price of goods or services except in connection with
the activities referred to in Article III.
ARTICLE XII
-----------
Without the prior written consent of each nationally recognized rating
agency which has been requested by or on behalf of the Corporation to rate any
Securities issued pursuant to any Agreement and which is then rating such
Securities, the Corporation shall not amend, alter, change or repeal Article
III, Article IV, Article X, Article XI or this Article XII. Subject to the
foregoing limitations, the Corporation reserves the right to amend, alter,
change or repeal any provision contained in this Certificate of Incorporation,
in the manner now or hereafter prescribed by the law of the State of Delaware,
and all rights of the stockholders of the Corporation are subject to this
reservation.
4. This Restated Certificate of Incorporation was duly adopted by
unanimous written consent of the shareholders in accordance with the applicable
provisions of Sections 228, 242 and 245 of the General Corporation Law of the
State of Delaware.
5. This Restated Certificate of Incorporation shall be effective on
March 30, 1995.
<PAGE>
IN WITNESS WHEREOF, ABN AMRO Mortgage Corp. has caused this
Certificate to be signed by Kirk P. Flores, its Secretary, this 29th day of
March, 1995.
ABN AMRO MORTGAGE CORP.
/s/ Kirk P. Flores
Secretary
<PAGE>
CERTIFICATE OF CORRECTION TO
CERTIFICATE OF AMENDMENT OF CERTIFICATE OF INCORPORATION
* * * *
The undersigned, being the Sole Stockholder of ABN AMRO Acceptance
Corporation, Inc. (the "Corporation"), a corporation organized and existing
under and by virtue of the General Corporation Law of the State of Delaware,
does hereby certify:
1. That on December 30, 1994, the original Certificate of Amendment of
the Certificate of Incorporation changing the Corporation's name from ABN AMRO
Acquisition Corp. to ABN AMRO Acceptance Corporation, Inc. was inaccurately
filed, and that the following is hereby adopted in accordance with Section 103
of the General Corporation Law of the State of Delaware:
RESOLVED, that the Certificate of Amendment of Article First of the
Certificate of Incorporation is hereby corrected effective January 1, 1995, and
as so corrected shall read and provide in its entirety as follows:
"The name of the Corporation is:
ABN AMRO Mortgage Corp."
IN WITNESS WHEREOF, the undersigned has caused this Certificate to be duly
executed this 31st day of January, 1995.
ABN AMRO ACCEPTANCE CORPORATION
s/s David K. Korslund
Senior Vice President
ATTEST:
s/s Kirk P. Flores
<PAGE>
CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION
* * * *
The undersigned, being the Sole Stockholder of ABN AMRO Acquisition Corp.
(the "Corporation"), a corporation organized and existing under and by virtue of
the General Corporation Law of the State of Delaware, does hereby certify:
1. That the following resolution amending the Certificate of
Incorporation of the Corporation to change the name of the Corporation has been
duly adopted in accordance with Section 242 of the Delaware General Corporation
Law:
RESOLVED, that Article First of the Certificate of Incorporation of
ABN AMRO Acquisition Corp. is amended effective January 1, 1995, and as so
amended shall read and provide in its entirety as follows:
"The name of the Corporation is:
ABN AMRO Acceptance Corporation, Inc."
IN WITNESS WHEREOF, the undersigned has caused this Certificate to be duly
executed this 23rd day of December, 1994.
ABN AMRO NORTH AMERICA, INC.
s/s Harrison F. Tempest s/s/ Robert K. Quinn
Chairman of the Board and President Senior Vice, President
ATTEST:
s/s Kirk P. Flores
Asst. Secretary
<PAGE>
CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION
(Pursuant to Section 242)
Lowell Acquisition Corporation, a corporation organized and existing under
and by virtue of the General Corporation Law of the State of Delaware,
DOES HEREBY CERTIFY:
FIRST: That the sole Shareholder of the Corporation, by the written consent
of same, filed with the minutes of the Board of Directors of the Corporation,
adopted a resolution on August 4, 1993, proposing and declaring advisable the
following amendment to the Certificate of Incorporation of said corporation:
RESOLVED, that, Article I of the Articles of Incorporation be, and it
hereby is amended in its entirety to read and provide as follows:
"FIRST. The name of the Corporation is:
ABN AMRO Acquisition Corp."
IN WITNESS WHEREOF, the sole Shareholder and Board of Directors of this
Corporation have caused this certificate to be signed by Harrison F. Tempest,
its Chairman of the
<PAGE>
Board and President, and attested by Kirk P. Flores, its Assistant Secretary,
this 11th day of August, 1993.
/s/ Harrison F. Tempest
Chairman of the Board & President
ATTEST:
/s/ Kirk P. Flores
Assistant Secretary
<PAGE>
CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION
* * * *
ABN AMRO Acquisition Corp., a corporation organized and existing under and
by virtue of the General Corporation Law of the State of Delaware,
DOES HEREBY CERTIFY:
FIRST: That the sole Shareholder of the Corporation, by the written consent
of same, filed with the minutes of the Board of Directors of the Corporation,
adopted a resolution proposing and declaring advisable the following amendment
to the Certificate of Incorporation of said corporation:
RESOLVED, that the Certificate of Incorporation of ABN AMRO Acquisition
Corp. be amended by changing the First Article thereof so that, as amended,
said Article shall be and read as follows:
"FIRST: The name of the Corporation is Lowell Acquisition Corporation".
<PAGE>
IN WITNESS WHEREOF, the sole Shareholder and Board of Directors of this
Corporation have caused this certificate to be signed by Iain Aitken, its Senior
Vice President, and attested by Steven Gutman, its Assistant Secretary, this 7th
day of May, 1993.
/s/ Iain Aitken
Senior Vice President
ATTEST:
/s/ Steven Gutman
Assistant Secretary
<PAGE>
CERTIFICATE OF INCORPORATION
OF
ABN AMRO ACQUISITION CORP.
FIRST. The name of the Corporation is:
ABN AMRO ACQUISITION CORP.
SECOND. The address of the Corporation's registered office in the State
of Delaware is 32 Loockerman Square, Suite L-100, in the city of Dover, 19901,
County of Kent. The name of its registered agent at such address is The
Prentice-Hall Corporation System, Inc.
THIRD. The nature of business to be conducted or promoted and the
purpose of the Corporation is to engage in any lawful act or activity for which
corporations may be organized under the General Corporation Law of the State of
Delaware.
FOURTH. The total number of shares of stock which the Corporation shall
have authority to issue is One Hundred Fifty Thousand (150,000), all of which
shall be Common Stock, $.01 par value per share.
Upon the issuance or sale of shares of stock of any class, or obligations,
of this Corporation (whether now or hereafter authorized), having voting rights
or convertible into, exchangeable for, or carrying options or warrants to
purchase any stock having voting rights, the holders of the voting stock of the
Corporation shall have the prior right, except as hereinafter provided, during
such reasonable period of time and on such reasonable conditions as the Board of
Directors shall prescribe, to subscribe for and purchase such stock or
obligations in proportion to their respective holdings of voting stock, at such
price or prices as the Board of Directors may from time to time fix and as may
be permitted by law; provided, that the holders of the voting stock of the
Corporation shall have no such preemptive rights to subscribe for or purchase
any additional shares of stock of the Corporation or options to purchase such
stock which are issued or sold solely to directors, officers or employees of the
Corporation pursuant to stock programs approved by the stockholders of the
Corporation; and provided further that the holders of the voting stock of the
Corporation shall have no such preemptive rights to subscribe for or purchase
any additional shares of stock or obligations to be issued or sold (a) to any
entity (as such terms is hereinafter defined) as part of a merger or
consolidation of the Corporation with such entity, or (b) to any entity for a
sale, lease or exchange of all or substantially all of the assets of such entity
to the Corporation, or (c) to stockholders of any entity in exchange for all or
substantially all of the outstanding stock of such entity. For purposes of this
Article FOURTH the term "entity" shall mean any corporation, firm, other
organization or person that (i) is not a stockholder of the Corporation, or (ii)
is not controlled by or under common control of one or more stockholders of the
Corporation. The foregoing preemptive rights shall be deemed waived by any
holder of voting stock who does not exercise his preemptive right and pay for
the stock so preempted within the period of time prescribed by the Board of
Directors.
<PAGE>
FIFTH: The name and mailing address of the incorporator is as follows:
Catherine A. Lemmer
Vedder, Price, Kaufman & Kammholz
222 N. LaSalle Street
Suite 2600
Chicago, Illinois 60601
SIXTH: The number of directors of the Corporation shall be fixed from
time to time by the By-Laws of the Corporation. Election of directors need not
be by written ballot unless the By-Laws so provide.
SEVENTH: In furtherance and not in limitation of the powers conferred by
statute, the Board of Directors is expressly authorized to make, alter or repeal
the By-Laws of the Corporation.
EIGHTH. The Corporation shall indemnify, to the full extent that it shall
have power under applicable law to do so and in a manner permitted by such law,
any person made or threatened to be made a party to any threatened, pending or
completed action, suit or proceeding, whether civil, criminal, administrative or
investigative, by reason of the fact that he is or was a director or officer of
the Corporation against liabilities and expenses reasonably incurred or paid by
such person in connection with such action, suit or proceeding. The Corporation
may indemnify, to the full extent that it shall have power under applicable law
to do so and in a manner permitted by such law, any person made or threatened to
be made a party to any threatened, pending or completed action, suit or
proceeding, whether civil, criminal, administrative or investigative, by reason
of the fact that he is or was an employee or agent of the Corporation, or is or
was serving at the request of the Corporation as director, officer, employee or
agent of another corporation, partnership, joint venture, trust or other
enterprise against liabilities and expenses reasonably incurred or paid by such
person in connection with such action, suit or proceeding. The words
"liabilities" and "expenses" shall include, without limitation: liabilities,
losses, damages, judgments, fines, penalties, amounts paid in settlement,
expenses, attorneys' fees and costs. The indemnification and advancement of
expenses provided by or granted pursuant to this Article EIGHTH shall not be
deemed exclusive of any other rights to which any person indemnified or being
advanced expenses may be entitled under any statute, By-Law, agreement, vote of
stockholders or disinterested directors or otherwise, both as to action in his
personal capacity and as to action in another capacity while holding such
office, and shall continue as to a person who has ceased to be such director,
officer, employee or agent and shall inure to the benefits of the heirs,
executors and administrators of such person.
The Corporation may purchase and maintain insurance on behalf of any person
referred to in the preceding paragraph against any liability asserted against
him and incurred by him in any such capacity, or arising out of his status as
such, whether or not the Corporation would have the power to indemnify him
against such liability under the provisions of this Article EIGHTH or otherwise.
<PAGE>
For purposes of this Article EIGHTH, references to "the Corporation" shall
include, in addition to the resulting corporation, any constituent corporation
(including any constituent of a constituent) absorbed in a consolidation or
merger which, if its separate existence had continued, would have had power and
authority to indemnify its directors, officers, and employees or agent, so that
any person who is or was a director, officer, employee or agent of such
constituent corporation or is or was serving at the request of such constituent
corporation as a director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise, shall stand in the same
position under the provisions of this Article with respect to the resulting or
surviving corporation as he would have with respect to such constituent
corporation if its separate existence had continued.
The provisions of this Article EIGHTH shall be deemed to be a contract
between the Corporation and each director or officer who serves in any such
capacity at any time while this Article and the relevant provisions of the
General Corporation Law of Delaware or other applicable law, if any, are in
effect, and any repeal or modification of such law or of this Article shall not
affect any rights or obligations then existing with respect to any state of
facts then or theretofore existing or any action, suit or proceeding theretofore
or thereafter brought or threatened based in whole or in part upon any such
state of facts.
For purposes of this Article, references to "other enterprises" shall
include employee benefit plans; references to "fines" shall include any excise
taxes assessed on a person with respect to an employee benefit plan, and
reference to "serving at the request of the Corporation" shall include any
service as a director, officer, employee or agent of the corporation which
imposes duties on, or involves services by, such director, officer, employee, or
agent with respect to an employee benefit plan, its participants, or
beneficiaries; and a person who acted in good faith and in a manner he
reasonably believed to be in the interest of the participants and beneficiaries
of an employee benefit plan shall be deemed to have acted in a manner not
opposed to the best interests of the Corporation.
NINTH. The Corporation reserves the right to amend, alter, change or
repeal any provisions contained in this Certificate of Incorporation, in the
manner now or hereafter prescribed by statute, and all rights conferred upon
stockholders herein are granted subject to this reservation.
TENTH. No director of the Corporation shall be liable to the Corporation
or its stockholder for monetary damages for breach of fiduciary duty as a
director, except for liability: (i) for any breach of the director's duty of
loyalty to the Corporation or its stockholders; (ii) for acts or omissions not
in good faith or which involve intentional misconduct or a knowing violation of
law; (iii) under Section 174 of the General Corporation Law of the State of
Delaware; or (iv) for any transaction from which the director derived an
improper personal benefit.
<PAGE>
The undersigned incorporator, for the purpose of forming a Corporation
pursuant to the General Corporation Law of the State of Delaware, has signed
this Certificate this fifth day of August, 1991.
s/s Catherine A. Lemmer
<PAGE>
Exhibit 3.2
Bylaws of Registrant
<PAGE>
BY-LAWS
OF
ABN AMRO MORTGAGE CORPORATION
Adopted: August 5, 1991
As amended through: May 9, 1995
<PAGE>
<TABLE>
<CAPTION>
ARTICLE I
<S> <C>
Stockholders...................................................... 1
Section 1.1 Annual Meeting.................................. 1
Section 1.2 Special Meetings................................ 1
Section 1.3 Notice of Meetings.............................. 2
Section 1.4 Quorum.......................................... 3
Section 1.5 Voting.......................................... 3
Section 1.6 Presiding Officer and Secretary................. 4
Section 1.7 Proxies......................................... 5
Section 1.8 List of Stockholders............................ 5
Section 1.9 Written Consent of Stockholders
in Lieu of Meeting............................ 6
ARTICLE II
Directors......................................................... 7
Section 2.1 Number of Directors............................. 7
Section 2.2 Election and Term of Directors.................. 7
Section 2.3 Independent Directors........................... 8
Section 2.4 Vacancies and Newly Created Directorships.......11
Section 2.5 Resignation.....................................12
Section 2.6 Removal.........................................12
Section 2.7 Meetings........................................12
Section 2.8 Quorum and Voting...............................14
Section 2.9 Written Consent of Directors in Lieu
of a Meeting..................................15
Section 2.10 Compensation....................................15
ARTICLE III
Committees of the Board of Directors..............................15
Section 3.1 Appointment and Powers..........................15
ARTICLE IV
Officers, Agents and Employees....................................17
Section 4.1 Appointment and Term of Office..................17
Section 4.2 Resignation and Removal.........................18
Section 4.3 Compensation and Bond...........................18
Section 4.4 Chairman of the Board and President.............19
Section 4.5 Vice Presidents.................................20
Section 4.6 Treasurer.......................................20
Section 4.7 Secretary.......................................21
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
Section 4.8 Assistant Treasurers............................21
Section 4.9 Assistant Secretaries...........................22
Section 4.10 Delegation of Duties............................22
Section 4.11 Loans to Officers and Employees; Guaranty of
Obligations of Officers and Employees..........23
ARTICLE V
Indemnification...................................................23
Section 5.1 Indemnification of Corporation's Officers,
Directors, Agents and Employees.................23
ARTICLE VI
Common Stock......................................................24
Section 6.1 Certificates....................................24
Section 6.2 Transfers of Stock..............................24
Section 6.3 Lost, Stolen or Destroyed Certificates..........25
Section 6.4 Stockholder Record Date.........................25
ARTICLE VII
Seal..............................................................28
Section 7.1 Seal............................................28
ARTICLE VIII
Waiver of Notice..................................................28
Section 8.1 Waiver of Notice................................28
ARTICLE IX
Checks, Notes, Drafts, Etc........................................29
Section 9.1 Checks, Notes, Drafts, Etc......................29
ARTICLE X
Amendments........................................................29
Section 10.1 Amendments.....................................29
</TABLE>
<PAGE>
BY-LAWS
OF
ABN AMRO MORTGAGE CORPORATION
ARTICLE I
Stockholders
------------
Section 1.1 Annual Meeting. Except as otherwise provided in Section
1.9 of these By-Laws, an annual meeting of stockholders of the Corporation for
the election of directors and for the transaction of any other proper business
shall be held on the third Wednesday of July in each year, unless such day shall
fall on a legal holiday, in which case such meeting shall be held on the next
day thereafter not a legal holiday. The annual meeting in each year shall be
held at such hour on said day and at such place within or without the State of
Delaware as may be fixed by the Board of Directors.
Section 1.2 Special Meetings. A special meeting of the holders of
stock of the Corporation entitled to vote on any business to be considered at
any such meeting may be called by the Chairman of the Board, the President or
any Vice President, and shall be called by the Chairman of the Board, or the
President or the Secretary when directed to do so by resolution of the
<PAGE>
Board of Directors or at the written request of directors representing a
majority of the whole Board of Directors. Any such request shall state the
purpose or purposes of the proposed meeting.
Section 1.3 Notice of Meetings. Whenever stockholders are required
or permitted to take any action at a meeting, unless notice is waived as
provided in Article VIII herein, a written notice of the meeting shall be given
which shall state the place, date and hour of the meeting, and, in the case of a
special meeting, the purpose or purposes for which the meeting is called.
Unless otherwise provided by law, and except as to any stockholder
duly waiving notice, the written notice of any meeting shall be given personally
or by mail, not less than ten nor more than sixty days before the date of the
meeting to each stockholder entitled to vote at such meeting. If mailed, notice
shall be deemed given when deposited in the United States mail, postage prepaid,
directed to the stockholder at his address as it appears on the records of the
Corporation.
When a meeting is adjourned to another time or place, notice need not
be given of the adjourned meeting if the time and place thereof are announced at
the meeting at which the adjournment is taken. At the adjourned meeting the
Corporation may transact any business which might have been transacted at the
<PAGE>
3
original meeting. If, however, the adjournment is for more than thirty days, or
if after the adjournment a new record date is fixed for the adjourned meeting, a
notice of the adjourned meeting shall be given to each stockholder of record
entitled to vote at the meeting.
Section 1.4 Quorum. Except as otherwise provided by law or by the
Certificate of Incorporation or by these By-Laws in respect of the vote required
for a specified action, at any meeting of stockholders the holders of a majority
of the outstanding stock entitled to vote thereat, either present or
represented by proxy, shall constitute a quorum for the transaction of any
business, by the stockholders present, although less than a quorum, may adjourn
the meeting to another time or place and, except as provided in the last
paragraph of Section 1.3 of these By-Laws, notice need not be given of the
adjourned meeting.
Section 1.5 Voting. Whenever directors are to be elected at a
meeting, they shall be elected by a plurality of the votes cast at the meeting
by the holders of stock entitled to vote. Whenever any corporate action, other
than the election of directors, is to be taken by vote of stockholders at a
meeting, it shall, except as otherwise required by law or by the Certifi-
<PAGE>
4
cate of Incorporation or by these By-Laws, be authorized by a majority of the
votes cast at the meeting by the holders of stock entitled to vote thereon.
Except as otherwise provided by law, or by the Certificate of
Incorporation, each holder of record of stock of the Corporation entitled to
vote on any matter at any meeting of stockholders shall be entitled to one vote
for each share of such stock standing in the name of such holder on the stock
ledger of the Corporation on the record date for the determination of the
stockholders entitled to vote at the meeting.
Upon the demand of any stockholder entitled to vote, the vote for
directors or the vote on any other matter at a meeting shall be by written
ballot, but otherwise the method of voting and the manner in which votes are
counted shall be discretionary with the presiding officer at the meeting.
Section 1.6 Presiding Officer and Secretary. At every meeting of
stockholders the Chairman of the Board, or in his or her absence (or if there be
none) the President, or in his or her absence a Vice President, or, if none be
present, the appointee of the meeting, shall preside. The Secretary, or in his
or her absence an Assistant Secretary, or if none be present, the appointee of
the presiding officer of the meeting, shall act as
<PAGE>
5
secretary of the meeting.
Section 1.7 Proxies. Each stockholder entitled to vote at a meeting
of stockholders or to express consent or dissent to corporate action in writing
without a meeting may authorize another person or persons to act for him or her
by proxy, but no such proxy shall be voted or acted upon after three years from
its date, unless the proxy provides for a longer period. Every proxy shall be
signed by the stockholder or by his duly authorized attorney.
Section 1.8 List of Stockholders. The officer who has charge of the
stock ledger of the Corporation shall prepare and make, at least ten days before
every meeting of stockholders, a complete list of the stockholders entitled to
vote at the meeting, arranged in alphabetical order, and showing the address of
each stockholder and the number of shares registered in the name of each
stockholder. Such list shall be open to the examination of any stockholder, for
any purpose germane to the meeting, during ordinary business hours, for a period
of at least ten days prior to the meeting, either at a place within the city
where the meeting is to be held, which place shall be specified in the notice of
the meeting, or, if not so specified, at the place
<PAGE>
6
where the meeting is to be held. The list shall also be produced and kept at the
time and place of the meeting during the whole time thereof, and may be
inspected by any stockholder who is present.
The stock ledger shall be the only evidence as to who are the
stockholders entitled to examine the stock ledger, the list required by this
Section or the books of the Corporation, or to vote in person or by proxy at any
meeting of stockholders.
Section 1.9 Written Consent of Stockholders in Lieu of Meeting. Any
action required by statute to be taken at any annual or special meeting of
stockholders of the Corporation, or any action which may be taken at any annual
or special meeting of the stockholders, may be taken without a meeting, without
prior notice and without a vote, if a consent in writing, setting forth the
action so taken, shall be signed by the holders of outstanding stock having not
less than the minimum number of votes that would be necessary to authorize or
take such action at a meeting at which all shares entitled to vote thereon were
present and voted. Prompt written notice of the taking of the corporate action
without a meeting by less than unanimous written consent shall be given to those
stockholders who have not consented in writing. Any such written consent may be
given by one or any
<PAGE>
7
number of substantially concurrent written instruments of substantially similar
tenor signed by such stockholders, in person or by attorney or proxy duly
appointed in writing, and filed with the Secretary or an Assistant Secretary of
the Corporation.
ARTICLE II
Directors
---------
Section 2.1 Number of Directors. The Board of Directors shall
consist of three director(s) until changed as provided in this Section. The
number of directors may be changed at any time and from time to time by vote at
a meeting or by written consent of the holders of stock entitled to vote on the
election of directors, or by a resolution of the Board of Directors passed by a
majority of the whole Board of Directors, except that no decrease shall shorten
the term of any incumbent director unless such director is specifically removed
pursuant to Section 2.5 of these By-Laws at the time of such decrease.
Section 2.2 Election and Term of Directors. Directors shall be
elected annually, by election at the annual meeting of stockholders or by
written consent of the holders of stock entitled to vote thereon in lieu of such
meeting. If the annual election of directors is not held on the date designated
there-
<PAGE>
8
for, the directors shall cause such election to be held as soon thereafter as
convenient. Each director shall hold office from the time of his election and
qualification until his successor is elected and qualified or until his earlier
resignation or removal.
Section 2.3 Independent Directors. At all times following the
initial issuance of Securities (as defined in the Restated Certificate of
Incorporation of the Corporation), the board of directors shall include at least
two individuals who are Independent Directors. "Independent Director" shall mean
a director who (i) is not employed by the Corporation as an officer or employee
or by any Affiliate of the Corporation as a director, officer or employee; (ii)
is not (and is not an Affiliate of a Person that is) a significant advisor or
consultant to the Corporation or any Affiliate of the Corporation; (iii) is not
an Affiliate of a significant customer or supplier of the Corporation or any
Affiliate of the Corporation; (iv) is not an Affiliate of a Person of which the
Corporation or any Affiliate of the Corporation is a significant customer; (v)
does not have significant personal services contract(s) with the Corporation or
any Affiliate of the Corporation; (vi) is not the beneficial owner at the time
of such individual's appointment as an Independent
<PAGE>
9
Director, or at any time thereafter while serving as an Independent Director,
of any capital stock of the Corporation; and (vii) is not a spouse, parent,
sibling or child of any Person covered by any of clauses (i) through (vi).
As used in this Article, the following terms shall have the following
meanings: (a) an "Affiliate" of any Person shall mean any other Person
controlling, controlled by or under common control with such Person or, in any
event, a Person which has the power to vote 25% or more of the securities having
ordinary voting power for the election of directors of the specified Person, and
"control" of a specified Person shall mean the ability to direct or cause the
direction of the management and policies of the specified Person, whether
through the direct or indirect ownership of the voting securities of such
specified Person, by contract or otherwise; (b) a Person shall be deemed to be a
"significant advisor or consultant to the Corporation or any Affiliate of the
Corporation" if such Person received during the preceding fiscal year of the
Corporation (or is expected to receive during the then current fiscal year of
the Corporation) fees or similar compensation from the Corporation or any
Affiliate of the Corporation in excess of the lesser of (I) 3% of the
consolidated gross revenues of the Corporation and its Affiliates
<PAGE>
10
during the preceding fiscal year of the Corporation; (II) 5% of the gross
revenues of such Person during the preceding calendar year, if such Person is an
individual; and (III) 5% of the consolidated gross revenues of such Person
during its preceding fiscal year, if such Person is not an individual; provided,
however, that an individual's fees and expense reimbursements in such
individual's capacity as a director shall not be included in the gross revenues
of an individual for purposes of this determination; (c) a "significant
customer of the Corporation or any Affiliate of the Corporation" shall mean a
customer from which the Corporation and any Affiliate of the Corporation
collectively in the preceding fiscal year of the Corporation received payments
which are in excess of 3% of the consolidated gross revenues of the Corporation
and its Affiliates during such fiscal year; (d) a "significant supplier of the
Corporation or any Affiliate of the Corporation" shall mean a supplier to which
the Corporation and any Affiliate of the Corporation collectively in the
preceding fiscal year of the Corporation made payments in consideration for the
supplier's products and services in excess of 3% of the consolidated gross
revenues of the Corporation and its Affiliates during such fiscal year; (e) the
Corporation or any Affiliate of the Corporation shall be deemed a "significant
customer" of a Person if the Corporation and any Affiliate of the Corporation
<PAGE>
11
collectively were the direct source during such Person's preceding fiscal year
of in excess of 5% of the gross revenues which such Person received for the sale
of its products and services during such fiscal year; (f) an individual shall be
deemed to have "significant personal services contract(s) with the Corpora tion
or any Affiliate of the Corporation" if the fees and other compensation received
by such individual pursuant to personal services contract(s) with the
Corporation and any Affiliate of the Corporation exceeded or would exceed 5% of
such individual's gross revenue during the preceding calendar year; and (g) for
purposes of convenience, and recognizing that the Corporation will not have a
fiscal year prior to the filing of this Certificate of Incorporation, "the
preceding fiscal year of the Corpora tion" shall mean (I) on any date of
determination during 1995, calendar year 1994, and (II) on any date of
determination during 1996, calendar year 1995.
Section 2.4 Vacancies and Newly Created Directorships. Vacancies and
newly created directorships resulting from any increase in the authorized number
of directors may be filled by election at a meeting of stockholders or by
written consent of the holders of stock entitled to vote thereon in lieu of a
meeting. Except as otherwise provided by law, vacancies and such
<PAGE>
12
newly created directorships may also be filled by a majority of the directors
then in office, although less than a quorum, or by a sole remaining director.
Section 2.5 Resignation. Any director may resign at any time upon
written notice to the Corporation. Any such resignation shall take effect at the
time specified therein or, if the time be not specified, upon receipt thereof,
and the acceptance of such resignation, unless required by the terms thereof,
shall not be necessary to make such resignation effective.
Section 2.6 Removal. Any or all of the directors may be removed at
any time, with or without cause, by vote of the holders of a majority of the
shares of stock entitled to vote on the election of directors, taken at a
meeting or by written consent.
Section 2.7 Meetings. Meetings of the Board of Directors, regular
or special, may be held at any place within or without the State of Delaware.
Members of the Board of Directors, or of any committee designated by the Board,
may participate in a meeting of such Board or committee by means of con-
<PAGE>
13
ference telephone or similar communications equipment by means of which all
persons participating in the meeting can hear each other, and participation in a
meeting by such means shall constitute presence in person at such meeting. An
annual meeting of the Board of Directors shall be held after each annual
election of directors. If such election occurs at an annual meeting of
stockholders, the annual meeting of the Board of Directors shall be held at the
same place and immediately following such meeting of stockholders, and no notice
thereof need be given. If an annual election of directors occurs by written
consent in lieu of the annual meeting of stockholders, the annual meeting of the
Board of Directors shall take place as soon after such written consent is duly
filed with the Corporation as is practicable, either at the next regular meeting
of the Board of Directors or at a special meeting. The Board of Directors may
fix times and places for regular meetings of the Board and no notice of such
meetings need be given. A special meeting of the Board of Directors shall be
held whenever called by the Chairman of the Board, if any, or by the President
or by at least one-third of the directors for the time being in office, at such
time and place as shall be specified in the notice or waiver thereof. Notice of
each special meeting shall be given by the Secretary or by a person calling the
meeting to each director by mailing the
<PAGE>
14
same, postage prepaid, not later than the second day before the meeting, or
personally or by telegraphing or telephoning the same not later than the day
before the meeting.
Unless otherwise restricted by the Certificate of Incorporation or these
By-Laws, members of the Board of Directors, or any committee designated by the
Board of Directors, may participate in a meeting of the Board of Directors, or
any committee, by means of conference telephone or similar communications
equipment by means of which all persons participating in the meeting can hear
each other, and such participation in a meeting shall constitute presence in
person at the meeting.
Section 2.8 Quorum and Voting. A majority of the total number of
directors shall constitute a quorum for the transaction of business, but, if
there be less than a quorum at any meeting of the Board of Directors, a majority
of the directors present may adjourn the meeting from time to time, and no
further notice thereof need be given other than announcement at the meeting
which shall be so adjourned. Except as otherwise provided by law, by the
Certificate of Incorporation, or by these By-Laws, the vote of a majority of the
directors present at a
<PAGE>
15
meeting at which a quorum is present shall be the act of the Board of Directors.
Section 2.9 Written Consent of Directors in Lieu of a Meeting. Any
action required or permitted to be taken at any meeting of the Board of
Directors or of any committee thereof may be taken without a meeting if all
members of the Board or of such committee, as the case may be, consent thereto
in writing, and the writing or writings are filed with the minutes of
proceedings of the Board or committee.
Section 2.10 Compensation. Directors may receive compensation for
services to the Corporation in their capacities as directors or otherwise in
such manner and in such amounts as may be fixed from time to time by the Board
of Directors.
ARTICLE III
Committees of the Board of Directors
-------------------------------------
Section 3.1 Appointment and Powers. The Board of Directors may from
time to time, by resolution passed by majority of the whole Board, designate one
or more committees, each committee to consist of one or more directors of the
Corporation.
<PAGE>
20
The Board of Directors may designate one or more directors as alternate members
of any committee, who may replace any absent or disqualified member at any
meeting of the committee. The resolution of the Board of Directors may, in
addition or alternatively, provide that in the absence or disqualification of a
member of a committee, the member or members thereof present at any meeting and
not disqualified from voting, whether or not he or they constitute a quorum, may
unanimously appoint another member of the Board of Directors to act at the
meeting in the place of any such absent or disqualified member. Any such
committee, to the extent provided in the resolution of the Board of Directors,
shall have and may exercise all the powers and authority of the Board of
Directors in the management of the business and affairs of the Corporation, and
may authorize the seal of the Corporation to be affixed to all papers which may
require it, except as otherwise provided by law. Unless the resolution of the
Board of Directors expressly so provides, no such committee shall have the power
or authority to declare a dividend or to authorize the issuance of stock. Any
such committee may adopt rules governing the method of calling and time and
place of holding its meetings. Unless otherwise provided by the Board of
Directors, a majority of any such committee (or the member thereof, if only one)
shall constitute a quorum for the transaction of business, and the vote
<PAGE>
17
of a majority of the members of such committee present at a meeting at which a
quorum is present shall be the act of such committee. Each such committee shall
keep a record of its acts and proceedings and shall report thereon to the Board
of Directors whenever requested to do so. Any or all members of any such
committee may be removed, with or without cause, by resolution of the Board of
Directors, passed by a majority of the whole Board.
ARTICLE IV
Officers, Agents and Employees
-------------------------------
Section 4.1 Appointment and Term of Office. The officers of the
Corporation shall include a Chairman of the Board, a President, and a Secretary,
and may include a Treasurer and one or more Vice Presidents. All such officers
shall be appointed by the Board of Directors or by a duly authorized committee
thereof; provided, however, that the Board may autho rize an officer to appoint
one or more officers or assistant officers. Any number of such offices may be
held by the same person, but no officer shall execute, acknowledge or verify any
instrument in more than one capacity. Except as may be prescribed otherwise by
the Board of Directors or a committee thereof in a particular case, all such
officers shall hold their offices at the pleasure of the Board for an unlimited
term and
<PAGE>
18
need not be reappointed annually or at any other periodic interval. The Board
of Directors may appoint, and may delegate power to appoint, such other
officers, agents and employees as it may deem necessary or proper, who shall
hold their offices or positions for such terms, have such authority and perform
such duties as may from time to time be determined by or pursuant to
authorization of the Board of Directors.
Section 4.2 Resignation and Removal. Any officer may resign at any
time upon written notice to the Corporation. Any officer, agent or employee of
the Corporation may be removed by the Board of Directors, or by a duly
authorized committee there of, with or without cause at any time. The Board of
Directors or such a committee thereof may delegate such power of removal as to
officers, agents and employees not appointed by the Board of Directors or such a
committee. Such removal shall be without prejudice to a person's contract
rights, if any, but the appointment of any person as an officer, agent or
employee of the Corporation shall not of itself create contract rights.
Section 4.3 Compensation and Bond. The compensation of the officers
of the Corporation shall be fixed by the Board of Directors, but this power may
be delegated to any officer in
<PAGE>
19
respect of other officers under his control. The Corporation may secure the
fidelity of any or all of its officers, agents or employees by bond or
otherwise.
Section 4.4 Chairman of the Board and President. The Chairman of the
Board shall be the chief executive officer of the Corporation and shall have the
responsibility for carrying out the policies of the Board and, subject to the
direction of the Board, shall have general supervision over the operations of
the Corporation subject to the direction of the Board and of the Chairman of the
Board. The Chairman of the Board shall preside at all meetings of the Board and
of the stockholders. In the absence of the Chairman of the Board, the President
shall preside at meetings of the Board and of the stockholders, except as
provided in Section 1.6 of these By-laws. The Chairman of the Board and the
President each may employ and discharge employees and agents of the Corporation,
except such as shall be appointed by the Board of Directors, and they may
delegate these powers. The Chairman of the Board and the President each may vote
the stock or other securities of any other domestic or foreign corporation of
any type or kind which may at any time be owned by the Corporation, may execute
any stockholders' or other consents in respect thereof and may in his or her
discretion delegate such
<PAGE>
20
powers by executing proxies, or otherwise, on behalf of the Corporation. The
Board of Directors by resolution from time to time may confer like powers upon
any other person or persons. The Chairman of the Board and the President each
shall have such other powers and perform such other duties as are prescribed by
these By-Laws and as usually pertain to their respective offices and as may be
assigned to them at any time or from time to time by the Board.
Section 4.5 Vice Presidents. Each Vice President shall have such
powers and perform such duties as the Board of Directors or the President may
from time to time prescribe. In the absence or inability to act of the
President, unless the Board of Directors shall otherwise provide, the Vice
President who has served in that capacity for the longest time and who shall be
present and able to act, shall perform all the duties and may exercise any of
the powers of the President. The perfor mance of any duty by a Vice President
shall, in respect of any other person dealing with the Corporation, be
conclusive evidence of his or her power to act.
Section 4.6 Treasurer. The Treasurer shall have charge of all funds
and securities of the Corporation, shall
<PAGE>
21
endorse the same for deposit or collection when necessary and deposit the same
to the credit of the Corporation in such banks or depositaries as the Board of
Directors may authorize. He may endorse all commercial documents requiring
endorsements for or on behalf of the Corporation and may sign all receipts and
vouchers for payments made to the Corporation. He shall have all such further
powers and duties as generally are incident to the position of Treasurer or as
may be assigned to him by the Presi dent or the Board of Directors.
Section 4.7 Secretary. The Secretary shall record all the proceedings
of the meetings of the stockholders and directors in a book to be kept for that
purpose and shall also record therein all action taken by written consent of the
stockholders or directors in lieu of a meeting. He or she shall attend to the
giving and serving of all notices of the Corporation. He shall have custody of
the seal of the Corporation and shall attest the same by his or her signature
whenever required. He shall have charge of the stock ledger and such other books
and papers as the Board of Directors may direct, but he may delegate
responsibility for maintaining the stock ledger to any transfer agent appointed
by the Board of Directors. He shall have all such further powers and duties as
generally are incident to the position of Secretary
<PAGE>
22
or as may be assigned to him by the President of the Board of Directors.
Section 4.8 Assistant Treasurers. In the absence or inability to act
of the Treasurer, any Assistant Treasurer may perform all the duties and
exercise all the powers of the Treasurer. The performance of any such duty
shall, in respect of any other person dealing with the Corporation, be
conclusive evidence of his power to act. An Assistant Treasurer shall also
perform such other duties as the Treasurer or the Board of Directors may assign
to him.
Section 4.9 Assistant Secretaries. In the absence or inability to act
of the Secretary, any Assistant Secretary may perform all the duties and
exercise all the powers of the Secretary. The performance of any such duty
shall, in respect of any other person dealing with the Corporation, be
conclusive evidence of his or her power to act. An Assistant Secretary shall
also perform such other duties as the Secretary or the Board of Directors may
assign to him.
Section 4.10 Delegation of Duties. In case of the absence of any
officer of the Corporation, or for any other
<PAGE>
23
reason that the Board of Directors may deem sufficient, the Board of Directors
may confer for the time being the powers or duties, or any of them, of such
officer upon any other officer or upon any director.
Section 4.11 Loans to Officers and Employees; Guaranty of Obligations
of Officers and Employees. The Corporation may lend money to, or guarantee any
obligation of, or otherwise assist any officer or other employee of the
Corporation or any subsidiary, including any officer or employee who is a
director of the Corporation or any subsidiary, whenever, in the judgment of the
directors, such loan, guaranty or assistance may reasonably be expected to
benefit the Corporation. The loan, guaranty or other assistance may be with or
without interest, and may be unsecured, or secured in such manner as the Board
of Directors shall approve, including, without limitation, a pledge of shares of
stock of the Corporation.
<PAGE>
24
ARTICLE V
Indemnification
----------------
Section 5.1 Indemnification of Corporation's Officers, Directors,
Agents and Employees. The Corporation shall indemnify, to the full extent
permitted by Section 145 of the General Corporation Law of Delaware, or any
amendment thereto or successor provision thereto, all officers, directors,
agents and employees of the Corporation.
ARTICLE VI
Common Stock
-------------
Section 6.1 Certificates. Certificates for stock of the Corporation
shall be in such form as shall be approved by the Board of Directors and shall
be signed in the name of the Corporation by the Chairman or a Vice Chairman of
the Board, if any, or the President or a Vice President, and by the Treasurer or
an Assistant Treasurer, or the Secretary or an Assistant Secretary. Such
certificates may be sealed with the seal of the Corporation, if any, or a
facsimile thereof. Any or all of the signatures on a certificate may be a
facsimile. In case any officer, transfer agent or registrar who has signed or
whose facsimile signature has been placed upon a certificate shall have ceased
to be such officer, transfer agent or registrar before such certificate is
<PAGE>
25
issued, it may be issued by the Corporation with the same effect as if he were
such officer, transfer agent or registrar at the date of issue.
Section 6.2 Transfers of Stock. Transfers of stock shall be made only
upon the books of the Corporation by the holder, in person or by duly authorized
attorney, and on the surrender of the certificate or certificates for such stock
properly endorsed. The Board of Directors shall have the power to make all such
rules and regulations, not inconsistent with the Certificate of Incorporation
and these By-Laws and the law, as the Board of Directors may deem appropriate
concerning the issue, transfer and registration of certificates for stock of the
Corporation. The Board may appoint one or more transfer agents or registrars or
transfers, or both, and may require all stock certificates to bear the signature
of either or both.
Section 6.3 Lost, Stolen or Destroyed Certificates. The Corporation
may issue a new stock certificate in the place of any certificate theretofore
issued by it, alleged to have been lost, stolen or destroyed, and the
Corporation may require the owner of the lost, stolen or destroyed certificate
or his legal representative to give the Corporation a bond sufficient to
<PAGE>
26
indemnify it against any claim that may be made against it on account of the
alleged loss, theft or destruction of any such certificate or the issuance of
any such new certificate. The Board of Directors may require such owner to
satisfy other reasonable requirements.
Section 6.4 Stockholder Record Date. In order that the Corporation
may determine the stockholders entitled to notice of or to vote at any meeting
of stockholders or any adjournment thereof, or to express consent to corporate
action in writing without a meeting, or entitled to receive payment of any
dividend or other distribution or allotment of any rights, or entitled to
exercise any rights in respect of any change, conversion or exchange of stock,
or for the purpose of any other lawful action, the Board of Directors may fix,
in advance, a record date, which shall not be more than sixty nor less than ten
days before the date of such meeting, nor more than sixty days prior to any
other action. Only such stockholders as shall be stockholders of record on the
date so fixed shall be entitled to notice of, and to vote at, such meeting and
any adjournment thereof, or to give such consent, or to receive payment of such
dividend or other distribution, or to exercise such rights in respect of any
such change, conversion or exchange of stock, or to participate in
<PAGE>
27
such action, as the case may be, notwithstanding any transfer of any stock on
the books of the Corporation after any record date so fixed.
If no record date is fixed by the Board of Directors, (1) the record
date for determining stockholders entitled to notice of or to vote at a meeting
of stockholders shall be at the close of business on the day next preceding the
date on which notice is given, or, if notice is waived by all stockholders
entitled to vote at the meeting, at the close of business on the day next
preceding the day on which the meeting is held, (2) the record date for
determining stockholders entitled to express consent to corporate action in
writing without a meeting, when no prior action by the Board of Directors is
necessary, shall be at the close of business on the day on which the first
written consent is expressed by the filing thereof with the Corporation as
provided in Section 1.9 of these By-Laws, and (3) the record date for
determining stockholders for any other purpose shall be at the close of business
on the day on which the Board of Directors adopts the resolution relating
thereto.
A determination of stockholders of record entitled to notice of or to
vote at a meeting of stockholders shall apply to any adjournment of the meeting;
provided, however, that the Board of Directors may fix a new record date for the
adjourned meeting.
<PAGE>
28
ARTICLE VII
Seal
-----
Section 7.1 Seal. The Corporation shall not be required to adopt or
use a seal, except as otherwise provided by law. If a seal is adopted by the
Corporation, it shall be circular in form and shall bear, in addition to any
other emblem or device approved by the Board of Directors, the name of the
Corporation, and the words "Corporate Seal" and "Delaware". The seal may be used
by causing it or a facsimile thereof to be impressed or affixed or in any other
manner reproduced.
ARTICLE VIII
Waiver of Notice
----------------
Section 8.1 Waiver of Notice. Whenever notice is required to be given
by statute, or under any provision of the Certificate of Incorporation of these
By-Laws, a written waiver thereof, signed by the person entitled to notice,
whether before or after the time stated therein, shall be deemed equivalent to
notice. In the case of a stockholder, such waiver of notice may be signed by
such stockholder's attorney or proxy duly appointed in writing. Attendance of a
person at a meeting shall constitute a waiver of notice of such meeting, except
when the person attends a meeting for the express purpose of objecting at the
<PAGE>
29
beginning of the meeting, to the transaction of any business because the meeting
is not lawfully called or convened. Neither the business to be transacted at,
nor the purpose of, any regular or special meeting of the stockholders,
directors or members of a committee of directors need be specified in any
written waiver of notice.
ARTICLE IX
Checks, Notes, Drafts, Etc.
Section 9.1 Checks, Notes, Drafts, Etc. Checks, notes, drafts,
acceptances, bills of exchange and other orders or obligations for the payment
of money shall be signed by such officer or officers or person or persons as the
Board of Directors or a duly authorized committee thereof may from time to
time designate.
ARTICLE X
Amendments
Section 10.1 Amendments. These By-Laws or any of them may be altered
or repealed, and new By-Laws may be adopted, by the stockholders by vote at a
meeting or by written consent without a meeting. The Board of Directors shall
also have power, by a majority vote of the whole Board of Directors, to alter or
<PAGE>
30
repeal any of these By-Laws, and to adopt new By-Laws.
<PAGE>
Exhibit 4.1
Form of Pooling and Servicing Agreement
<PAGE>
================================================================================
ABN AMRO MORTGAGE CORPORATION
Seller
and
LASALLE HOME MORTGAGE CORPORATION,
Master Servicer
and
---------------------------
Trustee
----------------
FORM OF
POOLING AND SERVICING AGREEMENT
Dated as of _________, 199_
----------------
$________________
Mortgage Pass-Through Certificates
SERIES 199_-_
================================================================================
<PAGE>
<TABLE>
<CAPTION>
TABLE OF CONTENTS
-----------------
Section Page
- ------- ----
<S> <C>
ARTICLE I
DEFINITIONS
ARTICLE II
CONVEYANCE OF TRUST FUND;
ORIGINAL ISSUANCE OF CERTIFICATES
2.1. Conveyance of Trust Fund........................................... 24
2.2. Acceptance by Trustee.............................................. 28
2.3. Representations and Warranties of the Depositor.................... 30
2.4. Authentication and Delivery of Certificates; Designation of
Certificates as REMIC Regular and Residual Interests............... 35
2.5. Designation of Startup Day......................................... 35
2.6. No Contributions................................................... 35
2.7. Representations and Warranties of the Master Servicer.............. 35
ARTICLE III
ADMINISTRATION AND SERVICING OF MORTGAGE LOANS
3.1. [Master Servicer to Act as Servicer and Tax Matters Person;
Administration of the Mortgage Loans............................... 36
3.2. Collection of Certain Mortgage Loan Payments; Certificate Account.. 41
3.3. Permitted Withdrawals from the Certificate Account................. 43
3.4. Taxes, Assessments and Similar Items............................... 45
3.5. Maintenance of Insurance........................................... 45
3.6. Enforcement of Due-on-Sale Clauses; Assumption and Substitution
Agreements......................................................... 48
3.7. Realization upon Defaulted Mortgage Loans.......................... 49
3.8. Trustee to Cooperate; Release of Mortgage Files.................... 51
3.9. Servicing Compensation............................................. 52
3.10. Reports to the Trustee; Certificate Account Statements............. 52
3.11. Annual Statement as to Compliance.................................. 53
3.12. Annual Independent Public Accountants' Servicing Report............ 53
3.13. Access to Certain Documentation and Information Regarding the
Mortgage Loans..................................................... 54
3.14. Back-up Servicer................................................... 54
3.15. Sale of Defaulted Mortgage Loans and REO Properties................ 55
3.16. Delegation of Duties............................................... 57
3.17. Maintenance of Special Hazard Insurance Policy..................... 57
3.18. Letter of Credit................................................... 58
3.19. Appointment of a Special Servicer.................................. 59
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
TABLE OF CONTENTS
(continued)
-----------------
Section Page
- ------- ----
<S> <C>
ARTICLE IV
PAYMENTS TO CERTIFICATEHOLDERS; ADVANCES;
STATEMENTS AND REPORTS
4.1. Distributions...................................................... 60
4.2. Subordination; Priority of Distributions........................... 60
4.3. Advances........................................................... 61
4.4. Statements to Certificateholders................................... 62
4.5. Foreclosure Reports................................................ 65
4.6. Adjustment of Administration Fees with Respect to Prepaid
Mortgage Loans..................................................... 65
4.7. Prohibited Transactions Taxes and Other Taxes...................... 66
4.8. Tax Administration................................................. 67
4.9. Equal Status of Administration Fee................................. 68
4.10. Appointment of Paying Agent and Certificate Administrator.......... 68
ARTICLE V
THE CERTIFICATES
5.1. The Certificates................................................... 69
5.2. Registration of Transfer and Exchange of Certificates.............. 70
5.3. Mutilated, Destroyed, Lost or Stolen Certificates.................. 73
5.4. Persons Deemed Owners.............................................. 73
5.5. Maintenance of Office or Agency.................................... 74
ARTICLE VI
THE DEPOSITOR AND THE MASTER SERVICER
6.1. Liability of the Depositor and the Master Servicer................. 74
6.2. Merger or Consolidation of the Depositor or the Master Servicer.... 74
6.3. Limitation on Liability of the Master Servicer and Others.......... 75
6.4. Master Servicer Not to Resign...................................... 75
ARTICLE VII
DEFAULT
7.1. Events of Default.................................................. 76
7.2. Other Remedies of Trustee.......................................... 79
7.3. Directions by Certificateholders and Duties of Trustee During
Event of Default................................................... 79
7.4. Action upon Certain Failures of Master Servicer and upon Event of
Default............................................................ 80
</TABLE>
ii
<PAGE>
<TABLE>
<CAPTION>
TABLE OF CONTENTS
(continued)
-----------------
Section Page
- ------- ----
<S> <C>
7.5. Appointment of [Back-up Servicer].................................. 80
7.6. Notification to Certificateholders................................. 82
ARTICLE VIII
CONCERNING THE TRUSTEE
8.1. Duties of Trustee.................................................. 82
8.2. Certain Matters Affecting Trustee.................................. 84
8.3. Trustee Not Required to Make Investigation......................... 85
8.4. Trustee Not Liable for Certificates or Mortgage Loans.............. 85
8.5. Trustee May Own Certificates....................................... 86
8.6. Master Servicer to Pay Trustee's Fees and Expenses................. 86
8.7. Eligibility Requirements for Trustee............................... 86
8.8. Resignation and Removal of Trustee................................. 87
8.9. Successor Trustee.................................................. 88
8.10. Merger or Consolidation of Trustee................................. 88
8.11. Appointment of Co-Trustee or Separate Trustee...................... 88
8.12. Appointment of Custodians.......................................... 90
8.13. Authenticating Agent............................................... 90
ARTICLE IX
TERMINATION
9.1. Termination upon Purchase by the Class R Certificateholder or
Liquidation of All Mortgage Loans.................................. 91
9.2. Trusts Irrevocable................................................. 93
9.3. Additional Termination Requirements................................ 93
ARTICLE X
MISCELLANEOUS PROVISIONS
10.1. Amendment.......................................................... 94
10.2. Recordation of Agreement........................................... 95
10.3. Limitation on Rights of Certificateholders......................... 96
10.4. Governing Law; Jurisdiction........................................ 97
10.5. Notices............................................................ 97
10.6. Severability of Provisions......................................... 97
10.7. Sale of Class A Certificates....................................... 98
</TABLE>
iii
<PAGE>
<TABLE>
<CAPTION>
EXHIBITS
<S> <C>
Exhibit A Form of Class A Certificate................................... A-1
Exhibit B Form of Class B Certificate................................... B-1
Exhibit C Form of Class R Certificate................................... C-1
Exhibit D Mortgage Loan Schedule........................................ D-1
Exhibit E Form of Mortgage Note......................................... E- ]
Exhibit F Form of Special Hazard Policy................................. G- ]
Exhibit G Form of Letter of Credit...................................... H- ]
</TABLE>
iv
<PAGE>
This Pooling and Servicing Agreement, effective as of ____________, 199_,
is executed between ABN AMRO MORTGAGE CORPORATION, in its capacity as depositor
(the "Depositor"), LASALLE HOME MORTGAGE CORPORATION, in its capacity as master
servicer ("Master Servicer") and _______________, as trustee (the "Trustee").
W I T N E S E T H
-----------------
In consideration of the mutual agreements herein contained, the Depositor,
Master Servicer and the Trustee agree as follows:
ARTICLE I
DEFINITIONS
Whenever used herein, the following words and phrases, unless the context
otherwise requires, shall have the meanings specified in this Article:
Adjustment Date: With respect to each Mortgage Loan, the date specified on
the related Mortgage Note as the first date on which the interest rate is
subject to adjustment, and the same date in each month thereafter.
Administration Fee: With respect to any Mortgage Loan and any month, the
fee payable to the Master Servicer pursuant to Section 3.9 for the
administration of such Mortgage Loan, such fee being an amount paid out of
interest on such Mortgage Loan and equal to ____% per annum of the Principal
Balance for the related Mortgage Loan which percentage shall include ____% per
annum for servicing such Mortgage Loan and the Trustee's fees for such Mortgage
Loan, but subject to adjustment as provided in Section 4.6 hereof.
Advance: An Advance made by the Master Servicer pursuant to Section 4.3.
Affiliate: With respect to any specified Person, any other Person
controlling or controlled by or under common control with such specified Person.
For the purposes of this definition, "control" when used with respect to any
specified Person means the power to direct the management and policies of such
Person, directly or indirectly, whether through the ownership of voting
securities, by contract or otherwise, and the terms "controlling" and
"controlled" have meanings correlative to the foregoing. The Trustee may obtain
and rely on an Officer's Certificate of the Master Servicer or the Depositor to
determine whether any Person is an Affiliate of such party.
<PAGE>
Agreement: This Pooling and Servicing Agreement and all amendments and
supplements hereto.
Anniversary: Each anniversary of the Cut-off Date.
Authenticating Agent: As defined in Section 8.13.
ALTA: The American Land Title Association, or any successor.
[Back-up Servicer: The Back-up Servicer, initially [ABN AMRO Bank N.V.],
defined in Section 3.14 hereof.]
Balloon Payment: With respect to any Mortgage Loan, a final or intermediate
scheduled monthly payment of principal and interest which, pursuant to the
related Mortgage Note or any other document in the Mortgage File, is at least
twice as large as other scheduled payments due thereon.
Bankruptcy Loss: Any Realized Loss incurred on a Mortgage Loan as a result
of a Deficient Valuation or Debt Service Reduction.
Bankruptcy Loss Limit: An aggregate amount which will not be less than the
following percentages of the aggregate outstanding Principal Balances of all
Mortgage Loans as of the Cut-Off Date: ___% in the first Series Year and ___% in
each of the second, third, fourth and fifth Series Years or (ii) such lesser
amount if the Master Servicer confirms with the Rating Agencies that such lesser
amount will not impair the ratings on the Certificates.
BIF: The Bank Insurance Fund administered by the FDIC, or any successor
thereto.
Business Day: Any day other than (i) a Saturday or a Sunday, or (ii) a
legal holiday in the State of Illinois, or (iii) a day in which banking
institutions in the State of Illinois are authorized or obligated by law or
executive order to be closed.
Certificate: Any one of the Class A, Class B or Class R Certificates.
Certificate Account: The separate account established and maintained by the
Master Servicer pursuant to Section 3.2 which shall be entitled
"_______________________________, as trustee for the benefit of the Holders of
ABN AMRO Mortgage Corporation, Mortgage Pass-Through Certificates, Series 199_-
_." The Certificate Account must be an Eligible Account. Funds deposited in the
Certificate Account shall be held in trust for the
2
<PAGE>
Certificateholders for the uses and purposes set forth in Sections 3.2, 3.3,
3.9, 4.1, 4.2, 4.3 and 9.1.
Certificate Administrator: As defined in Section 4.10.
Certificate Balance: The aggregate Principal Balance of Mortgage Loans
evidenced by each Certificate's Fractional Undivided Interest in the Mortgage
Loans.
Certificate Register and Certificate Registrar: The register maintained
pursuant to and the registrar provided for in Section 5.2.
Certificateholder or Holder: The Person in whose name a Certificate is
registered in the Certificate Register, except that, solely for the purposes of
the taking of any action under Article VII or giving any consent pursuant to
this Agreement, any Certificate registered in the name of the Master Servicer or
any affiliate thereof shall be deemed not to be outstanding and the Fractional
Undivided Interest evidenced thereby shall not be taken into account in
determining whether the requisite percentage of Certificates necessary to take
any such action or effect any such consent has been obtained.
Class: All Certificates whose form is identical except for variations in
Fractional Undivided Interest or Percentage Interest.
Class A Certificate: Any one of the Certificates executed by the Depositor
and authenticated by the Trustee in substantially the form set forth in Exhibit
A hereto.
Class A Certificateholder: The registered holder of a Class A Certificate.
Class A Distribution: On any Distribution Date, the amount required to be
distributed on such Distribution Date to the Class A Certificateholders, such
amount being equal to the lesser of (x) the Pool Distribution for the related
Distribution Date or (y) the sum of (i) one month's interest, less the Class A
Percentage of Deferred Interest, at the Pass-Through Rate on the Class A
Principal Balance (net of the Class A Percentage of the amount by which the
aggregate amount of interest otherwise payable on the prepaid Mortgage Loans by
adjustment of the Administration Fee exceeds the related aggregate
Administration Fee available for payment thereof as provided in Section 4.6
hereof), (ii) the outstanding balance in the Class A Interest Shortfall Account,
(iii) the Class A Percentage of each scheduled payment of principal payable on
the Mortgage Loans on the preceding Installment Due Date, (iv) the Class A
Prepayment Entitlement and (v) the Redirected Distribution Amount. In the
3
<PAGE>
event that clause (y) is greater than the amount computed pursuant to clause
(x), distributions shall be allocated first to the interest component of the
Class A Distribution calculated pursuant to clause (y)(i) of this definition;
second to any balance in the Class A Interest Shortfall Account in accordance
with clause (y)(ii) of this definition; and third to the principal component of
the Class A Distribution calculated pursuant to clauses (y)(iii)-(v) of this
definition. Payments of interest due with respect to the Certificates shall be
calculated based upon twelve 30-day months and a 360-day year.
Class A Interest Shortfall: On any Distribution Date, the excess, if any,
of the amount computed pursuant to clause (y)(i) of the definition of Class A
Distribution over the amount distributed to the Class A Certificateholders on
such Distribution Date.
Class A Interest Shortfall Account: A ledger account established on the
books of the Master Servicer to reflect any unpaid Class A Interest Shortfall
owed to the Class A Certificateholders [and accrued interest thereon at the
Pass-Through Rate]. The balance in such account will be decreased on each
Distribution Date by disbursements to the Class A Certificateholders of any
previously due Class A Interest Shortfalls and accrued interest thereon at the
Pass-Through Rate from the Distribution Date that said Class A Interest
Shortfall first accrued through such Distribution Date and increased on each
Distribution Date by any new Class A Interest Shortfall allocable to the Class A
Certificates and by accrued and unpaid interest on previously due and unpaid
Class A Interest Shortfalls at the Pass-Through Rate.
Class A Percentage: On any Distribution Date before giving effect to any
distribution on such Distribution Date, the fraction expressed as a percentage
(expressed as a decimal and carried to eight places rounded up) the numerator of
which is the Class A Principal Balance and the denominator of which is the Pool
Principal Balance.
Class A Prepayment Entitlement: On any Distribution Date, the difference
between the Principal Prepayments for such Distribution Date and the Class B
Prepayment Entitlement.
Class A Principal Balance: On any Distribution Date, the Original Class A
Principal Balance plus the Class A Percentage of Deferred Interest accrued since
the Cut-off Date less the sum of (A) all amounts previously distributed to
holders of Class A Certificates on previous Distribution Dates on account of
amounts described in clauses (y)(iii) - (y)(v) of the definition of Class A
Distribution, (B) if such Distribution Date is subsequent to the date on which
the Class B Principal Balance equals zero,
4
<PAGE>
the principal amount of the Bankruptcy Losses, Special Hazard Losses and Excess
Credit Losses since such date and (C) to the extent not covered by the Class B
Certificateholders pursuant to Section 4.2, Fraud Losses.
Class B Certificate: Any one of the Certificates executed by the Depositor
and authenticated by the Trustee in substantially the form set forth in Exhibit
B hereto.
Class B Certificateholder: The registered holder of a Class B Certificate.
Class B Distribution: On any Distribution Date, an amount equal to the
lesser of (x) the Pool Distribution for the related Distribution Date reduced by
any amounts required to be paid to the Class A Certificateholders on such
Distribution Date or (y) the sum of (i) one month's interest, less the Class B
Percentage of Deferred Interest, at the Pass-Through Rate on the Class B
Principal Balance (net of the Class B Percentage of the amount by which the
aggregate amount of interest otherwise payable on the prepaid Mortgage Loans by
adjustment of the Administration Fee exceeds the related aggregate
Administration Fee available for payment thereof as provided in Section 4.6
hereof), (ii) the outstanding balance in the Class B Interest Shortfall Account,
(iii) the Class B Percentage of each scheduled payment of principal payable on
the Mortgage Loans on the preceding Installment Due Date and (iv) the Class B
Prepayment Entitlement, provided that the Class B Distribution shall be limited
to an amount, which, after payment to the Class B Certificateholders, would not
reduce the Class B Principal Balance below the Minimum Required Class B
Principal Balance. In the event that clause (y) is greater than clause (x),
distributions shall be allocated first to the interest component of the Class B
Distribution calculated pursuant to clause (y)(i) of this definition; second to
any balance in the Class B Interest Shortfall Account in accordance with clause
(y)(ii) of this definition; and third to the principal component of the Class B
Distribution calculated pursuant to clause (y)(iii) and (y)(iv) of this
definition. The amount distributable pursuant to clause (x) of this definition
shall never be less than zero.
Class B Interest Shortfall: On any Distribution Date, the excess, if any,
of the amount computed pursuant to clause (y)(i) of the definition of Class B
Distribution over the amount distributed to the Class B Certificateholders with
respect to such clause on such Distribution Date.
Class B Interest Shortfall Account: A ledger account established on the
books of the Master Servicer to reflect any unpaid Class B Interest Shortfall
owed to the Class B Certificateholders. The balance in such account will be
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decreased on each Distribution Date by disbursements with respect to clause
(y)(ii) of the definition of Class B Distribution to the Class B
Certificateholders of any previously due Class B Interest Shortfalls and
interest otherwise distributable with respect to clause (y)(ii) of the
definition of Class B Distribution to the Class B Certificateholders but used
instead to cover Excess Credit Losses, Bankruptcy Losses, Special Hazard Losses
or Fraud Losses and increased on each Distribution Date by any new Class B
Interest Shortfall allocable to the Class B Certificates with respect to clause
(y)(ii) of the definition of Class B Distribution.
Class B Percentage: On any Distribution Date the difference between 100%
and the Class A Percentage.
Class B Prepayment Entitlement: Until the Class A Percentage is reduced to
____%, zero. On the Distribution Date on which the Class A Percentage decreases
to ____% after giving effect to the distribution to be made to the Class A
Certificateholders on such Distribution Date, any Principal Prepayments
available for distribution on such Distribution Date in excess of such amounts
necessary to decrease the Class A Percentage to less than ____% shall be
distributed to the Class B Certificateholders. After such Distribution Date and
on each Distribution Date thereafter, the Class B Prepayment Entitlement shall
be equal to the Class B Percentage multiplied by the Principal Prepayments on
such Distribution Date; provided, however, that on and prior to _______________,
199_, the Class B Prepayment Entitlement shall not exceed ____% of the Class B
Percentage of Principal Prepayments. However, notwithstanding the foregoing, if
(A) the mean aggregate principal amount of delinquent Mortgage Loans 60 days or
more delinquent (including loans in foreclosure and property held by the Trust
Fund) for each of the immediately preceding six calendar months exceeds ____% of
the then outstanding principal balance of the Mortgage Loans or [(B) the
weighted average Loan-to-Value Ratio of the Mortgage Loans exceeds ____% or] (C)
the sum of aggregate Realized Losses exceed ____% of the sum of the Class B
Principal Balance as of the Cut-off Date, then the Class B Prepayment
Entitlement for such Distribution Date will be zero.
Class B Principal Balance: On any Distribution Date the difference between
the Pool Principal Balance and Class A Principal Balance.
Class R Certificate: The Certificate executed by the Depositor and
authenticated by the Trustee in substantially the form set forth in Exhibit C
hereto.
Class R Certificateholder: The registered holder of the Class R
Certificate.
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Class R Distribution: On any Distribution Date, to the extent of amounts
remaining in the Certificate Account (exclusive of amounts received in advance
of the related Installment Due Date and being held for future distribution), an
amount equal to any gain realized on a Liquidated Mortgage Loan. Any amounts
remaining in the Certificate Account on the termination of the Trust and not
otherwise distributed shall be distributed to the Class R Certificateholder.
Closing Date: _____________, 199_.
Code: The Internal Revenue Code of 1986, as amended.
Co-op Loan: A Mortgage Loan secured principally by stock in a cooperative
corporation.
Corporate Trust Office: The principal office of the Trustee at which at any
particular time its corporate trust business shall be administered, which office
at the date of the execution of this agreement is located at
________________________________.
Custodial Agreement: An agreement, if any, that may be entered into from
time to time among the Master Servicer, the Trustee and a Custodian providing
for the safekeeping of the Mortgage Files for the benefit of Certificateholders,
which agreement may be in such form and content as the Master Servicer, Trustee
and any such Custodian shall agree.
Custodian: An institution as may from time to time be appointed by the
Trustee as custodial agent or agents of the Trustee hereunder pursuant to a
Custodial Agreement or their respective successors in interest. The Custodian
may (but need not) be the Master Servicer, the Trustee or any Person directly or
indirectly controlling or controlled by or under common control with either of
them.
Cut-off Date: ____________, 1998.
Debt Service Reduction: The amount of the reduction of the Monthly Payment
on a Mortgage Loan established by a bankruptcy court in connection with the
personal bankruptcy of the related Mortgagor.
Defaulted Mortgage Loan: As of any Determination Date, any Mortgage Loan
for which any payment of principal of or interest on or in respect of such
Mortgage Loan is more than [89] days past due, or that is delinquent in respect
of its Balloon Payment, if any, determined without giving effect to any grace
period permitted by the related Mortgage or Mortgage Note or any other document
in the Mortgage File.
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[Deferred Interest: As to any Mortgage Loan, the excess, if any, of
interest accrued at its Mortgage Interest Rate for any month over the Monthly
Payment for such month.]
Deficient Valuation: The excess of the Principal Balance of the Mortgage
Loan over the value of the Mortgaged Property as established by a bankruptcy
court in connection with the personal bankruptcy of the mortgagor.
Denomination: The amount specified on a Certificate as representing the
aggregate Principal Balance of the Mortgage Loans as of the Cut-off Date
evidenced by such Certificate.
Depositor: ABN AMRO Mortgage Corporation, a Delaware corporation, or its
successors.
Determination Date: The 20th day (or if such 20th day is not a Business
Day, the Business Day immediately preceding such 20th day) of the month of the
related Distribution Date.
[Disqualified Organization: As identified in Section 5.2(g).]
Distribution Account: The trust account or accounts created and maintained
by the Master Servicer pursuant to Section 4.1, which shall be entitled
"______________, as Trustee, in trust for the benefit of the Holders of
_________________________", and which must be an Eligible Account.
Distribution Date: The 25th day of any month, or, if such 25th day is not
a Business Day, the Business Day immediately following such 25th day, commencing
_____________, 199__.
Due Date: means the date set forth on each Mortgage Note on which each
Monthly Payment with respect thereto is due.
Duff: means Duff & Phelps Credit Rating Co.
Eligible Account: Any account or accounts held and established by the
Master Servicer or the Trustee in trust for the benefit of the
Certificateholders that is either (i) in the corporate trust department of a
bank or trust company incorporated under the laws of the United States or any
state thereof having appropriate trust powers or (ii) an account that is
maintained with a depository institution which has a rating assigned to its
long-term debt obligations of at least as high as the rating assigned to the
Class A Certificates on the Delivery Date or which has a rating assigned to its
short-term debt obligations of the highest rating of the Rating Agency for such
obligations or (iii) a bank or trust company incorporated under the laws of the
United States or any state thereof acceptable to
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the Rating Agency rating the Class A Certificates, and the amounts deposited
therein shall be held in the form of Permitted Investments or uninvested,
provided, however, that the Certificate Account may be maintained in a
depository institution with a long-term debt rating of at least the second
highest rating available by the Rating Agency.
Eligible Institution: A corporation or association: (i) organized and
doing business under the laws of any State or the United States of America,
authorized under such laws to exercise the powers required by it to perform its
obligations under this Agreement and (ii) the appointment of which under this
Agreement, the Master Servicer confirms with the Rating Agencies will not impair
the ratings on the Certificates.
ERISA: The Employee Retirement Income Security Act of 1974, as amended.
[Escrow Payment: Any payment received by the Master Servicer for the
account of any Mortgagor for application toward the payment of taxes, insurance
premiums, assessments and similar items in respect of the related Mortgaged
Property.]
Excess Credit Losses: Any losses on a related Mortgage Loan due to a
Mortgagor default in excess of the Mortgage Loan Policy Limit, other than a
Fraud Loss, Bankruptcy Loss or Special Hazard Loss.
FDIC: The Federal Deposit Insurance Corporation, or any successor thereto.
FHLMC: The Federal Home Loan Mortgage Corporation, or any successor
thereto.
Fitch: Fitch Investors Service, Inc., or any successor thereto.
First Installment Adjustment Date: The date of the first adjustment of a
Monthly Payment with respect to a Mortgage Loan as set forth on the related
Mortgage Note.
FNMA: The Federal National Mortgage Association, or any successor thereto.
Fractional Undivided Interest: For any Certificate, the Denomination shown
on such Certificate divided by the aggregate Principal Balance of the Mortgage
Loans included in the Trust Fund on the Cut-off Date.
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Fraud Loss: Any Realized Loss incurred by reason of default arising from
fraud, dishonesty or misrepresentation in connection with the origination of the
related Mortgage Loan.
Fraud Loss Limit: An aggregate amount which will not be less than the
following percentages of the aggregate outstanding Principal Balances of all
Mortgage Loans as of the Cut-Off Date: 2% in the first Series Year and 1% in
each of the second, third, fourth and fifth Series Years or (ii) such lesser
amount if the Master Servicer confirms with the Rating Agencies that such lesser
amount will not impair the ratings on the Certificates.
Gross Margin: As to each Mortgage Loan, the fixed percentage set forth in
the related Mortgage Note and in the Mortgage Loan Schedule as the "Gross
Margin," which percentage is added to the Index on each rate adjustment date set
forth in the related Mortgage Note to determine (subject to rounding and any
periodic rate increase or decrease limitations and any Lifetime Mortgage Rate
Cap) the Mortgage Interest Rate on such Mortgage Loan until the next such rate
adjustment date.
Imputed Principal Balance Decline: With respect to any Mortgage Loan which
is the subject of a Debt Service Reduction, the excess of the outstanding unpaid
principal balance of such Mortgage Loan as of the date of such Debt Service
Reduction before giving effect to such Debt Service Reduction over the
discounted present value of the scheduled payments on such Mortgage Loan as
adjusted to reflect such Debt Service Reduction using a discount rate equal to
the Mortgage Rate in effect on such Mortgage Loan immediately before the
effective date of such Debt Service Reduction.
Independent: When used with respect to any specified Person, any such
Person who (i) is in fact independent of the Depositor and the Master Servicer,
(ii) does not have any direct financial interest or any material indirect
financial interest in the Depositor or the Master Servicer or in an affiliate of
either and (iii) is not connected with the Depositor or the Master Servicer as
an officer, employee, promoter, underwriter, trustee, partner, director or
person performing similar functions.
Index: As to any Mortgage Loan, the applicable index to be used in
computing the Mortgage Interest Rate payable on the related Mortgage Note, which
shall be [define Index].
Installment Due Date: The first day of the month in which the related
Distribution Date occurs.
Insurance Proceeds: Proceeds of any fire and hazard insurance policy,
title policy or other insurance policy relating to a Mortgage Loan, to the
extent such proceeds are not to be
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applied to the restoration of the related Mortgaged Property or released to the
Mortgagor in accordance with the express requirements of the Mortgage or
Mortgage Note or other documents included in the Mortgage File or in accordance
with prudent and customary servicing practices.
Interested Person: The Depositor, the Master Servicer, [the Back-Up
Servicer,] any Holder of a Certificate, or any Affiliate of any such Person.
[Letter of Credit: A standby Letter of Credit issued by [Name of letter of
credit bank] (the "L/C Bank") and maintained by the Master Servicer to cover
certain payments to the Certificate Account for Mortgage Loans with respect to
which foreclosure proceedings have been commenced or with respect to which the
Master Servicer has agreed to accept a deed to the property in lieu of
foreclosure, substantially in the form of Exhibit G hereto.]
[Limited Mortgage Documentation: means ___________________.]
Liquidated Mortgage Loan: Any defaulted Mortgage Loan as to which the
Master Servicer has determined that all amounts which it expects to recover from
or on account of such Mortgage Loan have been recovered.
Liquidation Expenses: Expenses incurred by the Master Servicer in
connection with the liquidation of any defaulted Mortgage Loan or property
acquired in respect thereof, including, without limitation, legal fees and
expenses, any unreimbursed amount expended by the Master Servicer pursuant to
Section 3.7 respecting the related Mortgage Loan and any unreimbursed
expenditures for real property taxes or for property restoration or preservation
relating to the Mortgaged Property that secured such Mortgage Loan.
Liquidation Proceeds: Amounts received by the Master Servicer in
connection with the liquidation of defaulted Mortgage Loans or property acquired
in respect thereof, whether through trustee's sale, foreclosure sale or
otherwise, other than amounts required to be paid to the Mortgagor pursuant to
law or the terms of the applicable Mortgage Note.
Loan-to-Value Ratio: As of the origination date (or in the case of Section
3.5, as of each Determination Date [and for the purpose of the definition of
Class B Prepayment Entitlement]), the fraction, expressed as a percentage, the
numerator of which is the then unpaid principal balance of a particular Mortgage
Loan and the denominator of which is, for refinanced Mortgage Loans, the
appraised value of the property at the time of such refinancing, and as to all
other Mortgage Loans, the lower of the
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appraised value of the Mortgaged Property as determined at the origination of
the Mortgage Loan or its sale price.
[Master Servicer: ___________________ [and ________________, individually
and collectively], or any successor master servicer appointed as provided
herein.]
Maximum Adjustment: As to each Mortgage Loan, the percentage set forth in
the related Mortgage Note as the maximum amount by which Mortgage Interest Rate
applicable to such Mortgage Note may adjust for any single applicable period
borne by such Mortgage Loan.
Maximum Rate: As to each Mortgage Loan, the percentage set forth in the
related Mortgage Note as the maximum interest rate at which such Mortgage Note
may bear interest.
MERS: Mortgage Electronic Registry System developed and supervised by
Mortgage Registration Systems, Inc.
Minimum Rate: As to each Mortgage Loan, the percentage set forth in the
related Mortgage Note as the minimum rate at which such Mortgage Note may bear
interest.
Minimum Required Class B Principal Balance: As of any Distribution Date
following all distributions required to be made on such date, the lesser of (a)
the greatest of (i) 1% of the Pool Principal Balance as of such Distribution
Date, (ii) two times the then largest outstanding principal balance of any
Mortgage Loan and (iii) the aggregate amount of the outstanding principal
balances of the Mortgage Loans secured by Mortgaged Properties located in the
zip code area which, of all zip code areas, has the highest aggregate amount of
outstanding principal balances of Mortgage Loans and (b) the Class B Principal
Balance as of the immediately preceding Distribution Date, less Special Hazard
Losses and Fraud Losses (to the extent covered pursuant to Section 4.2) during
the related Prepayment Period.
Monthly Payment: The scheduled monthly principal and interest payment on a
Mortgage Loan for any month (which interest may be less than the interest
accruing thereon for such month). Monthly Payments shall be deemed to include
payments or Advances made in respect of any Mortgage Loan as to which the
Mortgaged Property securing such Mortgage Loan has been acquired by the Master
Servicer on behalf of the Trust Fund and that portion of the proceeds of
prepayments in full, repurchases and other liquidations equal to delinquent
Monthly Payments at the time of such prepayment, repurchase or other
liquidation.
Moody's: Moody's Investors Service, Inc., or any successor thereto.
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Mortgage: The mortgage, deed of trust or other instrument securing a
Mortgage Note.
[Mortgage Asset Seller:]
Mortgage File: The mortgage documents listed in Section 2.1 pertaining to
a particular Mortgage Loan and any additional documents required to be added to
the Mortgage File pursuant to this Agreement.
Mortgage Interest Rate: The per annum rate of interest for the applicable
period borne by a Mortgage Loan determined at any time in accordance with the
terms of each related Mortgage Note.
Mortgage Loan Policy Limit: With respect to any Mortgage Loan, ____% of
the principal balance of such Mortgage Loan as of the Cut-off Date plus Deferred
Interest.
Mortgage Loan Schedule: The schedule of Mortgage Loans attached hereto as
Exhibit D, such schedule setting forth the following information as to each
Mortgage Loan: (i) the Mortgage Loan identifying number; (ii) the Mortgagor's
name; (iii) the street address of the Mortgaged Property including the zip code;
(iv) the type of property constituting the Mortgaged Property; (v) the original
number of months to maturity; (vi) the current Mortgage Interest Rate; (vii) the
applicable Index; (viii) the initial Mortgage Interest Rate; (ix) the scheduled
Monthly Payment due date currently in effect; (x) the amount of the current
Monthly Payment; (xi) the original principal amount of the Mortgage Loan; (xii)
the Principal Balance of the Mortgage Loan as of the close of business on the
Cut-off Date, after deduction of payments of principal due on or before the Cut-
off Date whether or not collected; (xiii) the date of its first scheduled
Monthly Payment; (xiv) its Maximum Rate; (xv) its Maximum Adjustment; (xvi) its
Gross Margin; (xvii) its next Installment Adjustment Date; (xviii) its Loan-to-
Value Ratio; and (xix) whether the Mortgage Loan can be converted by the
borrower into a fixed rate loan.
Mortgage Loans: Such of the mortgage loans (which may include Co-op
Loans], excluding the Retained Yield, transferred and assigned to the Trustee
pursuant to Section 2.1 or 2.2 as from time to time are included in the Trust
Fund, the Mortgage Loans originally so included being identified in Exhibit D
hereto.
Mortgage Note: The note, including any modification thereto, or other
evidence of indebtedness evidencing the indebtedness of a Mortgagor under a
Mortgage Loan.
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Mortgage Pass-Through Rate: For each Mortgage Loan on each Distribution
Date, an amount equal to the Mortgage Interest Rate for the related Mortgage
Loan less the sum of (i) the Administration Fee and (ii) the Retained Yield.
Mortgaged Property: The property securing a Mortgage Note.
Mortgagor: The obligor on a Mortgage Note.
Net Margin: An amount equal to ____%.
Nonrecoverable Advance: Any Advance as to which the Master Servicer has
not been fully reimbursed following final liquidation of the related Mortgage
Loan or Mortgaged Property.
Officer's Certificate: With respect to any Person, a certificate signed
both by the Chairman of the Board, the President or a Vice President, and by the
Treasurer, the Secretary or one of the Assistant Treasurers or Assistant
Secretaries of such Person (or, in the case of a Person which is not a
corporation, signed by the person or persons having like responsibilities), and
delivered to the Trustee.
Opinion of Counsel: A written opinion of counsel, who may be outside or
salaried counsel for the Depositor or the Master Servicer, or any affiliate of
the Depositor or the Master Servicer, acceptable to the Trustee; [provided that
with respect to REMIC matters, matters relating to the determination of Eligible
Accounts or matters relating to transfers of Certificates, such counsel shall be
Independent.]
Original Class A Principal Balance: $__________.
Original Class B Principal Balance: $__________.
OTS: The Office of Thrift Supervision, or any successor thereto.
Pass-Through Rate: Initially ____%. Thereafter, an adjustable amount
which is equal to the weighted average of the Mortgage Pass-Through Rates on the
Mortgage Loans. Any regular calculation of interest at such rate shall be based
upon annual interest at such rate divided by twelve on the Pool Principal
Balance.
[Paying Agent: As defined in Section 4.10.]
Payment Cap: The size of the increase or decrease in monthly payments for
any year as specified on the related Mortgage Loan.
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Percentage Interest: The percentage or fractional interest representing
the Denomination of any Certificate divided by the aggregate Denominations of
the related Certificates or any Class of Certificates.
Permitted Investments: Any one or more of the following obligations or
securities payable on demand or having a scheduled maturity on or before the
Business Day preceding the following Service Remittance Date, regardless of
whether issued by the Depositor, the Master Service, the Trustee or any of their
respective Affiliates and having at the time of purchase, or at such other time
as may be specified, the required ratings, if any, provided for in this
definition:
(a) direct obligations of, or guaranteed as to full and timely payment of
principal and interest by, the United States or any agency or instrumentality
thereof provided that such obligations are backed by the full faith and credit
of the United States of America;
(b) direct obligations of, or guaranteed as to timely payment of principal
and interest by, FHLMC, FNMA or the Federal Farm Credit System, provided that
any such obligation, at the time or purchase or contractual commitment providing
for the purchase thereof, is qualified by each Rating Agency as an investment of
funds backing securities rated "Aaa" in the case of Moody's and "AAA" in the
case of S&P and [Fitch] [Duff] (the initial rating of the Class A Certificates);
(c) demand and time deposits in or certificates of deposit of, or bankers'
acceptances issued by, any bank or trust company, savings and loan association
or savings bank, provided that the short-term deposit ratings and/or long-term
unsecured debt obligations of such depository institution or trust company (or
in the case of the principal depository institutions in a holding company
system, the commercial paper or long-term unsecured debt obligations of such
holding company) have, in the case of commercial paper, the highest rating
available for such securities by each Rating Agency and, in the case of long-
term unsecured debt obligations, one of the two highest ratings available for
such securities by each Rating Agency, or in each case such lower rating as will
not result in the downgrading or withdrawal of the rating or ratings then
assigned to any Class of Certificates by any Rating Agency but in no event less
than the initial rating of the Class [] Certificates;
(d) general obligations of or obligations guaranteed by any state of the
United States or the District of Columbia receiving one of the two highest long-
term debt ratings available for such securities by each Rating Agency, or such
lower rating as will not result in the downgrading or withdrawal of the rating
or
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ratings then assigned to any Class of Certificates by any Rating Agency;
(e) commercial or finance company paper (including both non-interest-
bearing discount obligations and interest-bearing obligations payable on demand
or on a specified date not more than one year after the date of issuance
thereof) that is rated by each Rating Agency in its highest short-term unsecured
rating category at the time of such investment or contractual commitment
providing for such investment, and is issued by a corporation the outstanding
senior long-term debt obligations of which are then rated by each Rating Agency
in one of its two highest long-term unsecured rating categories, or such lower
rating as will not result in the downgrading or withdrawal of the rating or
ratings then assigned to any Class of Certificates by any Rating Agency but in
no event less than the initial rating of the Class [] Certificates;
(f) guaranteed reinvestment agreements issued by any bank, insurance
company or other corporation rated in one of the two highest rating levels
available to such issuers by each Rating Agency at the time of such investment,
provided that any such agreement must by its term provide that it is terminable
by the purchaser without penalty in the event any such rating is at any time
lower than such level;
(g) repurchase obligations with respect to any security described in clause
(a) or (b) above entered into with a depository institution or trust company
(acting as principal) meeting the rating standards described in (c) above;
(h) securities bearing interest or sold at a discount that are issued by
any corporation incorporated under the laws of the United States of America or
any State thereof and rated by each Rating Agency in one of its two highest
long-term unsecured rating categories at the time of such investment or
contractual commitment providing for such investment; provided, however, that
securities issued by any such corporation will not be Permitted Investments to
the extent that investment therein would cause the outstanding principal amount
of securities issued by such corporation that are then held as part of the
Certificate Account or the Distribution Account to exceed 20% of the aggregate
principal amount of all Permitted Investments then held in the Certificate
Account and the Distribution Account;
(i) units of taxable money market funds which funds have been rated by each
Rating Agency in its highest rating category or which have been designated in
writing by each Rating Agency as Permitted Investments with respect to this
definition;
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(j) if previously confirmed in writing to the Trustee, any other demand,
money market or time deposit, or any other obligation, security or investment,
as may be acceptable to each Rating Agency as a permitted investment of funds
backing securities having ratings equivalent to the initial rating of the Class
A Certificates; and
(k) such other obligations as are acceptable as Permitted Investment to
each Rating Agency;
provided, however, that such instrument continues to qualify as a "cash flow
investment" pursuant to Code Section 860G(a)(6) and that no instrument or
security shall be a Permitted Investment if (i) such instrument or security
evidences a right to receive only interest payments or (ii) the right to receive
principal and interest payments derived from the underlying investment provides
a yield to maturity in excess of 120% of the yield to maturity at par of such
underlying investment.
Person: Any individual, corporation, partnership, association, joint
venture, bank, joint-stock company, trust, unincorporated organization or a
government or any agency or political subdivision thereof.
Plan Entity: As defined in Section 5.2(d).
Pool Distribution: On any Distribution Date, an amount equal to all
previously undistributed Pool Receipts received by the Master Servicer and due
after the Cut-off Date, or received prior to the Cut-off Date but due
thereafter, and before the related Determination Date except:
(a) amounts received on particular Mortgage Loans as late payments or other
recoveries of principal or interest (including Liquidation Proceeds and
insurance proceeds) and respecting which the Master Servicer previously made an
unreimbursed Advance of such amounts;
(b) amounts representing reimbursement for Nonrecoverable Advances and
amounts representing reimbursement for certain losses and expenses incurred by
the Master Servicer and described herein;
(c) that portion of each Mortgagor payment of interest on a particular
Mortgage Loan in excess of interest at the Mortgage Pass-Through Rate on the
Principal Balance of such Mortgage Loan outstanding during the period for which
such payment was received, as adjusted as provided in Section 4.6 herein
respecting Principal Prepayments;
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(d) all amounts representing scheduled payments of principal and interest
due after the immediately preceding Installment Due Date;
(e) all Principal Prepayments (including Liquidation Proceeds and
Repurchase Proceeds) with respect to Mortgage Loans received after the related
Prepayment Period and all related payments of interest representing interest for
any period of time after the last day of the related Prepayment Period for such
Mortgage Loans;
(f) where permitted by this Agreement, that portion of Liquidation Proceeds
which represents unpaid Administration Fees to which the Master Servicer is
entitled; and
(g) any other amounts not included in the Pool Distribution in accordance
with this Agreement.
Pool Principal Balance: As to any Distribution Date, the aggregate of the
Principal Balances of the Mortgage Loans outstanding on such Distribution Date
before giving effect to any distributions made on such date. A foreclosed
Mortgage Loan is deemed to be outstanding for purposes of this definition until
it becomes a Liquidated Mortgage Loan and a Mortgage Loan which is prepaid in
full is deemed to be outstanding until the amount of the prepayment is
distributed to Certificateholders.
Pool Receipts: As of any Determination Date, all payments or other
receipts on account of principal and interest on the Mortgage Loans or property
acquired in respect thereof due after the Cut-off Date, including, but not
limited to, Advances and Principal Prepayments, if any, but excluding amounts in
respect of the Retained Yield.
Prepayment Period: With respect to any Distribution Date, the month
preceding the month in which such Distribution Date occurs.
Prepayment Premium: With respect to any Mortgage Loan, any premium, fee,
charge or penalty paid by the related Borrower in connection with any Principal
Prepayment.
Principal Balance: At the time of any determination, the principal balance
of a Mortgage Loan remaining to be paid at the close of business on the Cut-off
Date (after deduction of all principal payments due on or before the Cut-off
Date whether or not paid), reduced by all amounts distributed to
Certificateholders and allocable to principal of such Mortgage Loan, including
Advances made with respect to such Mortgage Loan and Realized Losses incurred
with respect thereto, and increased by any Deferred Interest added thereto.
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Principal Prepayment: Any Mortgagor payment or other recovery of principal
on a Mortgage Loan which is received in advance of its scheduled due date and
not accompanied by an amount representing scheduled interest for the full month
during which such prepayment is received (unless paid on the last day of the
month) or any month thereafter, including, without limitation, principal
prepayments in part, principal prepayments in full, scheduled principal balances
of Mortgage Loans liquidated due to default, casualty, condemnation and the
like, Repurchase Proceeds, insurance proceeds and other unscheduled recoveries
of principal on Mortgage Loans during the related Prepayment Period, but
excluding that portion of any prepayment received from the Mortgagor which
constitutes the principal component of any Monthly Payment currently due at the
time of the receipt of such prepayment.
Rate Adjustment Date: As to any Mortgage Loan, the date specified in the
related Mortgage Note as the date on which the Mortgage Interest Rate is subject
to adjustment based on a change in the related Index.
Rating Agency: [Moody's] [S&P] [Fitch] [Duff] and any other nationally
recognized statistical rating organization that has rated the Class A
Certificates at the request of the Depositor, or each of such organizations if
more than one.
Realized Loss: With respect to any Mortgage Loan other than a Repurchased
Mortgage Loan or a Mortgage Loan subject to a Bankruptcy Loss, the Principal
Balance of such Mortgage Loan and accrued interest thereon remaining unpaid at
the time such Mortgage Loan becomes a Liquidated Mortgage Loan after the
application of any Liquidation Proceeds net of Liquidation Expenses against such
Principal Balance and accrued interest; with respect to a Mortgage Loan subject
to a Bankruptcy Loss, if the Mortgage Loan becomes subject to a Debt Service
Reduction, an amount equal to the Imputed Principal Balance Decline related to
such Debt Service Reduction or the Deficient Valuation, otherwise, and, in each
case, the accrued interest thereon remaining unpaid at the time such Mortgage
Loan becomes subject to a Bankruptcy Loss. The Principal Balance of each
Mortgage Loan shall be reduced, but not more than once for the same amount of
Realized Loss, by the amount of any Realized Loss on such Mortgage Loan. For
purposes of this definition, acquisition of a Mortgaged Property by the Trust
Fund shall not constitute final liquidation of the related Mortgage Loan. The
Master Servicer shall advise the Trustee in an Officer's Certificate of the
amount of any Realized Loss and the particulars of the related final liquidation
or adjustment on account of a Bankruptcy Loss on a Mortgage Loan by Mortgage
Loan basis. Realized Losses incurred during any Prepayment Period shall be
applied to reduce
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the Pool Principal Balance applicable to the related Distribution Date.
Record Date: The last Business Day of the month preceding the month of the
related Distribution Date.
Redirected Distribution Amount: As to any Distribution Date, prior to
giving effect to any amounts distributable to Class B Certificateholders on such
Distribution Date, with respect to which the Class B Principal Balance is less
than or equal to the Minimum Required Class B Principal Balance, the Redirected
Distribution Amount shall be equal to the amount otherwise distributable to
holders of the Class B Certificates as Class B Distribution on such Distribution
Date in excess of the sum of clauses (y)(i) and (y)(ii) under the definition of
Class B Distribution for such Distribution Date. As to any Distribution Date
with respect to which the Class B Principal Balance is greater than the Minimum
Required Class B Principal Balance, the Redirected Distribution Amount shall be
an amount equal to the excess, if any, of (A) the amount, if any, otherwise
distributable to holders of the Class B Certificates on such Distribution Date
in excess of the sum of clauses (y)(i) and (y)(ii) under the definition of the
Class B Distribution for such Distribution Date, over (B) the amount of the
difference between the Class B Principal Balance on such Distribution Date and
the Minimum Required Class B Principal Balance.
Regular Interest: As defined in Section 2.4.
[REMIC: A real estate mortgage investment conduit, as such term is defined
in the Code.]
[REMIC Provisions: Section 860A through 860G of the Code, related Code
provisions and regulations promulgated thereunder, as the foregoing may be in
effect from time to time and analogous provisions in any applicable
jurisdiction.]
REO Property: A Mortgaged Property, title to which has been acquired by
the Master Servicer on behalf of the Trust Fund through foreclosure, deed in
lieu of foreclosure or otherwise.
Repurchase Price: With respect to any Mortgage Loan to be purchased or
repurchased pursuant to Section 2.2 or Section 2.3, or any Defaulted Mortgage
Loan or any Mortgage Loan related to an REO Property to be sold or repurchased
pursuant to Section 3.15, an amount, calculated by the Master Servicer, equal
to:
(a) the unpaid principal balance of such Mortgage Loan as of the Due Date
as to which a payment was last made by the Mortgagor; plus
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(b) unpaid accrued interest from the Due Date as to which interest was last
paid by the Mortgagor up to the Due Date in the month following the month in
which the purchase or repurchase occurred at a rate equal to the Mortgage
Interest Rate applicable from time to time on the unpaid principal balance of
such Mortgage Loan; plus
[(c) any unpaid Administration Fees allocable to such Mortgage Loan; plus]
(d) expenses reasonably incurred or to be incurred by the Master Servicer
or the Trustee in respect of the breach or defect giving rise to the repurchase
obligations, including any expenses arising out of the enforcement of the
repurchase obligation.
Repurchase Proceeds: All proceeds of any Repurchased Mortgage Loans.
Repurchased Mortgage Loan: Any Mortgage Loan or property acquired in
respect thereof repurchased by the Depositor pursuant to Section 2.2 [, Section
3.6] or Section 2.3 or purchased by the Class R Certificateholder pursuant to
Section 9.1.
[Reserve Fund: A separate account which shall be an Eligible Account
established by the Depositor with an initial deposit of cash in the amount of
$____________ which may be used by the Master Servicer to make Advances and to
make any other distributions required hereby.]
Residual Certificate: The Class R Certificate designated as the single
class of "residual interest" pursuant to Section 2.4 and evidencing such rights
and obligations as are set forth herein.
Responsible Officer: When used with respect to the Trustee, the Chairman
or Vice-Chairman of the Board of Directors or Trustees, the Chairman or Vice-
Chairman of the Executive or Standing Committee of the Board of Directors or
Trustees, the President, the Chairman of the Committee on Trust Matters, any
Vice-President, any Assistant Vice President, the Secretary, any Assistant
Secretary, the Treasurer, any Assistant Treasurer, the Cashier, any Assistant
Cashier, any Trust Officer or Assistant Trust Officer, the Controller and any
Assistant Controller or any other officer of the Trustee customarily performing
functions similar to those performed by any of the above-designated officers and
also, with respect to a particular matter, any other officer to whom such matter
is referred because of such officer's knowledge of and familiarity with the
particular subject. When used with respect to the Master Servicer, the Chairman
or Vice-Chairman of the Board of Directors or Trustees, the Chairman or Vice-
Chairman of the Executive or Standing Committee of the Board
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of Directors or Trustees, the President, any Vice-President, the Secretary, any
Assistant Secretary, the Treasurer, any Assistant Treasurer, the Controller and
any Assistant Controller or any other officer of the Master Servicer customarily
performing functions similar to those performed by any of the above-designated
officers and also, with respect to a particular matter, any other officer to
whom such matter is referred because of such officer's knowledge of and
familiarity with the particular subject. When used with respect to the
Depositor, the Chairman or Vice-Chairman of the Board of Directors, the Chairman
or Vice-Chairman of any executive committee of the Board of Directors, the
President, any Vice-President, the Secretary, any Assistant Secretary, the
Treasurer, any Assistant Treasurer, or any other officer of the Depositor
customarily performing functions similar to those performed by any of the above-
designated officers and also, with respect to a particular matter, any other
officer to whom such matter is referred because of such officer's knowledge of
and familiarity with the particular subject.
[Retained Yield: As to each Mortgage Loan, the fixed amount of interest
retained by the Depositor as identified on the Mortgage Loan Schedule, such
amount being equal to the difference between the (i) Gross Margin for such
Mortgage Loan and (ii) the sum of the Net Margin and the Administration Fee. The
Retained Yield is not a part of the Trust Fund. Nothing in this Agreement shall
prevent the Depositor from transferring the Retained Yield.]
S&P: Standard & Poor's Ratings Group, or any successor thereto.
SAIF: Savings Association Insurance Fund administered by the FDIC, or any
successor thereto.
Securities Act: The Securities Act of 1933, as amended.
Series Year: Commencing with the Cut-Off Date, each year (seriatim in
ascending chronological order) beginning on such date and ending on the date one
calendar year following such date.
Servicing Officer: Any individual involved in, or responsible for, the
administration and servicing of the Mortgage Loans whose name and specimen
signature appear on a list of servicing officers furnished to the Trustee on the
Closing Date by the Master Servicer in the form of an Officer's Certificate, as
such list may from time to time be amended.
Single Certificate: A Certificate that evidences the smallest permissible
Denomination, such smallest Denomination
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being $__________ and integral multiples of $__________ with respect to the
Class A Certificates and $__________ and integral multiples of $__________ in
excess of $__________ with respect to the Class B Certificates. With respect to
each class of Certificates, there may be one odd denomination Certificate.
[Special Hazard Insurance Policy: An insurance policy issued by [name of
Insurer] and maintained by the Master Servicer covering losses on Mortgaged
Property that result from certain physical risks that are not otherwise insured
against (including earthquakes and mudflows), substantially in the form of
Exhibit F hereto.]
Special Hazard Losses: Any Realized Loss incurred as a result of direct
physical loss to a Mortgaged Property (including earthquakes, floods, tidal
waves and related water damage, war, civil insurrection, certain governmental
action, errors in design, faulty workmanship or materials, nuclear reaction and
chemical reaction), exclusive of (i) any such loss covered by an insurance
policy and (ii) any loss caused by or resulting from reasonable wear and tear.
Special Hazard Loss Limit: As of each Anniversary, an aggregate amount
equal to the greater of (i) [1%] of the aggregate outstanding Principal Balances
of all Mortgage Loans on such Anniversary and (ii) the largest percentage
obtained by dividing the aggregate outstanding Principal Balances on such
Anniversary of the Mortgage Loans secured by Mortgaged Properties located in a
single, five-digit zip code area in the State of [California] by the outstanding
Principal Balance of all the Mortgage Loans on such Anniversary, multiplied by
the aggregate outstanding Principal Balances of all Mortgage Loans on such
Anniversary.
Special Servicer: ___________, or any sucessor special servicer appointed
pursuant to the Special Servicing Agreement.
Special Servicing Agreement: The agreement dated as of __________ entered
into between ____________ and ___________.
Substitute Mortgage Loan: A Mortgage Loan which is substituted for a
Repurchased Mortgage Loan pursuant to Section 2.2 or 2.3.
Tax Matters Person: The Person designated as the "tax matters person" of
the Trust Fund pursuant to Section 4.8 of this Agreement, [in the manner
provided under Treasury regulation section 1.860F-4(d) and temporary Treasury
regulation section 301.6231(a)(7)-1T, which Person shall hold a 0.001%
Percentage Interest (the "Tax Matters Person Residual Interest") in the Class R
Certificates].
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Trust Fund: The corpus of the trust created by this Agreement, consisting
of the Mortgage Loans (exclusive of the Retained Yield, if any, for each such
Mortgage Loan), such amounts as shall from time to time be held in the
Certificate Account, the Distribution Account, the Pre-Funding Account, the
insurance policies, if any, relating to each Mortgage Loan and property which
secured a Mortgage Loan and which has been acquired by foreclosure or deed in
lieu of foreclosure.
Trustee: _______________, a [national banking association], or any
successor trustee appointed as herein provided.
All references to the origination date or original date in the Mortgage
Loan Schedule with respect to a Mortgage Loan shall refer to the date upon which
the related Mortgage Note was originated or modified, whichever is later.
ARTICLE II
CONVEYANCE OF TRUST FUND;
ORIGINAL ISSUANCE OF CERTIFICATES
Section 2.1. Conveyance of Trust Fund. The Depositor, concurrently with
the execution and delivery hereof, does hereby irrevocably sell, convey and
assign to the Trustee for the benefit of the Certificateholders without recourse
all the right, title and interest of the Depositor in and to the Trust Fund,
including all interest and principal received by the Depositor with respect to
the Mortgage Loans after the Cut-off Date (and including without limitation
scheduled payments of principal and interest due after the Cut-off Date but
received by the Depositor on or before the Cut-off Date, but not including
payments of principal and interest due on the Mortgage Loans on or before the
Cut-off Date). The Depositor, at its own expense, shall file or cause to be
filed protective Form UCC-1 financing statements with respect to the Mortgage
Loans in the State of ______________ or other applicable jurisdiction, listing
itself as "Debtor" under such financing statement and listing the Trustee, for
the benefit of the Certificateholders, as "Secured Party" under such financing
statement.
In connection with such assignment, the Depositor does hereby deliver to,
and deposit with, the Trustee for the benefit of the Certificateholders the
following documents or instruments with respect to each Mortgage Loan so
assigned [unless otherwise in compliance with MERS]:
(i) the original Mortgage Note, endorsed (which endorsement may be by
facsimile or signature stamp) without recourse to the order of the Trustee
for the benefit of the
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Certificateholders in the following form: "Pay to the order of
_______________________________ as Trustee (for the Benefit of the
Certificateholders) under the Pooling and Servicing Agreement dated as of
____________, 199_ for ABN AMRO Mortgage Corporation Mortgage Pass-Through
Certificates, Series 199_-_, without recourse";
(ii) a recorded assignment to the Trustee for the benefit of the
Certificateholders of the Mortgage, except that no such assignment shall be
required to be recorded with respect to any Mortgage Loan secured by
Mortgaged Property located in any state in which, as evidenced by an
Opinion of Counsel, who is Independent and admitted to practice law in the
state in which such Mortgaged Property is located, which opinion shall be
acceptable to the Trustee, to the effect that such recording is not
required to protect the Trustee's interest in the Mortgage Loan against any
other transferee or creditor of the Depositor. If permitted by law,
assignments, whether or not recorded, may be in the form of one or more
blanket assignments covering Mortgages secured by Mortgaged Properties in
the same county, in which case one original assignment will be delivered
for each county for which there is a blanket assignment and copies of such
assignments will be in each applicable Mortgage File and delivered at the
time of delivery of such Mortgages;
(iii) the original Mortgage with evidence of recording indicated
thereon, unless it is the custom of the relevant recording office to retain
the original Mortgage on record, in which case a copy of such Mortgage
certified by the recording office as a true copy shall be delivered;
(iv) originals of all assumption, modification and substitution
agreements in those instances where the terms or provisions of the Mortgage
or Mortgage Note have been modified or the Mortgage or Mortgage Note have
been assumed as noted in the Mortgage Loan Schedule;
(v) either the original title insurance policy or an Officer's
Certificate to the effect that a lender's title insurance policy [with a
negative amortization rider] was issued on the date of the origination of
each Mortgage Loan identified in the Mortgage Loan Schedule and each such
policy is in full force and effect; and
(vi) the paid commitment and the first lien letter.
If the Depositor cannot deliver the original Mortgage with evidence of recording
thereon concurrently with the execution and delivery of this Agreement because
of a delay caused by the
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public recording office where such original Mortgage has been delivered for
recordation, the Depositor shall deliver to the Trustee an Officer's
Certificate, with a photocopy of such Mortgage attached thereto, stating that
such original Mortgage has been delivered to the appropriate public recording
official for recordation. The Depositor shall promptly deliver to the Trustee
such original Mortgage with evidence of recording indicated thereon upon receipt
thereof from the public recording official.
The Depositor shall, at its own expense, promptly record or cause to be
recorded in the appropriate public real property or other records each
assignment referred to in Section 2.1(ii), unless the Depositor delivers to the
Trustee an Independent opinion of counsel admitted to practice law in the state
in which such Mortgaged Property is located to the effect that such recordation
is not necessary to secure the interest in the related Mortgaged Properties
against any other transferee or creditor of the Depositor, in which case such
assignments shall be delivered to the Trustee for the benefit of the
Certificateholders in recordable form. If the Depositor cannot deliver the
original assignment concurrently with the execution and delivery of this
Agreement solely because it is in the process of being prepared and recorded or
because of a delay caused by the public recording office where such original
assignment has been delivered for recordation, the Depositor shall deliver a
blanket Officer's Certificate covering all such assignments stating that such
original assignment is in the process of being prepared and recorded or it has
been delivered to the appropriate public recording official for recordation and
a photocopy of such assignment. Any such original recorded assignment shall be
delivered to the Trustee within 180 days following the execution of this
Agreement.
If the Depositor cannot deliver the original title insurance policy
concurrently with the execution and delivery of this Agreement, the Depositor
shall, promptly deliver each such original title insurance policy as soon as
such policy becomes available but in no event later than 120 days following the
execution of this Agreement.
All rights arising out of Mortgage Loans including, without limitation, all
funds received on or in connection with a Mortgage Loan shall be held by the
Depositor in trust for the benefit of the Certificateholders. The Depositor
shall maintain a complete set of books and records for each Mortgage Loan which
shall be clearly marked to reflect the ownership of each Mortgage Loan by the
Certificateholders.
It is the express intent of this Agreement that the conveyance of the
Mortgage Loans by the Depositor to the Trustee
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as provided in this Section 2.1 be, and be construed as, a sale of the Mortgage
Loans by the Depositor to the Trustee and that the sale of the Certificates to
the Certificateholders, if they are sold, be, and be construed as, a sale of a
100% interest in the Mortgage Loans and the Trust Fund to such
Certificateholders. It is, further, not the intention of this Agreement that
such conveyance be deemed a pledge of the Mortgage Loans by the Depositor to the
Trustee to secure a debt or other obligation of the Depositor. However, in the
event that, notwithstanding the intent of this Agreement, the Mortgage Loans are
held to be property of the Depositor, or if for any other reason this Agreement
is held or deemed to create a security interest in the Mortgage Loans, then (a)
this Agreement shall also be deemed to be a security agreement within the
meaning of Divisions 8 and 9 of the [applicable] Uniform Commercial Code; (b)
the conveyance provided for in this Section 2.1 shall be deemed to be a grant by
the Depositor to the Trustee for the benefit of the Certificateholders of a
security interest in all of the Depositor's right, title and interest in and to
the Mortgage Loans and all amounts payable to the holders of the Mortgage Loans
in accordance with the terms thereof and all proceeds of the conversion,
voluntary or involuntary, of the foregoing into cash, instruments, securities or
other property, including without limitation all amounts, other than investment
earnings, from time to time held or invested in the Certificate Account or the
Distribution Account, whether in the form of cash, instruments, securities or
other property; (c) the possession by the Trustee or any Custodian of Mortgage
Notes and such other items of property as constitute instruments, money,
negotiable documents or chattel paper shall be deemed to be "in possession by
the secured party" for purposes of perfecting the security interest pursuant to
Section 9-305 of the [applicable] Uniform Commercial Code; and (d) notifications
to persons holding such property, and acknowledgments, receipts or confirmations
from persons holding such property, shall be deemed notifications to, or
acknowledgments, receipts or confirmations from, financial intermediaries,
bailees or agents (as applicable) of the Trustee for the benefit of the
Certificateholders for the purpose of perfecting such security interest under
applicable law (except that nothing in this clause (d) shall cause any person to
be deemed to be an agent of the Trustee for any purpose other than for
perfection of such security interest unless, and then only to the extent,
expressly appointed and authorized by the Trustee in writing). The Depositor and
the Trustee, upon directions from the Depositor, shall, to the extent consistent
with this Agreement, take such actions as may be necessary to ensure that, if
this Agreement were deemed to create a security interest in Mortgage Loans, such
security interest would be deemed to be a perfected security interest of first
priority under applicable law and will be maintained as such throughout the term
of this Agreement.
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The Trustee is authorized to appoint any bank or trust company approved by
the Depositor as Custodian of the documents or instruments referred to under (i)
through (v) above, and to enter into a Custodial Agreement for such purpose and
any documents delivered thereunder shall be delivered to the Custodian and any
Officer's Certificates delivered with respect thereto shall be delivered to the
Trustee and the Custodian.
Section 2.2. Acceptance by Trustee. The Trustee acknowledges, subject to
the provisions of Section 2.1 and to any document exceptions reported pursuant
to the Trustee's reviews as described below, receipt of the Mortgage Notes, the
Mortgages, the assignments and the Officer's Certificates referred to in Section
2.1, above, and declares that it holds and will hold such documents and the
other documents constituting a part of the Mortgage Files delivered to it as
Trustee in trust, upon the trusts herein set forth, for the use and benefit of
all present and future Certificateholders. The Trustee acknowledges that, as of
the date of the execution of this Agreement, the Mortgage Files have been
delivered to the Trustee and the Trustee has conducted a preliminary review of
the Mortgage Files. The Trustee further acknowledges that such review included a
review of the Mortgage Notes to determine that the appropriate Mortgage Notes
have been delivered and properly endorsed, that the related Mortgages and
assignments thereof have been delivered and that the related original title
insurance policies, if available, have been delivered. In connection with such
review, the Trustee shall have delivered an exceptions report indicating any
discrepancies relating to such review. In addition, the Trustee agrees, for the
benefit of Certificateholders, to review each Mortgage File within 45 days, or
with respect to assignments which must be recorded, within 180 days, after
execution of this Agreement to ascertain that all required documents set forth
in items (i)-(iii), (v) and, to the extent delivered to the Trustee, item (iv)
of Section 2.1 have been executed and received, and that such documents relate
to the Mortgage Loans identified in Exhibit D annexed hereto, and in so doing
the Trustee may rely on the purported due execution and genuineness of any such
document and on the purported genuineness of any signature thereon. The Trustee
shall have no duty to verify or determine whether any Mortgage File should
contain documents described in Section 2.1(iv). The Trustee shall be under no
duty to make any independent examination of any documents contained in each
Mortgage File beyond the review specifically required herein. The Trustee makes
no representations as to (i) the validity, legality, sufficiency, enforceability
or genuineness of any of the documents contained in each Mortgage File or any of
the Mortgage Loans identified on the Mortgage Loan Schedule, or (ii) the
collectability, insurability, effectiveness or suitability of any such Mortgage
Loan. If at the conclusion of such 45-day period or 180-day period the Trustee
finds any
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document constituting a part of a Mortgage File not to have been executed or
received or to be unrelated to the Mortgage Loans identified in said Exhibit D
(each such finding, a "material defect"), the Trustee shall promptly notify the
Depositor, which shall have a period of 90 days after such notice within which
to correct or cure any such material defect; provided, however, that if the
Trustee shall not have received a document by reason of the fact that such
document shall not have been returned by the appropriate recording office then
the Depositor shall have until a date one year later from the Cut-Off Date to
correct or cure such defect. The Depositor hereby covenants and agrees that, if
any such material defect as defined above is not corrected or cured, the
Depositor will, not later than 90 days in the case of repurchase referred to
below or not later than 75 days in the case of a substitution referred to below
after the Trustee's notice to it respecting such defect either (i) repurchase
the related Mortgage Loan at a price equal to 100% of the Principal Balance of
such Mortgage Loan (or any property acquired in respect thereof) plus accrued
interest on such Principal Balance at the Mortgage Pass-Through Rate to the next
scheduled Installment Due Date of such Mortgage Loan, less any Nonrecoverable
Advances made with respect to any such Mortgage Loan or (ii) substitute for any
Mortgage Loan; provided, however that if the Principal Balance of the original
Mortgage Loan exceeds the principal balance of the Substitute Mortgage Loan, an
amount equal to that difference shall be deposited by the Depositor in the
Certificate Account; [(provided, further, however that no such substitution may
occur after 90 days of the Closing Date unless the Trustee shall have received
from the Depositor an Opinion of Counsel to the effect that the Mortgage Loan to
be replaced is "defective" within the meaning of Section 860G(a)(4)(B)(ii) of
the Code and within the meaning of the [applicable REMIC Provisions of any
State] and other applicable jurisdictions),] to which such material defect
relates a different mortgage loan (a "Substitute Mortgage Loan") maturing no
later than and not more than two years earlier than the Mortgage Loan being
substituted for and having a principal balance equal to or less than and a
Mortgage Interest Rate equal to or greater than the Mortgage Interest Rate of
the Mortgage Loan being substituted for, the same Index, Gross Margin, Payment
Cap, Maximum and Minimum Rates as the Mortgage Loan being substituted for, a
Loan-to-Value Ratio equal to or less than the Loan-to-Value Ratio of the
Mortgage Loan being substituted for and otherwise having such characteristics so
that the representations and warranties of the Depositor set forth in Section
2.3 hereof would not have been incorrect had such Substitute Mortgage Loan
originally been a Mortgage Loan. Monthly Payments due with respect to Substitute
Mortgage Loans in the month of substitution are not a part of the Trust Fund and
will be retained by the Master Servicer. The Depositor shall notify the Rating
Agency of any such substitution. For the month
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of substitution, distributions to Certificateholders will include the Monthly
Payment due on the Mortgage Loan being substituted for in such month. The
purchase price for the Repurchased Mortgage Loan or property shall be deposited
by the Depositor in the Certificate Account and in the case of a Substitute
Mortgage Loan, the Mortgage File relating thereto shall be delivered to the
Trustee or the Custodian. Upon receipt by the Trustee of written notification of
such deposit signed by a Servicing Officer or the new Mortgage File, as the case
may be, and an Officer's Certificate that such repurchase or substitution is in
accordance with this Agreement, the Trustee shall release or cause to be
released to the Depositor the related Mortgage File for the Mortgage Loan being
repurchased or substituted for, as the case may be and shall execute and deliver
or cause to be executed and delivered such instrument of transfer or assignment
presented to it by the Depositor, in each case without recourse, as shall be
necessary to transfer to the Depositor the Trustee's interest in such original
or repurchased Mortgage Loan or property and the Trustee shall have no further
responsibility with regard to such files. It is understood and agreed that the
obligation of the Depositor to substitute a new Mortgage Loan for or repurchase
any Mortgage Loan or property as to which such a material defect in a
constituent document exists shall constitute the sole remedy respecting such
defect available to Certificateholders or the Trustee on behalf of
Certificateholders, but such obligation shall survive termination of this
Agreement. Neither the Trustee nor the Custodian shall be responsible for
determining whether any assignment or mortgage delivered pursuant to Section
2.1(ii) is in recordable form or, if recorded, has been properly recorded.
Section 2.3. Representations and Warranties of the Depositor. The
Depositor hereby represents and warrants to the Trustee:
(i) that the information set forth in the Mortgage Loan Schedule
appearing as an exhibit to this Agreement is true and correct in all
material respects at the date or dates respecting which such information is
furnished as specified therein;
(ii) that the information relating to the Mortgage Loans set forth in
the Prospectus, Prospectus Supplement and the [Form 8-A] filed pursuant to
the Securities Exchange Act of 1934 relating to offering of the
Certificates is true and correct in all material respects at the date or
dates respecting which such information is furnished as specified therein;
(iii) that as of the date of the transfer of the Mortgage Loans to
the Trustee, the Depositor is the sole
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owner and holder of each Mortgage Loan free and clear of all liens,
pledges, charges or security interests of any nature and has full right and
authority, subject to no interest or participation of, or agreement with,
any other party, to sell and assign the same;
(iv) that as of the date of initial issuance of the Certificates, no
payment of principal of or interest on or in respect of any Mortgage Loan
is [89] days or more past due from the Due Date of such Mortgage Loan;
(v) that to the best of the Depositor's knowledge, as of the date of
the transfer of the Mortgage Loans to the Trustee, there is no valid
offset, defense or counterclaim to any Mortgage Note or Mortgage;
(vi) that as of the date of the initial issuance of the Certificates,
there is, to the best of the Depositor's knowledge, no proceeding pending
or threatened for the total or partial condemnation of any of the Mortgaged
Property and the Mortgaged Property is free of material damage and is in
good repair and neither the Mortgaged Property nor any improvement located
on or being part of the Mortgaged Property is in violation of any
applicable zoning law or regulation;
(vii) that each Mortgage Loan complies in all material respects with
applicable state or federal laws, regulations and other requirements,
pertaining to usury, equal credit opportunity and disclosure laws, and each
Mortgage Loan was not usurious at the time of origination;
(viii) that to the best of the Depositor's knowledge, as of the date
of the initial issuance of the Certificates, all taxes, governmental
assessments and insurance premiums previously due and owing with respect to
the Mortgaged Property have been paid;
(ix) that each Mortgage Note and the related Mortgage are genuine and
each is the legal, valid and binding obligation of the maker thereof,
enforceable in accordance with its terms except as such enforcement may be
limited by bankruptcy, insolvency, reorganization or other similar laws
affecting the enforcement of creditors' rights generally and by general
equity principles (regardless of whether such enforcement is considered in
a proceeding in equity or at law); all parties to the Mortgage Note and the
Mortgage had legal capacity to execute the Mortgage Note and the Mortgage;
and each Mortgage Note and Mortgage have been duly and properly executed by
the Mortgagor;
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(x) that each Mortgage is a valid and enforceable first lien on the
property securing the related Mortgage Note, and that each Mortgage Loan is
covered by an ALTA mortgagee title insurance policy or other form of policy
or insurance generally acceptable to FNMA or FHLMC, issued by, and is a
valid and binding obligation of, a title insurer acceptable to FNMA or
FHLMC insuring the originator, its successor and assigns, as to the lien of
the Mortgage in the original principal amount of the Mortgage Loan subject
only to (a) the lien of current real property taxes and assessments not yet
due and payable, (b) covenants, conditions and restrictions, rights of way,
easements and other matters of public record as of the date of recording of
such Mortgage acceptable to mortgage lending institutions in the area in
which the Mortgaged Property is located or specifically referred to in the
appraisal performed in connection with the origination of the related
Mortgage Loan and (c) such other matters to which like properties are
commonly subject which do not individually, or in the aggregate, materially
interfere with the benefits of the security intended to be provided by the
Mortgage;
(xi) that as of the initial issuance of the Certificates, neither
the Depositor nor any prior holder of any Mortgage has, except as the
Mortgage File may reflect, modified the Mortgage in any material respect;
satisfied, cancelled or subordinated such Mortgage in whole or in part;
released such Mortgaged Property in whole or in part from the lien of the
Mortgage; or executed any instrument of release, cancellation, modification
or satisfaction;
(xii) that each Mortgaged Property consists of a fee simple estate,
a leasehold estate condominium form of ownership in real property or a
share interest in a cooperative corporation in the case of a Co-op Loan;
[(xiii) no more than __% of the Mortgage Loans consist of [Mortgage
Loans with [Limited Mortgage Documentation];]
[(xiv) no more than __% of the Mortgage Loans consist of [Buy-down
Mortgage Loans];]
[(xv) no more than __% of the Mortgage Loans consist of Mortgage
Loans that accrue Deferred Interest;]
(xvi) the condominium projects that include the condominiums that are
the subject of any condominium loan or Co-op Loan are generally acceptable
to FNMA or FHLMC;
(xvii) no foreclosure action is threatened or has been commenced
(except for the filing of any notice of default)
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with respect to the Mortgage Loan; and except for payment delinquencies not
in excess of [__] days, to the best of the Depositor's knowledge, there is
no default, breach, violation or event of acceleration existing under the
Mortgage or the related Mortgage Note and no event which, with the passage
of time or with notice and the expiration of any grace or cure period,
would constitute a default, breach, violation or event of acceleration; and
the Depositor has not waived any default, breach, violation or event of
acceleration;
(xviii) each Mortgage Loan which can be converted from an adjustable
rate Mortgage Loan to a fixed rate Mortgage Loan gives the Mortgagor the
right at one or more times during the term of such Mortgage Loan to elect
to convert from one interest rate to another. In the event of a conversion,
the new rate of interest is determined pursuant to the terms of the
Mortgage Loan itself, which terms are intended to approximate a market rate
of interest for newly originated mortgages at the time of conversion;
(xix) that each Mortgage Loan is in one of the forms contained in
Exhibit E and each provision of the Mortgage Note, including, without
limitation, the interest rate and payment amount adjustments of the
Mortgage Note, are in conformity with and are being serviced in conformity
with Exhibit E;
(xx) that based upon a representation by each Mortgagor at the
time of origination or assumption of the applicable Mortgage Loan, ____% of
the Mortgage Loans measured by Principal Balance were to be secured by a
primary, owner-occupied residence and no more than ____% of the Mortgage
Loans measured by Principal Balance secured by non-owner-occupied
residences;
(xxi) that an appraisal of each Mortgaged Property was conducted at
the time of origination of the related Mortgage Loan, and that each such
appraisal was conducted in accordance with FNMA or FHLMC criteria, on FNMA
or FHLMC forms and comparables on at least three properties were obtained;
(xxii) that no Mortgage Loan had a Loan-to-Value Ratio at origination
in excess of 125%;
(xxiii) the Mortgage Loans were not selected in a manner to adversely
affect the interests of the Certificateholders and the Depositor knows of
no conditions which reasonably would cause it to expect any Mortgage Loan
to become delinquent or otherwise lose value;
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(xxiv) each Mortgage Loan was either (A) originated directly by or
closed in the name of either: (i) a savings and loan association, savings
bank, commercial bank, credit union, insurance company, or similar
institution which is supervised and examined by a federal or state
authority or (ii) a mortgagee approved by the Secretary of Housing and
Urban Development pursuant to Sections 203 and 211 of the National Housing
Act or (B) originated or underwritten by an entity employing underwriting
standards consistent with the underwriting standards of an institution as
described in subclause (A)(i) or (A)(ii) above;
[(xxv) each Mortgage Loan is a "qualified mortgage" within the
meaning of Section 860G of the Internal Revenue Code of 1986.]
It is understood and agreed that the representations and warranties set
forth in this Section 2.3 shall survive delivery of the respective Mortgage
Files to the Trustee, or to a Custodian, as the case may be. Upon discovery by
the Depositor, Master Servicer, the Trustee or any Custodian of a breach of any
of the foregoing representations and warranties (referred to herein as a
"breach"), without regard to any limitation set forth in such representation or
warranty concerning the knowledge of the Depositor as to the facts stated
therein, which breach materially and adversely affects the interests of the
Certificateholders in the related Mortgage Loan, the party discovering such
breach shall give prompt written notice to the others and to the Rating Agency.
Within 90 days of its discovery or its receipt [or the Mortgage Asset
Seller's receipt] of notice of breach, the Depositor shall [or shall cause the
Mortgage Asset Seller to] cure such breach in all material respects or shall
repurchase the Mortgage Loan or any property acquired in respect thereof from
the Trustee at the repurchase price equal to 100% of the Principal Balance of
such Mortgage Loan plus accrued interest on such Principal Balance at the
Mortgage Interest Rate to the next scheduled Installment Due Date of such
Mortgage Loan or remove such Mortgage Loan from the Trust Fund and substitute in
its place a Substitute Mortgage Loan or Loans with the characteristics set forth
in Section 2.2 above for Substitute Mortgage Loans, provided such substitution
is effected not later than 90 days after the Closing Date (or not later than two
years of the Closing Date [provided that the Trustee shall receive from the
Depositor an Opinion of Counsel to the effect that the Mortgage Loan to be
replaced is "defective" within the meaning of Section 860G(4)(B)(ii) of the Code
and within the meaning of the [applicable REMIC Provisions of any State] and
other applicable jurisdictions]). It is understood and agreed that the
obligation of the Depositor to repurchase or substitute [or cause the
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Mortgage Asset Seller to repurchase or substitute] any Mortgage Loan or property
as to which a breach has occurred and is continuing shall constitute the sole
remedy respecting such breach available to Certificateholders or the Trustee on
behalf of Certificateholders, and such obligation shall survive as the
obligation of ABN AMRO Mortgage Corporation or its successors.
[Section 2.4. Authentication and Delivery of Certificates; Designation of
Certificates as REMIC Regular and Residual Interests.
(a) The Trustee acknowledges the transfer to the extent provided herein
and assignment to it of the Trust Fund and, concurrently with such transfer and
assignment, has caused to be authenticated and delivered to or upon the order of
the Depositor, in exchange for the Trust Fund, Certificates evidencing the
entire ownership of the Trust Fund.
(b) The Depositor hereby designates the Class A and Class B Certificates
as "regular interests" in a REMIC within the meaning of Section 860G(a)(1) of
the Code, and designates the Class R Certificate as the single class of
"residual interest" within the meaning of Section 860G(a)(2) of the Code.]
[Section 2.5. Designation of Startup Day. The Closing Date is hereby
designated as the "startup day" of the REMIC within the meaning of Section
860G(a)(9) of the Code.]
[Section 2.6. No Contributions. The Trustee shall not accept or make any
contribution of cash to the Trust Fund after 90 days of the Closing Date, and
shall not accept or make any contribution of other assets to the Trust Fund
unless it shall have received an Opinion of Counsel to the effect that the
inclusion of such assets in the Trust Fund will not cause the Trust Fund to fail
to qualify as a REMIC at any time that any Class A or Class B Certificates are
outstanding or subject the Trust Fund to any tax on contributions to the REMIC
under Section 860G(d) of the Code or under the [applicable REMIC Provisions of
any State] or other applicable jurisdiction.]
Section 2.7. Representations and Warranties of the Master Servicer. The
Master Servicer hereby represents, warrants and covenants to the Trustee for the
benefit of Certificateholders that, as of the date of execution of this
Agreement:
(a) the Master Servicer is a corporation duly formed and validly existing
under the laws of the State of Illinois;
(b) the execution and delivery of this Agreement by the Master Servicer
and its performance of and compliance with the terms of this Agreement will not
violate the Master Servicer's
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corporate charter or by-laws or constitute a default (or an event which, with
notice or lapse of time, or both, would constitute a default) under, or result
in the breach of, any material contract, agreement or other instrument to which
the Master Servicer is a party or which may be applicable to the Master Servicer
or any of its assets;
(c) this Agreement, assuming due authorization, execution and delivery by
the Trustee and the Depositor, constitutes a valid, legal and binding obligation
of the Master Servicer, enforceable against it in accordance with the terms
hereof subject to applicable bankruptcy, insolvency, reorganization, moratorium
and other laws affecting the enforcement of creditors' rights generally and to
general principles of equity, regardless of whether such enforcement is
considered in a proceeding in equity or at law;
(d) the Master Servicer is not in default with respect to any order or
decree of any court or any order, regulation or demand of any Federal, state,
municipal or governmental agency, which default might have consequences that
would materially and adversely affect the condition (financial or other) or
operations of the Master Servicer or its properties or might have consequences
that would affect its performance hereunder; and
(e) no litigation is pending or, to the best of the Master Servicer's
knowledge, threatened against the Master Servicer which would prohibit its
entering into this Agreement or performing its obligations under this Agreement;
and
(f) as long as the Master Servicer has any obligations to service the
Mortgage Loans hereunder (and it has not assigned such obligations pursuant to
Section 3.1(c)), it shall be a FNMA or a FHLMC-qualified servicer.
It is understood and agreed that the representations and warranties set
forth in this Section 2.7 shall survive delivery of the respective Mortgage
Files to the Trustee, or to a Custodian, as the case may be.
ARTICLE III
ADMINISTRATION AND SERVICING OF MORTGAGE LOANS
Section 3.1. [Master Servicer to Act as Servicer and Tax Matters Person;
Administration of the Mortgage Loans.]
(a) The Master Servicer shall service and administer the Mortgage Loans on
behalf of the Trust Fund solely in the best interests of and for the benefit of
the Certificateholders (as
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determined by the Master Servicer in its reasonable judgment) and the Trustee
(as trustee for Certificateholders) in accordance with the terms of this
Agreement and the respective Mortgage Loans and, to the extent consistent with
such terms, in the same manner in which, and with the same care, skill, prudence
and diligence with which, it services and administers similar mortgage loans for
other portfolios, giving due consideration to customary and usual standards of
practice of prudent institutional residential mortgage lenders and loan
servicers, and taking into account its other obligations hereunder, but without
regard to:
(i) any relationship that the Master Servicer, any sub-servicer or
any Affiliate of the Master Servicer or any sub-servicer may have with the
related Mortgagor;
(ii) the ownership of any Certificate by the Master Servicer or any
Affiliate of the Master Servicer;
(iii) the Master Servicer's or any sub-servicer's right to receive
compensation for its services hereunder or with respect to any particular
transaction; or
(iv) the ownership, or servicing or management for others, by the
Master Servicer or any sub-servicer, of any other mortgage loans or
property.
To the extent consistent with the foregoing and subject to any express
limitations set forth in this Agreement, the Master Servicer shall seek to
maximize the timely and complete recovery of principal and interest on the
Mortgage Notes; provided, however, that nothing herein contained shall be
construed as an express or implied guarantee by the Master Servicer of the
collectability of the Mortgage Loans. Subject only to the above-described
servicing standards and the terms of this Agreement and of the respective
Mortgage Loans, the Master Servicer, as an independent contractor, shall service
and administer the Mortgage Loans and shall have full power and authority,
acting alone or through one or more subservicers or agents (subject to paragraph
(c) of this Section 3.1), to do any and all things in connection with such
servicing and administration which it may deem necessary or desirable for the
purpose of conserving the assets of the Trust. Without limiting the generality
of the foregoing, the Master Servicer shall and is hereby authorized and
empowered by the Trustee to continue to execute and deliver, on behalf of
itself, the Certificateholders and the Trustee or any of them, any and all
financing statements, continuation statements and other documents or instruments
necessary to maintain the lien on each Mortgaged Property and related
collateral; and modifications, waivers, consents or amendments to or with
respect to any documents contained in the related Mortgage File; and any
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and all instruments of satisfaction or cancellation, or of partial or full
release or discharge and all other comparable instruments, with respect to the
Mortgage Loans and with respect to the related Mortgaged Properties.
[Notwithstanding the foregoing, the Master Servicer shall not modify, amend,
waive or otherwise consent to the change of the terms of any of the Mortgage
Loans (including without limitation extending the stated maturity date of any
Mortgage Loan or forgiving principal of or interest on any Mortgage Loan),
except as permitted by Section 3.2 hereof. The Master Servicer shall service and
administer the Mortgage Loans in accordance with applicable law and shall
provide to the Mortgagors any reports required to be provided to them thereby.]
To enable the Master Servicer to carry out its servicing and administrative
duties hereunder, upon the Master Servicer's written request accompanied by the
forms of any documents requested, the Trustee shall execute and deliver to the
Master Servicer any powers of attorney and other documents necessary or
appropriate and the Trustee shall not be responsible for releasing such powers
of attorney. The Trustee shall not be responsible for, and the Master Servicer
shall indemnify the Trustee for, any action taken by the Master Servicer
pursuant to the application of any such power of attorney. The relationship of
the Master Servicer (and of any successor thereto) to the Trustee under this
Agreement is intended by the parties to be that of an independent contractor and
not that of a joint venturer, partner or agent.
[(b) The Master Servicer, Trustee and Depositor, intend that the Trust
Fund formed hereunder shall constitute, and that the affairs of the Trust Fund
shall be conducted so as to qualify it as, a "real estate mortgage investment
conduit" as defined in and in accordance with the REMIC Provisions. The Master
Servicer is hereby appointed as the initial "tax matters person" pursuant to
Section 4.8. In furtherance of such intention, and subject to Section 4.8, the
Master Servicer covenants and agrees that it shall act as attorney-in-fact and
agent for any person that is the "tax matters person" within the meaning of
Section 6231(a)(7) of the Code (and, subject to Section 4.8 hereof, the Master
Servicer is hereby appointed to act as the initial tax matters person) on behalf
of the Trust Fund and that in such capacity it shall: (a) prepare and file, or
cause to be prepared and filed, a federal tax return (as well as any other
federal and state information and other returns) using a calendar year as the
taxable year for the Trust Fund when and as required by the REMIC Provisions;
(b) make (or cause to be made) an election, on behalf of the Trust Fund, to be
treated as a REMIC on the Federal tax return and any applicable state or local
returns of the Trust Fund for its first taxable year, in accordance with the
REMIC Provisions; (c) prepare and forward, or cause to be prepared and
forwarded, to the Certificateholders all information reports as and when
required to be provided to them in accordance with the
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REMIC Provisions; (d) conduct the affairs of the Trust Fund at all times that
any Class A or Class B Certificates are outstanding so as to maintain the status
thereof as a REMIC under the REMIC Provisions; and (e) not knowingly or
intentionally take any action or omit to take any action that would cause the
termination of the REMIC status of the Trust Fund.]
(c) The Master Servicer may enter into sub-servicing agreements with third
parties with respect to any of its respective obligations hereunder, provided
that (1) any such agreement shall be consistent with the provisions of this
Agreement and (2) no sub-servicer retained by the Master Servicer shall grant
any modification, waiver or amendment to any Mortgage Loan without the approval
of the Master Servicer. Any such sub-servicing agreement may permit the sub-
servicer to delegate its duties to agents or subcontractors so long as the
related agreements or arrangements with such agents or subcontractors are
consistent with the provisions of this Section 3.1(c).
Any sub-servicing agreement entered into by the Master Servicer with a
Person other than the Depositor shall provide that it may be assumed or
terminated by the Trustee if the Trustee has assumed the duties of the Master
Servicer [or any Back-up Servicer], without cost or obligation to the assuming
or terminating party or the Trust Fund, upon the assumption by such party of the
obligations of the Master Servicer pursuant to Section 7.5.
Any sub-servicing agreement, and any other transactions or services
relating to the Mortgage Loans involving a sub-servicer, including (if
applicable) the Depositor in its capacity as sub-servicer under a sub-servicing
agreement and not in its capacity as a party to this Agreement, shall be deemed
to be between the Master Servicer and such sub-servicer (including the
Depositor) alone, and the Trustee and the Certificateholders shall not be deemed
parties thereto and shall have no claims, rights, obligations, duties or
liabilities with respect to the sub-servicer, except as set forth in Section
3.1(d).
[(d) If the Back-Up Servicer assumes the obligations of the Master Servicer
in accordance with Section 3.14, such Back-Up Servicer, to the extent necessary
to permit such Back-Up Servicer to carry out the provisions of Section 7.5,
shall, without act or deed on the part of the Trustee or such Back-Up Servicer,
succeed to all of the rights and obligations of the Master Servicer under any
sub-servicing agreement entered into pursuant to Section 3.1(c). In such event,
the Trustee or the Back-Up Servicer shall be deemed to have assumed all of the
Master Servicer's interest therein and to have replaced the Master Servicer as a
party to such sub-servicing agreement to the same extent as if such sub-
servicing agreement had been assigned to the Trustee or such
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Back-Up Servicer, except that the Master Servicer shall not thereby be relieved
of any liability or obligations under such sub-servicing agreement.
In the event that the Trustee or any Back-Up Servicer assumes the servicing
obligations of the Master Servicer, upon request of the Trustee or such Back-Up
Servicer, the Master Servicer shall at its own expense deliver to the Trustee or
such Back-Up Servicer (as the case may be) all documents and records relating to
any sub-servicing agreement and the Mortgage Loans then being serviced
thereunder and an accounting of amounts collected and held by it, if any, and
will otherwise use its best efforts to effect the orderly and efficient transfer
of any sub-servicing agreement to the Trustee or the Back-Up Servicer.]
(e) Costs incurred by the Master Servicer in effectuating the timely
payment of taxes and assessments on the Mortgaged Property securing a Mortgage
Note shall be recoverable by the Master Servicer pursuant to Section 3.3. The
Master Servicer shall ensure all such taxes and assessments are timely paid.
The Master Servicer, as initial servicer, shall pay all of its costs and
proven damages incurred with respect to or arising out of any allegation of
impropriety in its servicing of the Mortgage Loans. Further, the Master Servicer
shall not be entitled to reimbursement or indemnification from either the Trust
Fund or the Certificateholders with respect to any such costs, claims and
damages.
(f) Notwithstanding any sub-servicing agreement, any of the provisions of
this Agreement relating to agreements or arrangements between the Master
Servicer and any Person (including the Depositor) acting as sub-servicer (or its
agents or subcontractors) or any reference to actions taken through any Person
(including the Depositor) acting as sub-servicer or otherwise, the Master
Servicer shall remain obligated and primarily liable to the Trustee and
Certificateholders for the servicing and administering of the Mortgage Loans in
accordance with the provisions of this Agreement without diminution of such
obligation or liability by virtue of such sub-servicing agreements or
arrangements or by virtue of indemnification from the Depositor or any other
Person acting as sub-servicer (or its agents or subcontractors) to the same
extent and under the same terms and conditions as if the Master Servicer alone
were servicing and administering the Mortgage Loans. The Master Servicer shall
be entitled to enter into an agreement with any sub-servicer providing for
indemnification of the Master Servicer by such sub-servicer (including the
Depositor), and nothing contained in this Agreement shall be deemed to limit or
modify such indemnification, but no such agreement for indemnification shall be
deemed to limit or modify this Agreement.
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Section 3.2. Collection of Certain Mortgage Loan Payments; Certificate
Account.
(a) The Master Servicer shall make reasonable efforts to collect all
payments called for under the terms and provisions of the Mortgage Loans, and
shall, to the extent such procedures shall be consistent with this Agreement,
follow such collection procedures as it follows with respect to conventional
mortgage loans it services for itself and any of its Affiliates, including
providing reasonable advance notice to Mortgagors of Balloon Payments due if
required by the Mortgage Note or by state law; provided, however, that the
Master Servicer agrees not to permit any modification with respect to any
Mortgage Loan that would change the manner in which the Mortgage Interest Rate
is computed, forgive any principal or interest or change the term of such
Mortgage Loan. Consistent with the foregoing, the Master Servicer may in its
discretion (i) waive any assumption fee, late payment charge or other charge in
connection with a Mortgage Loan, and (ii) arrange a schedule, running for no
more than 180 days after the scheduled Installment Due Date for payment of any
installment on any Mortgage Note, after the stated maturity date of any Balloon
Payment or after the due date of any other payment due under the related
Mortgage Note for the liquidation of delinquent items, provided that the Master
Servicer shall continue to be obligated to make Advances in accordance with
Section 4.3 during the continuance of such period. [With respect to any Mortgage
Loans which provide for the right of the holder thereof to call for early
repayment thereof at times specified therein, neither the Trustee nor the Master
Servicer shall exercise any such right, except that the Trustee shall exercise
such right at the written direction of the Master Servicer set forth in an
Officer's Certificate in connection with a default under the related Note.]
(b) The Master Servicer shall establish and maintain a separate account as
set forth in Article I (the "Certificate Account"), and shall on the Closing
Date credit any amounts representing scheduled payments of principal and
interest due after the Cut-off Date but received by the Master Servicer on or
before the Closing Date, which may exclude the Retained Yield, and thereafter on
a daily basis the following payments and collections received or made by it,
which may exclude the Retained Yield (other than in respect of principal of and
interest on the Mortgage Loans due on or before the Cut-off Date):
(i) All Mortgagor payments on account of principal, including
Principal Prepayments on the Mortgage Loans;
(ii) All Mortgagor payments on account of interest on the Mortgage
Loans, which may be net of that portion thereof
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which the Master Servicer is entitled to retain as Administration Fees
pursuant to Section 3.9, as adjusted pursuant to Section 4.6;
(iii) All Liquidation Proceeds net of any amounts specifically
excluded under paragraph (f) in the definition of Pool Distribution;
(iv) All proceeds received by the Master Servicer under any title,
hazard or other insurance policy covering any Mortgage Loan or the related
Mortgaged Property, other than proceeds to be applied to the restoration or
repair of the property subject to the related Mortgage or released to the
Mortgagor in accordance with the Master Servicer's normal servicing
procedures;
(v) All Advances made by the Master Servicer pursuant to Section
4.3;
(vi) All Repurchase Proceeds;
(vii) any amounts required to be deposited pursuant to Section 3.2(c)
in connection with net losses realized on Permitted Investments with
respect to funds held in the Certificate Account;
(viii) all income and gain realized from any investment of the funds
in the Certificate Account in Permitted Investments; and
(ix) All other amounts required to be deposited in the Certificate
Account pursuant to this Agreement;
provided, however, with respect to any payment of interest received by the
Master Servicer in respect of a Mortgage Loan (whether paid by a Mortgagor or
received as Liquidation Proceeds, insurance proceeds or otherwise) which is less
than the full amount of interest due with respect to the related Mortgage Loan,
the Master Servicer shall deduct therefrom, for the benefit of the Depositor who
shall be paid the amount so deducted, as the Retained Yield only that portion of
such payment of interest that bears the same relationship to the total amount of
such payment of interest as the Retained Yield in respect of the related
Mortgage Loan bears to the Mortgage Interest Rate then borne by such Mortgage
Loan during the period to which such payment is attributable.
(c) The Master Servicer may invest the funds in the Certificate Account in
Permitted Investments which shall mature not later than the second Business Day
preceding the next Distribution Date unless the Certificate Account is
maintained
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with the Trustee in which case they may mature one Business Day prior to the
Distribution Date. The Permitted Investments may not be sold or disposed of
prior to their maturity. All such Permitted Investments shall be made in the
name of the Master Servicer (in its capacity as such) or its nominee. All income
and gain realized from any such investment shall be for the benefit of the
[Master Servicer], and shall be payable to the [Master Servicer]. The amount of
any losses incurred in respect of any such investments shall be deposited in the
Certificate Account by the Master Servicer, out of its own funds immediately as
realized without right to reimbursement therefor.
(d) The foregoing requirements for deposit in the Certificate Account
shall be exclusive, it being understood and agreed that, without limiting the
generality of the foregoing, payments in the nature of those described in the
last paragraph of this Section 3.2 and payments in the nature of late payment
charges, assumption fees [or Escrow Payments] need not be deposited by the
Master Servicer in the Certificate Account. All funds deposited by the Master
Servicer in the Certificate Account shall be held by it in trust in the
Certificate Account until disbursed in accordance with Section 4.1 or withdrawn
in accordance with Section 3.3; provided, however, that the Master Servicer
shall withdraw such funds and deposit them in such manner as to not result in a
downgrading or withdrawal of the rating then assigned to the Certificates by the
Rating Agency. If the Master Servicer deposits in the Certificate Account any
amount not required to be deposited therein, it may at any time withdraw such
amount from the Certificate Account pursuant to Section 3.3(j) of this
Agreement.
Certain of the Mortgage Loans may provide for payment by the Mortgagor of
amounts to be used for payment of taxes, assessments, hazard or other insurance
premiums or comparable items for the account of the Mortgagor. The Master
Servicer may deal with these amounts in accordance with its normal servicing
procedures.
Section 3.3. Permitted Withdrawals from the Certificate Account. The
Master Servicer may, from time to time, make withdrawals from the Certificate
Account for the following purposes:
(a) to reimburse itself for Advances made by it pursuant to Section 3.4 or
4.3, the Master Servicer's right to reimburse itself pursuant to this subclause
(a) being limited to amounts received on or in respect of particular Mortgage
Loans [or REO Property] (including, for this purpose, Liquidation Proceeds and
amounts representing proceeds of insurance policies covering the related
Mortgaged Properties [or REO Properties] which represent late recoveries of
payments of principal and/or interest
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respecting which any such Advance was made) or to reimburse itself for Advances
from funds in the Certificate Account held for future distribution or
withdrawal, such funds to be replaced by the Master Servicer to the extent that
funds in the Certificate Account on a future Distribution Date are less than the
payment required to be made to the Certificateholders therefrom as of such
future Distribution Date;
(b) (i) to reimburse itself from Liquidation Proceeds for Liquidation
Expenses, (ii) for amounts expended by it pursuant to Section 3.7 in good faith
in connection with the restoration of damaged property and (iii) to the extent
that Liquidation Proceeds after such reimbursement are in excess of the
Principal Balance of the related Mortgage Loan together with accrued and unpaid
interest thereon at the applicable Mortgage Pass-Through Rate to the date of
such liquidation, net of any related Advances which were unreimbursed prior to
the receipt of such Liquidation Proceeds, to pay to itself any unpaid
Administration Fees, and any assumption fees, late payment charges or other
Mortgage charges on the related Mortgage Loan;
(c) to pay to itself from any Mortgagor payment as to interest or other
recovery with respect to a particular Mortgage Loan, to the extent permitted by
this Agreement, that portion of any payment as to interest in excess of interest
at the applicable Mortgage Pass-Through Rate which the Master Servicer is
entitled to retain as Administration Fees pursuant to Section 3.9 or otherwise;
(d) to reimburse itself for expenses incurred by and recoverable by or
reimbursable to it pursuant to Section 3.1 or 3.5 after the related Mortgagor
has reimbursed the Trust Fund for such expenses or following liquidation of the
related Mortgage Loan, or pursuant to Section 6.3; or
(e) to pay to itself with respect to each Mortgage Loan or property
acquired in respect thereof that has been repurchased pursuant to Section 2.2 or
2.3 or purchased by the Class R Certificateholder pursuant to Section 9.1 all
amounts received thereon and not distributed as of the date on which the related
Principal Balance is determined;
(f) to reimburse itself for any Nonrecoverable Advances;
(g) to disburse to the Trustee in order that the Trustee may make payments
to Certificateholders in the amounts and in the manner provided for in Section
4.1;
(h) to pay the Master Servicer any net interest or other income earned and
received on or investment income received with respect to funds in the
Certificate Account;
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(i) amounts in respect of the Retained Yield; and
(j) to make payments to itself or others pursuant to any provision of this
Agreement and to remove any amounts not required to be deposited therein and to
clear and terminate the Certificate Account pursuant to Section 9.1.
Since in connection with withdrawals pursuant to subclauses (a), (b), (c)
and (e) the Master Servicer's entitlement thereto is limited to collections or
other recoveries on the related Mortgage Loan, the Master Servicer shall keep
and maintain a separate accounting for each Mortgage Loan for the purpose of
justifying any withdrawal from the Certificate Account pursuant to such
subclauses.
[Section 3.4. Taxes, Assessments and Similar Items. With respect to each
Mortgage Loan, the Master Servicer shall maintain accurate records with respect
to each related Mortgaged Property reflecting the status of taxes, assessments
and other similar items that are or may become a lien on the related Mortgaged
Property and the status of insurance premiums payable with respect thereto. The
Master Servicer shall require that payments for taxes, assessments, insurance
premiums and other similar items be made by the Mortgagor at the time they first
become due. If a Mortgagor fails to make any such payment on a timely basis, the
Master Servicer shall advance the amount of any shortfall unless the Master
Servicer determines in its good faith judgment that such advance would not be
ultimately recoverable from future payments and collections on the related
Mortgage Loan (including without limitation Insurance Proceeds and Liquidation
Proceeds), or otherwise. The Master Servicer shall be entitled to reimbursement
of advances it makes pursuant to the preceding sentence, together with interest
thereon at the rate of ___% per annum, from amounts received on or in respect of
the related Mortgage Loan respecting which such advance was made or if such
advance has become nonrecoverable, in either case to the extent permitted by
Section 3.3 of this Agreement. [No costs incurred by the Master Servicer in
effecting the payment of taxes and assessments on the Mortgaged Properties
shall, for the purpose of calculating distributions to Certificateholders, be
added to the amount owing under the related Mortgage Loans, notwithstanding that
the terms of such Mortgage Loans so permit.]
Section 3.5. Maintenance of Insurance. The Master Servicer shall also
cause to be maintained for each Mortgage Loan fire and hazard insurance with
extended coverage as is customary in the area where the Mortgaged Property is
located in an amount which is at least equal to the lesser of (i) the Principal
Balance of such Mortgage Loan and (ii) the replacement value costs of
improvements securing such Mortgage Loan. The Master Servicer shall cause to be
maintained fire and hazard insurance with
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extended coverage on each REO Property in an amount which is at least equal to
the greater of (i) an amount not less than is necessary to avoid the application
of any co-insurance clause contained in the related fire and hazard insurance
policy and (ii) the replacement cost of the improvements which are a part of
such property. The Master Servicer shall also cause to be maintained for each
Mortgage Loan with a Loan-to-Value Ratio greater than 80% a primary mortgage
insurance policy which will cover at least [75]% of the original fair market
value of the related Mortgaged Property until such time as the principal balance
of such Mortgage Loan is reduced to 80% of the current fair market value or
otherwise in accordance with applicable law. The Master Servicer on behalf of
the Trustee as Mortgagee shall maintain or cause the related Mortgagor to
maintain for each Mortgage Loan such other insurance on the related Mortgaged
Property as may be required by the terms of the related Mortgage Note. If the
Mortgaged Property is in an area identified in the Federal Register by the Flood
Emergency Management Agency as having special flood hazards the Master Servicer
will cause to be maintained a flood insurance policy meeting the requirements of
the current guidelines of the Federal Insurance Administration with a generally
acceptable insurance carrier, in an amount representing coverage not less than
the least of (i) the full insurable value, (ii) the maximum amount of insurance
which is available under the Flood Disaster Protection Act of 1973, and (iii)
the Principal Balance of the related Mortgage Loan. The Master Servicer shall
also maintain fire and hazard insurance with extended coverage and, if
applicable, flood insurance on property acquired upon foreclosure, or by deed in
lieu of foreclosure, of any Mortgage Loan in an amount that is at least equal to
the lesser of (i) the maximum insurable value of the improvements which are a
part of such property and (ii) the principal balance owing on such Mortgage Loan
at the time of such foreclosure or grant of deed in lieu of foreclosure plus
accrued interest and related Liquidation Expenses. [If an REO Property was
located at the time of origination of the related Mortgage Loan in a federally
designated special flood hazard area, the Master Servicer will obtain flood
insurance in respect thereof providing substantially the same coverage as
described in the preceding sentence. If at any time during the term of this
Agreement a recovery under a flood or fire and hazard insurance policy in
respect of an REO Property is not available but would have been available if
such insurance were maintained thereon in accordance with the standards applied
to Mortgaged Properties described herein, the Master Servicer shall either (i)
immediately deposit into the Certificate Account from its own funds the amount
that would have been recovered or (ii) apply to the restoration and repair of
the property from its own funds the amount that would have been recovered, if
such application would be consistent with the servicing standard set forth in
Section 3.1.] It is understood and agreed that such insurance shall be
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with insurers approved by the Master Servicer and that no earthquake or other
additional insurance is to be required of any Mortgagor, other than pursuant to
such applicable laws and regulations or policies of the Master Servicer as shall
at any time be in force and as shall require such additional insurance. Pursuant
to Section 3.2, any amounts collected by the Master Servicer under any insurance
policies maintained pursuant to this Section 3.5 (other than amounts to be
applied to the restoration or repair of the property subject to the related
Mortgage or released to the Mortgagor in accordance with the Master Servicer's
normal servicing procedures) shall be deposited into the Certificate Account,
subject to withdrawal pursuant to Section 3.3. Any cost incurred by the Master
Servicer in maintaining any such insurance shall be recoverable by the Master
Servicer pursuant to Section 3.3. In the event that the Master Servicer shall
obtain and maintain a blanket policy issued by an insurer that qualifies under
the guidelines set forth for the Master Servicer by FNMA or FHLMC, insuring
against hazard losses on all of the Mortgage Loans, then, to the extent such
policy provides coverage in an amount equal to the unpaid principal balance on
the Mortgage Loans without co-insurance and otherwise complies with all other
requirements set forth in the first paragraph of this Section 3.5, it shall
conclusively be deemed to have satisfied its obligation as set forth in such
first paragraph, it being understood and agreed that such policy may contain a
deductible clause, in which case the Master Servicer shall, in the event that
there shall not have been maintained on the related mortgaged or acquired
property an insurance policy complying with the first paragraph of this Section
3.5 and there shall have been a loss which would have been covered by such a
policy had it been maintained, be required to deposit from its own funds into
the Certificate Account or apply to the restoration of the property the amount
not otherwise payable under the blanket policy because of such deductible
clause.
The Master Servicer shall obtain and maintain at its own expense throughout
the term of this Agreement a blanket fidelity bond and an errors and omissions
insurance policy with broad coverage with responsible companies covering the
Master Servicer's officers and employees and other persons acting on behalf of
the Master Servicer in connection with its activities under this Agreement. Any
such fidelity bond and errors and omissions insurance shall provide an amount of
coverage and will maintain such coverage at a level which will permit the Master
Servicer to continue to be a FNMA or a FHLMC-qualified Servicer and shall
protect and insure the Master Servicer against losses, including forgery, theft,
embezzlement, fraud, errors and omissions and negligent acts of such persons. No
provision of this Section 3.5 requiring such fidelity bond and errors and
omissions insurance shall diminish or relieve the Master Servicer from its
duties and obligations as set forth in this Agreement.
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Section 3.6. Enforcement of Due-on-Sale Clauses; Assumption and
Substitution Agreements. In any case in which property subject to a Mortgage is
conveyed by the Mortgagor, the Master Servicer reserves the right to enforce any
due-on-sale clause contained in the related Mortgage Note or Mortgage, to the
extent permitted under applicable law and governmental regulations, but only to
the extent that such enforcement will not adversely affect or jeopardize
coverage under any related insurance policy or result in legal action by the
Mortgagor. Subject to the foregoing, the Master Servicer is authorized to take
or enter into an assumption or substitution agreement from or with the Person to
whom such property has been or is about to be conveyed. The Master Servicer is
also authorized to release the original Mortgagor from liability upon the
Mortgage Loan and substitute the new Mortgagor as obligor thereon. In connection
with such assumption or substitution, the Master Servicer shall apply such
underwriting standards and follow such practices and procedures as shall be
normal and usual and as it applies to mortgage loans owned solely by it or any
of its Affiliates. The Master Servicer shall notify the Trustee that any such
assumption or substitution agreement has been completed by forwarding to the
Trustee the original copy of such assumption or substitution agreement, which
copy shall be added by the Trustee to the related Mortgage File and shall, for
all purposes, be considered a part of such Mortgage File to the same extent as
all other documents and instruments constituting a part thereof. In connection
with any such assumption or substitution agreement, the interest rate of the
related Mortgage Note shall not be changed, [and with respect to any such
assumption [the Maximum Rate and the Minimum Rate shall not be changed and the
Seller hereby waives any contractual right under the related Mortgage Note [but
the Maximum Rate and the Minimum Rate shall be recast to equal the original
percentage specified in the related Mortgage Note above the interest of the
related Mortgage Note in effect on the date of assumption] [provided, that in
the event the assumption of any Mortgage Loan would cause the Maximum Rate to
decrease below the Maximum Rate in effect for such Mortgage Loan at the time of
issuance of the Certificates, the Seller [shall] repurchase such Mortgage Loan,
subject to applicable REMIC Provisions, from the Trust Fund at a purchase price
equal to the unpaid principal balance of such Mortgage Loan plus interest at the
Mortgage Pass-Through Rate, less unreimbursed Advances]. Any fee collected by
the Master Servicer for entering into an assumption or substitution of liability
agreement will be retained by the Master Servicer as servicing compensation.
Notwithstanding the foregoing paragraph or any other provision of this
Agreement, the Master Servicer shall not be deemed to be in default, breach or
any other violation of its obligations hereunder by reason of any conveyance by
the Mortgagor of the Mortgaged Property or any assumption of a
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Mortgage Loan by operation of law which the Master Servicer in good faith
determines it may be restricted by law from preventing, for any reason
whatsoever.
Section 3.7. Realization upon Defaulted Mortgage Loans.
(a) [Consistent with the servicing standard set forth in Section 3.1 and
with a view to the best economic interest of the Trust Fund,] the Master
Servicer shall foreclose upon or otherwise comparably convert [(which may
include acquisition of an REO Property)] the Mortgaged Properties securing such
of the Mortgage Loans as come into and continue in default and as to which no
satisfactory arrangements can be made for collection of delinquent payments
pursuant to Section 3.2. In connection with such foreclosure or other
conversion, the Master Servicer shall follow such practices and procedures as it
shall deem necessary or advisable and as shall be normal and usual in its
general mortgage servicing activities. The foregoing is subject to the proviso
that the Master Servicer shall not be required to expend its own funds in
connection with any foreclosure or to restore any damaged property unless it
shall determine (i) that such foreclosure and/or restoration will increase the
Liquidation Proceeds to Certificateholders after reimbursement to itself for
such expenses and (ii) that such expenses will be recoverable to it through
Liquidation Proceeds (respecting which it shall have priority for purposes of
withdrawal from the Certificate Account pursuant to Section 3.3). Any gain on
foreclosure or other conversion of a Liquidated Mortgage Loan shall be
distributed to the Class R Certificateholder. The Master Servicer shall be
responsible for all other costs and expenses incurred by it in any such
proceedings; provided, however, that it shall be entitled to reimbursement
thereof (as well as any Administration Fees and other amounts due it, if any),
to the extent, but only to the extent, that withdrawals from the Certificate
Account with respect thereto are permitted under Section 3.3. Within 30 days
after receipt of Liquidation Proceeds in respect of a Liquidated Mortgage Loan,
the Master Servicer shall provide to the Trustee a statement of accounting for
the related Liquidated Mortgage Loan, including without limitation (i) the
Mortgage Loan number, (ii) the date the Loan was acquired in foreclosure or deed
in lieu, and the date the Mortgage Loan became a Liquidated Mortgage Loan, (iii)
the gross sales price and the related selling and other expenses, (iv) accrued
interest calculated from the foreclosure date to the liquidation date, and (v)
such other information as the Trustee may reasonably specify.
(b) Prior to any such foreclosure, the Master Servicer may, at its option,
repurchase any Mortgage Loan which is 90 days or more delinquent and which the
Master Servicer determines in good faith would otherwise become subject to
foreclosure proceedings or any Mortgage Loan as to which the Mortgagor tenders a
deed in
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lieu of foreclosure at a price equal to the outstanding Principal Balance of the
Mortgage Loan plus accrued interest at the Mortgage Pass-Through Rate to the
next Installment Due Date. Any such repurchase shall be deemed a Principal
Prepayment for purposes under this Agreement.
(c) The Trust Fund shall not acquire any real property (or personal
property incident to such real property) except in connection with a default or
imminent default of a Mortgage Loan. Based on a report prepared by an
Independent Person who regularly conducts environmental audit that the Mortgaged
Property for which foreclosure proceedings are contemplated is in compliance
with applicable environmental laws, and there are no circumstances present at
such Mortgaged Property relating to the use, management or disposal of any
hazardous materials, wastes, or petroleum based materials for which
investigation, testing, monitoring, containment, clean-up or remediation could
be required under any federal, state or local law or that it would be in the
best economic interest of the Trust Fund to acquire title to such Mortgaged
Property and further to take such actions as would be necessary and appropriate
to effect such compliance and/or respond to such circumstances, the Master
Servicer will not conduct such foreclosure proceedings. If the Master Servicer
otherwise becomes aware, under its customary servicing procedures, of an
environmental hazard with respect to a Mortgage Loan for which foreclosure
proceedings are contemplated, the Master Servicer will not conduct such
foreclosure proceedings unless it determines in good faith that the liability
associated with the environmental hazard will be less than the Liquidation
Proceeds to be realized from the sale of the related Mortgaged Property. In the
event that the Trust Fund acquires any real property (or personal property
incident to such real property) in connection with a default or imminent default
of a Mortgage Loan, such REO Property shall be disposed of by the Trust Fund
within two years after its acquisition by the Trust Fund unless the Trustee
shall have received from the Master Servicer an Opinion of Counsel to the effect
that the holding by the Trust Fund of such REO Property subsequent to two years
after its acquisition will not cause the Trust Fund to fail to qualify as a
REMIC under the REMIC Provisions at any time that any Class A or Class B
Certificates are outstanding, in which case such REO Property shall be disposed
of as soon as possible by the Trust Fund but in no event shall be held longer
than the maximum period of time during which the Trust Fund is then permitted to
hold such REO Property and remain qualified as a REMIC under the REMIC
Provisions. The Master Servicer shall manage, conserve, protect and operate each
such REO Property for the Certificateholders solely for the purpose of its
prompt disposition and sale in a manner which does not cause such REO Property
to fail to qualify as "foreclosure property" within the meaning of Section
860G(a)(8) of the Code. Pursuant to its efforts to sell such REO
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Property, the Master Servicer shall either itself or through an agent selected
by the Master Servicer protect and conserve such REO Property in the same manner
and to such extent as is customary in the locality where such property is
located and may, incident to its conservation and protection of the interests of
the Certificateholders, rent the same, or any part thereof, as the Master
Servicer deems to be in the best interest of the Master Servicer and the
Certificateholders for the period prior to the sale of such REO Property.
[(d) In the event that title to any Mortgaged Property is acquired in
foreclosure or by deed in lieu of foreclosure, the deed or certificate of sale
shall be issued to the Trustee, or to its nominee on behalf of
Certificateholders. Notwithstanding any such acquisition of title and
cancellation of the related Mortgage Loan, such Mortgage Loan shall (except for
purposes of Section 9.1) be considered to be a Mortgage Loan held in the Trust
Fund until such time as the related REO Property shall be sold by the Trust Fund
and shall be reduced only by collections net of expenses. Consistent with the
foregoing, for purposes of all calculations hereunder, so long as such Mortgage
Loan shall be considered to be an outstanding Mortgage Loan, it shall be assumed
that, notwithstanding that the indebtedness evidenced by the related Mortgage
Note shall have been discharged, such Mortgage Note and, for purposes of
determining the Scheduled Principal Balance thereof, the related amortization
schedule in effect at the time of any such acquisition of title remain in
effect.
(e) The Master Servicer shall not acquire for the benefit of the Trust
Fund any personal property pursuant to this Section 3.7 unless either:
(i) such personal property is incident to real property (within the
meaning of Section 856(e)(1) of the Code) so acquired by the Master
Servicer for the benefit of the Trust Fund;
(ii) the Master Servicer shall have requested and received an
Opinion of Counsel (which opinion shall be an expense of the Trust Fund) to
the effect that the holding of such personal property by the Trust Fund
will not cause the imposition of a tax on the Trust Fund under the REMIC
Provisions or cause the Trust Fund to fail to qualify as a REMIC at any
time that any Certificate is outstanding.]
Section 3.8. Trustee to Cooperate; Release of Mortgage Files. Upon the
payment in full of any Mortgage Loan, or the receipt by the Master Servicer of a
notification that the payment in full will be escrowed in a manner customary for
such purposes, the Master Servicer will immediately notify the Trustee by an
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Officer's Certificate (which Officer's Certificate shall include a statement to
the effect that all amounts received in connection with such payment which are
required to be deposited in the Certificate Account pursuant to Section 3.2 have
been or will be so deposited) and shall by such Officer's Certificate request
delivery to it of the Mortgage File. Upon receipt of such Officer's Certificate
and request, the Trustee shall promptly release or cause to be released the
related Mortgage File to the Master Servicer. From time to time and as
appropriate for the servicing or foreclosure of any Mortgage Loan, the Trustee
shall, upon written request of the Master Servicer and delivery to the Trustee
of a trust receipt signed by a Servicing Officer, release or cause to be
released the related Mortgage File to the Master Servicer and shall execute such
documents furnished to it as shall be necessary to the prosecution of any such
proceedings. Such trust receipt shall obligate the Master Servicer to return
each and every document previously requested from the Mortgage File to the
Trustee when the need therefor by the Master Servicer no longer exists unless
the Mortgage Loan shall be liquidated, in which case, upon receipt of a
certificate of a Servicing Officer similar to that hereinabove specified, the
trust receipt shall be released by the Trustee to the Master Servicer by
delivery to a Servicing Officer and the Trustee shall have no further
responsibility with respect to such Mortgage Files.
Section 3.9. Servicing Compensation. The Master Servicer, shall be
entitled to retain or, if not retained, to withdraw from the Certificate Account
as servicing compensation its Administration Fee out of each payment on account
of interest on each Mortgage Loan, subject to adjustment as provided in Section
4.6. The Master Servicer shall also be entitled to payment of unpaid
Administration Fees with respect to a delinquent Mortgage Loan out of
Liquidation Proceeds with respect to such Mortgage Loan, to the extent permitted
by Section 3.3(b). Servicing compensation in the form of assumption fees, late
payment charges or otherwise shall be retained by the Master Servicer and need
not be deposited in the Certificate Account. The Master Servicer shall also be
entitled to additional servicing compensation out of Liquidation Proceeds to the
extent provided in Section 3.3(b). The Master Servicer shall be required to pay
all expenses incurred by it in connection with its servicing activities
hereunder (including maintenance of the blanket hazard insurance policy and the
blanket fidelity bond and errors and omissions policy required by Section 3.5)
and shall not be entitled to reimbursement therefor except as specifically
provided in Sections 3.1, 3.3, 3.5 and 3.7.
Section 3.10. Reports to the Trustee; Certificate Account Statements. By
the tenth calendar day of each month, the Master Servicer shall deliver or cause
to be delivered to the Trustee or its designee a statement in electronic or
written form as may be
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agreed upon by the Master Servicer and the Trustee containing the information
described in Section 4.4 and such other information as may be necessary for the
Trustee to compute the amounts to be distributed to the Certificateholders by
the Trustee. Not later than 25 days after each Distribution Date, the Master
Servicer shall forward or cause to be forwarded to the Trustee a statement,
certified by a Servicing Officer, setting forth the status of the Certificate
Account as of the close of business on the related Distribution Date, stating
that all distributions required to be made by this Agreement have been made (or
if any required distribution has not been made, specifying the nature and status
thereof) and showing, for the period covered by such statement, the aggregate of
deposits into and withdrawals from the Certificate Account for each category of
deposit specified in Section 3.2 and each category of withdrawal specified in
Section 3.3. Such statement shall also include information as to the aggregate
Principal Balance of all of the Mortgage Loans as of the last day of the
calendar month immediately preceding such Distribution Date. Copies of such
statement shall be provided to any Certificateholder upon request by the Master
Servicer, or by the Trustee so long as the Trustee has received the report as
stipulated above at the Master Servicer's expense if the Master Servicer shall
fail to provide such copies.
Section 3.11. Annual Statement as to Compliance. The Master Servicer
will deliver to the Trustee, on or before [April 30] of each year, beginning
[April 30], 199_, an Officer's Certificate stating as to each signer thereof,
that (i) a review of the activities of the Master Servicer during the preceding
calendar year and of performance under this Agreement has been made under such
officer's supervision, and (ii) to the best of such officer's knowledge, based
on such review, the Master Servicer has fulfilled all of its obligations under
this Agreement throughout such year, or if there has been a default in the
fulfillment of any such obligation, specifying each such default known to such
officer and the nature and status thereof. Copies of such statement shall be
provided to the Rating Agency and to any Certificateholder upon request by the
Master Servicer, or by the Trustee at the Master Servicer's expense if the
Master Servicer shall fail to provide such copies and the Trustee is aware that
the Master Servicer has not so provided copies and so long as the Trustee shall
have received the report as stipulated above.
Section 3.12. Annual Independent Public Accountants' Servicing Report.
On or before April 30 of each year, beginning April 30, 199_, the Master
Servicer, at its expense, shall cause a firm of independent public accountants
who are members of the American Institute of Certified Public Accountants to
furnish a statement to the Trustee and the Rating Agency to the effect that such
firm has examined certain documents and records relating to
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the servicing of the Mortgage Loans and that, either (a) on the basis of such
examination conducted substantially in compliance with the audit program for
mortgages serviced for FHLMC, such firm is of the opinion that such servicing
has been conducted in compliance with the manner of servicing set forth in
agreements substantially similar to this Agreement except for (i) such
exceptions as such firm shall believe to be immaterial and (ii) such other
exceptions as shall be set forth in such statement or, (b) that their
examination conducted substantially in compliance with the uniform single audit
program for mortgage bankers disclosed no exceptions or errors in records
relating to mortgage loans serviced for others that in their opinion are
material and that Paragraph 4 of that program requires them to report. Copies of
such statement shall be provided to Certificateholders upon request by the
Master Servicer, or by the Trustee at the Master Servicer's expense if the
Master Servicer shall fail to provide such copies and the Trustee is aware that
the Master Servicer has not so provided copies and so long as the Trustee shall
have received the report as stipulated above.
Section 3.13. Access to Certain Documentation and Information Regarding
the Mortgage Loans. The Master Servicer shall provide access to the Trustee or
to its designees at its request, and to Certificateholders which are savings and
loan associations, banks or insurance companies, the OTS, the FDIC and the
Supervisory Agents and examiners of the OTS and the FDIC or examiners of any
other federal or state banking or insurance regulatory authority to the
documentation regarding the Mortgage Loans if so required by applicable
regulations of the OTS or other regulatory authority, such access to be afforded
without charge but only upon reasonable request and during normal business hours
at the offices of the Master Servicer designated by it. The Trustee or its
designee may copy any document or electronic record maintained by the Master
Servicer hereunder.
[Section 3.14. Back-up Servicer. [ABN AMRO Bank N.V.] agrees to serve as
back-up servicer (the "Back-up Servicer") after notice of termination given in
accordance with Section 7.5, and agrees to assume the rights, obligations and
the duties of the Master Servicer, including those specified in Section 4.3
hereof if the Master Servicer fails to perform such duties, subject to Section
7.5 hereof and provided that it shall have no liability for any act of the
Master Servicer prior to such assumption. In the event that the rating of the
long-term debt obligations of the Back-up Servicer is downgraded by any Rating
Agency and any Rating Agency notifies the Master Servicer or the Trustee that
the rating of the Class A Certificates shall be downgraded or withdrawn as a
result of such long-term debt obligation downgrade, the Master Servicer shall,
at its option, either (x) replace the Back-up Servicer with a successor back-up
servicer acceptable to the Rating Agency and having the
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qualifications for a successor Master Servicer set forth in Section 7.5(b)
hereof, provided, however, prior to such Certificate downgrade the Back-up
Servicer shall be provided a reasonable opportunity to satisfy the Rating Agency
that no such Certificate downgrade should occur or (y) deliver to the Trustee
(outside and separate from the Trust Fund) Permitted Investments to be held in
the name of the Trustee for the benefit of the Certificateholders to secure the
obligations of the Master Servicer to make advances pursuant to Section 4.3, in
such manner and amount as is satisfactory to all Rating Agencies (but in no
event to have a fair market value on the date of delivery in excess of [1%] of
the initial Pool Balance) [provided, however, that the Master Servicer also
delivers to the Trustee an opinion of counsel to the effect that such deposit
shall not be treated as a contribution to the REMIC giving rise to a prohibited
transaction tax.]]
Section 3.15. Sale of Defaulted Mortgage Loans and REO Properties.
(a) With respect to any Defaulted Mortgage Loan or REO Property which the
Master Servicer has determined to sell in accordance with the standards set
forth in Section 3.7, the Master Servicer shall deliver to the Trustee an
Officer's Certificate to the effect that no satisfactory arrangements can be
made for collection of delinquent payments thereon pursuant to Section 3.2, and,
consistent with the servicing standard set forth in Section 3.1 and with a view
to the best economic interest of the Trust Fund, the Master Servicer has
determined to sell such Mortgage Loan in accordance with this Section 3.15. The
Master Servicer may then offer to sell to any Person any Defaulted Mortgage Loan
or any REO Property or, subject to the following sentence, purchase any such
Defaulted Mortgage Loan or REO Property (in each case at the Repurchase Price
therefor), but shall, in any event, so offer to sell any REO Property no later
than the time determined by the Master Servicer to be sufficient to result in
the sale of such REO Property within the period specified in Section 3.7(c). The
Master Servicer shall accept the highest bid received from any Person for any
Defaulted Mortgage Loan or any REO Property in an amount at least equal to the
Repurchase Price therefor or, at its option, if it has received no bid at least
equal to the Repurchase Price therefor, purchase the Defaulted Mortgage Loan or
REO Property at the Repurchase Price.
In the absence of any such bid or purchase by the Master Servicer, the
Master Servicer shall accept the highest bid received from any Person that is
determined by the Master Servicer to be a fair price for such Defaulted Mortgage
Loan or REO Property, if the highest bidder is a Person other than an Interested
Person, or is determined to be such a price by the
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Trustee, if the highest bidder is an Interested Person. [Notwithstanding
anything to the contrary herein, neither the Trustee, in its individual
capacity, nor any of its Affiliates may bid for or purchase any Defaulted
Mortgage Loan or any REO Property pursuant hereto.]
The Master Servicer shall not be obligated by either of the foregoing
paragraphs or otherwise to accept the highest bid if the Master Servicer
determines, in accordance with the servicing standard stated in Section 3.1,
that rejection of such bid would be in the best interests of the
Certificateholders. In addition, the Master Servicer may accept a lower bid if
it determines, in accordance with the servicing standard stated in Section 3.1,
that acceptance of such bid would be in the best interests of the
Certificateholders (for example, if the prospective buyer making the lower bid
is more likely to perform its obligations, or the terms offered by the
prospective buyer making the lower bid are more favorable). In the event that
the Master Servicer determines with respect to any REO Property that the bids
being made with respect thereto are not in the best interests of the
Certificateholders and that the end of the two-year period referred to in
Section 3.7(c) with respect to such REO Property is approaching, the Master
Servicer shall seek an extension of such two-year period in the manner described
in Section 3.7(c).
(b) In determining whether any bid received from an Interested Person
represents a fair price for any Defaulted Mortgage Loan or any REO Property, the
Trustee may conclusively rely on the opinion of an Independent appraiser or
other expert in real estate matters retained by the Trustee. In determining
whether any bid constitutes a fair price for any Defaulted Mortgage Loan or any
REO Property, the Master Servicer or the Trustee (or, if applicable, such
appraiser) shall take into account, and any appraiser or other expert in real
estate matters shall be instructed to take into account, as applicable, among
other factors, the period and amount of any delinquency on the affected
Defaulted Mortgage Loan, the physical condition of the related Mortgaged
Property or such REO Property, the state of the local economy and the Trust
Fund's obligation to dispose of any REO Property within the time period
specified in Section 3.7(c).
(c) The Master Servicer shall act on behalf of the Trust Fund in
negotiating and taking any other action necessary or appropriate in connection
with the sale of any Defaulted Mortgage Loan or REO Property, including the
collection of all amounts payable in connection therewith. Any sale of a
Defaulted Mortgage Loan or any REO Property shall be without recourse to, or
representation or warranty by, the Trustee, the Depositor, the Master Servicer
or the Trust Fund (except that any contract of sale and assignment and
conveyance documents may contain customary warranties of title, so long as the
only recourse for
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breach thereof is to the Trust Fund), and, if consummated in accordance with the
terms of this Agreement, neither the Master Servicer, the Depositor nor the
Trustee shall have any liability to the Trust Fund or any Certificateholder with
respect to the purchase price therefor accepted by the Master Servicer or the
Trustee.
(d) The proceeds of any sale after deduction of the expenses of such sale
incurred in connection therewith shall be promptly deposited in the Certificate
Account in accordance with Section 3.2(b).
Section 3.16. Delegation of Duties. In the ordinary course of business, the
Master Servicer or the Trustee may at any time delegate any duties hereunder to
any Person who agrees to conduct such duties in accordance with the applicable
terms of this Agreement. In case of such delegation, the Master Servicer or the
Trustee shall supervise, administer, monitor and oversee the activities of such
Person hereunder to insure that such Person performs such duties in accordance
herewith and shall be responsible for the acts and omissions of such Person to
the same extent as it is responsible for its own actions or omissions hereunder.
Any such delegations shall not relieve the Master Servicer or the Trustee of its
liability and responsibility with respect to such duties, and shall not
constitute a resignation within the meaning of Section 6.4 hereof and shall be
revocable by any successor Master Servicer or the Trustee.
[Section 3.17. Maintenance of Special Hazard Insurance Policy. __________
and/or the Master Servicer will obtain a Special Hazard Insurance Policy for the
Mortgage Pool. The Special Hazard Insurance Policy for the Mortgage Pool will be
issued by [name of insurer] (the "Special Hazard Insurer").] Except as provided
below, the Master Servicer covenants and agrees to supervise and ensure the
maintenance and administration of the Special Hazard Insurance Policy unless
coverage under such Special Hazard Insurance Policy is exhausted through the
payment of claims.
The Master Servicer shall exercise its best reasonable efforts to maintain
the Special Hazard Insurance Policy, unless coverage thereunder has been
exhausted through payment of claims, and will pay the premium for the Special
Hazard Insurance Policy on a timely basis. In the event the Special Hazard
Insurance Policy is cancelled or terminated for any reason other than exhaustion
of coverage through payment of claims, the Master Servicer will exercise its
best reasonable efforts to obtain from another insurer a replacement policy
comparable to the Special Hazard Insurance Policy with a total coverage that is
equal to the then existing coverage of the Special Hazard Insurance Policy;
provided that if the cost of any such replacement policy
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is greater than the cost of the terminated Special Hazard Insurance Policy, the
amount of coverage under the replacement Special Hazard Insurance Policy may be
reduced to a level such that the applicable premium will not exceed the cost of
the Special Hazard Insurance Policy that was replaced.
Subject to the foregoing limitations, each Special Hazard Insurance Policy
shall provide that, when there has been damage to the Mortgaged Property
securing a defaulted Mortgage Loan and to the extent such damage is not covered
by the standard hazard insurance policy, if any, maintained by the Mortgagor,
the Special Hazard Insurer will pay the lesser of (i) the cost of repair or
replacement of such Mortgaged Property or (ii) upon transfer of such Mortgaged
Property to the Special Hazard Insurer, the unpaid principal balance of such
Mortgage Loan at the time of acquisition of such Mortgaged Property by
foreclosure or deed in lieu of foreclosure, plus accrued interest to the date of
claim settlement (excluding late charges and penalty interest) and certain
expenses incurred in respect of such Mortgaged Property. No claim may be validly
presented under the Special Hazard Insurance Policy unless (i) hazard insurance
on the Mortgaged Property has been kept in force and other reimbursable
protection, preservation and foreclosure expenses have been paid (all of which
must be approved in advance as necessary by the insurer) and (ii) the insured
has acquired title to the Mortgaged Property as a result of default by the
Mortgagor. If the sum of the unpaid principal balance plus accrued interest and
certain expenses is paid by the Special Hazard Insurer, the amount of further
coverage under the Special Hazard Insurance Policy will be reduced by such
amount less any net proceeds from the sale of the Mortgaged Property. Any amount
paid as the cost of repair of the Mortgaged Property will further reduce
coverage by such amount.
[Section 3.18. Letter of Credit. ________ and/or the Master Servicer will
obtain a standby Letter of Credit in favor of the Trustee issued by
________________ (the "L/C Bank") for the Mortgage Pool. Except as provided
below, the Master Servicer hereby covenants and agrees to exercise its best
reasonable efforts to maintain or cause the Letter of Credit to be maintained to
the extent and in the form and amount and for the purposes set forth in this
Agreement. In the event that the Letter of Credit is cancelled or terminated for
any reason or on or before the thirtieth day prior to the expiration date of the
Letter of Credit, the Master Servicer shall give prompt written notice to the
Rating Agency and the Trustee and the Master Servicer shall exercise its best
efforts to obtain a replacement letter of credit, acceptable to the Rating
Agency, comparable in its terms to the Letter of Credit. Prior to delivering any
replacement letter of credit to the Trustee, the Master Servicer shall obtain
confirmation from the Rating Agency that such
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replacement letter of credit would not have adversely affected the then-current
rating assigned to the Certificates by the Rating Agency at the time of such
rating. The cost of obtaining and maintaining any replacement letter of credit
shall be borne by the Master Servicer.
The maximum obligation of the L/C Bank under the Letter of Credit will be
to honor requests for payment thereunder up to a certain aggregate fixed dollar
amount, net of unreimbursed payments thereunder. The duration of coverage and
the amount and frequency of any reduction in coverage provided by the Letter of
Credit will be [___________] or such terms as will be in compliance with the
requirements established by the Rating Agency without adversely affecting the
rating assigned to the Certificates. The amount available under the Letter of
Credit shall be reduced to the extent of the unreimbursed payments thereunder.
The obligations of the L/C Bank under the Letter of Credit will expire [30 days]
after the latest of the scheduled final maturity dates of the Mortgage Loans or
the repurchase of all Mortgage Loans in the Mortgage Pool.
The Master Servicer shall, not later than three business days prior to each
Distribution Date, determine whether a payment under the Letter of Credit will
be necessary on the Distribution Date and will, no later than the third business
day prior to such Distribution Date, advise the L/C Bank and the Trustee of its
determination, setting forth the amount of any required payment. On the
Distribution Date, the L/C Bank will be required to honor the Trustee's request
for payment thereunder in an amount equal to the lesser of (A) the remaining
amount available under the Letter of Credit or (B) the outstanding principal
balances of any Mortgage Loan with respect to which foreclosure proceedings have
been commenced or with respect to which the Master Servicer has agreed to accept
a deed to the property in lieu of foreclosure that has not been purchased by
[_______] [the Master Servicer] pursuant to the terms of this Agreement, to be
assigned on such Distribution Date (together with accrued and unpaid interest
thereon at the related Mortgage Interest Rate to the related Installment Due
Date). The proceeds of such payments under the Letter of Credit will be
deposited into the Certificate Account and will be distributed to
Certificateholders on such Distribution Date, except to the extent of any
unreimbursed Advances or Administration Fees.]
[Section 3.19. Appointment of a Special Servicer. The Master Servicer has
entered into a Special Servicing Agreement with the Special Servicer. Pursuant
to the Special Servicing Agreement, the Special Servicer may instruct the Master
Servicer and if applicable, any sub-Servicer, to commence or delay foreclosure
proceedings with respect to delinquent Mortgage Loans.]
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ARTICLE IV
PAYMENTS TO CERTIFICATEHOLDERS; ADVANCES;
STATEMENTS AND REPORTS
Section 4.1. Distributions. Subject to Section 9.1 hereof respecting the
final distribution, not later than the Business Day next preceding each
Distribution Date, the Master Servicer, shall disburse to the Trustee for
deposit in a Distribution Account which shall be an Eligible Account maintained
by the Trustee and the Trustee shall distribute from such amounts on each
Distribution Date to each Certificateholder of record on the preceding Record
Date the amount to be distributed to the Certificateholder according to the
interest of such Certificateholder as set forth in the Holder's Certificate and
as specified in this Agreement. The Distribution Account shall be held in the
name of the Trustee for the benefit of the Certificateholders and amounts on
deposit therein shall remain uninvested. The distribution will be made by check
mailed by first class mail to the Certificateholder at the address appearing in
the Certificate Register, or in the event the Certificateholder is the
registered owner of Certificates with an aggregate initial Certificate Balance
equal to or greater than $__________ with respect to the Certificates and the
Certificateholder has so notified the Trustee in writing five Business Days
prior to the applicable Record Date (which notice the Trustee may rely on until
it receives further notice from the Certificateholder), by wire transfer in
immediately available funds to the account of such Holder at a bank or other
financial or depository institution specified in such notice having appropriate
facilities therefor. In the event that the Trustee is not acting as Certificate
Registrar, the Trustee shall have no liability for its failure to make
distributions to Certificateholders required by this Agreement in the event it
has been unable to obtain all information regarding the identity of
Certificateholders and the interests of each in the Trust Fund to be disbursed
to each Certificateholder required in order to make such distributions; provided
however, that in such case the Trustee shall make such distributions immediately
upon identification of the Certificateholders and their respective amount.
Section 4.2. Subordination; Priority of Distributions.
(a) All of the right, title and interest of the Class B Certificateholders
to receive distributions in respect thereof on any Distribution Date shall be
subordinated to the rights of the Class A Certificateholders to receive
distributions in respect of the Class A Certificates. The Class B
Certificateholders shall bear all Excess Credit Losses, Bankruptcy Losses up to
the
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Bankruptcy Loss Limit, Fraud Losses up to the Fraud Loss Limit and Special
Hazard Losses up to the Special Hazard Loss Limit until the Class B Principal
Balance equals zero.
(b) If the Class B Principal Balance is zero, all Excess Credit Losses,
Fraud Losses, Special Hazard Losses and Bankruptcy Losses to the extent not
previously allocated shall be allocated to the Class A Certificates on the
related Distribution Date.
Section 4.3. Advances.
(a) If on any Determination Date the Master Servicer determines that any
monthly payments of principal and interest due on the immediately preceding
Installment Due Date have not been received, the Master Servicer, to the extent
it determines such amounts are recoverable, shall make an advance ("Advance") on
or before the Business Day prior to the related Distribution Date in an amount
equal to the amount of such delinquent monthly payments, after adjustment of any
delinquent interest payment to interest at the applicable Mortgage Pass-Through
Rate, less an amount, if any, the Master Servicer has determined would not be
recoverable from Liquidation Proceeds or otherwise. For purposes of this Section
4.3, the delinquent monthly payments referred to in the preceding sentence shall
be deemed to include an amount equal to the monthly payments that would have
been due on Mortgage Loans which have been foreclosed or otherwise terminated
and in connection therewith, the Trustee acquired and continues to own the
Mortgaged Properties on behalf of the Certificateholders. If the Master Servicer
shall have determined to make an Advance, it shall on the related Determination
Date furnish a statement to the Trustee (the information in such statement to be
made available to Certificateholders upon request) setting forth the amount to
be advanced on the next succeeding Distribution Date, and shall by the Business
Day prior to such Distribution Date either (i) deposit in the Certificate
Account an amount equal to the Advance, if any, (ii) cause to be made an
appropriate entry in the records of the Certificate Account that funds in such
account being held for future distribution or withdrawal have been, as provided
by this Section 4.3, used by the Master Servicer to make such Advance, or (iii)
any combination of (i) and (ii) above, aggregating the amount of such Advance.
Any such Advance shall be included with the distribution to the
Certificateholders on the related Distribution Date. The Master Servicer will
notify the Trustee on the date that an Advance, if any, has been made. If the
Master Servicer determines not to make an Advance, it shall on the related
Determination Date furnish to the Trustee and the Rating Agency an Officer's
Certificate of such determination. Any funds being held for future distribution
to Certificateholders and so used shall be replaced by the Master Servicer by
deposit in the Certificate Account on or before any
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future Distribution Date to the extent that funds in the Certificate Account on
such Distribution Date shall be less than payments to Certificateholders
required to be made on such date. The Master Servicer shall be entitled to be
reimbursed from the Certificate Account for all Advances and Nonrecoverable
Advances as provided in Section 3.3.
(b) In the event that the Master Servicer fails to make an Advance as
required pursuant to Section 4.3(a) by the end of the Business Day prior to the
Distribution Date, the Trustee shall make such Advance by making a direct
deposit of such amount to the Distribution Account on the Distribution Date and
the Trustee shall have (and shall be subrogated to) all rights of recovery and
reimbursement for or in request of such Advance to the same extent as the Master
Servicer would have under this Agreement if the Master Servicer had made such
Advance.
Section 4.4. Statements to Certificateholders. (a) On each Distribution
Date, the Trustee shall furnish each Class A Certificateholder and the Rating
Agency a statement setting forth to the extent applicable the following
information with respect to such Distribution Date:
(i) the aggregate amount of such distribution to the Holders of the
Class A Certificates allocable to principal on the Mortgage Loans,
separately identifying the aggregate amount of any Principal Prepayments
included herein;
(ii) the aggregate amount of such distribution to the Holders of the
Class A Certificates allocable to interest on the Mortgage Loans;
(iii) the Class A Principal Balance;
(iv) the Class A Percentage;
(v) the Class A and Class B Prepayment Entitlement;
(vi) the aggregate amount of any Advances included in the amounts
actually distributed to the Certificateholders;
(vii) the aggregate amount of Deferred Interest, if any, added to the
Pool Principal Balance with respect to the related Prepayment Period;
(viii) the aggregate Principal Balance of the Mortgage Loans and the
number of Mortgage Loans as of the close of business on the last day of the
related Prepayment Period prior to the immediately preceding Installment
Due Date, after giving effect to payments allocated to principal reported
under clause (i) above;
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(ix) the related amount of the Administration Fees (as adjusted
pursuant to Section 4.6 by amounts paid by the Master Servicer pursuant to
Section 3.9) retained or withdrawn from the Certificate Account by the
Master Servicer and the amount of additional servicing compensation
received by the Master Servicer attributable to penalties, fees, excess
Liquidation Proceeds and other items;
(x) the number and aggregate Principal Balances of Mortgage Loans
delinquent with respect to (a) one Monthly Payment, (b) 60 days, (c) 90
days and (d) in foreclosure, as of the close of business on the last day of
the related Prepayment Period prior to the immediately preceding
Installment Due Date;
(xi) if the distribution to the Holders of the Class A Certificates is
less than the full amount that would be distributable to such Holders if
there were sufficient funds available therefor, the amount of the shortfall
and the allocation thereof as between principal and interest;
(xii) the total book value and the number of Mortgaged Properties
acquired through foreclosure or grant of a deed in lieu of foreclosure in
respect of any Mortgage Loan as of the close of business on the last day of
the related Prepayment Period prior to the immediately preceding
Installment Due Date and any income, including rental income, realized with
respect to foreclosed property; the Principal Balance of all Mortgage Loans
as of the day the related Mortgaged Properties were acquired through
foreclosure or grant of deed in lieu of foreclosure;
(xiii) the weighted average Mortgage Pass-Through Rate as of the
Installment Due Date of the month immediately preceding the Month of the
Distribution Date;
(xiv) the amount of Fraud Losses, if any, with respect to the related
Prepayment Period and the cumulative amount of Fraud Losses since the Cut-
off Date;
(xv) the amount of Bankruptcy Losses, if any, with respect to the
related Prepayment Period and the cumulative amount of Bankruptcy Losses
since the Cut-off Date;
(xvi) the amount of Special Hazard Losses, if any, with respect to the
related Prepayment Period and the cumulative amount of Special Hazard
Losses since the Cut-off Date;
(xvii) the amount of Excess Credit Losses, if any, during the related
Prepayment Period and the cumulative amount of Excess Credit Losses since
the Cut-off Date;
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(xviii) all Advance recovered during the related Prepayment Period; and
(xix) the amount of the Class B Principal Balance.
(b) The Trustee shall forward to each Class B Certificateholder on each
Distribution Date a statement setting forth the same information as is contained
in the statement for Class A Certificateholders pursuant to this Section 4.4,
which can be a part of the statement sent to the Class A Certificateholders
revised to the extent applicable to reflect the distributions to the Class B
Certificateholders. In addition, such statement shall set forth, in the case of
Class B Certificateholders, the amounts withheld and paid to the Class A
Certificateholders on such Distribution Date, together with such other
information as the Trustee deems necessary or appropriate.
(c) Upon reasonable advance notice in writing if required by federal
regulation, the Merger Servicer will provide to each Certificateholder that is a
savings association, bank or insurance company certain reports and access to
information and documentation regarding the Mortgage Loans sufficient to permit
such Certificateholder to comply with applicable regulations of the applicable
regulatory authorities with respect to investment in the Certificates; provided
that the Master Servicer shall be entitled to be reimbursed by each such
Certificateholder for the Master Servicer's actual expenses incurred in
providing such reports and access.
(d) Within 30 days following the end of each calendar year, the Master
Servicer shall furnish to the Trustee, or the Trustee shall prepare, a statement
relating in the aggregate to the Certificates and the Trustee shall furnish to
each person who at any time during the calendar year was a Certificateholder
(a) a statement containing the information set forth in subclauses (i) and (ii)
above, for such calendar year, and (b) such other customary information as the
Trustee deems necessary or desirable for Certificateholders to prepare their tax
returns. Such obligations of the Master Servicer and the Trustee shall be deemed
to have been satisfied to the extent that substantially comparable information
shall be provided by the Master Servicer pursuant to any requirements of the
Code.
(e) On each Distribution Date the Trustee shall forward or cause to be
forwarded by mail to each Holder of a Class R Certificate and to the Master
Servicer a copy of the report forwarded to the Holders of Class A and Class B
Certificates on such Distribution Date.
(f) Within a reasonable period of time after the end of each calendar year,
the Trustee shall furnish or cause to be
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furnished to each Person who at any time during the calendar year was the Holder
of the Class R Certificate a statement containing the information set forth in
clause 4.4(a). This duty of the Trustee shall be deemed to have been satisfied
to the extent that substantially comparable information shall be provided by the
Trustee or the Master Servicer pursuant to any requirements of the Code.
(g) The Master Servicer shall give prompt written notice to the Rating
Agency of any Special Hazard Losses, Fraud Loss or Bankruptcy Loss.
Section 4.5. Foreclosure Reports. Each year beginning in 199_ the Master
Servicer shall make any reports of foreclosures and abandonments of any
Mortgaged Property required by Section 6050J of the Code. In order to facilitate
this reporting process, the Master Servicer, on or before February 28th of each
year, commencing with 199_, shall provide to the Internal Revenue Service and
the Trustee reports relating to each instance occurring during the previous
calendar year in which the Master Servicer (i) on behalf of the Trustee acquires
an interest in a Mortgaged Property through foreclosure or other comparable
conversion in full or partial satisfaction of a Mortgage Loan, or (ii) knows or
has reason to know that a Mortgaged Property has been abandoned. The reports
from the Master Servicer shall be in form and substance sufficient to meet the
reporting requirements imposed by such Section 6050J.
Section 4.6. Adjustment of Administration Fees with Respect to Prepaid
Mortgage Loans. The aggregate amount of the Administration Fee subject to
retention from deposit into or withdrawal from the Certificate Account by the
Master Servicer, in any month of distribution shall be decreased by an amount
equal to one month's interest at the applicable Mortgage Pass-Through Rate on
any Mortgage Loan with respect to which a Principal Prepayment [in full] (plus
that portion of the prepayment received which constitutes the principal
component of any Monthly Payment currently due at the time of receipt of such
prepayment) was made by a Mortgagor in the related Prepayment Period between
Installment Due Dates, less the aggregate amount of all interest (adjusted to
the applicable Mortgage Pass-Through Rates) actually paid by such Mortgagor with
respect to such Principal Prepayment for the period from the preceding
Installment Due Dates for such Mortgage Loan to the date of such Principal
Prepayment. The Master Servicer shall include the amount of any reduction in the
Administration Fee as described herein with the distribution to the
Certificateholders on the related Distribution Date. Notwithstanding the
foregoing, the amount by which the Administration Fee may be reduced with
respect to the related Prepayment Period pursuant to this Section 4.6 shall not
exceed the lesser of (i) 1/12th of ____% of
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the aggregate Principal Balance of the Mortgage Loans or (ii) the aggregate
amount of the Administration Fee that was collected during the related
Prepayment Period by the Master Servicer, and the rights of the
Certificateholders to such portion of the Administration Fee shall not be
cumulative. Except with respect to any Mortgage Loan with scheduled principal
payments due on the first day of the month, in the event any such Mortgage Loan
is prepaid in full in a given month on a date after the scheduled principal
payment due date of such Mortgage Loan in such month, the Master Servicer shall
retain, as an increase in the Administration Fee, the amount of the Mortgagor's
payments attributable to interest at the applicable Mortgage Pass-Through Rate
paid on the Mortgage Loan from the scheduled principal payment due date of such
Mortgage Loan to the date of prepayment.
[Section 4.7. Prohibited Transactions Taxes and Other Taxes.
(a) In the event that any tax (including a tax on "prohibited transactions"
as defined in Section 860F(a)(2) of the Code and including any and all interest,
penalties, fines and additions to tax, as well as any and all reasonable counsel
fees and out-of-pocket expenses incurred in contesting the imposition of such
tax) is imposed on the Trust Fund and is not otherwise paid pursuant to Section
4.7(c) hereof, the Master Servicer shall pay such taxes when and as the same
shall be due and payable (but such obligation shall not prevent the Master
Servicer, the Trustee, or any other appropriate Person from contesting any such
tax in appropriate proceedings and shall not prevent the Master Servicer from
withholding payment of such tax, if permitted by law, pending the outcome of
such proceedings); provided, that the Master Servicer shall be entitled to be
indemnified for any such taxes (excluding taxes referred to in Section 4.7(c))
to the extent set forth in Section 6.3 hereof so long as the Master Servicer's
failure to exercise reasonable care with respect to the performance of its
duties hereunder was not the primary cause of the imposition of such taxes. If
the Master Servicer is indemnified for such taxes pursuant to this Section
4.7(a), such amount shall be first charged against amounts otherwise
distributable to the Holders of the Class R Certificate on a pro rata basis,
then against amounts otherwise distributable to the Holders of the Class A and
the Class B Certificates on a pro rata basis. The Trustee is hereby authorized
to retain from amounts otherwise distributable to the Certificateholders
sufficient funds to reimburse the Master Servicer for the payment of such tax
for which the Master Servicer is entitled to indemnification.
(b) The Class R Certificateholder shall pay on written demand, and shall
indemnify and hold harmless the Trust Fund from and against, any and all taxes
on "prohibited transactions" as defined in Section 860F(a)(2) of the Code
(including, for this
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purpose, any and all interest, penalties, fines and additions to tax, as well as
any and all reasonable counsel fees and out-of-pocket expenses incurred in
contesting the imposition of such tax) imposed on the Trust Fund as a result of
a purchase by the Class R Certificateholder of a Mortgage Loan pursuant to
Section 9.1 hereof unless the Class R Certificateholder's failure to exercise
reasonable care was not the primary cause of the imposition of such prohibited
transaction taxes.
(c) The Master Servicer shall pay on written demand, and shall indemnify
and hold harmless the Trust Fund from and against, any and all taxes imposed on
the Trust Fund (including, for this purpose, any and all interest, penalties,
fines and additions to tax, as well as any and all reasonable counsel fees and
out-of-pocket expenses incurred in contesting the imposition of such tax).
[Section 4.8. Tax Administration.
(a) The [Master Servicer] is hereby appointed as the initial "tax matters
person" for the REMIC within the meaning of Section 6231(a)(7) of the Code. For
tax years commencing after any transfer by the Master Servicer of its interest
in the Class R Certificates, the holder of the greatest Percentage Interest in
the Class R Certificate at year end shall be designated as the "tax matters
person" with respect to that year, provided however, that the [Master Servicer]
shall obtain the consent of such Class R Certificateholder to appointment of the
Master Servicer as attorney-in-fact and agent for the "tax matters person."
(b) The [Master Servicer], as a fiduciary defined in Section 7701(a)(6) of
the Code, shall, after it prepares or causes to be prepared such returns, sign
and file the annual income tax return (Form 1066) as well as such other federal
and state information and other returns as it may require under the REMIC
Provisions (including, but not limited to, Schedule Q of Form 1066 which shall
also be provided quarterly by the [Master Servicer] to the Class R
Certificateholder) for the Trust Fund (unless it is advised by the Master
Servicer that the filing of such returns is no longer required under the Code),
based on a taxable year for the Trust Fund that is the calendar year. The
Trustee shall, at its expense, prepare or cause to be prepared all such annual
income tax returns and information returns. [The income tax return filed for the
first taxable year of the Trust Fund shall include the REMIC election referred
to in Section 2.5 hereof.]
(c) In order to enable the Trustee to perform its duties as set forth in
this Section 4.8, the Master Servicer agrees to provide any tax forms,
instruments or other documents related
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thereto, as the Trustee may reasonably request, including, without limitation,
any tax forms, instruments or other documents prepared by the Master Servicer
pursuant to this Section 4.8 In order to enable the Trustee to perform its
duties as set forth in this Section 4.8, the Master Servicer shall use its best
efforts to cause to be delivered to the Trustee within ten (10) days after the
Closing Date all information or data that the Trustee determines to be relevant
for tax purposes to the valuations and offering prices of the Class A
Certificates and the Class B Certificates, including, without limitation, the
price, yield, prepayment assumption and projected cash flows of the Class A
Certificates and the Class B Certificates. Thereafter, the Master Servicer shall
use its best efforts to provide to the Trustee, promptly upon request therefor,
any such additional information or data that the Trustee may, from time to time,
request in order to enable the Trustee to perform its duties as set forth in
this Section 4.8.]
Section 4.9. Equal Status of Administration Fee. The right of the Master
Servicer to receive its Administration Fee will be equal and not subordinate to
the right of the Certificateholders to receive principal and interest payments
based on their interests as provided herein. The Master Servicer's
Administration Fee may be collected from Monthly Payments as received pursuant
to Section 3.2 without deposit into the Certificate Account, whereas the
Certificateholders' distributions shall be made on a delayed basis as set forth
in the terms of the Certificates.
[Section 4.10. Appointment of Paying Agent and Certificate Administrator.
The Master Servicer or the Trustee may each appoint an Eligible Institution to
act as a paying agent (the "Paying Agent") or a certificate administrator (the
"Certificate Administrator"), as the case may be, in order to delegate to such
Eligible Institution any of its duties under this Agreement to administer the
issuance, transfer and exchange of the Certificates, administer payments to
Certificateholders or prepare information related to the Certificates; provided,
that the Master Servicer and the Trustee shall remain primarily responsible for
any duties so delegated; provided, further, that the Master Servicer and the
Trustee shall receive no additional compensation in connection with such
appointment and delegation. The Master Servicer or the Trustee, as the case may
be, shall send written notice to each other and to all Certificateholders of any
appointment pursuant to this Section 4.10.]
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ARTICLE V
THE CERTIFICATES
Section 5.1. The Certificates. The Class A shall be issued in minimum
denominations of $___________ and integral multiples of $___________ (except for
one Class A Certificate that evidences such additional Denomination which will
result in all Class A Certificates evidencing the appropriate principal balance
of Mortgage Loans), the Class B Certificate shall be issued in minimum
denominations of $___________ and integral multiples of $___________ (except for
one Class B Certificate that evidences such additional Denomination which will
result in all Class B Certificates evidencing the appropriate principal balance
of the Mortgage Loans) (each, a "Single Certificate") and shall be substantially
in the form set forth as Exhibit A and Exhibit B, respectively. The Class R
Certificate shall be issuable solely as a single Class R Certificate evidencing
the entire Percentage Interest in the Class R Distribution. On original issue
the Certificates shall be executed and delivered by the Depositor to the Trustee
for authentication and redelivery upon the order of the [Master Servicer] upon
receipt by the Trustee of the documents specified in Section 2.1 (subject to any
document exceptions reported pursuant to the Trustee's review according to the
provisions of Section 2.2). The Certificates shall be executed by manual or
facsimile signature on behalf of the Depositor by its Chairman or Vice Chairman
of the Board, its President or one of its Vice Presidents. Certificates bearing
the manual or facsimile signatures of individuals who were at any time the
proper officers of the Depositor shall bind the Depositor notwithstanding that
such individuals or any of them have ceased to hold such offices prior to the
authentication and delivery of such Certificates or did not hold such offices at
the date of such Certificates. No Certificate shall be entitled to any benefit
under this Agreement, or be valid for any purpose, unless there appears on such
Certificate a certificate of authentication substantially in the form provided
for herein executed by the Trustee by manual signature, and such certificate of
authentication upon any Certificate shall be conclusive evidence, and the only
evidence, that such Certificate has been duly authenticated and delivered
hereunder. All Certificates shall be dated the date of their authentication.
Pending the preparation of definitive Certificates, the Master Servicer may
execute and deliver, and upon the order of the Depositor the Trustee shall
authenticate and redeliver, temporary Certificates which are printed,
lithographed, typewritten, mimeographed or otherwise produced, in any
denomination, substantially of the tenor of the definitive Certificates in lieu
of which they are issued and with such variations as the officers of the Master
Servicer executing such
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Certificates may determine, as evidenced by their execution of such
Certificates.
If temporary Certificates are issued, the Master Servicer will cause
definitive Certificates to be prepared without unreasonable delay and delivered
to the Trustee within 10 Business Days of the Closing Date. After the
preparation of definitive Certificates, the temporary Certificates shall be
exchangeable for definitive Certificates upon surrender of the temporary
Certificates at the office or agency of the Master Servicer maintained for such
purpose pursuant to Section 5.5, without charge to the Holder. Upon surrender
for cancellation of any one or more temporary Certificates, the Master Servicer
shall execute and deliver and the Trustee shall authenticate and redeliver in
exchange therefor a like principal amount of definitive Certificates of the same
Percentage Interest. Until so exchanged the temporary Certificates shall in all
respects be entitled to the same benefits under this Agreement as definitive
Certificates of the same Percentage Interest. The Master Servicer shall provide
the Trustee, on a continuous basis, an adequate inventory of certificates to
facilitate issuance and transfer of certificates.
Section 5.2. Registration of Transfer and Exchange of Certificates.
(a) The Master Servicer shall cause to be kept at one of the offices or
agencies to be maintained by the Master Servicer in accordance with the
provisions of Section 5.5 a Certificate Register in which, subject to such
reasonable regulations as it may prescribe, the Master Servicer shall provide
for the registration of transfers and exchanges of Certificates as herein
provided. The Trustee is hereby initially appointed Certificate Registrar for
the purpose of registering transfers and exchanges of Certificates as herein
provided.
(b) Every Certificate presented or surrendered for transfer or exchange
shall (if so required by the Master Servicer, the Certificate Registrar or the
Trustee) be duly endorsed by, or be accompanied by a written instrument of
transfer in form and such other documents or other writings satisfactory to the
Master Servicer and the Certificate Registrar duly executed by, the holder
thereof or his attorney duly authorized in writing. Subject to the two preceding
paragraphs, upon surrender for registration of transfer of any Certificate at
any office or agency of the Master Servicer maintained for such purpose pursuant
to Section 5.5, the Master Servicer shall prepare and execute, and the Trustee
shall date, authenticate and deliver, in the name of the designated transferee
or transferees, one or more new Certificates of a like aggregate Percentage
Interest.
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(c) At the option of the Certificateholders, Certificates may be exchanged
for other Certificates of a like aggregate Percentage Interest upon surrender of
the Certificates to be exchanged at any such office or agency. Whenever any
Certificates are so surrendered for exchange, the Master Servicer shall prepare
and execute, and the Trustee shall date, authenticate and deliver, the
Certificates which the Certificateholder making the exchange is entitled to
receive.
(d) No transfer of the Class A Certificates shall be made to an "employee
benefit plan" as defined in Section 3(3) of ERISA which is subject to Title I of
ERISA, a "plan" as defined in Section 4975 of the Code, or an entity deemed to
hold plan assets of any such employee benefit plan or plan (each, a "Plan
Entity") unless at the time of such transfer:
(i) The Class A Certificates qualify as "publicly-offered securities"
within the meaning of 29 C.F.R. (S) 2510.3-101(b)(2);
(ii) The Class A Certificates qualify for Prohibited Transaction
Exemption 83-1 (under 48 Federal Register 895 (1983)) and
immediately after the transfer, the transferee will not hold more
than 25% of the Class A Certificates; or
(iii) The Class A Certificates qualify for an individual prohibited
transaction exemption granted to the managing or co-managing
underwriter and the transferee is an "accredited investor" as
defined in Rule 501(a)(1) of Regulation D under the 1933 Act.
No transfer of the Class B or R Certificates shall be made to any Plan
Entity. The Trustee, the Certificate Registrar and/or the Master Servicer may
require the prospective transferee to certify to the Trustee, the Certificate
Registrar and/or the Master Servicer in writing the facts establishing that the
transferee is not a Plan Entity, or that a requirement specified above for
transfer of a Class A Certificate to a Plan Entity is satisfied.
(e) No transfer of the Class B or Class R Certificates shall be made unless
such transfer is made pursuant to an effective registration statement under the
Securities Act or is exempt from the registration requirements under said Act.
In the event that a transfer is to be made in reliance upon an exemption from
the Securities Act, the Trustee may require, in order to assure compliance with
the Securities Act, that the Certificateholder desiring to effect such transfer
and such Certificateholder's prospective transferee each certify to the Trustee
and
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the Master Servicer in writing the facts surrounding the transfer. In the event
that, in the sole judgment of the Trustee, such certification of facts does not
on its face establish the availability of an exemption under Section 4(2) and
4(5) or another provision of the Securities Act, the Trustee may require an
Opinion of Counsel satisfactory in form and substance to it and the Master
Servicer that such transfer may be made pursuant to an exemption from the
Securities Act, which Opinion of Counsel shall not be obtained at the expense of
the Trustee, the Trust Fund or the Master Servicer.
(f) The Class R Certificate shall not be transferred, sold, pledged or
otherwise disposed of to any person having a net worth of less than $__________.
In the event that the Class R Certificate is proposed to be transferred, the
proposed transferee shall, prior thereto, certify to the Trustee in writing that
it satisfies the net worth requirement set forth in the preceding sentence.
[(g) Prior to the registration of any transfer, sale, pledge or other
disposition of any Class R Certificate, the proposed transferee shall certify in
writing to the Trustee, in an affidavit, that such transferee is not a
Disqualified Organization (as defined in Section 860E(e)(5) of the Code). In
addition, the Trustee may require, prior to and as a condition of such transfer,
the delivery by the proposed transferee of an Opinion of Counsel, satisfactory
in form and substance to the Trustee, that such proposed transferee is not a
Disqualified Organization. Notwithstanding the registration in the Register of
any transfer, sale, pledge or other disposition of the Class R Certificate to a
Disqualified Organization, such registration shall be of no legal force or
effect whatsoever and such Disqualified Organization shall not be deemed to be a
Certificateholder for any purpose hereunder, including (but not limited to) the
receipt of distributions on such Class R Certificate. In addition, any transfer,
sale, pledge or other disposition of the Class R Certificate to a Pass-Thru
Entity (as defined in Section 860E(e)(6)(B) of the Code) shall not be effective
unless the proposed transferee shall have agreed in writing, in such form as the
Trustee may require, to provide to the Trustee such information as the Trustee
may reasonably require concerning any record interest holder or principal of
such Pass-Thru Entity who is or was a Disqualified Organization. Any Class R
Certificateholder, by its acceptance thereof, shall be deemed for all purposes
to have consented to the provisions of this paragraph. The restrictions
described in this paragraph shall not apply to a transfer of a Class R
Certificate if the Trustee has received an Opinion of Counsel to the effect that
the restrictions described in this paragraph are not necessary to avoid the
imposition of tax on the Trust Fund or the
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disqualification of the Trust Fund as a REMIC under the REMIC Provisions.]
(h) The Trustee shall have no liability to the Trust Fund arising from a
transfer of a Class B or the Class R Certificate in reliance upon a
certification, ruling or Opinion of Counsel described in this Section 5.2.
(i) No service charge shall be made to a Certificateholder for any transfer
or exchange of Certificates, but the Certificate Registrar may require payment
of a sum sufficient to cover any tax or governmental charge that may be imposed
in connection with any transfer or exchange of Certificates.
(j) All Certificates surrendered for transfer or exchange shall be
cancelled by the Certificate Registrar or the Trustee in accordance with their
standard procedures.
(k) The Master Servicer will cause the Certificate Registrar (unless the
Trustee is acting as Certificate Registrar) to provide to the Trustee notice of
each transfer of a Certificate and an updated copy of the Certificate Register
in June and December of each year.
Section 5.3. Mutilated, Destroyed, Lost or Stolen Certificates. If (i) any
mutilated Certificate is surrendered to the Certificate Registrar, or the Master
Servicer and the Certificate Registrar receive evidence to their satisfaction of
the destruction, loss or theft of any Certificate, and (ii) there is delivered
to the Master Servicer and the Certificate Registrar such security or indemnity
as may be required by them to save each of them harmless, then, in the absence
of notice to the Master Servicer or the Certificate Registrar that such
Certificate has been acquired by a bona fide purchaser, the Master Servicer
shall execute and the Trustee shall authenticate and deliver, in exchange for or
in lieu of any such mutilated, destroyed, lost or stolen Certificate, a new
Certificate of like tenor and Percentage Interest. Upon the issuance of any new
Certificate under this Section 5.3, the Master Servicer may require the payment
of a sum sufficient to cover any tax or other governmental charge that may be
imposed in relation thereto and any other expenses (including the fees and
expenses of the Certificate Registrar) connected therewith. Any replacement
Certificate issued pursuant to this Section 5.3 shall constitute complete and
indefeasible evidence of ownership in the Trust Fund, as if originally issued,
whether or not the lost, stolen, or destroyed Certificate shall be found at any
time.
Section 5.4. Persons Deemed Owners. Prior to the due presentation of a
Certificate for registration of transfer, the Depositor, the Master Servicer,
the Trustee, the Certificate
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Registrar and any agent of the Depositor, the Master Servicer, the Trustee or
the Certificate Registrar may treat the Person in whose name any Certificate is
registered as the owner of such Certificate for the purpose of receiving
distributions pursuant to Section 4.1, and for all other purposes whatsoever,
and neither the Depositor, the Master Servicer, the Trustee, the Certificate
Registrar nor any agent of the Depositor, the Master Servicer, the Trustee or
the Certificate Registrar shall be affected by notice to the contrary.
Section 5.5. Maintenance of Office or Agency. The Trustee will maintain, at
its expense, an office or agency where Certificates may be surrendered for
registration of transfer or exchange and where notices and demands to or upon
the Certificate Registrar in respect of the Certificates and this Agreement may
be served. The Trustee initially designates the Corporate Trust Office and the
principal corporate trust office of the Authenticating Agent, if any, as its
offices and agencies for said purposes.
ARTICLE VI
THE DEPOSITOR AND THE MASTER SERVICER
Section 6.1. Liability of the Depositor and the Master Servicer. The
Depositor and the Master Servicer shall each be liable in accordance herewith
only to the extent of the obligations specifically imposed by this Agreement and
undertaken hereunder by the Depositor and the Master Servicer herein.
Section 6.2. Merger or Consolidation of the Depositor or the Master
Servicer. Subject to the following paragraph, the Depositor and the Master
Servicer each will keep in full effect its existence, rights and franchises as
corporations, each under the laws of the jurisdiction of its incorporation, and
will obtain and preserve its qualification to do business as a foreign
corporation in each jurisdiction in which such qualification is or shall be
necessary to protect the validity and enforceability of this Agreement, the
Certificates or any of the Mortgage Loans and to perform its respective duties
under this Agreement.
The Depositor or the Master Servicer may be merged or consolidated with or
into any Person, or transfer all or substantially all of its assets to any
Person, in which case any Person resulting from any merger or consolidation to
which the Depositor or Master Servicer shall be a party, or any Person
succeeding to the business of the Depositor or Master Servicer, shall be the
successor of the Depositor or Master Servicer hereunder, without the execution
or filing of any paper or any
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further act on the part of any of the parties hereto, anything herein to the
contrary notwithstanding.
Section 6.3. Limitation on Liability of the Master Servicer and Others.
Neither the Master Servicer nor any of the directors, officers, employees or
agents of the Master Servicer shall be under any liability to the Trust Fund or
the Certificateholders for any action taken or for refraining from the taking of
any action in good faith pursuant to this Agreement, or for errors in judgment;
provided, however, that this provision shall not protect any director, officer,
employee or agent of the Master Servicer against any liability which would
otherwise be imposed by reason of willful misfeasance, bad faith or gross
negligence in the performance of duties or by reason of reckless disregard of
obligations and duties hereunder, nor shall this provision protect the Master
Servicer against any liability that would otherwise be imposed by reason of
negligence in the performance of duties hereunder. The Master Servicer and any
director, officer, employee or agent of the Master Servicer may rely in good
faith on any document of any kind prima facie properly executed and submitted by
any Person respecting any matters arising hereunder. The Master Servicer and any
director, officer, employee or agent of the Master Servicer shall be indemnified
by the Trust Fund and held harmless against any loss, liability or expense
incurred in connection with any legal action relating to this Agreement or the
Certificates, other than any loss, liability or expense, in the case of the
Master Servicer and any director, officer, employee or agent of the Master
Servicer, incurred by reason of willful misfeasance, bad faith or gross
negligence in the performance of duties hereunder or by reason of reckless
disregard of obligations and duties hereunder or, in the case of the Master
Servicer, as Master Servicer, incurred by reason of negligence in the
performance of any duties hereunder. The Master Servicer shall not be under any
obligation to appear in, prosecute or defend any legal action which is not
incidental to its duties to service the Mortgage Loans in accordance with this
Agreement and which in its opinion may involve it in any expense or liability;
provided, however, that the Master Servicer may in its discretion undertake any
such action which it may deem necessary or desirable in respect of this
Agreement and the rights and duties of the parties hereto and the interests of
the Certificateholders hereunder. In such event, the legal expenses and costs of
such action and any liability resulting therefrom shall be expenses, costs and
liabilities of the Trust Fund, and the Master Servicer shall be entitled to be
reimbursed therefor out of the Certificate Account as provided by Section 3.3.
Section 6.4. Master Servicer Not to Resign. The Master Servicer shall not
resign from the obligations and duties hereby imposed on it, except upon
determination that its duties
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hereunder are no longer permissible under applicable law or are in material
conflict by reason of applicable law with any other activities carried on by it,
the other activities of the Master Servicer so causing such a conflict being of
a type and nature carried on by the Master Servicer at the date of this
Agreement. Any such determination permitting the resignation of the Master
Servicer shall be evidenced by an Opinion of Counsel to such effect delivered to
the Trustee. The Master Servicer shall notify the Rating Agency of any such
resignation. No such resignation shall become effective until the Back-up
Servicer or other successor servicer shall have assumed the Master Servicer's
responsibilities and obligations in accordance with Section 7.5 hereof.
Notwithstanding the limitations stated above, the Master Servicer may
transfer its obligations, duties and rights hereunder without the consent of the
Certificateholders, provided that (i) the Master Servicer obtains the prior
written consent of the Rating Agency, (ii) the transferee is a FNMA- or FHLMC-
approved servicer having a net worth of not less than $______________, (iii) the
successor servicer assumes all of the Master Servicer's responsibilities and
obligations (except the repurchase obligations set forth in Sections 2.2 and 2.3
hereof, which shall remain obligations of the Depositor) in accordance with
Section 7.5 hereof, and (iv) the then-current rating of the Class A Certificates
will not be reduced as a result of such transfer, and (v) has, in the reasonable
opinion of the Trustee, the qualifications, resources and experience to properly
carry out, observe and perform the duties, obligations and responsibilities of
Master Servicer hereunder; provided however, that the foregoing clause (v) is
intended solely for the benefit of (and may be exercised or waived at the sole
discretion of) the Trustee, to enable the Trustee to assure itself that any
successor Master Servicer has such acceptable qualifications, resources and
experience, and such clause (v) is not intended to be for the benefit of, and
shall not be relied upon or enforced by, any Certificateholder, and provided
further that, any consent to such transfer will not be unreasonably withheld by
the Trustee.
ARTICLE VII
DEFAULT
Section 7.1. Events of Default. In case one or more of the following Events
of Default by the Master Servicer shall occur and be continuing, that is to say:
(i) any failure by the Master Servicer to distribute or cause to be
distributed to the Certificateholders any
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payment (other than an Advance) required to be made under the terms of the
Certificates and this Agreement which continues unremedied for a period of
five days after the date upon which written notice of such failure,
requiring the same to be remedied, shall have been given to the Master
Servicer by the Trustee or the Holders of Certificates evidencing, in
aggregate, not less than 25% of the Trust Fund or 51% of the aggregate
Percentage Interests of any Class of Certificates;
(ii) any failure on the part of the Master Servicer duly to observe or
perform in any material respect any other of the covenants or agreements on
the part of the Master Servicer in the Certificates or in this Agreement
which continues unremedied for a period of 60 days after the date on which
written notice of such failure, requiring the same to be remedied, shall
have been given to the Master Servicer by the Trustee, or to the Master
Servicer and the Trustee by the Holders of Certificates evidencing, in
aggregate, not less than 25% of the Trust Fund or 51% of the aggregate
Percentage Interests of any class of certificates;
(iii) a decree or order of a court or agency or supervisory authority
having jurisdiction in the premises for the appointment of a conservator or
receiver or liquidator in any insolvency, readjustment of debt, marshalling
of assets and liabilities or similar proceedings, or for the winding-up or
liquidation of its affairs, shall have been entered against the Master
Servicer and such decree or order shall have remained in force undischarged
or unstayed for a period of 60 days;
(iv) the Master Servicer shall consent to the appointment of a
conservator or receiver or liquidator or liquidating committee in any
insolvency, readjustment of debt, marshalling of assets and liabilities,
voluntary liquidation or similar proceedings of or relating to the Master
Servicer or of or relating to all or substantially all of its property;
(v) the Master Servicer shall admit in writing its inability to pay
its debts generally as they become due, file a petition to take advantage
of any applicable insolvency or reorganization statute, make an assignment
for the benefit of its creditors or voluntarily suspend payment of its
obligations; or
(vi) any failure of the Master Servicer to make any Advance required
to be made from its own funds pursuant to Section 4.3(a) which continues
unremedied for a period of
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one Business Day after the date upon which such Advance was to have been
made;
then, if an Event of Default described in clauses (i)-(v) of this Section 7.1
shall occur, and in each and every such case, subject to applicable law, so long
as an Event of Default shall not have been remedied, either the Trustee or the
Holders of Certificates evidencing, in aggregate, not less than 25% of the Trust
Fund or 51% of the aggregate Percentage Interests of any Class of Certificates
by notice in writing to the Master Servicer [and the Back-up Servicer] (and to
the Trustee if given by the Certificateholders [and the Back-up Servicer if
given by the Trustee]) may terminate all of the rights and obligations of the
Master Servicer under this Agreement, but without prejudice to any rights it may
have to reimbursement of expenses, Advances and other advances of its own funds
as Master Servicer to the extent permitted by this Agreement, other than the
Depositor's (or its successors') obligation to repurchase any Mortgage Loans
pursuant to Section 2.2 or 2.3 shall survive any such termination. If an Event
of Default described in clause (vi) hereof shall occur, the Trustee shall, by
notice in writing to the Master Servicer [and the Back-up Servicer], which shall
be telecopied to the Master Servicer, immediately terminate all of the rights
and obligations of the Master Servicer, under this Agreement and in and to the
Mortgage Loans and the proceeds thereof. On or after the receipt by the Master
Servicer of such written notice, all authority and power of the Master Servicer
under this Agreement, whether with respect to the Certificates or the Mortgage
Loans or otherwise, shall pass to and be vested in [the Trustee or the Back-up
Servicer] pursuant to and under this Section 7.1 (subject to the provisions of
Section 7.5 in the case of [the Trustee or the Back-up Servicer]); and, without
limitation, the Trustee is hereby authorized and empowered to execute and
deliver, on behalf of the Master Servicer, as attorney-in-fact or otherwise, any
and all documents and other instruments, and to do or accomplish all other acts
or things necessary or appropriate to effect the purposes of such notice of
termination, whether to complete the transfer and endorsement or assignment of
the Mortgage Loans and related documents or otherwise at the expense of the
Master Servicer. The Master Servicer agrees to cooperate with the Trustee [and
the Back-up Servicer] in effecting the termination of the Master Servicer's
responsibilities and rights hereunder and shall promptly provide the Trustee all
documents and records whether in written or electronic form reasonably requested
by it to enable [it] [the Back-up Servicer] to assume the Master Servicer's
functions hereunder and shall promptly also transfer to the Trustee of this
Agreement all amounts which then have been or should have been deposited in the
Certificate Account by the Master Servicer or which are thereafter received with
respect to the Mortgage Loans as well as any escrowed funds held by it or in
connection with its servicing activities hereunder. The Master
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Servicer and the Trustee shall give the Rating Agency notice of any Event of
Default.
Section 7.2. Other Remedies of Trustee. During the continuance of any Event
of Default, so long as such Event of Default shall not have been remedied, the
Trustee, in addition to the rights specified in Section 7.1, shall have the
right, in its own name as trustee of an express trust, to take all actions now
or hereafter existing at law, in equity or by statute to enforce its rights and
remedies and to protect the interests, and enforce the rights and remedies, of
the Certificateholders (including the institution and prosecution of all
judicial, administrative and other proceedings and the filing of proofs of claim
and debt in connection therewith). Except as otherwise expressly provided in
this Agreement, no remedy provided for by this Agreement shall be exclusive of
any other remedy, and each and every remedy shall be cumulative and in addition
to any other remedy and no delay or omission to exercise any right or remedy
shall impair any such right or remedy or shall be deemed to be a waiver of any
Event of Default.
Section 7.3. Directions by Certificateholders and Duties of Trustee During
Event of Default. During the continuance of any Event of Default, Holders of
Certificates evidencing, in aggregate, not less than 25% of the Trust Fund or
51% of the aggregate Percentage Interests of any Class of Certificates may
direct the time, method and place of conducting any proceeding for any remedy
available to the Trustee, or exercising any trust or power conferred upon the
Trustee under this Agreement, provided, however, that the Trustee shall be under
no obligation to pursue any such remedy, or to exercise any of the trusts or
powers vested in it by this Agreement (including, without limitation, (i) the
conducting or defending of any administrative action or litigation hereunder or
in relation hereto and (ii) the terminating of the Master Servicer or any
successor servicer from its rights and duties as servicer hereunder) at the
request, order or direction of any of the Certificateholders, unless such
Certificateholders shall have offered to the Trustee reasonable security or
indemnity against the costs, expenses and liabilities which may be incurred
therein or thereby and, provided further, that, subject to the provisions of
Section 8.1, the Trustee shall have the right to decline to follow any such
direction if the Trustee, in accordance with an Opinion of Counsel, determines
that the action or proceeding so directed may not lawfully be taken or if the
Trustee in good faith determines that the action or proceeding so directed would
involve it in personal liability or be unjustly prejudicial to the non-assenting
Certificateholders or if the Trustee has received contrary directions pursuant
to this Section.
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Section 7.4. Action upon Certain Failures of Master Servicer and upon Event
of Default. In the event that the Trustee shall have knowledge of any failure of
the Master Servicer specified in Section 7.1(i) or (ii) which would become an
Event of Default upon the Master Servicer's failure to remedy the same after
notice, the Trustee may, but need not if the Trustee deems it not in the
Certificateholders' best interest, give notice thereof to the Master Servicer.
In the event that the Trustee shall have knowledge of an Event of Default, the
Trustee shall give prompt written notice thereof to the Certificateholders and
to the Rating Agency. For all purposes of this Agreement, in the absence of
actual knowledge by a Responsible Officer of the Trustee, the Trustee shall not
be deemed to have knowledge of any failure of the Master Servicer as specified
in Section 7.1(i) and (ii) or any Event of Default unless notified thereof in
writing by the Master Servicer or by a Certificateholder.
Section 7.5. Appointment of [Back-up Servicer].
(a) When the Master Servicer receives a notice of termination pursuant to
Section 7.1 or the Trustee receives the resignation of the Master Servicer
evidenced by an Opinion of Counsel pursuant to Section 6.4, [the Trustee] [or
the Back-up Servicer], shall become the successor in all respects to the Master
Servicer in its capacity as Master Servicer under this Agreement and the
transactions set forth or provided for herein, provided however, that [the
Trustee's] [or the Back-up Servicer's] obligation to make any Advances shall be
no greater than set forth in Section 4.3 of this Agreement, and [the Trustee]
[or the Back-up Servicer] shall have all the rights and powers and be subject to
all the responsibilities, duties and liabilities relating thereto placed on the
Master Servicer by the terms and provisions hereof (except those contained in
Sections 2.2 and 2.3) and in its capacity as such successor shall have the same
limitation of liability herein granted to the Master Servicer and provided
further that [the Trustee] [or the Back-up Servicer] shall not be required to
make an Advance from its own funds if such Advance would be prohibited by law.
As compensation therefor, [the Trustee] [or the Back-up Servicer] shall be
entitled to receive monthly an amount not to exceed the Administration Fee as
agreed by [the Trustee] [or the Back-up Servicer] and the Master Servicer,
together with such other servicing compensation in the form of assumption fees,
late charges, prepayment fees or otherwise as provided in Section 3.9. If the
agreed amount is less than the Administration Fee, the excess shall be paid to
the Class R Certificateholder. If [the Trustee] [or the Back-up Servicer] and
the Master Servicer shall not agree on the amount of such compensation, the
Trustee shall solicit bids for a successor servicer as described in Section
7.5(b), provided, however, if no successor servicer is
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obtained through the bidding process, [the Trustee] [or the Back-up Servicer]
may act as such, or may pursuant to Section 7.5(b) appoint a successor servicer
to act as such, for the Administration Fee together with such other servicing
compensation as provided in Section 3.9. In no event shall [the Trustee's] [or
the Back-up Servicer's] assumption of or succession to the obligations of the
Master Servicer make [the Trustee] [or the Back-up Servicer] liable for any
actions or omissions of the Master Servicer in its capacity as Master Servicer.
(b) Notwithstanding the above, the Trustee may and shall, if [it] [or the
Back-up Servicer] is unable (or unwilling due to disagreement on compensation as
provided in Section 7.5(a)) to act as Master Servicer, appoint, or petition a
court of competent jurisdiction to appoint, any established housing and home
finance institution, bank or mortgage servicing institution which is an approved
FNMA or FHLMC servicer having a net worth of not less than $________________ and
meeting such other standards as are set forth in Section 6.4 hereof for a
successor to the Master Servicer hereunder in the assumption of all or any part
of the responsibilities, duties or liabilities of the Master Servicer hereunder
(except the repurchase obligations set forth in Sections 2.2 and 2.3 hereof,
which shall remain obligations of the Depositor); provided, however, that until
such appointment and assumption, the Trustee will continue to perform the
servicing obligations pursuant to this Agreement (and until such time shall be
entitled to receive the Administration Fees pursuant to Section 3.9). The
compensation of any successor servicer so appointed shall be equal to the
Administration Fees specified in Section 3.9 together with such other
compensation as is provided in said Section 3.9. In the event the Trustee is
required to solicit bids as provided above, the Trustee shall solicit, by public
announcement, bids from housing and home finance institutions, banks and
mortgage servicing institutions acceptable to the Trustee and meeting the
qualifications set forth above in this Section for the purchase of the servicing
functions. Such public announcement shall specify that the successor servicer
shall be entitled to the full amount of the Administration Fee on the aggregate
unpaid principal balance of the Mortgage Loans as servicing compensation for
servicing the Mortgage Loans, together with the other servicing compensation in
the form of assumption fees, late payment charges, prepayment fees or otherwise
as provided in Section 3.9. Within 45 days after any such public announcement,
the Trustee shall negotiate and effect the sale, transfer and assignment of the
servicing rights and responsibilities hereunder (except the repurchase
obligations set forth in Section 2.2 and 2.3 hereof, which shall remain
obligations of the Depositor) to the qualified party submitting the highest
qualifying bid. The Trustee shall deduct all costs and expenses of any public
announcement and of any
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sale, transfer and assignment of the servicing rights and responsibilities
hereunder from any sum received by the Trustee from the successor to the Master
Servicer in respect of such sale, transfer and assignment. After such
deductions, the remainder of such sum shall be paid by the Trustee to the Class
R Certificateholder at the time of such sale, transfer and assignment to the
Master Servicer's successor.
(c) The Master Servicer agrees to cooperate with the Trustee and any
successor servicer in effecting the termination of the Master Servicer's
servicing responsibilities and rights hereunder and shall promptly provide the
Trustee or such successor servicer, as applicable, all documents and records
reasonably requested by it to enable it to assume the Master Servicer's
functions hereunder and shall promptly also transfer to the Trustee or such
successor servicer, as applicable, all amounts which then have been or should
have been deposited in the Certificate Account [and the Reserve Fund] by the
Master Servicer or which are thereafter received with respect to the Mortgage
Loans. Neither the Trustee nor any other successor servicer shall be deemed to
be in default hereunder by reason of any failure to make, or any delay in
making, any distribution hereunder or any portion thereof caused by the failure
of the Master Servicer to deliver, or any delay in delivering, cash, documents
or records to it.
Section 7.6. Notification to Certificateholders. Upon any termination of
the Master Servicer or appointment of a successor to the Master Servicer, in
each case as provided herein, the Trustee shall as soon as practicable give
written notice thereof to Certificateholders at their respective addresses
appearing in the Certificate Register and the Rating Agency.
ARTICLE VIII
CONCERNING THE TRUSTEE
Section 8.1. Duties of Trustee. The Trustee, prior to the occurrence of an
Event of Default and after the curing of all Events of Default which may have
occurred, undertakes to perform such duties and only such duties as are
specifically set forth in this Agreement. In case an Event of Default has
occurred (which has not been cured), the Trustee, subject to the provisions of
Sections 7.1, 7.3, 7.4 and 7.5, shall exercise such of the rights and powers
vested in it by this Agreement, and use the same degree of care and skill in
their exercise as a prudent person would exercise or use under the circumstances
in the conduct of such person's own affairs. Any permissive right of the Trustee
enumerated in this Agreement shall not be construed as a duty.
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Subject to Sections 8.2(i), 8.3 and 8.4, the Trustee, upon receipt of all
resolutions, certificates, statements, opinions, reports, documents, orders or
other instruments furnished to the Trustee which are specifically required to be
furnished pursuant to any provision of this Agreement, shall examine them to
determine whether they are in the form required by this Agreement. If any such
instrument is found not to conform to the requirements of this Agreement in a
material manner, the Trustee shall take action as it deems appropriate to have
the instrument corrected, and if the instrument is not corrected to the
Trustee's reasonable satisfaction, the Trustee will provide notice thereof to
the Certificateholders and the Rating Agency.
No provision of this Agreement shall be construed to relieve the Trustee
from liability for its own negligent action, its own negligent failure to act or
its own willful misconduct or in the event the Trustee is acting as successor
servicer pursuant to Section 7.5, to the standard imposed on the Master Servicer
pursuant to Section 6.3 of this Agreement; provided, however, that:
(i) Prior to the occurrence of an Event of Default and after the
curing of all such Events of Default which may have occurred, the duties
and obligations of the Trustee shall be determined solely by the express
provisions of this Agreement, the Trustee shall not be liable except for
the performance of such duties and obligations as are specifically set
forth in this Agreement, no implied covenants or obligations shall be read
into this Agreement against the Trustee and, in the absence of bad faith on
the part of the Trustee, the Trustee may conclusively rely, as to the truth
of the statements and the correctness of the opinions expressed therein,
upon any certificates or opinions furnished to the Trustee and conforming
to the requirements of this Agreement;
(ii) The Trustee shall not be personally liable with respect to any
action taken, suffered or omitted to be taken by it in good faith in
accordance with the direction of Certificateholders holding Certificates
which have an aggregate Denomination not less than 25% of the aggregate
Denomination of all Certificates relating to the time, method and place of
conducting any proceeding for any remedy available to the Trustee, or
exercising any trust or power conferred upon the Trustee, under this
Agreement;
(iii) The Trustee shall not be liable for any error of judgment made
in good faith by any Responsible Officer, unless it shall be proved that
the Trustee or such Responsible Officer was negligent in ascertaining the
pertinent facts;
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(iv) The Trustee shall not be liable for any act or omission of the
Depositor (except for its own acts or omissions as Master Servicer
hereunder) or for any but its own acts or omissions; and
(v) The Trustee shall not be deemed to have knowledge of any matter,
including without limitation an Event of Default, unless one of its
Responsible Officers has actual knowledge thereof or unless written notice
thereof, referring to the Certificates, the Depositor, the Trust Fund or
this Agreement is received by the Trustee at its Corporate Trust Office.
None of the provisions contained in this Agreement shall require the
Trustee to expend or risk its own funds or otherwise incur personal financial
liability in the performance of any of its duties as Trustee hereunder or in the
exercise of any of its rights or powers if there is reasonable ground for
believing that repayment of such funds or adequate indemnity against such risk
or liability is not reasonably assured to it.
Section 8.2. Certain Matters Affecting Trustee. Except as otherwise
provided in Section 8.1:
(i) Before acting or refraining from acting the Trustee may request or
require an Officer's Certificate; the Trustee may rely and shall be
protected in acting or refraining from acting upon any resolution,
Officer's Certificate, certificate of auditors or any other certificate,
statement, instrument, opinion, report, notice, request, consent, order,
appraisal, bond or other paper or document believed by it to be genuine and
to have been signed or presented by the proper party or parties;
(ii) The Trustee may consult with counsel, and any Opinion of Counsel
shall be full and complete authorization and protection in respect of any
action taken or suffered or omitted by it hereunder in good faith and in
accordance with such Opinion of Counsel;
(iii) The Trustee shall not be personally liable for any action taken,
suffered or omitted by it in good faith and believed by it to be authorized
or within the discretion or rights or powers conferred upon it by this
Agreement; and
(iv) The Trustee may execute any of the trusts or powers hereunder or
perform any duties hereunder either directly or by or through agents or
attorneys and any such agents or attorneys shall be entitled to all
indemnities and protection afforded to the Trustee. Any designee of the
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Trustee shall be considered its "agent" hereunder whether performing it as
an independent contractor or otherwise.
Section 8.3. Trustee Not Required to Make Investigation. Prior to the
occurrence of an Event of Default hereunder and after the curing of all Events
of Default which may have occurred, the Trustee shall not be bound to ascertain
or inquire as to the performance or observance of any of the terms, conditions,
covenants or agreements herein or to make any investigation into the facts or
matters stated in any resolution, certificate, statement, instrument, opinion,
report, notice, request, consent, order, approval, bond, Mortgage, Mortgage Note
or other paper or document, unless requested in writing so to do by Holders of
Certificates having a Fractional Undivided Interest not less than 51% of the
Trust Fund; provided, however, that if the payment within a reasonable time to
the Trustee of the costs, expenses or liabilities likely to be incurred by it in
the making of such investigation is, in the opinion of the Trustee, not
reasonably assured to the Trustee by the security afforded to it by the terms of
this Agreement, the Trustee may require reasonable indemnity against such
expense or liability as a condition to so proceeding. The reasonable expense of
every such examination shall be paid by the Depositor or, if paid by the
Trustee, shall be repaid by the Depositor upon demand.
Section 8.4. Trustee Not Liable for Certificates or Mortgage Loans. The
recitals contained herein and in the Certificates (other than the certificate of
authentication on the Certificates) shall be taken as the statements of the
Master Servicer, and the Trustee assumes no responsibility for the correctness
of the same. The Trustee makes no representations or warranties as to the
validity or sufficiency of this Agreement or of the Certificates or of any
Mortgage Loan or related document. The Trustee shall not be accountable for the
use or application by the Master Servicer of any of the Certificates or of the
proceeds of such Certificates or for the use or application of any funds paid to
the Master Servicer in respect of the Mortgage Loans deposited into the
Certificate Account by the Master Servicer or for investment of any such
amounts.
Neither the Trustee nor any of the directors, officers, employees or agents
of the Trustee shall be under any liability to the Trust Fund or the
Certificateholders for any action taken or for refraining from the taking of any
action in good faith pursuant to this Agreement, or for errors in judgment while
an Event of Default exists; provided, however, that this provision shall not
protect the Trustee or any such person against any liability which would
otherwise be imposed by reason of willful misfeasance, bad faith or negligence
in the performance of duties. The Trustee and any director, officer, employee
or agent of the Trustee shall be indemnified by the Master Servicer and
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held harmless against any loss, liability or expense, including reasonable
attorneys' fees, incurred in connection with or related to the Trustee's
performance of its powers and duties under this Agreement (including, without
limitation, performance under Section 8.1 hereof), or any action relating to
this Agreement or the Certificates, or the performance of the Trustee's duties
hereunder, other than any loss, liability or expense incurred by any such Person
by reason of willful misfeasance, bad faith or negligence in the performance of
duties. Any such losses, liabilities and expenses resulting therefrom shall be
losses, liabilities and expenses of the Master Servicer. The indemnification
provided hereunder shall survive termination of this Agreement.
Section 8.5. Trustee May Own Certificates. The Trustee and any agent of
the Trustee in its individual or any other capacity may become the owner of or a
pledgee of the Certificates with the same rights it would have if it were not
Trustee or such agent.
Section 8.6. Master Servicer to Pay Trustee's Fees and Expenses. The
Master Servicer covenants and agrees to pay to the Trustee monthly (or as
otherwise agreed), and the Trustee shall be entitled to receive, reasonable
compensation (which shall not be limited by any provision of law in regard to
the compensation of a trustee of an express trust) for all services rendered by
it in the execution of the trusts hereby created and in the exercise and
performance of any of the powers and duties hereunder of the Trustee, and the
Master Servicer shall pay or reimburse the Trustee upon its request for all
reasonable expenses, disbursements and advances, including reasonable attorneys'
fees, incurred or made by the Trustee in accordance with any of the provisions
of this Agreement (including the reasonable compensation and the expenses and
disbursements of its counsel and of all persons not regularly in its employ)
except any such expense, disbursement or advance as may arise from its
negligence or bad faith. The Master Servicer shall indemnify the Trustee for
any liability of or assessment against the Trustee resulting from any error in
any tax or tax information returns prepared or caused to be prepared by the
Master Servicer.
Section 8.7. Eligibility Requirements for Trustee. The Trustee hereunder
shall at all times be a corporation or association organized and doing business
under the laws of any state or the United States of America, authorized under
such laws to exercise corporate trust powers, having a combined capital and
surplus of at least $__________ and subject to supervision or examination by
federal or state authority. The Trustee shall not control the Master Servicer
nor be a parent of or a subsidiary of the Master Servicer. If such corporation
or association publishes reports of condition at least annually, pursuant to law
or to the requirements of the aforesaid supervising or examining
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authority, then for the purposes of this Section 8.7 the combined capital and
surplus of such corporation or association shall be deemed to be its combined
capital and surplus as set forth in its most recent report of condition so
published. In case at any time the Trustee shall cease to be eligible in
accordance with the provisions of this Section 8.7, the Trustee shall resign
immediately in the manner and with the effect specified in Section 8.8.
Section 8.8. Resignation and Removal of Trustee. The Trustee may at any
time resign and be discharged from the trusts hereby created by giving written
notice of resignation to the Master Servicer. Such notice shall also be
furnished to the Rating Agency. Upon receiving such notice of resignation, the
Master Servicer shall promptly appoint a successor trustee by written
instrument, in duplicate, one copy of which instrument shall be delivered to the
resigning Trustee and one copy to the successor trustee. If no successor
trustee shall have been so appointed and have accepted appointment within 30
days after the giving of such notice of resignation, the resigning Trustee may
petition any court of competent jurisdiction for the appointment of a successor
trustee at the expense of the Master Servicer as long as the Master Servicer is
acting as the Master Servicer at such time.
If at any time the Trustee shall cease to be eligible in accordance with
the provisions of Section 8.7 and shall fail to resign after written request for
the Trustee's resignation by the Master Servicer, or if at any time the Trustee
shall become incapable of acting, or shall be adjudged a bankrupt or insolvent,
or a receiver of the Trustee or of its property shall be appointed, or any
public officer shall take charge or control of the Trustee or of its property or
affairs for the purpose of rehabilitation, conservation or liquidation, then,
with or without cause, the Master Servicer may remove the Trustee and appoint a
successor trustee by written instrument, in duplicate, one copy of which
instrument shall be delivered to the Trustee so removed and one copy to the
successor trustee.
The Holders of Certificates having a Fractional Undivided Interest
aggregating not less than 51% of the aggregate Denomination of all Certificates
may at any time remove the Trustee and appoint a successor trustee by written
instrument or instruments, in triplicate, signed by such holders or their
attorneys-in-fact duly authorized, one complete set of which instrument or
instruments shall be delivered to the Master Servicer, one complete set to the
Trustee so removed and one complete set to the successor so appointed.
Any resignation or removal of the Trustee and appointment of a successor
trustee pursuant to any of the provisions of this
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Section 8.8 shall become effective upon acceptance of appointment by the
successor trustee as provided in Section 8.9.
Section 8.9. Successor Trustee. Any successor trustee appointed as
provided in Section 8.8 shall execute, acknowledge and deliver to the Master
Servicer and to its predecessor trustee an instrument accepting such appointment
hereunder, and thereupon the resignation or removal of the predecessor trustee
shall become effective, and such successor trustee, without any further act,
deed or conveyance, shall become fully vested with all the rights, powers,
duties and obligations of its predecessor hereunder, with like effect as if
originally named as trustee herein. The predecessor trustee shall deliver or
cause to be delivered to the successor trustee all Mortgage Files and related
documents and statements held by it hereunder (other than any Mortgage Files at
the time held by the Custodian, if it shall agree to become the agent of any
successor trustee hereunder), and the Master Servicer and the predecessor
trustee shall execute and deliver such instruments and do such other things as
may reasonably be required for more fully and certainly vesting and confirming
in the successor trustee all such rights, powers, duties and obligations.
No successor trustee shall accept appointment as provided in this Section
8.9 unless at the time of such acceptance such successor trustee shall be
eligible under the provisions of Section 8.7.
Upon acceptance of appointment by a successor trustee as provided in this
Section 8.9, the Master Servicer shall mail notice of the succession of such
trustee hereunder to all holders of Certificates at their addresses as shown in
the Certificate Register and to the Rating Agency. If the Master Servicer fails
to mail such notice within ten days after acceptance of appointment by the
successor trustee, the successor trustee shall cause such notice to be mailed at
the expense of the Master Servicer.
Section 8.10. Merger or Consolidation of Trustee. Any Person into which
the Trustee may be merged or converted or with which it may be consolidated, or
any Person resulting from any merger, conversion or consolidation to which the
Trustee shall be a party, or any Person succeeding to the corporate trust
business of the Trustee, shall be the successor of the Trustee hereunder,
provided that such Person shall be eligible under the provisions of Section 8.7,
without the execution or filing of any paper or any further act on the part of
any of the parties hereto, anything herein to the contrary notwithstanding.
Section 8.11. Appointment of Co-Trustee or Separate Trustee.
Notwithstanding any other provisions hereof, at any
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time, for the purpose of meeting any legal requirements of any jurisdiction in
which any part of the Trust Fund or property securing the same may at the time
be located, the Master Servicer and the Trustee acting jointly shall have the
power and shall execute and deliver all instruments to appoint one or more
Persons approved by the Trustee to act as co-trustee or co-trustees, jointly
with the Trustee, or separate trustee or separate trustees, of all or any part
of the Trust Fund, and to vest in such Person or Persons, in such capacity, such
title to the Trust Fund, or any part thereof, and, subject to the other
provisions of this Section 8.11, such powers, duties, obligations, rights and
trusts as the Master Servicer and the Trustee may consider necessary or
desirable. If the Master Servicer shall not have joined in such appointment
within 15 days after the receipt by it of a request so to do, or in case an
Event of Default shall have occurred and be continuing, the Trustee alone shall
have the power to make such appointment. Each co-trustee or separate trustee
hereunder shall be required to meet the terms of eligibility as a successor
trustee under Section 8.7 hereunder but no notice to holders of Certificates of
the appointment of co-trustee(s) or separate trustee(s) shall be required under
Section 8.9 hereof.
In the case of any appointment of a co-trustee or separate trustee pursuant
to this Section 8.11, all rights, powers, duties and obligations conferred or
imposed upon the Trustee shall be conferred or imposed upon and exercised or
performed by the Trustee and such separate trustee or co-trustee jointly, except
to the extent that under any law of any jurisdiction in which any particular act
or acts are to be performed (whether as Trustee hereunder or as successor to the
Master Servicer hereunder), the Trustee shall be incompetent or unqualified to
perform such act or acts, in which event such rights, powers, duties and
obligations (including the holding of title to the Trust Fund or a portion
thereof in any such jurisdiction) shall be exercised and performed by such
separate trustee or co-trustee at the direction of the Trustee.
Any notice, request or other writing given to the Trustee shall be deemed
to have been given to each of the then separate trustees and co-trustees, as
effectively as if given to each of them. Every instrument appointing any
separate trustee or co-trustee shall refer to this Agreement and the conditions
of this Article VIII. Each separate trustee and co-trustee, upon its acceptance
of the trusts conferred, shall be vested with the estates or property specified
in its instrument of appointment, either jointly with the Trustee or separately,
as may be provided therein, subject to all the provisions of this Agreement
relating to the conduct of, affecting the liability of, or affording protection
to, the Trustee. Every such instrument shall be filed with the Trustee.
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Any separate trustee or co-trustee may, at any time, constitute the Trustee
its agent or attorney-in-fact, with full power and authority, to the extent not
prohibited by law, to do any lawful act under or in respect of this Agreement on
its behalf and in its name. If any separate trustee or co-trustee shall die,
become incapable of acting, resign or be removed, all of its estates,
properties, rights, remedies and trusts shall vest in and be exercised by the
Trustee, to the extent permitted by law, without the appointment of a new or
successor trustee.
Section 8.12. Appointment of Custodians. The Trustee may, with the consent
of the Master Servicer, appoint one or more Custodians, not affiliated with the
Master Servicer, to review, pursuant to Section 2.2 hereof, and hold all or a
portion of the Mortgage Files as agent for the Trustee, by entering into a
Custodial Agreement; provided, however, that if the Trustee delegates an
affiliate to act as a custodian, no such Custodial Agreement needs to be entered
into so long as the Trustee remains Custodian of record under this Agreement.
Subject to Article VIII, the Trustee agrees to comply with the terms of each
Custodial Agreement and to enforce the terms and provisions thereof against the
Custodian for the benefit of the Certificateholders. Any Custodian appointed
shall be an institution subject to supervision by federal or state authority,
shall have combined capital and surplus of at least $__________ and shall be
qualified to do business in the jurisdiction in which it holds any Mortgage
File.
Section 8.13. Authenticating Agent.
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(a) The Trustee may appoint from time to time an authenticating agent (the
"Authenticating Agent") which shall be authorized to act on behalf of the
Trustee in authenticating Certificates. Wherever reference is made in this
Agreement to the authentication of Certificates by the Trustee or the Trustee's
certificate of authentication, such reference shall be deemed to include
authentication on behalf of the Trustee by the Authenticating Agent and a
certificate of authentication executed on behalf of the Trustee by the
Authenticating Agent. Any successor Authenticating Agent must be acceptable to
the Master Servicer and have a principal office and place of business in
_______, __________________ or ________________, __________, have a combined
capital and surplus of at least $__________, and be authorized to do a trust
business and subject to supervision or examination by federal or state
authorities.
(b) Any corporation into which the Authenticating Agent may be merged or
converted or with which it may be consolidated, or any corporation resulting
from any merger, conversion or consolidation to which the Authenticating Agent
shall be a party, or any corporation succeeding to the corporate agency business
of
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the Authenticating Agent, shall continue to be the Authenticating Agent without
the execution or filing of any paper or any further act on the part of the
Trustee or the Authenticating Agent.
(c) The Authenticating Agent may at any time resign by giving at least 30
days' advance written notice of resignation to the Trustee and to the Master
Servicer. The Trustee may at any time terminate the agency of the
Authenticating Agent by giving written notice of termination to the
Authenticating Agent and to the Master Servicer. Upon receiving a notice of
resignation or upon such a termination, or in case at any time the
Authenticating Agent shall cease to be eligible in accordance with the
provisions of this Section 8.13, the Trustee promptly shall appoint a successor
Authenticating Agent, shall give written notice of such appointment to the
Master Servicer and shall mail notice of such appointment to all
Certificateholders. Any successor Authenticating Agent upon acceptance of its
appointment hereunder shall become vested with all the rights, powers, duties
and responsibilities of its predecessor hereunder, with like effect as if
originally named as Authenticating Agent herein. No successor Authenticating
Agent shall be appointed unless eligible under the provisions of this Section
8.13.
(d) The Authenticating Agent shall have no responsibility or liability for
any action taken by it as such at the direction of the Trustee. Any reasonable
compensation paid to the Authenticating Agent shall be a reimbursable expense
under Section 8.6.
ARTICLE IX
TERMINATION
Section 9.1. Termination upon Purchase by the Class R Certificateholder or
Liquidation of All Mortgage Loans. The respective obligations and
responsibilities of the Master Servicer and the Trustee created hereby (other
than the obligation to make payments to Certificateholders as hereafter set
forth in this Section 9.1 and obligations to the Trustee in Sections 8.4 and
8.6) shall terminate upon the earlier of (i) the later of the final payment or
other liquidation (or any Advance with respect thereto) of the last Mortgage
Loan remaining in the Trust Fund and the disposition of all property acquired in
respect of any Mortgage Loan or (ii) the purchase by the Class R
Certificateholder of all Mortgage Loans at a price equal to the sum of (a) the
principal balance of each Mortgage Loan plus accrued interest thereon at the
applicable Mortgage Pass-Through Rate to the next scheduled Installment Due
Date, less any Nonrecoverable Advances made with respect to any such Mortgage
Loans and (b) the fair market value of all acquired property in
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respect of Mortgage Loans, less any Nonrecoverable Advances made with respect to
any such Mortgage Loans, such fair market value to be determined by an appraiser
selected by the Trustee or (iii) the purchase by the Master Servicer, so long as
the Master Servicer is the Class R Certificateholder, of all outstanding Class A
Certificates and Class B Certificates and delivery of such Certificates to the
Trustee; provided, however, that in no event shall the trust created hereby
continue beyond the expiration of 60 years from the date of the execution and
delivery of this Agreement; and provided further, that a "plan of liquidation"
in accordance with Section 860F of the Code must be adopted in conjunction with
any termination effected pursuant to subclauses (i), (ii), or (iii) of this
Section 9.1.
The Class R Certificateholder is hereby granted the right to purchase the
Mortgage Loans pursuant to clause (ii) above, provided however that such right
shall be conditioned upon the Principal Balances of such Mortgage Loans, at the
time of any such purchase, aggregating an amount less than 10% of the aggregate
Principal Balance of the Mortgage Loans on the Cut-off Date, after deduction of
payments due on or before such date.
Notice of any termination pursuant to clause (i) or (ii) above, specifying
the Distribution Date upon which all Certificateholders may surrender their
Certificates to the Trustee for payment and cancellation, shall be given
promptly by the Trustee (upon direction by the Master Servicer no less than 10
days prior to the date such notice is to be mailed) by letter to
Certificateholders and the Rating Agency mailed by first class mail no later
than the 25th day of the month preceding the month of such final distribution
specifying (i) the Distribution Date upon which final payment on the
Certificates will be made upon presentation and surrender of Certificates at the
office or agency of the Trustee therein designated, (ii) the amount of any such
final payment and (iii) that the Record Date otherwise applicable to such
Distribution Date is not applicable, payments being made only upon presentation
and surrender of the Certificates at the office or agency of the Trustee therein
specified. The Trustee shall give such notice to the Certificate Registrar and
the Rating Agency at the time such notice is given to the Certificateholders.
Upon any such notice, the duties of the Certificate Registrar shall terminate.
In the event such notice is given in connection with the Class R
Certificateholder's election to purchase, the Class R Certificateholder shall
deposit in the Certificate Account on the applicable Distribution Date an amount
equal to the above-described purchase price and upon such deposit
Certificateholders will be entitled to the amount of such purchase price but not
amounts in excess thereof, all as provided herein. Upon presentation and
surrender of the Certificates pursuant to any termination under this Section
9.1, the Trustee shall cause to be distributed to
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Certificateholders an amount equal to (a) the amount otherwise distributable on
such Distribution Date, if not in connection with a purchase; or (b) if the
Class R Certificateholder elected to so purchase, the purchase price calculated
as above provided. Upon any termination pursuant to clause (iii) above, or upon
certification to the Trustee by a Servicing Officer following such final
deposit, the Trustee and any Custodians shall promptly release to the Master
Servicer the Mortgage Files for the remaining Mortgage Loans, and the Trustee
shall execute all assignments, endorsements and other instruments necessary to
effectuate such transfer.
In the event that all of the Certificateholders shall not surrender their
Certificates for cancellation within three months after the time specified in
the above-mentioned written notice, the Trustee shall give a second written
notice to the remaining Certificateholders to surrender their Certificates for
cancellation and receive the final distribution with respect thereto. If within
three months after the second notice all the Certificates shall not have been
surrendered for cancellation, the Trustee shall take appropriate and reasonable
steps as directed by the Master Servicer, to contact the remaining
Certificateholders concerning surrender of their Certificates, and the cost
thereof shall be paid out of the funds and other assets which remain in trust
hereunder.
Section 9.2. Trusts Irrevocable. Except as expressly provided herein, all
trusts created hereby are irrevocable.
[Section 9.3. Additional Termination Requirements.
(a) In the event the Class R Certificateholder exercises its purchase
option as provided in Section 9.1, the Trust Fund shall be terminated in
accordance with the following additional requirements, unless the Trustee has
received an Opinion of Counsel to the effect that the failure of the Trust Fund
to comply with the requirements of this Section 9.3 will not (i) result in the
imposition of taxes on "prohibited transactions" of the Trust Fund as described
in Section 860F(a)(2) of the Code, or (ii) cause the Trust Fund to fail to
qualify as a REMIC at any time that any Class A or Class B Certificates are
outstanding:
(A) Within 90 days prior to the final Distribution Date set forth in
the notice given by the Class R Certificateholder under Section 9.1, the
holder of the Class R Certificate shall prepare the documents associated
with and shall adopt a plan of complete liquidation of the Trust Fund; and
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(B) At or after the time of adoption of such a plan of complete
liquidation and at or prior to the final Distribution Date, the Master
Servicer as agent of the Trustee shall sell all of the assets of the Trust
Fund to the Class R Certificateholder for cash in accordance with such plan
of liquidation; provided, however, that in the event that a calendar
quarter ends after the time of adoption of such a plan of complete
liquidation but prior to the final Distribution Date, the Master Servicer
shall not sell any of the assets of the Trust Fund prior to the close of
that calendar quarter.
(b) By its acceptance of the Class R Certificate, the Class R
Certificateholder hereby agrees to adopt such a plan of complete liquidation and
to take such other action in connection therewith as may be reasonably requested
by the Master Servicer.]
ARTICLE X
MISCELLANEOUS PROVISIONS
Section 10.1. Amendment. This Agreement may be amended from time to time
by the Depositor and the Trustee, without the consent of any of the
Certificateholders, (a) to cure any ambiguity, to correct or supplement any
provision herein which may be inconsistent with any other provision herein, or
to make any other provisions with respect to matters or questions arising under
this Agreement, or [(b) to modify, eliminate or add to any provisions to such
extent as shall be necessary to maintain the qualification of the Trust Fund as
a REMIC at all times that any Class A or B Certificates are outstanding,
provided that the Trustee has received an Opinion of Counsel to the effect that
such action is necessary or desirable to maintain such qualification,] provided
that such action under clauses (a) and (b) above shall not, as evidenced by an
Opinion of Counsel, adversely affect in any material respect the interests of
any Certificateholder.
This Agreement may also be amended from time to time by the Depositor and
the Trustee with the consent of the Holders of Certificates evidencing, in
aggregate, not less than 50% of the Trust Fund for the purpose of adding any
provisions or changing in any manner or eliminating any of the provisions of
this Agreement or of modifying in any manner the rights of the Holders of
Certificates; provided, however, that no such amendment shall (a) reduce in any
manner the amount of, or delay the timing of, payments received on Mortgage
Loans which are required to be distributed in respect of any Certificate without
the consent of the Holder of such Certificate; (b) adversely affect in any
material respect the interest of the Holders of the Class A
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Certificates in a manner other than as described in (a) above without the
consent of the Holders of Class A Certificates aggregating not less than 66-2/3%
of the aggregate Percentage Interest evidenced by all Class A Certificates; (c)
adversely affect in any material respect the interest of the Holders of the
Class B Certificates in a manner other than as described in clause (a) above
without the consent of the Holders of Class B Certificates aggregating not less
than 66-2/3% of the aggregate Percentage Interest evidenced by all Class B
Certificates; (d) adversely affect in any material respect the interest of the
Class R Certificateholder without the consent of the Holders of the Class R
Certificate; (e) change in any material respect the rights and obligations of
the Master Servicer [or the Back-up Servicer] under this Agreement without the
prior written consent of such party; or (f) reduce the aforesaid percentage of
the Certificates the Holders of which are required to consent to any such
amendments without the consent of the Holders of all Certificates then
outstanding; [provided, that for the purposes of this Agreement, the Holder of
the Class R Certificate shall have no right to vote at all times that any Class
A or B Certificates are outstanding if such amendment relates to the
modification, elimination or addition of any provision necessary to maintain the
qualification of the Trust Fund as a REMIC.]
[Notwithstanding any contrary provision of this Agreement, the Trustee
shall not consent to any amendment to this Agreement unless it shall have first
received an Opinion of Counsel to the effect that such amendment will not cause
the Trust Fund to fail to qualify as a REMIC at any time that any Class A or
Class B Certificates are outstanding.]
As soon as practicable after the execution of any such amendment, the
Trustee shall furnish written notification of the substance of such amendment to
each Certificateholder and the Rating Agency.
It shall not be necessary for the consent of the Certificateholders under
this Section 10.1 to approve the particular form of any proposed amendment, but
it shall be sufficient if such consent shall approve the substance thereof. The
manner of obtaining such consents and of evidencing the authorization of the
execution thereof by Certificateholders shall be subject to such reasonable
regulations as the Trustee may prescribe.
Section 10.2. Recordation of Agreement. This Agreement (or an abstract
hereof, if acceptable by the applicable recording office) is subject to
recordation in all appropriate public offices for real property records in all
the counties or other comparable jurisdictions in which any or all of the
properties subject to the Mortgages are situated, and in any other
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appropriate public recording office or elsewhere, such recordation to be
effected by the Master Servicer at its expense, but only after the Depositor has
delivered to the Trustee an Opinion of Counsel to the effect that such
recordation materially and beneficially affects the interests of the
Certificateholders.
For the purpose of facilitating the recordation of this Agreement as herein
provided and for other purposes, this Agreement may be executed simultaneously
in any number of counterparts, each of which counterparts shall be deemed to be
an original, and such counterparts shall constitute but one and the same
instrument.
Section 10.3. Limitation on Rights of Certificateholders. The death or
incapacity of any Certificateholder shall not operate to terminate this
Agreement or the Trust Fund, nor entitle such Certificateholder's legal
representatives or heirs to claim an accounting or take any action or proceeding
in any court for a partition or winding up of the Trust Fund, nor otherwise
affect the rights, obligations and liabilities of the parties hereto or any of
them.
Except as otherwise expressly provided herein no Certificateholder, solely
by virtue of its status as a Certificateholder, shall have any right to vote or
in any manner otherwise control the operation and management of the Trust Fund,
or the obligations of the parties hereto, nor shall anything herein set forth,
or contained in the terms of the Certificates, be construed so as to constitute
the Certificateholders from time to time as partners or members of an
association, nor shall any Certificateholder be under any liability to any third
person by reason of any action taken by the parties to this Agreement pursuant
to any provision hereof.
No Certificateholder, solely by virtue of its status as Certificateholder,
shall have any right by virtue or by availing of any provision of this Agreement
to institute any suit, action or proceeding in equity or at law upon or under or
with respect to this Agreement, unless such holder previously shall have given
to the Trustee a written notice of default and of the continuance thereof, as
hereinbefore provided, and unless also the Holders of Certificates evidencing,
in aggregate, not less than 25% of the Trust Fund shall have made written
request upon the Trustee to institute such action, suit or proceeding in its own
name as Trustee hereunder and shall have offered to the Trustee such reasonable
indemnity as it may require against the costs, expenses and liabilities to be
incurred therein or thereby, and the Trustee, for 60 days after its receipt of
such notice, request and offer of indemnity, shall have neglected or refused to
institute any such action, suit or proceeding; it being understood and intended,
and being expressly covenanted by each
96
<PAGE>
Certificateholder with every other Certificateholder and the Trustee, that no
one or more holders of Certificates shall have any right in any manner whatever
by virtue or by availing of any provision of this Agreement to affect, disturb
or prejudice the rights of the Holders of any other of such Certificates, or to
obtain or seek to obtain priority over or preference to any other such Holder,
or to enforce any right under this Agreement, except in the manner herein
provided and for the benefit of all Certificateholders. For the protection and
enforcement of the provisions of this Section 10.3, each and every
Certificateholder and the Trustee shall be entitled to such relief as can be
given either at law or in equity.
Section 10.4. Governing Law; Jurisdiction. THIS AGREEMENT SHALL BE
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF [ILLINOIS] (WITHOUT REGARD
TO CONFLICTS OF LAWS PRINCIPLES), AND THE OBLIGATIONS, RIGHTS AND REMEDIES OF
THE PARTIES HEREUNDER SHALL BE DETERMINED IN ACCORDANCE WITH SUCH LAWS.
Section 10.5. Notices. All demands, notices and communications hereunder
shall be in writing and shall be deemed to have been duly given if personally
delivered at or mailed by certified or registered mail, return receipt requested
(a) in the case of the Depositor, to ABN AMRO Mortgage Corporation, 181 West
Madison Street, Suite 3250, Chicago, Illinois 60602, Attention: Maria Fregosi --
Director - ABN AMRO Mortgage Operations, or such other address as may hereafter
be furnished to the Master Servicer and the Trustee in writing by the Depositor,
(b) in the case of the Master Servicer, to LaSalle Home Mortgage Corporation,
4242 North Harlem Avenue, Norridge, Illinois 60634, Attention: Master Servicer
or such other address as may hereafter be furnished to the Depositor and the
Trustee in writing by the Master Servicer and (c) in the case of the Trustee, to
the Corporate Trust Office, or such other address as may hereafter be furnished
to the Depositor and the Master Servicer in writing by the Trustee, in each case
Attention: Corporate Trust Department. Any notice required or permitted to be
mailed to a Certificateholder shall be given by first class mail, postage
prepaid, at the address of such Holder as shown in the Certificate Register. Any
notice mailed or transmitted within the time prescribed in this Agreement shall
be conclusively presumed to have been duly given, whether or not the addressee
receives such notice; provided that any demand, notice or communication to or
upon the Depositor, the Master Servicer or the Trustee shall not be effective
until received.
Section 10.6. Severability of Provisions. If any one or more of the
covenants, agreements, provisions or terms of this Agreement shall be for any
reason whatsoever held invalid, then such covenants, agreements, provisions or
terms shall be deemed severable from the remaining covenants, agreements,
provisions or
97
<PAGE>
terms of this Agreement and shall in no way affect the validity or
enforceability of the other provisions of this Agreement or of the Certificates
or the rights of the holders thereof.
Section 10.7. Sale of Class A Certificates. The Depositor shall notify the
Rating Agency of any sale of its interest in the Class A Certificates.
IN WITNESS WHEREOF, the Depositor, the Master Servicer and the Trustee have
caused their names to be signed hereto by their respective officers thereunto
duly authorized, all as of the day and year first above written.
98
<PAGE>
ABN AMRO MORTGAGE CORPORATION,
as Depositor
By
-------------------------------------
Its
------------------------------------
----------------------------,
as Trustee
By
-------------------------------------
Its
------------------------------------
[LASALLE HOME MORTGAGE CORPORATION],
as Master Servicer
By
-------------------------------------
Its
------------------------------------
99
<PAGE>
STATE OF )
----------- : ss.:
COUNTY OF )
----------
On ________________, 199__ before me, ____________________________,
personally appeared _______________________, a ___________________ of ABN AMRO
Mortgage Corporation, personally known to me (or proved to me on the basis of
satisfactory evidence) to be the person(s) whose name(s) is/are subscribed to
the within instrument and acknowledged to me that he/she/they executed the same
in his/her/their authorized capacity(ies), and that by his/her/their
signature(s) on the instrument the person(s), or the entity upon behalf of which
the person(s) acted, executed the instrument.
WITNESS my hand and official seal
Signature (Seal)
-------------------------
STATE OF )
----------- : ss.:
COUNTY OF )
----------
On the ___ of ______, 199__ before me, personally appeared
_______________ known to me to be ____________ of _________________________, one
of the corporations that executed the within instrument and also known to me to
be the person who executed it on behalf of said corporation, and acknowledged to
me that such corporation executed the within instrument.
IN WITNESS WHEREOF, I have hereunto set my hand and affixed my
official seal the day and year in this certificate first above written.
---------------------------------
Notary Public
[NOTARIAL SEAL]
<PAGE>
STATE OF )
----------- : ss.:
COUNTY OF )
----------
On this ___ day of ______, 199__, before me, personally appeared
______________, known to me to be _______________ of
_______________________________ and one of the corporations that executed the
within instrument and also known to me to be the person who executed it on
behalf of said corporation, and acknowledged to me that such corporation
executed the within instrument.
IN WITNESS WHEREOF, I have hereunto set my hand and affixed my
official seal the day and year in this certificate first above written.
------------------------------
Notary Public
[NOTARIAL SEAL]
<PAGE>
EXHIBIT A
[FORM OF FACE OF CLASS A CERTIFICATE]
NEITHER THIS CERTIFICATE NOR ANY INTEREST HEREIN MAY BE TRANSFERRED UNLESS
THE HOLDER HEREOF DELIVERS TO THE TRUSTEE THE CERTIFICATION, RULING OR OPINION
OR OPINIONS OF COUNSEL REQUIRED IN ACCORDANCE WITH THE PROVISIONS OF SECTION 5.2
OF THE REQUIRED POOLING AND SERVICING AGREEMENT.
[Solely for U.S. federal income tax purposes, this Certificate is a "Regular
Interest" in a "Real Estate Mortgage Investment Conduit," as those terms are
defined, respectively, in Sections 860G and 860D of the Internal Revenue Code of
1986, as amended.] The issue date of this Certificate is ______ ___, 19__.
Because the rates of interest on the Mortgage Loans are variable, the total
amount of original issue discount ("OID"), for federal income tax purposes,
cannot be calculated. The annual yield to maturity cannot be predicted at this
time because it is variable. Assuming that the Mortgage Loans underlying the
Certificates prepay at the prepayment assumption used by the issuer in pricing
this Certificate, the amount of OID attributable to the short period is $_______
per $100,000 Denomination, computed under the exact method as defined in
proposed Treasury regulations.
THIS CERTIFICATE DOES NOT REPRESENT AN INTEREST IN OR OBLIGATION OF THE
DEPOSITOR, THE MASTER SERVICER, THE TRUSTEE OR ANY OF THEIR RESPECTIVE
AFFILIATES. THIS CERTIFICATE DOES NOT CONSTITUTE A SAVINGS ACCOUNT OR DEPOSIT
AND NEITHER THIS CERTIFICATE NOR THE UNDERLYING MORTGAGE LOANS WILL BE INSURED
OR GUARANTEED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION OR ANY OTHER
GOVERNMENT AGENCY NOR HAS THE FEDERAL DEPOSIT INSURANCE CORPORATION OR ANY OTHER
GOVERNMENT AGENCY PASSED UPON THE ACCURACY OF THE INFORMATION CONTAINED HEREIN.
THIS CERTIFICATE HAS NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THE INFORMATION CONTAINED HEREIN. ANY REPRESENTATION TO
THE CONTRARY IS A CRIMINAL OFFENSE.
A-1
<PAGE>
MORTGAGE PASS-THROUGH CERTIFICATE
evidencing an undivided interest in Mortgage Loans representing beneficial
ownership of certain monthly distributions from a pool of [adjustable] [fixed]
rate mortgage loans secured by one- to four-unit residential properties
originated or acquired by
ABN AMRO Mortgage Corporation,
as Depositor
(Not an interest in or obligation of the Depositor)
Certificate No.
Class A
Series 19__-1
Cut-off Date _________, 19__
Issue Date __________, 19__
Denomination $
Aggregate Denomination
of all Class A
Certificates $___________
Initial Pass-Through Rate
CUSIP No. ______________
THE PRINCIPAL AMOUNT OF THIS CERTIFICATE WILL BE [INCREASED BY A PORTION BY
DEFERRED INTEREST ACCRUING ON THE MORTGAGE LOANS AND] DECREASED BY PRINCIPAL
PAYMENTS HEREON. ACCORDINGLY, FOLLOWING THE INITIAL ISSUANCE OF THE
CERTIFICATES, THE PRINCIPAL AMOUNT OF THIS CERTIFICATE WILL BE DIFFERENT FROM
THE DENOMINATION SHOWN ABOVE. ANYONE ACQUIRING THIS CERTIFICATE MAY ASCERTAIN
ITS CURRENT PRINCIPAL AMOUNT BY INQUIRY OF THE TRUSTEE.
THIS CERTIFIES THAT is the registered
owner of an undivided interest in a trust fund (the "Trust Fund") consisting of
(i) a pool of residential mortgage loans (the "Mortgage Loans") originated or
acquired by ABN AMRO Mortgage Corporation (hereinafter in its capacity as
Depositor under the Pooling and Servicing Agreement described below called the
"Depositor," which term includes any successor entity under the Pooling and
Servicing Agreement referred to below), (ii) such amounts as from time to time
may be held by the Master Servicer in the Certificate Account, the Pre-Funding
Account, if any, [and the Reserve Fund] established and maintained by the
Depositor pursuant to the Pooling and Servicing Agreement, (iii) the
A-2
<PAGE>
insurance policies, if any, relating to each Mortgage Loan and (iv) property
which secured a Mortgage Loan and which has been acquired by foreclosure or deed
in lieu of foreclosure. The Trust Fund was created pursuant to a Pooling and
Servicing Agreement dated as of the Cut-off Date specified above (the "Pooling
and Servicing Agreement") among the Depositor, the Master Servicer and
____________________, as trustee (the "Trustee"). This Certificate is one of a
duly authorized issue of Certificates designated as Mortgage Pass-Through
Certificates of the Series and Class specified above (the "Class A
Certificates"), and issued under and subject to the terms, provisions and
conditions of the Pooling and Servicing Agreement, to which Pooling Servicing
Agreement the holder of this Certificate by virtue of the acceptance hereof
assents and by which such holder is bound. A summary of certain of the pertinent
provisions of the Pooling and Servicing Agreement is set forth below. Also
issued under the Pooling and Servicing Agreement are Mortgage Pass-Through
Certificates of the same Series, Class B (the "Class B Certificates") and a
Residual Certificate of the same Series representing the "residual interests" in
the Trust Fund (the "Residual Certificate"). The Class A, Class B and Residual
Certificates are herein collectively called the "Certificates."
Any term used herein which is defined in the Pooling and Servicing
Agreement shall have the meaning assigned thereto in such agreement, and nothing
herein shall be deemed inconsistent with that meaning.
Reference is hereby made to the further provisions of this Certificate set
forth on the reverse hereof, which further provisions shall for all purposes
have the same effect as if set forth at this place.
Unless the certificate of authentication hereon has been executed by or on
behalf of the Trustee, by manual signature, this Certificate shall not be
entitled to any benefit under the Pooling and Servicing Agreement, or be valid
for any purpose.
IN WITNESS WHEREOF, the Depositor has caused this Certificate to be duly
executed under its official seal.
ABN AMRO MORTGAGE CORPORATION,
as Depositor
By: __________________________
[President]
A-3
<PAGE>
DATED:
[SEAL]
Attest:
By: _________________________
Secretary
A-4
<PAGE>
TRUSTEE'S CERTIFICATE OF AUTHENTICATION
THIS IS ONE OF THE CLASS A CERTIFICATES REFERRED TO IN THE WITHIN-MENTIONED
POOLING AND SERVICING AGREEMENT.
______________________________
as Authenticating Agent
______________________________
Authorized Signer
A-5
<PAGE>
[FORM OF REVERSE OF CLASS A CERTIFICATE]
ABN AMRO MORTGAGE CORPORATION
MORTGAGE PASS-THROUGH CERTIFICATE, CLASS A, SERIES 19__-[ ]
The Trustee will distribute on the 25th day of each month, or, if such
25th day is not a Business Day, the Business Day immediately following (the
"Distribution Date"), commencing the month after the month in which the Cut-off
Date occurs, to the Person in whose name this Certificate is registered at the
close of business on the last Business Day of the calendar month preceding the
month of such distribution (the "Record Date"), an amount equal to the product
of the Percentage Interest in the Class A Distribution evidenced by this
Certificate and the Class A Distribution. [The Mortgage Loans underlying this
Certificate may in certain cases accrue Deferred Interest. The amount of
Deferred Interest accrued on a Mortgage Loan will be added to the Principal
Balance thereof and will accrue interest at the Mortgage Interest Rate.]
As provided for in the Pooling and Servicing Agreement, the right,
title and interest of the Class A Certificateholders to receive distributions in
respect thereof on any Distribution Date shall be senior to the rights of the
Class B Certificateholders to receive distributions in respect of the Class B
Certificates. The Class B Certificateholders shall bear all Excess Credit
Losses, Bankruptcy Losses up to the Bankruptcy Loss Limit, Fraud Losses up to
the Fraud Loss Limit and Special Hazard Losses up to the Special Hazard Loss
Limit until the Class B Principal Balance equals zero. All Excess Credit Losses,
Fraud Losses up to the Fraud Loss Limit, Special Hazard Losses up to the Special
Hazard Limit and Bankruptcy Losses up to the Bankruptcy Loss Limit, to the
extent not allocated to the Class B Certificateholders shall be allocated to the
Class A Certificates on the related Distribution Date.
Distributions on this Certificate will be made by the Trustee by check
mailed to the address of the Person entitled thereto as such name and address
shall appear on the Certificate Register or, if the aggregate Certificate Amount
of the Certificates held by the Certificateholder is in excess of $_________ and
the Certificateholder so requests by notifying the Trustee in writing as
specified in the Pooling and Servicing Agreement, by wire transfer in
immediately available funds to the account specified in writing by the
Certificateholder to the Trustee. Notwithstanding the above, the final
distribution on this Certificate will be made after due notice by the Master
Servicer of the pendency of such distribution and only upon presentation and
surrender of this Certificate at the office or agency of the Trustee designated
in such notice.
A-6
<PAGE>
The Pooling and Servicing Agreement permits the amendment thereof and
the modification of the rights and obligations of the Depositor, the Master
Servicer and the Certificateholders under the Pooling and Servicing Agreement
from time to time by the Depositor and the Trustee with the consent of the
Holders of Certificates evidencing, in aggregate, not less than 50% of the Trust
Fund for the purpose of adding any provisions or changing in any manner or
eliminating any of the provisions of this Agreement or of modifying in any
manner the rights of the Holders of Certificates; provided, that no such
amendment shall:
(i) reduce in any manner the amount of, or delay the timing of,
payments received on Mortgage Loans which are required to be distributed in
respect of any Certificate without the consent of the Holder of such
Certificate;
(ii) adversely affect in any material respect the interest of the
Holders of the Class A Certificates in a manner other than as described in
(i) above without the consent of the Holders of Class A Certificates
aggregating not less than 66-2/3% of the aggregate Percentage Interest
evidenced by all Class A Certificates;
(iii) adversely affect in any material respect the interest of the
Holders of the Class B Certificates in a manner other than as described in
clause (i) above without the consent of the Holders of Class B Certificates
aggregating not less than 66-2/3% of the aggregate Percentage Interest
evidenced by all Class B Certificates;
(iv) adversely affect in any material respect the interest of the
Class R Certificateholder without the consent of the Holders of the Class R
Certificate;
(v) change in any material respect the rights and obligations of the
Master Servicer [or the Back-up Servicer] under the Pooling and Servicing
Agreement without the prior written consent of such party; or
(vi) reduce the aforesaid percentage of the Certificates the Holders
of which are required to consent to amendments to the Pooling and Servicing
Agreement without the consent of the Holders of all Certificates then
outstanding; [provided, that the Holder of the Class R Certificate shall
have no right to vote at all times that any Class A or B Certificates are
outstanding if such amendment of the Pooling and Serving Agreement relates
to the modification, elimination or addition of any provision
A-7
<PAGE>
necessary to maintain the qualification of the Trust Fund as a REMIC;]
provided, that for the purposes of the Pooling and Servicing Agreement, the
holder of the Residual Certificate shall vote only with respect to items (i) and
(iii) above.
Any such consent by the holder of this Certificate shall be conclusive
and binding on such holder and upon all future holders of this Certificate and
of any Certificate issued upon the transfer hereof or in exchange herefor or in
lieu hereof whether or not notation of such consent is made upon this
Certificate. The Pooling and Servicing Agreement also permits the amendment
thereof, in certain limited, circumstances, without the consent of the holders
of any of the Certificates (including amendment or modification to cure any
ambiguity).
As provided in the Pooling and Servicing Agreement and subject to
certain limitations therein set forth, the transfer of this Certificate is
registrable on the Certificate Register upon surrender of this Certificate for
registration of transfer at the offices or agencies maintained by the
Certificate Registrar in the County of ____________, __________, or
____________, ________, duly endorsed by, or accompanied by a written instrument
of transfer in form satisfactory to the Master Servicer and the Certificate
Registrar duly executed by, the holder hereof or such holder's attorney duly
authorized in writing, and thereupon one or more new Class A Certificates for
the same aggregate Percentage Interest will be issued to the designated
transferee or transferees.
The Class A Certificates are issuable only as registered Certificates
without coupons evidencing a minimum Denomination of $_________ (except for one
odd Certificate) and greater integral multiples of $ . As provided in the
Pooling and Servicing Agreement and subject to certain limitations therein set
forth, this Certificate is exchangeable for one or more new Class A Certificates
evidencing a like aggregate Percentage Interest, as requested by the holder
surrendering the same.
No service charge will be made to the Certificateholders for any such
registration of transfer or exchange, but the Certificate Registrar may require
payment of a sum sufficient to cover any tax or other governmental charge
payable in connection therewith. The Depositor, the Master Servicer and the
Trustee and any agent of the Depositor, the Master Servicer or the Trustee may
treat the Person in whose name this Certificate is registered as the owner
hereof for all purposes, and neither the Depositor, the Master Servicer nor the
A-8
<PAGE>
Trustee nor any such agent shall be affected by notice to the contrary.
The obligations created by the Pooling and Servicing Agreement and the
Trust Fund created thereby (other than the obligation to make payments to
Certificateholders pursuant to the Pooling and Servicing Agreement) shall
terminate upon the payment to the Class A and Class B Certificateholders and the
Residual Certificateholder of all amounts due them under the Pooling and
Servicing Agreement. In no event, however, will the trust created by the
Pooling and Servicing Agreement continue beyond a date 60 years after the date
of the execution and delivery of the Pooling and Servicing Agreement.
A-9
<PAGE>
ABBREVIATIONS
The following abbreviations, when used in the inscription on the face
of this instrument, shall be construed as though they were written out in full
according to applications of laws or regulations:
TEN COM--as tenants in common
UNF GIFT MIN ACT--......(Minor) under Uniform Gifts To Minors Act....
(State)
Custodian ....... (Cust)
TEN ENT -- as tenants by the entireties
JT TEN -- as joint tenants with right of survivorship and not as
tenants in common
Additional abbreviations may also be used though not in the above list.
FOR VALUE RECEIVED, the undersigned hereby sell(s), assign(s) and transfer(s)
unto
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
- ------------------------------
- -------------------------------------------------------------------------------
Please print or typewrite name and address including postal zip code of assignee
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
The within Certificate and all rights thereunder, hereby irrevocably
constituting and appointing ________________________________________ attorney
transfer said Certificate on the books of the Certificate Registrar, with full
power of substitution in the premises.
Dated:_____________
___________________________________________________________
NOTICE: The signature to this assignment must correspond
with the name as written upon the face of the written
instrument in every particular, without alteration or
enlargement, or any change whatever.
A-10
<PAGE>
EXHIBIT B
[FORM OF FACE OF CLASS B CERTIFICATE]
THIS CERTIFICATE IS SUBORDINATED IN RIGHT OF PAYMENT TO THE CLASS A
CERTIFICATES AS DESCRIBED IN THE POOLING AND SERVICING AGREEMENT REFERRED TO
HEREIN.
NEITHER THIS CERTIFICATE NOR ANY INTEREST HEREIN MAY BE TRANSFERRED UNLESS
THE HOLDER HEREOF DELIVERS TO THE TRUSTEE THE CERTIFICATION, RULING OR OPINION
OR OPINIONS OF COUNSEL REQUIRED IN ACCORDANCE WITH THE PROVISIONS OF SECTION 5.2
OF THE REQUIRED POOLING AND SERVICING AGREEMENT.
[Solely for U.S. federal income tax purposes, this Certificate is a "Regular
Interest" in a "Real Estate Mortgage Investment Conduit," as those terms are
defined, respectively, in Sections 860G and 860D of the Internal Revenue Code of
1986, as amended. The issue date of this Certificate is ______ ___, 19__.]
Because the rates of interest on the Mortgage Loans are variable, the total
amount of original issue discount ("OID"), for federal income tax purposes,
cannot be calculated. The annual yield to maturity cannot be predicted at this
time because it is variable. Assuming that the Mortgage Loans underlying the
Certificates prepay at the prepayment assumption used by the issuer in pricing
this Certificate, the amount of OID attributable to the short period is $_______
per $100,000 Denomination, computed under the exact method as defined in
proposed Treasury regulations.
THIS CERTIFICATE DOES NOT REPRESENT AN INTEREST IN OR OBLIGATION OF THE
DEPOSITOR, THE MASTER SERVICER, THE TRUSTEE OR ANY OF THEIR RESPECTIVE
AFFILIATES. THIS CERTIFICATE DOES NOT CONSTITUTE A SAVINGS ACCOUNT OR DEPOSIT
AND NEITHER THIS CERTIFICATE NOR THE UNDERLYING MORTGAGE LOANS WILL BE INSURED
OR GUARANTEED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION OR ANY OTHER
GOVERNMENT AGENCY NOR HAS THE FEDERAL DEPOSIT INSURANCE CORPORATION OR ANY OTHER
GOVERNMENT AGENCY PASSED UPON THE ACCURACY OF THE INFORMATION CONTAINED HEREIN.
THIS CERTIFICATE HAS NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THE INFORMATION CONTAINED HEREIN. ANY REPRESENTATION TO
THE CONTRARY IS A CRIMINAL OFFENSE.
B-1
<PAGE>
MORTGAGE PASS-THROUGH CERTIFICATE
evidencing an undivided interest in Mortgage Loans representing beneficial
ownership of certain monthly distributions from a pool of [adjustable] [fixed]
rate mortgage loans secured by one- to four-unit residential properties
originated or acquired by
ABN AMRO MORTGAGE CORPORATION,
as Depositor
(Not an interest in or obligation of the Depositor)
<TABLE>
<CAPTION>
<S> <C>
Certificate No.
Series 19__ - ___ Class B
Cut-off Date ___________ __, 19
Issue Date ___________ __, 19
Denomination $
Aggregate Denomination
of all Class B Certificates $_______________________
Initial Pass-Through Rate ______
</TABLE>
THE PRINCIPAL AMOUNT OF THIS CERTIFICATE WILL BE [INCREASED BY A PORTION OF
DEFERRED INTEREST ACCRUING ON MORTGAGE LOANS] DECREASED BY PRINCIPAL PAYMENTS
HEREON. ACCORDINGLY, FOLLOWING THE INITIAL ISSUANCE OF THE CERTIFICATES, THE
PRINCIPAL AMOUNT OF THIS CERTIFICATE WILL BE DIFFERENT FROM THE DENOMINATION
SHOWN ABOVE. ANYONE ACQUIRING THIS CERTIFICATE MAY ASCERTAIN ITS CURRENT
PRINCIPAL AMOUNT BY INQUIRY OF THE TRUSTEE.
THIS CERTIFIES THAT is the registered owner
of an undivided interest in a trust fund (the "Trust Fund") consisting of (i) a
pool of residential mortgage loans (the "Mortgage Loans") originated or acquired
by ABN AMRO Mortgage Corporation (hereinafter in its capacity as Depositor under
the Pooling and Servicing Agreement described below called the "Depositor,"
which term includes any successor entity under the Pooling and Servicing
Agreement referred to below), (ii) such amounts as from time to time may be held
by the Master Servicer in the Certificate Account, the Pre-Funding Account, if
any, [and the Reserve Fund] established and maintained by the Depositor pursuant
to the Pooling and Servicing Agreement, (iii) the insurance policies, if any,
relating to each Mortgage Loan and (iv) property which secured a Mortgage Loan
and which has been acquired by foreclosure or deed in lieu of foreclosure. The
Trust Fund was created pursuant to a Pooling and Servicing Agreement dated as of
the Cut-off Date specified above (the "Pooling and Servicing Agreement") among
the Depositor, the Master Servicer and ____________________, as trustee (the
B-2
<PAGE>
"Trustee"). This Certificate is one of a duly authorized issue of Certificates
designated as Mortgage Pass-Through Certificates of the Series and Class
specified above (the "Class B Certificates"), and issued under and subject to
the terms, provisions and conditions of the Pooling and Servicing Agreement, to
which Pooling and Servicing Agreement the holder of this Certificate by virtue
of the acceptance hereof assents and by which such holder is bound. A summary
of certain of the pertinent provisions of the Pooling and Servicing Agreement is
set forth below. Also issued under the Pooling and Servicing Agreement are a
Residual Certificate of the same Series representing the "residual interests" in
the Trust Fund (the "Residual Certificate"), and Mortgage Pass-Through
Certificates of the same Series, Class A (the "Class A Certificates"). The
Class A, Class B and Residual Certificates are herein collectively called the
"Certificates."
Reference is hereby made to the further provisions of this Certificate set
forth on the reverse hereof, which further provisions shall for all purposes
have the same effect as if set forth at this place.
Unless the certificate of authentication hereon has been executed by or on
behalf of the Trustee, by manual signature, this Certificate shall not be
entitled to any benefit under the Pooling and Servicing Agreement, or be valid
for any purpose.
IN WITNESS WHEREOF, the Depositor has caused this Certificate to be duly
executed under its official seal.
ABN AMRO MORTGAGE CORPORATION,
as Depositor
By: __________________________
[President]
DATED:
[SEAL]
Attest:
By: _________________________
Secretary
B-3
<PAGE>
TRUSTEE'S CERTIFICATE OF AUTHENTICATION
THIS IS ONE OF THE CLASS B CERTIFICATES REFERRED TO IN THE WITHIN-MENTIONED
POOLING AND SERVICING AGREEMENT.
______________________________
as Authenticating Agent
______________________________
Authorized Signer
B-4
<PAGE>
[FORM OF REVERSE OF CLASS B CERTIFICATE]
ABN AMRO MORTGAGE CORPORATION
MORTGAGE PASS-THROUGH CERTIFICATE, CLASS B, SERIES 19__-[ ]
The Depositor will distribute on the 25th day of each month, or, if such
25th day is not a Business Day, the Business Day immediately following (the
"Distribution Date"), commencing the month after the month in which the Cut-off
Date occurs, to the Person in whose name this Certificate is registered at the
close of business on the last Business Day of the calendar month preceding the
month of such distribution (the "Record Date"), an amount equal to the product
of the Percentage Interest in the Class B Distribution evidenced by this
Certificate and the Class B Distribution. [The Mortgage Loans underlying this
Certificate may in certain cases accrue Deferred Interest. The amount of
Deferred Interest accrued on a Mortgage Loan will be added to the Principal
Balance thereof and will accrue interest at the Mortgage Interest Rate.]
As provided for in the Pooling and Servicing Agreement, the right, title
and interest of the Class B Certificateholders to receive distributions in
respect thereof on any Distribution Date shall be subordinate to the rights of
the Class A Certificateholders to receive distributions in respect of the Class
A Certificates. The Class B Certificateholders shall bear all Excess Credit
Losses, Bankruptcy Losses up to the Bankruptcy Loss Limit, Fraud Losses up to
the Fraud Loss Limit and Special Hazard Losses up to the Special Hazard Loss
Limit until the Class B Principal Balance equals zero. All Excess Credit
Losses, Fraud Losses up to the Fraud Loss Limit, Special Hazard Losses up to the
Special Hazard Limit and Bankruptcy Losses up to the Bankruptcy Loss Limit, to
the extent not allocated to the Class B Certificateholders shall be allocated to
the Class A Certificates on the related Distribution Date.
Holders of Class B Certificates are not required to refund any amounts
which have previously been properly distributed to them.
Distributions on this Certificate will be made by the Trustee by check
mailed to the address of the Person entitled thereto as such name and address
shall appear on the Certificate Register or, if the aggregate Certificate Amount
of the Certificates held by the Certificateholder is in excess of $_____________
and the Certificateholder so requests by notifying the Trustee in writing as
specified in the Pooling and Servicing Agreement, by wire transfer in
immediately available funds to the account specified in writing by the
Certificateholder to the Trustee. Notwithstanding the above, the final
distribution on this Certificate will be made after due notice by the Depositor
B-5
<PAGE>
of the pendency of such distribution and only upon presentation and surrender of
this Certificate at the office or agency of the Trustee designated in such
notice.
The Pooling and Servicing Agreement permits the amendment thereof and
the modification of the rights and obligations of the Depositor, the Master
Servicer and the Certificateholders under the Pooling and Servicing Agreement
from time to time by the Depositor and the Trustee with the consent of the
Holders of Certificates evidencing, in aggregate, not less than 50% of the Trust
Fund for the purpose of adding any provisions or changing in any manner or
eliminating any of the provisions of this Agreement or of modifying in any
manner the rights of the Holders of Certificates; provided, that no such
amendment shall:
(i) reduce in any manner the amount of, or delay the timing of,
payments received on Mortgage Loans which are required to be distributed in
respect of any Certificate without the consent of the Holder of such
Certificate;
(ii) adversely affect in any material respect the interest of the
Holders of the Class A Certificates in a manner other than as described in
(i) above without the consent of the Holders of Class A Certificates
aggregating not less than 66-2/3% of the aggregate Percentage Interest
evidenced by all Class A Certificates;
(iii) adversely affect in any material respect the interest of the
Holders of the Class B Certificates in a manner other than as described in
clause (i) above without the consent of the Holders of Class B Certificates
aggregating not less than 66-2/3% of the aggregate Percentage Interest
evidenced by all Class B Certificates;
(iv) adversely affect in any material respect the interest of the
Class R Certificateholder without the consent of the Holders of the Class R
Certificate;
(v) change in any material respect the rights and obligations of the
Master Servicer or the Back-up Servicer under the Pooling and Servicing
Agreement without the prior written consent of such party; or
(vi) reduce the aforesaid percentage of the Certificates the Holders
of which are required to consent to amendments to the Pooling and Servicing
Agreement without the consent of the Holders of all Certificates then
outstanding; [provided, that the Holder of the Class R Certificate shall
have no right to vote at all times that any Class A or B Certificates are
outstanding if such
B-6
<PAGE>
amendment of the Pooling and Serving Agreement relates to the modification,
elimination or addition of any provision necessary to maintain the
qualification of the Trust Fund as a REMIC;]
provided, that for the purposes of the Pooling and Servicing Agreement, the
holder of the Residual Certificate shall vote only with respect to items (i) and
(iii) above.
Any such Consent by the holder of this Certificate shall be conclusive
and binding on such holder and upon all future holders of this Certificate and
of any Certificate issued upon the transfer hereof or in exchange herefor or in
lieu hereof whether or not notation of such consent is made upon this
Certificate. The Pooling and Servicing Agreement also permits the amendment
thereof, in certain limited circumstances, without the consent of the holders of
any of the Certificates (including amendment or modification to cure any
ambiguity).
As provided in the Pooling and Servicing Agreement and subject to
certain limitations therein set forth, the transfer of this Certificate is
registrable on the Certificate Register upon surrender of this Certificate for
registration of transfer at the offices or agencies maintained by the
Certificate Registrar in the County of ____________, __________, or
____________, ________, duly endorsed by, or accompanied by a written instrument
of transfer in form satisfactory to the Master Servicer and the Certificate
Registrar duly executed by, the holder hereof or such holder's attorney duly
authorized in writing, and thereupon one or more new Class B Certificates for
the same aggregate Percentage Interest will be issued to the designated
transferee or transferees.
The Class B Certificates are issuable only as registered Certificates
without coupons evidencing a minimum Denomination of $_________ (except for one
odd Certificate) and greater integral multiples of $ . As provided in the
Pooling and Servicing Agreement and subject to certain limitations therein set
forth, this Certificate is exchangeable for one or more new Class B Certificates
evidencing a like aggregate Percentage Interest, as requested by the holder
surrendering the same.
No service charge will be made to the Certificateholders for any such
registration of transfer or exchange, but the Certificate Registrar may require
payment of a sum sufficient to cover any tax or other governmental charge
payable in connection therewith. The Depositor, the Master Servicer and the
Trustee and any agent of the Depositor, the Master Servicer or the Trustee may
treat the Person in whose name this Certificate is registered as the owner
hereof for all
B-7
<PAGE>
purposes, and neither the Depositor, the Master Servicer nor the Trustee nor any
such agent shall be affected by notice to the contrary.
The obligations created by the Pooling and Servicing Agreement and the
Trust Fund created thereby (other than the obligation to make payments to
Certificateholders pursuant to the Pooling and Servicing Agreement) shall
terminate upon the payment to the Class A and Class B Certificateholders and the
Residual Certificateholder of all amounts due them under the Pooling and
Servicing Agreement. In no event, however, will the trust created by the
Pooling and Servicing Agreement continue beyond a date 60 years after the date
of the execution and delivery of the Pooling and Servicing Agreement.
B-8
<PAGE>
IN WITNESS WHEREOF, the Depositor has caused this Certificate to be duly
executed under its official seal.
ABN AMRO MORTGAGE CORPORATION,
as Depositor
By:
----------------------------------------------
[President]
DATED:
[SEAL]
Attest:
By:
-------------------------------------------------
Secretary
B-9
<PAGE>
TRUSTEE'S CERTIFICATE OF AUTHENTICATION
THIS IS ONE OF THE CLASS B CERTIFICATES REFERRED TO IN THE WITHIN-MENTIONED
POOLING AND SERVICING AGREEMENT.
_________________________________
as Authenticating Agent
_________________________________
Authorized Signor
B-10
<PAGE>
ABBREVIATIONS
The following abbreviations, when used in the inscription on the face
of this instrument, shall be construed as though they were written out in full
according to applications of laws or regulations:
TEN COM--as tenants in common
UNF GIFT MIN ACT--......(Minor) under Uniform Gifts To Minors Act....
(State)
Custodian ....... (Cust)
TEN ENT -- as tenants by the entireties
JT TEN -- as joint tenants with right of survivorship and not as
tenants in common
Additional abbreviations may also be used though not in the above list.
FOR VALUE RECEIVED, the undersigned hereby sell(s), assign(s) and transfer(s)
unto
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
- ------------------------------
- -------------------------------------------------------------------------------
Please print or typewrite name and address including postal zip code of assignee
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
The within Certificate and all rights thereunder, hereby irrevocably
constituting and appointing ________________________________________ attorney
transfer said Certificate on the books of the Certificate Registrar, with full
power of substitution in the premises.
Dated:_____________
___________________________________________________________
NOTICE: The signature to this assignment must correspond
with the name as written upon the face of the written
instrument in every particular, without alteration or
enlargement, or any change whatever.
B-11
<PAGE>
[EXHIBIT C]
[FORM OF FACE OF RESIDUAL CERTIFICATE]
THIS CERTIFICATE IS SUBORDINATED IN RIGHT OF PAYMENT TO THE CLASS A AND
CLASS B CERTIFICATES AS DESCRIBED IN THE POOLING AND SERVICING AGREEMENT
REFERRED TO HEREIN.
NEITHER THIS CERTIFICATE NOR ANY INTEREST HEREIN MAY BE TRANSFERRED UNLESS
THE HOLDER HEREOF DELIVERS TO THE TRUSTEE THE CERTIFICATION, RULING OR OPINION
OR OPINIONS OF COUNSEL REQUIRED IN ACCORDANCE WITH THE PROVISIONS OF SECTION 5.2
OF THE POOLING AND SERVICING AGREEMENT.
Solely for U.S. federal income tax purposes, this Certificate is a
"Residual Interest" in a "Real Estate Mortgage Investment Conduit," as those
terms are defined, respectively, in sections 860G and 860D of the Internal
Revenue Code of 1986, as amended. The issue date of this Certificate is ______,
19__
THIS CERTIFICATE DOES NOT REPRESENT AN INTEREST IN OR OBLIGATION OF THE
DEPOSITOR, THE MASTER SERVICER, THE TRUSTEE OR ANY OF THEIR RESPECTIVE
AFFILIATES. THIS CERTIFICATE DOES NOT CONSTITUTE A SAVINGS ACCOUNT OR DEPOSIT
AND NEITHER THIS CERTIFICATE NOR THE UNDERLYING MORTGAGE LOANS WILL BE INSURED
OR GUARANTEED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION OR ANY OTHER
GOVERNMENT AGENCY NOR HAS THE FEDERAL DEPOSIT INSURANCE CORPORATION OR ANY OTHER
GOVERNMENT AGENCY PASSED UPON THE ACCURACY OF THE INFORMATION CONTAINED HEREIN.
THIS CERTIFICATE HAS NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THE INFORMATION CONTAINED HEREIN. ANY REPRESENTATION TO
THE CONTRARY IS A CRIMINAL OFFENSE.
RESIDUAL CERTIFICATE
evidencing an undivided interest in Mortgage Loans representing beneficial
ownership of certain monthly distribution from a pool of [adjustable] [fixed]
rate mortgage loans secured by one- to four-unit residential properties
originated or acquired by
C-1
<PAGE>
ABN AMRO MORTGAGE CORPORATION,
as Depositor
(Not an interest in or obligation of the Depositor)
Certificate No. 1
Series 19__-__
Class Residual Certificate
Issue Date _____________ __, 19__
_____________ __, 19__
THIS CERTIFICATE HAS NO STATED PRINCIPAL AMOUNT.
THIS CERTIFIES THAT is the registered owner
of an undivided interest in a trust fund (the "Trust Fund") consisting of (i) a
pool of residential mortgage loans (the "Mortgage Loans") originated or acquired
by ABN AMRO Mortgage Corporation, (hereinafter in its capacity as Depositor
under the Pooling and Servicing Agreement described below called the
"Depositor," which term includes any successor entity under the Pooling and
Servicing Agreement referred to below), (ii) such amounts as from time to time
may be held by the Master Servicer in the Certificate Account and the Pre-
Funding Account, if any, [and the Reserve Fund] established and maintained by
the Depositor pursuant to the Pooling and Servicing Agreement, (iii) the
insurance policies, if any, relating to each Mortgage Loan and (iv) property
which secured a Mortgage Loan and which has been acquired by foreclosure or deed
in lieu of foreclosure. The Trust Fund was created pursuant to a Pooling and
Servicing Agreement dated as of the Cut-off Date specified above (the "Pooling
and Servicing Agreement") among the Depositor, the Master Servicer and
____________________, as trustee (the "Trustee"). This Certificate is a duly
authorized and issued Residual Certificate of the Series and Class specified
above (the "Residual Certificate"), and issued under and subject to the terms,
provisions and conditions of the Pooling and Servicing Agreement, to which
Pooling and Servicing Agreement the holder of this Certificate by virtue of the
acceptance hereof assents and by which such holder is bound. A summary of
certain of the pertinent provisions of the Pooling and Servicing Agreement is
set forth below. Also issued under the Pooling and Servicing Agreement are
Mortgage Pass-Through Certificates of the same Series, Class B (the "Class B
Certificates"), and Mortgage Pass-Through Certificates of the same Series, Class
A (the "Class A Certificates"). The Class A, Class B and Residual Certificates
are herein Collectively called the "Certificates."
Any term used herein which is defined in the Pooling and Servicing
Agreement shall have the meaning assigned in the Pooling and Servicing
Agreement, and nothing herein shall be deemed inconsistent with that meaning.
C-2
<PAGE>
Unless the certificate of authentication hereon has been executed by or on
behalf of the Trustee, by manual signature, this Certificate shall not be
entitled to any benefit under the Pooling and Servicing Agreement, or be valid
for any purpose.
The holder of this Certificate shall be entitled to receive the following
distributions: the amounts, if any, which remain on deposit in the Certificate
Account, after payment to the Class A and Class B Certificateholders of the
amounts set forth in Section 9.1 of the Pooling and Servicing Agreement, and
subject to the conditions set forth therein.
The amounts set forth above shall be payable after the occurrence of the
events set forth in the first paragraph of Section 9.1 of the Pooling and
Servicing Agreement.
The holder of the Residual Certificate is not required to refund any
amounts which have previously been properly distributed to it.
Distributions on this Certificate will be made by the Trustee by check
mailed to the address of the Person entitled thereto as such name and address
shall appear on the Certificate Register or, if the aggregate Certificate Amount
of the Certificates held by the Certificateholder is in excess of $_____________
and the Certificateholder so requests by notifying the Trustee in writing as
specified in the Pooling and Servicing Agreement, by wire transfer in
immediately available funds to the account specified in writing by the
Certificateholder to the Trustee. Notwithstanding the above, the final
distribution on this Certificate will be made after due notice by the Depositor
of the pendency of such distribution and only upon presentation and surrender of
this Certificate at the office or agency of the Trustee designated in such
notice.
The Pooling and Servicing Agreement permits the amendment thereof and
the modification of the rights and obligations of the Depositor, the Master
Servicer and the Certificateholders under the Pooling and Servicing Agreement
from time to time by the Depositor and the Trustee with the consent of the
Holders of Certificates evidencing, in aggregate, not less than 50% of the Trust
Fund for the purpose of adding any provisions or changing in any manner or
eliminating any of the provisions of this Agreement or of modifying in any
manner the rights of the Holders of Certificates; provided, that no such
amendment shall:
(i) reduce in any manner the amount of, or delay the timing of,
payments received on Mortgage Loans which are required to be distributed in
respect of any Certificate without the consent of the Holder of such
Certificate;
C-3
<PAGE>
(ii) adversely affect in any material respect the interest of the
Holders of the Class A Certificates in a manner other than as described in
(i) above without the consent of the Holders of Class A Certificates
aggregating not less than 66-2/3% of the aggregate Percentage Interest
evidenced by all Class A Certificates;
(iii) adversely affect in any material respect the interest of the
Holders of the Class B Certificates in a manner other than as described in
clause (i) above without the consent of the Holders of Class B Certificates
aggregating not less than 66-2/3% of the aggregate Percentage Interest
evidenced by all Class B Certificates;
(iv) adversely affect in any material respect the interest of the
Class R Certificateholder without the consent of the Holders of the Class R
Certificate;
(v) change in any material respect the rights and obligations of
the Master Servicer or the Back-up Servicer under the Pooling and Servicing
Agreement without the prior written consent of such party; or
(vi) reduce the aforesaid percentage of the Certificates the Holders
of which are required to consent to amendments to the Pooling and Servicing
Agreement without the consent of the Holders of all Certificates then
outstanding; [provided, that the Holder of the Class R Certificate shall
have no right to vote at all times that any Class A or B Certificates are
outstanding if such amendment of the Pooling and Serving Agreement relates
to the modification, elimination or addition of any provision necessary to
maintain the qualification of the Trust Fund as a REMIC;]
provided, that for the purposes of the Pooling and Servicing Agreement, the
holder of the Residual Certificate shall vote only with respect to items (i) and
(iii) above.
Any such Consent by the holder of this Certificate shall be conclusive
and binding on such holder and upon all future holders of this Certificate and
of any Certificate issued upon the transfer hereof or in exchange herefore or in
lieu hereof whether or not notation of such consent is made upon this
Certificate. The Pooling and Servicing Agreement also permits the amendment
thereof, in certain limited circumstances, without the consent of the holders of
any of the Certificates (including amendment or modification to cure any
ambiguity).
As provided in the Pooling and Servicing Agreement and subject to
certain limitations therein set forth, the transfer of
C-4
<PAGE>
this Certificate is registrable on the Certificate Register upon surrender of
this Certificate for registration of transfer at the offices or agencies
maintained by the Certificate Registrar in the County of ____________,
__________, or ____________, ________, duly endorsed by, or accompanied by a
written instrument of transfer in form satisfactory to the Master Servicer and
the Certificate Registrar duly executed by, the holder hereof or such holder's
attorney duly authorized in writing, and thereupon a new Residual Certificate
will be issued to the designated transferee.
The Residual Certificate is issuable only as a registered Certificate
without coupons or any Denomination.
No service charge will be made to the Certificateholders for any such
registration of transfer or exchange, but the Certificate Registrar may require
payment of a sum sufficient to cover any tax or other governmental charge
payable in connection therewith. The Depositor, the Master Servicer and the
Trustee and any agent of the Depositor, the Master Servicer or the Trustee may
treat the Person in whose name this Certificate is registered as the owner
hereof for all purposes, and neither the Depositor, the Master Servicer nor the
Trustee nor any such agent shall be affected by notice to the contrary.
The obligations created by the Pooling and Servicing Agreement and the
Trust Fund created thereby (other than the obligation to make payments to
Certificateholders pursuant to the Pooling and Servicing Agreement) shall
terminate upon the payment to the Class A and Class B Certificateholders and the
Residual Certificateholder of all amounts due them under the Pooling and
Servicing Agreement. In no event, however, will the trust created by the Pooling
and Servicing Agreement continue beyond a date 60 years after the date of the
execution and delivery of the Pooling and Servicing Agreement.
C-5
<PAGE>
IN WITNESS WHEREOF, the Depositor has caused this Certificate to be duly
executed under its official seal.
ABN AMRO MORTGAGE CORPORATION,
as Depositor
By:
-----------------------------------
[President]
DATED:
[SEAL]
Attest:
By:
-----------------------------------
Secretary
C-6
<PAGE>
TRUSTEE'S CERTIFICATE OF AUTHENTICATION
THIS IS THE RESIDUAL CERTIFICATE REFERRED TO IN THE WITHIN-MENTIONED
POOLING AND SERVICING AGREEMENT.
-----------------------------------
as Authenticating Agent
-----------------------------------
Authorized Signor
C-7
<PAGE>
ABBREVIATIONS
The following abbreviations, when used in the inscription on the face
of this instrument, shall be construed as though they were written out in full
according to applications of laws or regulations:
TEN COM--as tenants in common
UNF GIFT MIN ACT--......(Minor) under Uniform Gifts To Minors Act....
(State)
Custodian ....... (Cust)
TEN ENT -- as tenants by the entireties
JT TEN -- as joint tenants with right of survivorship and not as
tenants in common
Additional abbreviations may also be used though not in the above list.
FOR VALUE RECEIVED, the undersigned hereby sell(s), assign(s) and transfer(s)
unto
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
- -------------------------------
- --------------------------------------------------------------------------------
Please print or typewrite name and address including postal zip code of assignee
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
The within Certificate and all rights thereunder, hereby irrevocably
constituting and appointing ________________________________________ attorney
transfer said Certificate on the books of the Certificate Registrar, with full
power of substitution in the premises.
Dated:_____________
-----------------------------------------------------------
NOTICE: The signature to this assignment must correspond
with the name as written upon the face of the written
instrument in every particular, without alteration or
enlargement, or any change whatever.
C-8
