As filed with the Securities and Exchange Commission on March 20, 1998
Registration No. 333-42127
=============================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
AMENDMENT NO. 2
TO FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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ABN AMRO MORTGAGE CORPORATION
(Exact name of registrant as specified in governing instruments)
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Delaware 181 West Madison Street 363886007
(State or other Chicago, Illinois 60602 (I.R.S. Employer
jurisdiction of (Address of principal Identification Number)
incorporation or executive offices)
organization)
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Joseph Krul, President
ABN AMRO Mortgage Corporation
181 West Madison Street
Chicago, Illinois 60602
(248) 643-2530
(Name and address of agent for service)
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Copies to:
Diane Citron, Esq.
Mayer, Brown & Platt
190 South LaSalle Street
Chicago, Illinois 60603-3441
(312) 782-0600
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
From time to time after this Registration Statement becomes effective.
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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]
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<TABLE>
<CAPTION>
CALCULATION OF REGISTRATION FEE
Proposed Maximum Proposed Maximum
Title of Securities Amount to be Offering Price Per Aggregate Offering Amount of
being Registered Registered Unit* Price* Registration Fee
<S> <C> <C> <C> <C>
Mortgage Pass--
Through Certificates(1) $1,000,000,000 100% $1,000,000,000 $294,705.00(2)
</TABLE>
* Estimated solely for the purpose of calculating the registration fee.
(1) Also registered hereby are secondary market sales in Mortgage Pass-Through
Certificates to be effected by ABN-AMRO Chicago Incorporated, the volume of
which cannot be determined.
(2)$295.00 was previously paid.
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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. Because an affiliate of the Registrant intends to make
a market in the Certificates of one or more Series for which its acts as an
underwriter, immediately following the form of the Prospectus and Prospectus
Supplement there follow (a) alternate pages of the Prospectus and (b)
alternate pages of the form of Prospectus Supplement. All other pages of the
Prospectus and Prospectus Supplement are also to be used in the market-making
Prospectus and Prospectus Supplement.
<PAGE>
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, including any principal
and/or interest payments relating thereto. If specified in the related
Prospectus Supplement, a Trust Fund may also include one or more of the
following: reinvestment income, reserve accounts, insurance policies,
guarantees or similar instruments or agreements intended to decrease the
likelihood that Certificateholders will experience delays in distributions of
scheduled payments on, or losses in respect of, the assets in such Trust Fund.
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)
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SEE "RISK FACTORS" BEGINNING ON PAGE 17 HEREIN AND IN THE RELATED
PROSPECTUS SUPPLEMENT FOR A DISCUSSION OF CERTAIN RISK FACTORS THAT SHOULD BE
CONSIDERED BY PROSPECTIVE INVESTORS BEFORE PURCHASING CERTIFICATES OF ANY
SERIES.
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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 MARCH 25, 1998
<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.
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[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 and Reserve Fund; (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 risk factors 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 ("Subsequent
Documents") 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 Subsequent
Documents. To the extent that statements contained in Subsequent Documents
modify or supersede statements contained in the Prospectus, the statements
contained in the Subsequent Documents shall be deemed to modify and supersede
statements contained in this Prospectus.
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
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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. Such material may also be accessed electronically by
means of the Commission's website on the Internet at www.gov.sec.
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 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.
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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.
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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).
ISSUER With respect to each Series of Certificates, a trust
will be formed by the Depositor pursuant to a Pooling
and Servicing Agreement between the Depositor, the
Master Servicer and the Trustee.
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, 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
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Supplement. See "The Pools" and "Description of the
Certificates" herein.
(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 ("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, as used herein, may evidence beneficial
interests in mortgage loans or mortgage-backed
securities including 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 timely
payment of
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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.
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."
POOLING AND
SERVICING
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 "Descript ion 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 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
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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 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
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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 "Risk Factors"
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 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
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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"). The
Administration Fee 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 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
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<PAGE>
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
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
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<PAGE>
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 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
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<PAGE>
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."
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 10% 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
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<PAGE>
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 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.
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<PAGE>
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.
RISK FACTORS In considering an investment in any Series of the
Certificates, investors should recognize that there
are risk factors associated with such an investment.
See "Risk Factors" herein and in the related
Prospectus Supplement.
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<PAGE>
RISK FACTORS
Prospective Certificateholders should consider, among other things, the
following risk factors in connection with the purchase of the Certificates:
1. 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."
2. 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 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 its 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.
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<PAGE>
3. 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. See "Credit Enhancements --
Subordination" herein and "Description of the Certificates" in the related
Prospectus Supplement.
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. 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.
6. 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. See "Certain Federal Income Tax Consequences" herein.
7. 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
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<PAGE>
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."
8. 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. See "Rating" herein.
9. 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."
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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<PAGE>
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 of any Mortgage Loan; insurance
policies, letters of credit or other forms of credit enhancement, if any,
- --------------------
* 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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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 -- 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. 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.
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")
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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.
The Index. The Index applicable to any ARMs comprising a Pool will be
specified in the Prospectus Supplement for the related Series.
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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
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,
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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.
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
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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 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
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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 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
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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.
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
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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 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
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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,
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
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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 FNMA, FHLMC or GNMA Certificates or any combination thereof. 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 Certificates or for the
mortgage loans in which such Mortgage Certificates represent a beneficial
interest. 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.
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. The limited
purposes of the Depositor are, in general, to acquire, own, pledge and sell
mortgage loans and certificates representing proportionate interests in pools
of mortgage loans; to issue, acquire, own, pledge and sell mortgage
pass-through securities which represent ownership interests in mortgage loans
and certificates representing proportionate interests in pools of mortgage
loans, collections thereon and related properties; and to engage in any acts
which are incidental to, or necessary, suitable or convenient to accomplish
the foregoing. 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.
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
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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.
The Depositor is part of ABN AMRO Bank N.V.'s U.S. operations, which are
managed by ABN AMRO North America, Inc. ABN AMRO North America, Inc. began
addressing the Year 2000 Compliance issue for the entire U.S. operations in
1997, by assembling a corporate project team that engaged in an initial
assessment of the scope of the project. ABN AMRO North America, Inc. expects
to have all systems and applications in place and fully tested by the end of
1998, allowing time in 1999 for any systems refinements that may be needed.
The potential impact of the year 2000 issue is dependent upon not only the
corrective measures ABN AMRO North America, Inc. undertakes, but also how the
issue is addressed by unaffiliated third parties. The way in which the year
2000 issue is addressed by governmental agencies, businesses, and other
entities who provide data to, or receive data from, ABN AMRO North America,
Inc. and the Depositor is very important. ABN AMRO North America, Inc. is
communicating with these parties to learn how they are addressing the Year
2000 issue, and to evaluate any potential impact on ABN AMRO North America,
Inc.
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. The Administration Fee 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 and the Administration Fee, 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 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 totaling 50 basis points. The related
Prospectus Supplement will specify whether the Administration Fee 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 acceler
ated 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 Certificateholder, 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 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.
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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 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.
Other Yield Considerations
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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 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
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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 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
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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
fixed-rate mortgages. In addition, there can be no assurance that any Pool
will conform to past prepayment experience or any published prepayment
forecast.
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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 Supplement, terminate prior to the
end of the specified period and result in the earlier than expected
amortization of the related Certificates.
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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; (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 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
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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.
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
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or before the Cut-off date whether or not paid) and reduced by all amounts
distributed to Certificateholders 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 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.
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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. 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 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 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
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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
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
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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; (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%; (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 and (xvi) the ratio of the aggregate outstanding principal balance
of Mortgage Loans with any payment delinquency in excess of 30 days over the
aggregate outstanding principal balance of the Mortgage Loans as of the
Cut-off Date does not equal or exceed 20%.
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
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.
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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. The reinvestment risk
associated with any such prepayment will be borne by the holders of the
Certificates issued by the applicable Trust Fund. 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. The amount that may be initially
deposited into a Pre-Funding Account may be up to 25% of the principal amount
of the Certificates issued by the related Trust Fund. The amounts on deposit
in any Pre-Funding Account may be invested only in certain permitted
investments deemed acceptable by the Rating Agencies as consistent with the
applicable ratings on the Certificates. The underwriting standards for
additional Mortgage Loans that will be acquired with amounts from the
Pre-Funding Account will be in accordance with the standards set forth under
"The Pools -- Underwriting Policies" herein. In addition, following the
transfer of additional Mortgage Loans to the applicable Trust Fund, the
characteristics of the entire pool of Mortgage Loans included in such Trust
Fund may vary significantly from those of the initial Mortgage Loans
transferred to such Trust Fund. Accordingly, it is possible that the credit
quality of the Pool, as a whole, may differ due to the transfer of additional
Mortgage Loans to the Trust Fund but in no event will any such Mortgage Loans
be transferred to the Trust Fund if such transfer would cause a downgrade of
the ratings of the related Certificates. The transfer of additional Mortgage
Loans to the Trust Fund may also result in an accelerated rate of payment to
the applicable Certificateholders caused by an increased level of defaults on
such Mortgage Loans. Certificateholders will bear all reinvestment risk
associated with a higher than expected rate of payment of the Certificates.
In addition, if such Certificates were purchased at a premium, a higher than
expected rate of payment would result in a reduction in the yield to maturity
of any class of Certificates to which such payments are distributed.
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):
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(i) all Mortgagor payments on account of principal, including
principal prepayments by Mortgagors, on the Mortgage Loans;
(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
shall retain 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
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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 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.
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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 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
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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 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
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disproportionate or nominal interests distributions or of interest on Mortgage
Loans and/or Mortgage Certificates with nominal principal distributions.
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
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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 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 Certificateholders 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
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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
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 March 1998, relate to a
Pool consisting of Mortgage Loans and are paid on a monthly basis:
March 1 (A) Cut-off Date.
March 2-
March 31 (B) The Master Servicer receives any Principal Prepayments and
interest thereon to date of prepayment.
March 31 (C) Record Date.
April 1-
April 20 (D) The Master Servicer receives scheduled payments of
principal and interest due on April 1.
April 20 (E) Determination Date.
April 25 (F) Distribution Date.
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 March 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
April 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
March 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 April 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 April 1 will
be deposited in the Certificate Account as received by the Master
Servicer.
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(E) As of the close of business on April 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 due on April 1 which have been
received on or before April 20, as well as all principal prepayments
received on Mortgage Loans between March 2 and March 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
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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.
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
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certificates. Transactions may be settled in CEDEL in any of 28 currencies,
including United States dollars. CEDEL provides to its CEDEL Participants,
among other things, services for safekeeping, administration, clearance and
settlement of internationally traded securities and securities lending and
borrowing. CEDEL interfaces with domestic markets in several countries. As a
professional depository, CEDEL is subject to regulation by the Luxembourg
Monetary Institute. CEDEL Participants are recognized financial institutions
around the world, including underwriters, securities brokers and dealers,
banks, trust companies, 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.
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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
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.
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.
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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.
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
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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 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
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(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).
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.
REPORTS TO CERTIFICATEHOLDERS
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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;
(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
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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 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
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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
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
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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 Certificateholders 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 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
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of interest then due with respect to the related Mortgage Loan, the Master
Servicer shall retain only its pro rata share of such interest payment.
(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.
ADMINISTRATION FEES, COMPENSATION AND PAYMENT OF EXPENSES
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.
Since 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
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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.
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 Certificateholders 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
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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 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, 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 Certificateholder, 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 Certificateholders. Certificateholders
holding Certificates evidencing Fractional Undivided Interests, aggregating
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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.)
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 Certificateholders), any Certificates registered in the name of
the Master Servicer or any of its affiliates shall be deemed not to be
outstanding. (Article I.)
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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 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
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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 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
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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.
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 "Spec
ial 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
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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.
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 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
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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 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
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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 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
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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
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.
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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
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
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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" 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
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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.
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
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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 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. Such an
election will generally be made if the related Trust Fund would not qualify as
a grantor trust under subpart E, Part I of Subchapter J of the Code. 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, is of the
opinion 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 (and will not be treated as an association or publicly traded
partnership taxable as a corporation) 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. Such opinion will be filed prior to issuance of such Series of
Certificates as an exhibit to a post-effective amendment or in a Current
Report on Form 8-K.
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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
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on qualified mortgages or permitted investments, lower than reasonably
expected returns on permitted 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
Certificateholder 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
Certificateholder 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 Certificateholder 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.
Certificateholders 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 Certificateholder) 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
Certificateholders 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, is of the opinion 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. Such opinion will be filed prior to
issuance of such Series of Certificates as an exhibit to a post-effective
amendment or in a Current Report on Form 8-K. 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 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 of future payments
on the Mortgage Loans will not include any payments made in respect of any
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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 Certificateholder'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 Regulations
provide that such Certificates would be subject to the provisions applicable
to instruments
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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 prior payments of the stated redemption price at maturity), such excess is
"market discount." A
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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 Certificateholder 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 Certificateholde
r 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. Section 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 Certificateholders 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 unamo
rtized 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 Incorporated
("AAI"), may act as agents or underwriters in connection with the sale of a
Series of Certificates. AAI is a separately incorporated, wholly-owned
indirect non-bank subsidiary of ABN AMRO Bank N.V. ("ABN AMRO"). AAI is not a
bank. Securities sold, offered or recommended by AAI 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 AAI
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
AAI, 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. Section
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.
104
<PAGE>
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.
105
<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.
Page
----
10 percent shareholder ................................................ 92
1986 Act .............................................................. 97
AACC .................................................................. 104
ABN AMRO .............................................................. 104
Accelerated amortization ........................................... 22, 68
Accredited investor ................................................... 103
Accrual Period ..................................................... 48, 75
Act ............................................................... 75, 105
Adjusted issue price ............................................... 83, 84
Administration Fee .................................................... 11
Advances ............................................................ 8, 14
Agreement ............................................ 1, 8, 20, 38, 64, 65
Anti-deficiency ....................................................... 26
Applicable Amount ..................................................... 88
Applicable Federal rate ............................................... 87
Appraised value ....................................................... 25
ARMs ................................................................ 7, 21
Asset Group ........................................................... 6
Assets ................................................................ 81
Assumed Reinvestment Rate ............................................. 48
Back-Up Master Servicer ............................................. 6, 65
Backup Withholding .................................................... 92
Balloon Payment ....................................................... 24
Bankruptcy Bond ....................................................... 70
BIF ................................................................... 24
Business Day .......................................................... 40
Buydown Fund .......................................................... 21
Buydown Loans ......................................................... 21
Cash Flow Agreement ................................................... 40
CEDEL ................................................................. 10
CEDEL Participants .................................................... 54
CERCLA ................................................................ 75
Certificate ........................................................... 103
Certificate Account ................................................... 9
Certificate Balance ................................................... 48
Certificate Owners .................................................... 3
Certificate Registrar ................................................. 41
Certificateholder .......................................... 53, 79, 92, 99
Certificates .................................................... 1, 9, 103
Citibank .............................................................. 10
Classes ............................................................... 1
Cleanup Costs ......................................................... 75
Clearing agency ....................................................... 54
Clearing corporation ................................................ 8, 26
Closing Date .......................................................... 44
Co-op Loans ........................................................... 21
106
<PAGE>
Code ............................................................... 15, 79
Commission ............................................................ 3
Committee Report ...................................................... 83
Compounding Certificates ........................................... 11, 39
Contingent Payment Regulations ........................................ 97
Contingent Principal ............................................... 96, 97
Controlled foreign corporation ........................................ 92
Cooperative ........................................................... 54
Custodians ............................................................ 41
Cut-off Date .......................................................... 15
Daily accruals ........................................................ 87
Daily Portions ..................................................... 83, 85
Debt Service Coverage Ratio ........................................... 24
Defective obligation ............................................... 42, 44
Deferred Interest .................................................. 11, 22
Depositaries ....................................................... 10, 52
Depositor ............................................................ 1, 6
Determination Date .................................................... 46
Disqualified organization ............................................. 90
Distribution Date ..................................................... 40
DOL ................................................................... 101
Domestic building and loan association ............................. 81, 93
DTC ................................................................... 3
DTC Participants ...................................................... 54
Due-on-Sale .................................................... 23, 36, 75
Eligible Investments .................................................. 46
Equity ................................................................ 101
ERISA ............................................................. 16, 100
Euroclear ............................................................. 10
Euroclear Operator .................................................... 54
Euroclear Participants ................................................ 54
Event of Default ...................................................... 66
Evidence of indebtedness ........................................... 81, 89
Excess inclusion ................................................... 18, 87
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 ............................................... 80, 86
Forward Purchase Agreement .......................................... 9, 44
Fractional Undivided Interest ......................................... 40
Global Clearance ...................................................... 53
Global Securities ..................................................... 55
GNMA .................................................................. 27
GNMA Certificates ..................................................... 27
107
<PAGE>
GNMA I Certificates ................................................... 27
GNMA II Certificates .................................................. 27
Government securities ................................................. 81
Guide ................................................................. 24
Hazard Insurance ...................................................... 61
Housing Act ........................................................... 27
HUD ................................................................... 24
Index ................................................................. 21
Indirect participants ................................................. 54
Initial Deposit .................................................... 13, 69
Initial Mortgage Interest Rates ....................................... 21
Installment Due Date .................................................. 21
Interest Remittance Amount ............................................ 34
Investment Grade ...................................................... 10
IO Certificates .................................................... 12, 93
Issue price ........................................................... 82
L/C Bank .............................................................. 69
Lease ................................................................. 77
Legal investments ..................................................... 16
Limited Mortgage Documentation Program ................................ 25
Loan-to-Value Ratio ................................................... 25
Lock-in ............................................................... 36
Market Discount ....................................................... 84
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 ................................ 101
Mortgage related securities ...................................... 105, 106
Mortgage-related securities ....................................... 16, 105
Mortgagor ............................................................. 11
Mutual savings bank ................................................ 81, 93
Negatively Amortizing ARMs ............................................ 22
Net operating income .................................................. 24
Non United States Persons ............................................. 58
Non-Accelerated Certificates .......................................... 39
Non-economic residual interest ........................................ 90
Noncontingent bond method ............................................. 98
Nonrecoverable Advances ............................................... 50
Notional Balance ...................................................... 49
OID Regulations ....................................................... 79
Original issue discount ............................................ 15, 82
P&I Certificates ...................................................... 93
108
<PAGE>
Parties in Interest ................................................... 101
Pass-through entity ................................................... 90
Pass-through interest holder .......................................... 88
Pass-through interest holders ......................................... 88
Pass-Through Rate ................................................... 1, 11
Paying Agent .......................................................... 40
Payment Caps .......................................................... 22
Percentage Interest ................................................ 40, 47
Permitted investments ................................................. 46
Plan .................................................................. 100
PO Certificates .................................................... 11, 49
Pool ................................................................ 1, 20
Pool Distribution ..................................................... 46
Pre-Funding Account ................................................. 9, 44
Prepayment Assumption ................................................. 83
Prepayment Certificates ............................................ 39, 49
Prepayment Interest Shortfall ......................................... 11
Prepayment Period ..................................................... 47
Prepayment Premium .................................................... 24
Principal Balance ..................................................... 40
Private Certificates .................................................. 30
Prohibited transactions ............................................... 89
Prospectus Supplement ................................................. 1
PTE 83-1 .............................................................. 101
PUDs .................................................................. 21
Qualified Lender ...................................................... 1
Qualified mortgage .................................................... 80
Qualified stated interest ............................................. 82
Qualifying real property loans ........................................ 81
Rating Agency ..................................................... 10, 106
Real estate assets ................................................. 81, 93
Realized Losses ....................................................... 14
Record Date ........................................................... 40
Registration Statement ................................................ 4
Regular Certificates ............................................... 15, 79
Regular interest ................................................... 80, 93
REMIC ............................................................... 2, 15
REMIC Regulations ..................................................... 79
Replacement Certificates .............................................. 55
Repository ............................................................ 39
Reserve Fund ....................................................... 13, 69
Residual Certificates .............................................. 50, 79
Residual Holder ....................................................... 40
Residual interest .............................................. 40, 81, 93
Rules ................................................................. 53
SAIF .................................................................. 24
Scheduled Amortization Date ........................................ 48, 49
Securities Act ........................................................ 4
Senior Certificates .................................................. 1, 9
Sequential Pay Certificates ........................................ 39, 49
Series ................................................................ 1
Servicers ............................................................. 61
109
<PAGE>
Servicing Agreement ................................................... 21
Shifting Interest Certificates ........................................ 39
Shifting Interest Credit Enhancement ............................... 13, 68
Shortfall ............................................................. 14
Significant value ..................................................... 87
Single Family Mortgage Loans .......................................... 1
Single-class REMIC ................................................. 87, 88
Single-family residential property .................................... 102
SMMEA ............................................................. 16, 105
Special Hazard Amount ................................................. 70
Special Hazard Insurance Policy ....................................... 70
Special Hazard Insurer ................................................ 70
Specified Reserve Fund Balance ..................................... 13, 69
Sponsor ............................................................... 77
Startup Day ........................................................... 80
Stripped Bonds ........................................................ 94
Stripped Certificates .............................................. 39, 49
Stripped debt ......................................................... 94
Subordinate Certificates ............................................. 1, 9
Subordinated Amount ................................................... 13
Subsequent Documents .................................................. 3
Superlien ............................................................. 76
Surplus ............................................................... 50
Tax matters person .................................................... 91
Taxable mortgage pool ................................................. 89
Terms and Conditions .................................................. 55
Title V ............................................................... 76
Trust ................................................................. 103
Trust Fund............................................................ 1, 9
Trustee ............................................................. 6, 20
Underwriter Exemption ................................................. 102
Underwriters .......................................................... 105
United States person .................................................. 92
USA ................................................................... 7
VA .................................................................... 27
Variable rate debt instrument ......................................... 82
110
<PAGE>
TABLE OF CONTENTS
-----------------
PROSPECTUS SUPPLEMENT ................................................. 3
REPORTS TO CERTIFICATEHOLDERS ......................................... 3
INCORPORATION OF CERTAIN INFORMATION BY REFERENCE ..................... 3
ADDITIONAL INFORMATION ................................................ 4
SUMMARY ............................................................... 6
RISK FACTORS ......................................................... 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
111
<PAGE>
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 ...................................... 45
Distributions on the Certificates ............................... 46
Advances and Limitations Thereon ................................ 50
Adjustment to Master Servicing Fees in Connection with
Prepayment Interest Shortfall ................................... 51
Example of Distribution ......................................... 51
Registration of Certificates .................................... 52
Global Clearance, Settlement and Tax Documentation Procedures ... 55
Initial Settlement ........................................... 56
Secondary Market Trading ..................................... 56
Certain U.S. Federal Income Tax Documentation Requirements ... 58
Reports to Certificateholders ................................... 59
Reports to the Trustee .......................................... 60
Collection and Other Servicing Procedures ....................... 60
Hazard Insurance ................................................ 61
Realization Upon Defaulted Mortgage Loans ....................... 62
Administration Fees, Compensation and Payment of Expenses ....... 63
Evidence as to Compliance ....................................... 64
Certain Matters Regarding the Master Servicer ................... 64
[Back-Up Master Servicer ........................................ 65
Special Servicing Agreements ......................................... 65
Events of Default ............................................... 65
Rights Upon Default ............................................. 66
Amendment ....................................................... 66
Termination ..................................................... 67
CREDIT ENHANCEMENTS .................................................. 68
General ......................................................... 68
Subordination ................................................... 68
Shifting Interest Credit Enhancement ............................ 68
Overcollateralization ........................................... 68
Reserve Fund .................................................... 69
Letter of Credit ................................................ 69
Surety Bond ..................................................... 69
Special Hazard Insurance Policy ................................. 70
Bankruptcy Bond ................................................. 70
Cross-Support Features .......................................... 70
Other Arrangements for Credit Enhancements ...................... 70
CERTAIN LEGAL ASPECTS OF THE MORTGAGE LOANS .......................... 70
General ......................................................... 71
Foreclosure ..................................................... 71
Rights of Redemption ............................................ 72
Anti-Deficiency Legislation and Other Limitations on Lenders .... 72
Junior Liens; Rights of Senior Lienholders ...................... 74
112
<PAGE>
"Due-on-Sale" Clauses ........................................... 75
Environmental Legislation ....................................... 75
Subordinate Financing ........................................... 76
Applicability of Usury Laws ..................................... 76
Enforceability of Certain Provisions ............................ 77
Co-op Loans ..................................................... 77
CERTAIN FEDERAL INCOME TAX CONSEQUENCES .............................. 79
General ......................................................... 79
REMIC ........................................................... 79
Qualification as a REMIC ........................................ 80
Investment in Certificates Not Representing Interests in a REMIC 93
STATE TAX CONSIDERATIONS ............................................. 100
ERISA CONSIDERATIONS ................................................. 100
PLAN OF DISTRIBUTION ................................................. 103
LEGAL INVESTMENT ..................................................... 105
LEGAL MATTERS ........................................................ 106
RATING ............................................................... 106
INDEX OF SIGNIFICANT DEFINITIONS ..................................... 107
113
<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]. [A Trust Fund may also include one or more of the
following: reinvestment income, reserve accounts, insurance policies,
guarantees or similar instruments or agreements intended to decrease the
likelihood that Certificateholders will experience delays in distributions of
scheduled payments on, or losses in respect of, the assets in such Trust
Fund.] 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 "RISK FACTORS" BEGINNING ON PAGE S-13 HEREIN AND ON PAGE 17 OF THE
ACCOMPANYING 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 Incorporated, 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 INCORPORATED]
[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").
Issuer ............... ABN AMRO Mortgage Trust 1998-__ (the "Issuer"), a trust
to be formed by the Depositor pursuant to the Pooling
and Servicing Agreement dated ____________, 1998
between the Depositor, the Master Servicer and the
Trustee.
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").
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
S-4
<PAGE>
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.]
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.
S-5
<PAGE>
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.
[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
S-6
<PAGE>
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
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
S-7
<PAGE>
aggregate Principal Balance of the Mortgage Loans
as of the Cut-off Date). See "Description of the
Certificates -- Special Hazard Insurance Policy."]
[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.
S-8
<PAGE>
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 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
S-9
<PAGE>
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 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
S-10
<PAGE>
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 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
S-11
<PAGE>
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 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.
Risk Factors ......... In considering an investment in any Series of the
Certificates, investors should recognize that there are
risk factors associated with such an investment. See
"Risk Factors" herein and in the Prospectus.
S-12
<PAGE>
RISK FACTORS
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 _____:
<TABLE>
<CAPTION>
Year
----------------------------------------
Month 19 19 19 19 19
----- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
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:
</TABLE>
<TABLE>
<CAPTION>
[MONTH] [YEAR] OF ORIGINATION OF MORTGAGE LOANS
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>
TYPES OF MORTGAGED PROPERTIES
<TABLE>
<CAPTION>
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 Refinace
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
S-24
<PAGE>
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.
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
(v) the Redirected Distribution Amount.
S-25
<PAGE>
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.
S-26
<PAGE>
The Class A Prepayment Percentage for each Distribution Date is the
percentage indicated below for the period during which such Distribution Date
occurs:
Distribution Date Class A Prepayment Percentage
----------------- -----------------------------
__________ 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;
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:
S-27
<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.
S-28
<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
S-30
<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.]
[PRE-FUNDING ACCOUNT
A Pre-Funding Account in an amount equal to approximately $_________ or
__% of the aggregate offering price of the Certificates will be established as
a part of the Trust Fund. The Forward Purchase Agreement specifies that
transfers for additional Mortgage Loans in exchange for money released to the
Depositor from the Pre-Funding Account must occur within [three months] from
the Closing Date. See "Description of the Certificates -- Pre-Funding
Account" in the Prospectus.]
[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
S-31
<PAGE>
[___________] 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.]
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
S-32
<PAGE>
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.]
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
S-33
<PAGE>
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 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 summarizes the delinquency and foreclosure experience,
respectively, as of December 31, 1995, December 31, 1996 and December 31, 1997
on approximately $12,588,609,851, $13,897,380,250, and $14,363,038,871,
respectively, in outstanding principal balance of one-to-four-unit mortgage
loans serviced by the Master Servicer.
ONE-TO-FOUR-UNIT MORTGAGE LOANS
<TABLE>
<CAPTION>
As of December 31,
------------------------
1995 1996 1997
---- ---- ----
<S> <C> <C> <C>
Delinquent Mortgage Loans at Period End(1):
30 to 59 days 2.25% 2.44% 2.36%
60 to 89 days 0.39% 0.46% 0.44%
90 to 119 days 0.13% 0.12% 0.12%
120 days or more 0.12% 0.09% 0.06%
Total Delinquencies 2.89% 3.11% 2.98%
Foreclosures: 0.43% 0.56% 0.55%
Total Delinquencies and Foreclosures: 3.32% 3.67% 3.53%
</TABLE>
(1) as a percentage of the total number of loans serviced
There can be no assurance that the delinquency and foreclosure experience
on the Mortgage Loans comprising the Mortgage Pool will correspond to the
delinquency and foreclosure experience of the Master Servicer's mortgage
portfolio set forth in the foregoing table. Indeed, the statistics shown
above represent the delinquency and foreclosure experience for the total
one-to-four-unit mortgage portfolios for each of the years presented, whereas
the aggregate delinquency and foreclosure 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.
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<PAGE>
[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.]
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 [10%]
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
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
S-36
<PAGE>
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.
[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.]
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.]
S-37
<PAGE>
[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.
Page
----
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-9, 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-12
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
Index ...................................................... S-5, S-13
S-39
<PAGE>
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-37
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-7
Primary Mortgage Insurance ................................. S-8, S-34
Principal Prepayments ........................................... S-5
Record Date ..................................................... S-25
REMIC ...................................................... S-2, S-12
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-33
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
S-40
<PAGE>
=============================================================================
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
Page
----
Summary ......................................................... S-4
Risk Factors .................................................... 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-36
ERISA Considerations ............................................ S-36
Use of Proceeds ................................................. S-36
Underwriting .................................................... S-37
Legal Matters ................................................... S-37
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
Risk Factors .................................................... 17
The Pools ....................................................... 20
The Depositor ................................................... 30
Use of Proceeds ................................................. 31
Prepayment and Yield Considerations ............................. 32
Maturity Considerations ......................................... 35
Description of the Certificates ................................. 38
Credit Enhancements ............................................. 68
Certain Legal Aspects of the
Mortgage Loans ............................................. 70
Certain Federal Income Tax
Consequences ............................................... 79
State Tax Considerations ........................................ 100
ERISA Considerations ............................................ 100
Plan of Distribution ............................................ 103
Legal Investment ................................................ 105
Legal Matters ................................................... 106
Rating .......................................................... 106
Index of Significant Definitions ................................ 107
=============================================================================
=============================================================================
$
(approximate)
ABN AMRO MORTGAGE CORPORATION
Seller [and Master Servicer]
Mortgage Pass-Through
Certificates, Class ___,
Series 199_- _
______________
PROSPECTUS SUPPLEMENT
______________
[Underwriter]
=============================================================================
<PAGE>
PROSPECTUS SUPPLEMENT MBP PRELIMINARY DRAFT 3/20/98
(TO PROSPECTUS DATED MARCH 25, 1998)
ABN AMRO MORTGAGE CORPORATION*[LOGO]
Depositor
MULTI-CLASS MORTGAGE PASS-THROUGH CERTIFICATES, SERIES 1998-1
$___________ (Approximate)
Principal and/or interest payable on the 25th day of each month beginning in
April 1998
THESE CERTIFICATES DO NOT REPRESENT AN OBLIGATION OF OR INTEREST IN ABN AMRO
MORTGAGE CORPORATION OR ANY OF ITS AFFILIATES. NEITHER THESE
CERTIFICATES NOR THE UNDERLYING MORTGAGE LOANS ARE GUARANTEED
BY ANY AGENCY OR INSTRUMENTALITY OF THE UNITED STATES.
The Mortgage Pass-Through Certificates, Series 1998-1 (the
"CERTIFICATES"), will consist of the following sixteen classes: (i) Class
IA-1, Class IA-2, Class IA-3, Class IA-4, Class IA-5 and Class IA-6 (the
"CLASS IA CERTIFICATES"), (ii) Class IIA-1, Class IIA-X and Class IIA-P
(together, the Class IIA Certificates and together with the Class IA
Certificates, the "CLASS A CERTIFICATES"), (iii) Class M, Class B-1 and Class
B-2 (the "SENIOR SUBORDINATE CERTIFICATES"), (iv) Class B-3, Class B-4 and
Class B-5 (the "JUNIOR SUBORDINATE CERTIFICATES" and, together with the Senior
Subordinate Certificates, the "SUBORDINATE CERTIFICATES") and (iv) Class R
(the "RESIDUAL CERTIFICATE" and, together with the Class A Certificates, the
"SENIOR CERTIFICATES"). Only the Senior Certificates (other than the Class
IA-1 Certificates) and the Senior Subordinate Certificates (collectively, the
"OFFERED CERTIFICATES") are offered hereby. The Class IA-1 Certificates and
the Junior Subordinate Certificates are not offered hereby.
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------
Approximate Approximate
Initial Class Remittance Initial Class Remittance
Class Principal Balance Rate (1) Class Principal Balance Rate (1)
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Class IA-2 ..... 6.500% Class IIA-1 .... 6.500%
Class IA-3 ..... 7.000% Class IIA-X .... 6.7500%(3)
Class IA-4 ..... 7.000%(2) Class IIA-P .... (4)
Class IA-5 ..... 6.500% Class M ........ variable (5)
Class IA-6 ..... 6.500% Class B-1 ...... variable (5)
Class B-2 ...... variable (5)
Class R(6) ..... $100.00
- -----------------------------------------------------------------------------------------------------
</TABLE>
The Offered Certificates are being offered by Donaldson, Lufkin &
Jenrette Securities Corporation and ABN AMRO Incorporated (the "UNDERWRITERS")
from time to time in negotiated transactions or otherwise at varying prices to
be determined at the time of sale. Sales may be made to investors at the same
price or at different prices. See "Method of Distribution" herein. The
aggregate proceeds to ABN AMRO Mortgage Corporation (the "COMPANY" or "AMAC")
from the sale of the Offered Certificates, before deducting expenses estimated
to be $_________________, will be ____% of the initial aggregate Certificate
Principal Balance of the Offered Certificates plus accrued interest. The
difference between the aggregate purchase price for the Offered Certificates
paid to the Company and the aggregate proceeds from the sale of the Offered
Certificates realized by the Underwriters will constitute underwriting
discounts and commissions. The Seller has agreed to indemnify the
Underwriters against certain liabilities, including liabilities under the
Securities Act of 1933. See "Method of Distribution" herein.
---------------------
SEE "RISK FACTORS" IMMEDIATELY FOLLOWING "SUMMARY INFORMATION" HEREIN AND
IMMEDIATELY FOLLOWING "SUMMARY OF PROSPECTUS" IN THE PROSPECTUS FOR A
DISCUSSION OF CERTAIN FACTORS THAT SHOULD BE CONSIDERED BEFORE PURCHASING ANY
OF THE OFFERED CERTIFICATES.
---------------------
THE ATTORNEY GENERAL OF THE STATE OF NEW YORK HAS NOT PASSED ON OR ENDORSED
THE MERITS OF THIS OFFERING. ANY REPRESENTATION TO THE CONTRARY IS UNLAWFUL.
---------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR
THE SECURITIES COMMISSION OF ANY STATE NOR HAS ANY SUCH COMMISSION PASSED UPON
THE ACCURACY
OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
The Offered Certificates are offered by the Underwriters, as specified
herein, subject to receipt and acceptance by them, and subject to its right to
reject any order in whole or in part and to certain other conditions. It is
expected that delivery of the Offered Certificates (other than the Residual
Certificate) will be made through the facilities of the Depository Trust
Company, and that delivery of the Residual Certificate (other than the portion
of the Residual Certificate retained by the Company) will be made at the
offices of Donaldson, Lufkin & Jenrette Securities Corporation, on or about
March 31, 1998. Additional cover page information is contained on the
following three pages.
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION ABN AMRO INCORPORATED
The date of this Prospectus Supplement is March 25, 1998
<PAGE>
(1) Interest distributed to the Offered Certificates on each Distribution Date
will have accrued during the preceding calendar month at the applicable
per annum Remittance Rate (as defined herein).
(2) On each Distribution Date on or before the Class IA-4 Accretion
Termination Date (as defined herein), an amount equal to the Class IA-4
Accrual Amount (as defined herein) will be added to the Class IA-4
Principal Balance, and such amount will be distributed as principal to
other Components (as defined herein) and Classes of Certificates as
described herein and will not be distributed as interest to the Class IA-4
Certificates.
(3) The Class IIA-X Certificates will accrue interest on the Class IIA-X
Notional Amount (as defined in "Description of the Certificates --
Distributions of Interest" herein). The Class IIA-X Notional Amount as of
the Cut-Off Date will be approximately $___________. Class IIA-X
Certificates will not be entitled to receive distributions of principal.
(4) The Class IIA-P Certificates will not be entitled to distributions of
interest and will only receive principal in respect of those Group II
Mortgage Loans with Pass-Through Rates that are less than 6.50%. For a
description of the principal distributions to Class IIA-X, see
"Description of the Certificates -- Distributions of Principal -- Class
IIA-P Principal Distribution Amount."
(5) The Remittance for the Subordinate Certificates shall be equal to the
weighted average of the following two factors: (i) 6.75% of the
Certificate Principal Balance of the Class IA Certificates and (ii) 6.50%
of the Certificate Principal Balance of the Class IIA Certificates, with
each of (i) and (ii) being weighted on the basis of each respective
Certificate Principal Balance.
(6) The Class R Certificate will be comprised of two Components, Component
R-1, which represents the sole residual interest in the REMIC I (as
defined herein), and Component R-2, which represents the sole residual
interest in the REMIC II (as defined herein).
The Certificates, other than the Class R Certificate, will evidence all
of the beneficial ownership interest in a trust ("REMIC II") established by
the Company, the assets of which will evidence all of the beneficial ownership
interest in another trust (except for the interests represented by the Class R
Certificate) also established by the Company ("REMIC I"). REMIC I will
consist primarily of a pool (the "MORTGAGE POOL") segregated into two groups
("MORTGAGE LOAN GROUP I" and "MORTGAGE LOAN GROUP II" and each, a "MORTGAGE
LOAN GROUP") of conventional one- to four-family, fixed rate, first lien
residential mortgage loans ("GROUP I MORTGAGE LOANS" and "GROUP II MORTGAGE
LOANS," respectively, and collectively, the "MORTGAGE LOANS"). All of the
Group I Mortgage Loans have original terms to stated maturity (based on the
date of origination or any later modification) of greater than 15 but not more
than 30 years and all of the Group II Mortgage Loans have original terms to
stated maturity (based on the date of origination or any later modification)
of not more than 15 years. The characteristics of the Mortgage Loans
comprising each Mortgage Loan Group are described herein under "The Mortgage
Pool." Except in limited circumstances described herein, the Class IA
Certificates will correspond to the Group I Mortgage Loans, the Class IIA
Certificates will correspond to the Group II Mortgage Loans and the
Subordinate Certificates will correspond to both the Group I Mortgage Loans
and the Group II Mortgage Loans.
Distributions of interest and principal on the Class IA Certificates, on
the one hand, and distributions of interest and principal on the Class IIA
Certificates, on the other, will be based on interest and principal received
or advanced with respect to the Group I Mortgage Loans and the Group II
Mortgage Loans, respectively, except under the limited circumstances described
herein. The right of the holders of the
S-2
<PAGE>
Subordinate Certificates to receive distributions with respect to the Mortgage
Loans will be based upon interest and principal received or advanced with
respect to both Mortgage Loan Groups. Such rights in the case of the
Subordinate Certificates will be subordinate to the rights of the holders of
the Senior Certificates. The rights of holders of each Class of Subordinate
Certificates will be subordinate to the rights of any Class of Subordinate
Certificates with a lower numerical designation.
The Company intends to cause an election to be made to treat REMIC I and
REMIC II as "real estate mortgage investment conduits" (each, a "REMIC") for
federal income tax purposes. All of the Certificates issued by REMIC I and
REMIC II, other than the Class R Certificate, will represent ownership of
REMIC "regular interests". The Class R Certificate will represent ownership
of the REMIC "residual interest" in REMIC II and REMIC I. See "Certain
Federal Income Tax Consequences" herein and in the Prospectus.
The Offered Certificates, other than the Class R Certificate, evidence inte
rests only in REMIC II and are payable solely from amounts received with
respect thereto. The Class R Certificate evidences the residual interests in
the REMIC I and the REMIC II.
The Company has the right to effect early retirement of the Certificates
under certain circumstances. See "Description of the Certificates--Optional
Termination of the REMIC I" herein.
The yield to maturity on any Class of Certificates generally will depend
on the rate and timing of principal payments (including prepayments, defaults
and liquidations) on the Mortgage Loans in the related Loan Group, and to the
extent of the limited circumstances described herein, in the other Loan Group.
The Class IA-4 Certificates will be especially sensitive to the rate of
prepayment on the Mortgage Loans because such certificates will receive
distributions of principal on any Distribution Date only to the extent of the
portion of the Group I Senior Principal Distribution Amount (as defined
herein) remaining, if any, after principal distributions to the PACs (as
defined herein), to the extent of their respective planned principal balances
for such Distribution Date as set forth in Appendix A (each, a "PLANNED
PRINCIPAL BALANCE"), and to the TACs (as defined herein), to the extent of
their respective targeted principal balances for such Distribution Date as set
forth in Appendix B (each, a "TARGETED PRINCIPAL BALANCE"). Furthermore, if
the Group I Senior Principal Distribution Amount on any Distribution Date is
not sufficient to reduce the Class or Component Principal Balances of the PACs
to their Planned Principal Balances and to reduce the Class or Component
Principal Balances of the TACS to their Targeted Principal Balances, the Class
IA-4 Certificates will receive no principal distribution on such Distribution
Date.
The yield to maturity on the Class IIA-X Certificates will be extremely
sensitive to the level of Principal Prepayments on certain of the Group II
Mortgage Loans. The interest payable to the Class IIA-X Certificates is based
on the weighted average of the Stripped Interest Rates (as defined herein) of
the Group II Mortgage Loans having Pass-Through Rates in excess of 6.500% (the
"GROUP II PREMIUM RATE MORTGAGE LOANS"). Therefore the yield to maturity on
the Class IIA-X Certificates will generally decrease as a result of faster
than expected Principal Prepayments on the Group II Premium Rate Mortgage
Loans. Prospective investors should full consider the risks associated with
an investment in the Class IIA-X Certificates, including the possibility that
if the rate of Principal Prepayments on the Group II Premium Rate Mortgage
Loans is rapid, such investors may not fully recoup their initial investments.
The yield to maturity on the Class IIA-P Certificates will be extremely
sensitive to the level of Principal Prepayments on certain of the Group II
Mortgage Loans. The principal payable to the Class IIA-P Certificates is
derived from Group II Mortgage Loans having Pass-Through Rates lower than
6.500% (the
S-3
<PAGE>
"GROUP II DISCOUNT MORTGAGE LOANS"). Therefore, the yield to maturity on the
Class IIA-P Certificates will be adversely affected by slower than expected
prepayments of the Group II Discount Rate Mortgage Loans.
Because the interest payable on the Class IIA-X Certificates and the
principal distributable to the Class IIA-P Certificates are derived from
different Mortgage Loans within Group II Mortgage Loans, it is possible that
faster than expected Principal Prepayments on the Group II Premium Rate
Mortgage Loans may occur at the same time as slower than expected Principal
Prepayments on the Group II Discount Mortgage Loans which would result in a
lower yield to maturity for both the Class IIA-X and Class IIA-P Certificates.
The rights of the holders of the Senior Subordinate Certificates to
receive distributions of interest and principal are subordinated to the rights
of the holders of the Senior Certificates to receive distributions of interest
and principal. In addition, the rights of the holders of the Class B-2
Certificates to receive distributions of interest and principal are
subordinated to the rights of the holders of the Class B-1 and Class M
Certificates to receive distributions of interest and principal, and the
rights of the holders of the Class B-1 Certificates to receive distributions
of interest and principal are subordinated to the rights of the holders of the
Class M Certificates to receive distributions of interest and principal.
Furthermore, following the reduction of the aggregate Class Principal Balance
of the Junior Subordinate Certificates to zero, the yield to maturity on each
class of the Senior Subordinate Certificates will be extremely sensitive to
certain realized losses on the Mortgage Loans because a disproportionate
amount of such losses (rather than a pro rata portion thereof) generally will
be allocable to such Certificates in the order of Class B-2, then Class B-1
and then Class M. Similarly, following the reduction of the aggregate of the
Class Principal Balances of the Subordinate Certificates to zero, the yield to
maturity on the Senior Certificates will be sensitive to all realized losses
on the Mortgage Loans. See "Description of the Certificates--Subordination
and Allocation of Losses" herein.
The Offered Certificates, other than the Residual Certificate, are
offered in minimum denominations equivalent to not less than $25,000 initial
Certificate Principal Balance each and multiples of $1 in excess thereof.
The Residual Certificate, which will have an initial Class Principal Balance
of $100, will be offered in registered, certificated form in a single
denomination of a 100.00% percentage interest.
It is a condition to the issuance of the Offered Certificates that the
Class A Certificates and the Residual Certificate each be rated in the highest
rating category of each of [Standard & Poor's, a division of The McGraw-Hill
Companies, Inc. ("S&P"), Fitch IBCA Inc. ("FITCH"), and Duff & Phelps Credit
Rating Co. ("DCR" and, together with S&P and Fitch, the "RATING AGENCIES");
[that the Class M Certificates be rated not less than the second highest
rating category of each of the Rating Agencies; that the Class B-1
Certificates be rated not less than the third highest rating category of each
of the Rating Agencies; and] that the Class B-2 Certificates be rated not less
than the fourth highest rating category of each of the Rating Agencies.]
UNTIL THE EXPIRATION OF 90 DAYS AFTER THE DATE OF THIS SUPPLEMENT, ALL
DEALERS EFFECTING TRANSACTIONS IN THE OFFERED CERTIFICATES, WHETHER OR NOT
PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A SUPPLEMENT
AND THE PROSPECTUS TO WHICH IT RELATES. THIS IS IN ADDITION TO THE
OBLIGATION OF DEALERS TO DELIVER A SUPPLEMENT AND PROSPECTUS WHEN ACTING AS
UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS SUPPLEMENT AND THE
PROSPECTUS TO WHICH IT RELATES, AND, IF GIVEN OR MADE, SUCH INFORMATION OR
REPRESENTATIONS MUST NOT BE RELIED UPON. THIS SUPPLEMENT DOES NOT CONSTITUTE
AN
S-4
<PAGE>
OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY SECURITIES OTHER
THAN THE OFFERED CERTIFICATES OFFERED HEREBY NOR AN OFFER OF THE OFFERED
CERTIFICATES TO ANY PERSON IN ANY STATE OR OTHER JURISDICTION IN WHICH SUCH
OFFER WOULD BE UNLAWFUL. THE DELIVERY OF THIS SUPPLEMENT AT ANY TIME DOES
NOT IMPLY THAT INFORMATION HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO ITS
DATE; HOWEVER, IF ANY MATERIAL CHANGE OCCURS WHILE THIS SUPPLEMENT IS REQUIRED
BY LAW TO BE DELIVERED, THIS SUPPLEMENT WILL BE AMENDED OR SUPPLEMENTED
ACCORDINGLY.
S-5
<PAGE>
TABLE OF CONTENTS
PAGE NO.
--------
SUMMARY INFORMATION ................................................ S-7
RISK FACTORS ....................................................... S-26
EFFECT OF PRINCIPAL PREPAYMENTS ............................ S-26
RISKS OF HOLDING SUBORDINATE CERTIFICATES .................. S-28
LIMITED SOURCE OF PAYMENTS--NO RECOURSE TO COMPANY, MASTER
SERVICER OR TRUSTEE ....................................... S-29
LIMITED LIQUIDITY .......................................... S-29
GEOGRAPHIC CONCENTRATION ................................... S-29
BOOK-ENTRY SYSTEM .......................................... S-29
THE TRUST .......................................................... S-30
DESCRIPTION OF THE MORTGAGE POOL ........................... S-30
LOAN GROUP I ............................................... S-32
LOAN GROUP II .............................................. S-33
ADDITIONAL INFORMATION ..................................... S-34
DESCRIPTION OF THE CERTIFICATES .................................... S-39
GENERAL .................................................... S-39
BOOK-ENTRY REGISTRATION .................................... S-40
DEFINITIVE CERTIFICATES .................................... S-42
PRIORITY OF DISTRIBUTIONS .................................. S-42
DISTRIBUTIONS OF INTEREST .................................. S-46
DISTRIBUTIONS OF PRINCIPAL ................................. S-47
PRINCIPAL PREPAYMENTS ...................................... S-53
SUBORDINATION AND ALLOCATION OF LOSSES ..................... S-54
THE CLASS R CERTIFICATE .................................... S-56
ADVANCES ................................................... S-57
AVAILABLE DISTRIBUTION AMOUNT .............................. S-57
LAST SCHEDULED DISTRIBUTION DATE ........................... S-58
OPTIONAL TERMINATION OF THE TRUST .......................... S-59
SERVICING .......................................................... S-59
SERVICING COMPENSATION AND PAYMENT OF EXPENSES ............. S-59
YIELD AND PREPAYMENT CONSIDERATIONS ................................ S-60
GENERAL .................................................... S-60
PRINCIPAL PREPAYMENTS AND COMPENSATING INTEREST ............ S-60
LOCKOUT CERTIFICATES ....................................... S-61
RATE OF PAYMENTS ........................................... S-61
SPECIAL SENSITIVITIES ...................................... S-61
BASIC PREPAYMENT ASSUMPTION ................................ S-62
YIELD CONSIDERATIONS WITH RESPECT TO THE SENIOR SUBORDINATE
CERTIFICATES .............................................. S-63
ADDITIONAL YIELD CONSIDERATIONS APPLICABLE SOLELY TO THE CLASS R
CERTIFICATES ............................................... S-67
S-6
<PAGE>
ADDITIONAL INFORMATION ..................................... S-68
CREDIT ENHANCEMENTS ................................................ S-69
SUBORDINATION .............................................. S-69
SHIFTING OF INTERESTS ...................................... S-69
CERTAIN FEDERAL INCOME TAX CONSEQUENCES .................... S-70
NEW WITHHOLDING REGULATIONS ................................ S-71
SPECIAL TAX CONSIDERATIONS APPLICABLE TO THE RESIDUAL
CERTIFICATES .............................................. S-71
CERTAIN LEGAL INVESTMENT ASPECTS ................................... S-72
ERISA CONSIDERATIONS ............................................... S-73
UNDERWRITERS' PTE .......................................... S-74
PROHIBITED TRANSACTION CLASS EXEMPTIONS .................... S-75
RESTRICTIONS ON THE SENIOR SUBORDINATE AND RESIDUAL
CERTIFICATES .............................................. S-75
METHOD OF DISTRIBUTION ............................................. S-76
LEGAL MATTERS ...................................................... S-76
CERTIFICATE RATINGS ................................................ S-76
APPENDIX A - PLANNED PRINCIPAL BALANCE TABLES
APPENDIX B - TARGETED PRINCIPAL BALANCE TABLES
APPENDIX C - BASIC PREPAYMENT ASSUMPTION TABLES
S-7
<PAGE>
SUMMARY INFORMATION
The following summary is qualified in its entirety by reference to the
detailed information appearing elsewhere herein and in the Prospectus.
Capitalized terms used herein and not otherwise defined herein have the
meanings assigned to them in the Prospectus.
Title of Securities ... Mortgage Pass-Through Certificates, Series 1998-1 (the
"CERTIFICATES")
Depositor ............. ABN AMRO Mortgage Corporation (the "COMPANY")
Servicer .............. LaSalle Home Mortgage Corporation (the "SERVICER")
Seller ................ Standard Federal Bank, FSB, a _____________.
Trustee ............... Chase Bank of Texas, N.A. (the "TRUSTEE")
Cut-Off Date .......... March 1, 1998 (the "CUT-OFF DATE")
Closing Date .......... On or about March 30, 1998 (the "CLOSING DATE")
Certificates .......... Multi-Class Mortgage Pass-Through Certificates, Series
1998-1, Class A (the "Class A Certificates"), Class M,
Class B-1, and Class B-2. The Class A Certificates
(other than the Class IA-1 Certificates), the Class M
Certificates, the Class B-1 Certificates and the Class
B-2 Certificates are sometimes collectively referred
to herein as the "Offered Certificates." Only the
Offered Certificates are offered hereby.
The Class A Certificates will consist of the Class
IA-1, IA- 2, IA-3, IA-4, IA-5, IA-6, IIA-1, IIA-X and
IIA-P Certificates.
The Offered Certificates will be issued pursuant to a
Pooling and Servicing Agreement, dated as of the
Cut-Off Date, between the Company, the Servicer and
the Trustee. The approximate initial Class Principal
Balance, rate of interest borne by a certificate (the
"REMITTANCE RATE"), and types of the Offered
Certificates will be as follows:
<TABLE>
<CAPTION>
APPROXIMATE
INITIAL CLASS
PRINCIPAL REMITTANCE
CLASS BALANCE RATE TYPE
<S> <C> <C> <C>
Class IA-2 $ 6.500% Senior/PAC
Class IA-3 7.000% Senior/TAC
Class IA-4 7.000% Senior/Accrual
S-8
<PAGE>
Class IA-5 6.500% Senior/PAC
Class IA-6 6.500% Senior/PAC
Class IIA-1 6.500% Senior Fixed
Class IIA-X 6.5% Senior/Interest Only
Class IIA-P -- Senior/Principal Only
Class M variable Senior
Subordinate Class B-1 variable Senior
Subordinate Class B-2 variable Senior
Subordinate Class R 100.00 6.750% Senior/Residual
</TABLE>
The Class A Certificates (exclusive of the Class IIA-P
Certificates) are sometimes collectively referred to
herein as the "NON-PO CLASS A CERTIFICATES."
The Class IIA-X Certificates are interest only
Certificates. The Class IIA-X Certificates will not
receive distributions of principal, but will accrue
interest on the Class IIA-X Notional Amount (as
defined herein).
The Class IIA-P Certificates are principal only
Certificates and will not be entitled to payments of
interest.
The Class IA-2, IA-5 and IA-6 Certificates are
sometimes collectively referred to herein as the
"PACs."
The Class IA-3 Certificates are sometimes collectively
referred to herein as the "TAC."
Components. The Class IA-1 and Class R Certificates
will be comprised of multiple components (each, a
"COMPONENT"). Each Component of the Class IA-1
Certificates will have a specified principal balance
(a "COMPONENT PRINCIPAL BALANCE") or notional amount
(a "COMPONENT NOTIONAL AMOUNT") which functions in a
manner comparable to that of a Class Principal Balance
or Class Notional Amount, respectively, on which
interest will accrue at a designated Remittance Rate
(other than Components IA-1-1 and IA-1-4 of the Class
IA-I Certificates, which are not entitled to
distributions of interest). Holders of a Class of
Certificates comprised of Components will be entitled
to receive distributions on any Distribution Date to
the extent of the amount distributed with respect to
the related Components on such Distribution Date.
Holders of a Class of Certificates comprised of
Components may not transfer such Components
separately.
S-9
<PAGE>
For purposes of calculating distributions, the Class
IA-1 Certificates, which are not offered hereby, will
be comprised of six Components having the
designations, initial Component Principal Balances or
Component Notional Amounts and Remittance Rates set
forth below:
<TABLE>
<CAPTION>
APPROXIMATE INITIAL
COMPONENT PRINCIPAL REMITTANCE
DESIGNATION BALANCE RATE
----------- ------------------- ----------
<S> <C> <C>
Component IA-1-1 $ %(1)
Component IA-1-2 ----------- 7.000%(2)
Component IA-1-3 $ 7.000%(3)
Component IA-1-4 $ (4)
Component IA-1-5 $ (5) 6.750%
Component IA-1-6 ----------- 6.750%(6)
</TABLE>
(1) Components IA-1-1 will not be entitled to
distributions of interest and will receive
principal only in respect of the related Group I
Mortgage Loans.
(2) Component IA-1-2 will accrue interest on the
Component IA-1-2 Notional Amount (as defined in
"Description of the Certificates -- Distributions
of Interest" herein). The Component IA-1-2
Notional Amount as of the Closing Date will be
approximately $________________. Component
IA-1-2 will not be entitled to receive
distributions of principal.
(3) On each Distribution Date on or before the
Component IA-1-3 Accretion Termination Date (as
defined herein), an amount equal to the Component
IA-1-3 Accrual Amount (as defined herein) will be
added to the Component IA-1-3 Principal Balance,
and such amount will be distributed as principal
to other Components and Classes of Certificates
as described herein and will not be distributed
as interest to Component IA-1-3.
(4) Component 1A-1-4 will not be entitled to
distributions of interest and will only receive
principal in respect of those Group I Mortgage
Loans with Pass-Through Rates that are less than
6.750%. For a description of the principal
distributions to Component IA-1-4, see
"Description of the Certificates--Distributions
of Principal--Component IA-1-4 Principal
Distribution Amount."
S-10
<PAGE>
(5) Component IA-1-5 will generally not be entitled
to receive any distributions of Group I Principal
Prepayments (as defined herein) until the
Distribution Date in April 2003.
(6) Component IA-1-6 will accrue interest on the
Component IA-1-6 Notional Amount (as defined in
"Description of the Certificates -- Distributions
of Interest" herein). The Component IA-1-6
Notional Amount as of the Closing Date will be
approximately $______________. Component IA-1-6
will not be entitled to receive distributions of
principal.
The Class R Certificate will be comprised of two
Components, Component R-1 and Component R-2. Component
R-1 represents the residual interest in the REMIC I
and Component R-2 represents the residual interest in
the REMIC II.
The Certificates, other than the Class R Certificate,
will evidence all the beneficial ownership interest in
a trust (the "REMIC II") established by the Company,
the assets of which, together with the Class R
Certificate described below, will evidence all the
beneficial ownership interest in another trust (except
for the interests represented by the Class R
Certificate), also established by the Company (the
"REMIC I"), into which the mortgage loans (the
"MORTGAGE LOANS") will be deposited. The Company
will cause elections to be made to treat the REMIC I
and the REMIC II as real estate mortgage investment
conduits (each, a "REMIC"). See "Description of the
Certificates" herein.
The Mortgage Pool ..... The Mortgage Pool will consist primarily of
conventional fixed-rate residential mortgage loans
(the "MORTGAGE LOANS") secured by first liens on
one-to four-family residential properties (the
"MORTGAGED PROPERTIES") having, as of the Cut-Off
Date, an aggregate principal balance equal to
approximately $____________ (the "CUT-OFF DATE POOL
PRINCIPAL BALANCE"). The Mortgage Loans are divided
into two groups ("MORTGAGE LOAN GROUP I" and "MORTGAGE
LOAN GROUP II," and each, a "MORTGAGE LOAN GROUP"),
designated the Group I Mortgage Loans and the Group II
Mortgage Loans. Approximately 97.595% of the Mortgage
Loans have FICO Scores and approximately 95.418% of
the Mortgage Loans have ACU Scores. The weighted
average FICO Score (as defined below) of the Mortgage
Loans that were so scored is 730. The weighted average
ACU Score (as defined below) of the Mortgage Loans
that were so scored is 87.
Group I Mortgage Loans. The Group I Mortgage Loans
consist of approximately ____ Mortgage Loans with an
aggregate principal balance as of the Cut-Off Date of
approximately $___________. The principal balance at
origination of each Group I Mortgage Loan ranged from
a minimum of approximately $___________ to
S-11
<PAGE>
a maximum of approximately $___________, with an
average principal balance at origination of
approximately $___________. The Group I Mortgage
Loans have terms to maturity from the date of
origination of greater than 15 but not more than 30
years, with an average remaining term to maturity
(adjusted for Curtailments) of approximately _____
months as of the Cut-Off Date. All but 1.635% of the
Group I Mortgage Loans had FICO Scores and all but
4.496 of the Group I Mortgage Loans had ACU Scores.
The weighted average FICO score and ACU score of the
Group I Mortgage Loans is 729 and 87, respectively.
Group II Mortgage Loans. The Group II Mortgage Loans
consist of approximately _____ Mortgage Loans with an
aggregate principal balance as of the Cut-Off Date of
approximately $__________. The principal balance at
origination of each Group II Mortgage Loan ranged from
a minimum of approximately $________ to a maximum of
approximately $___________, with a weighted average
principal balance at origination of approximately
$______________. All The Group II Mortgage Loans
consist of Mortgage Loans with original terms to
stated maturity (based on the date of origination or
any later modification) of up to 15 years, with an
average remaining term to maturity (adjusted for
Curtailments) of approximately ___ months as of the
Cut-Off Date. All but 6.475% of the Group II Mortgage
Loans had FICO Scores and all but 5.036% of the Group
II Mortgage Loans had ACU Scores. The weighted average
FICO score and ACU score of the Group II Mortgage
Loans is 736 and is 87, respectively.
For a further description of the Mortgage Loans, see
"Description of the Mortgage Pool" herein.
S-12
<PAGE>
SELECTED MORTGAGE LOAN DATA
APPROXIMATE AS OF THE CUT-OFF DATE
<TABLE>
<CAPTION>
<S> <C>
Group I Mortgage Loans
- ----------------------
Number of Mortgage Loans ...................................... $
Aggregate Unpaid Principal Balance ............................
Range of Unpaid Principal Balances ............................ $___ - $___
Average Unpaid Principal Balance .............................. $
Range of Mortgage Rates ....................................... ___ % - ___ %
Weighted Average Mortgage Rate ................................ %
Range of Remaining Terms to Stated Maturity ................... __ months - __ months
Weighted Average Remaining Term to Stated Maturity ............ months
Range of Remaining Terms to Expected Maturity(1) .............. __ months - __ months
Weighted Average Remaining Term to Expected Maturity(1) ....... months
Weighted Average Loan Age(2) .................................. months
Range of Original Loan-to-Value Ratios ........................ ___ % - ___ %
Weighted Average Original Loan-to-Value Ratio %
[Weighted Average FICO Score(3) ............................... ]
[Weighted Average ACU Score(4) ................................ ](1)
</TABLE>
- -------------------
(1) Based on payments actually received (or scheduled to be received) on each
Group I Mortgage Loan as of the Cut-Off Date.
(2) Based on the number of months from and including the first Monthly Payment
to and including the Cut-Off Date.
(3) Based on the portion of the Group I Mortgage Loans (approximately ____%)
that were scored.
(4) Based on the portion of the Group I Mortgage Loans (approximately ____%)
that were scored.
S-13
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
Group II Mortgage Loans
- -----------------------
Number of Mortgage Loans ..................................... $
Aggregate Unpaid Principal Balance ...........................
Range of Unpaid Principal Balances ........................... $___ - $___
Average Unpaid Principal Balance ............................. $
Range of Mortgage Rates ...................................... ___ % - ___ %
Weighted Average Mortgage Rate ............................... %
Range of Remaining Terms to Stated Maturity .................. __ months - __ months
Weighted Average Remaining Term to Stated Maturity ........... months
Range of Remaining Terms to Expected Maturity(1) ............. __ months - __ months
Weighted Average Remaining Term to Expected Maturity(1) ...... months
Weighted Average Loan Age(2) ................................. months
Range of Original Loan-to-Value Ratios ....................... ___ % - ___ %
Weighted Average Original Loan-to-Value Ratio ................ %
[Weighted Average FICO Score(3) .............................. ]
[Weighted Average ACU Score(4) ............................... ](2)
</TABLE>
- -------------------
(1) Based on payments actually received (or scheduled to be received) on
each Group II Mortgage Loan as of the Cut-Off Date.
(2) Based on the number of months from and including the first Monthly Payment
to and including the Cut-Off Date.
(3) Based on the portion of the Group II Mortgage Loans (approximately _____%)
that were scored.
(4) Based on the portion of the Group II Mortgage Loans (approximately _____%)
that were scored.
S-14
<PAGE>
Obligations of the
Servicer .............. The Servicer will service all Mortgage Loans in the
Mortgage Pool. Notwithstanding anything to the
contrary in the Prospectus, the Servicer will provide
all customary servicing functions with respect to the
Mortgage Loans pursuant to the Pooling and Servicing
Agreement. The Servicer will be entitled to (i) a
monthly Servicing Fee (as defined herein) with
respect to each Mortgage Loan serviced by such
Servicer, (ii) any interest or investment income
earned on funds deposited in certain accounts as
described herein, and (iii) certain additional
servicing compensation as described herein.
Initial Aggregate
Certificate
Principal Balance
of Certificates $___________________ (approximate, subject to an
upward or downward variance of no more than 5%). The
Class IA Certificates and the Class IIA Certificates
will comprise approximately ___%, the Senior
Subordinate Certificates will comprise approximately
____%, and the Junior Subordinate Certificates will
comprise approximately ____% of the initial aggregate
Certificate Principal Balance of the Certificates.
Group I and Group II
Initial Weighted
Average Pass-
Through Interest Rate . Initially, the weighted average Pass-Through Rates for
the Group I Mortgage Loans and the Group II Mortgage
Loans will be approximately equal to ______% and
______%, respectively.
REMIC II and
REMIC I ............... The assets of REMIC II will consist of the
Certificates (other than Component R-1 of the Class R
Certificate) issued by REMIC I. The assets of REMIC
I will consist primarily of the Mortgage Loans.
REMIC I will also contain (i) certain insurance
policies and rights thereunder related to the Mortgage
Loans, (ii) any property which secured a Mortgage Loan
and which is acquired by foreclosure or by deed in
lieu of foreclosure after the Cut-Off Date, (iii)
amounts held in the Certificate Account, and (iv)
certain other assets all as described herein.
Book-Entry
Registration .......... Except in certain limited circumstances as described
herein, the Offered Certificates (except for the Class
R Certificate) generally will be available only in
book-entry form through the facilities of The
Depository Trust Company ("DTC"). See "Description
of the Certificates -- Book-Entry Registration"
herein.
Priority of
Distributions ......... Commencing in April 1998, on the 25th day of each
month, or if such 25th day is not a business day, then
on the immediately succeeding business day (each, a
"Distribution Date"), prior to the Credit Support
Depletion Date (as defined below), distributions will
in general be made from the Group I Available
Distribution
S-15
<PAGE>
Amount (as defined herein) in the order and priority
as follows: (1) first, Component IA-1-4 receives a
certain portion of the principal received in respect
of each Group I Mortgage Loan with a Pass-Through Rate
of less than ____% (a "GROUP I DISCOUNT MORTGAGE
LOAN"), as described in "Description of the
Certificates--Distributions of Principal--Group I
Certificate Principal Distributions" herein; (2)
second, interest to the Class IA Certificates (and
Components of the Class IA-1 Certificates) entitled to
receive accrued and unpaid interest, as described in
"Description of the Certificates--Distributions of
Interest" herein; provided, however, that (i) on or
before the Component IA-1-3 Accretion Termination Date
(as defined below), interest otherwise distributable
to Component IA-1-3 of the Class IA-1 Certificates
will be distributed, as principal, to certain Classes
and Components as described in "Description of the
Certificates--Priority of Distributions--Component
IA-1-3 Accrual" herein and (ii) on or before the Class
IA-4 Accretion Termination Date (as defined below),
interest otherwise distributable to the Class IA-4
Certificates will be distributed, as principal, to
certain Classes and Components as described in
"Description of the Certificates-- Priority of
Distributions--Class IA-4 Accrual" herein; (3) third,
principal to the Class IA Certificates entitled to
principal (other than Components IA-1-2 and IA-1-6 of
the Class IA-1 Certificates) in the order described in
"Description of the Certificates--Distributions of
Principal--Group I Certificate Principal
Distributions"; (4) fourth, to the Subordinate
Certificates, interest and then principal in the
following order of seniority, with both interest and
principal being paid to one Class before any payments
are made to the next Class: Class M, Class B-1, Class
B-2, Class B-3, Class B-4 and Class B-5, as described
in "Description of the Certificates--Priority
Distributions" and "--Distributions of
Principal--Subordinate Certificate Principal
Distributions" and (5) fifth, Component R-2 of the
Class R Certificate receives the remainder of the
Group I Available Distributable Amount (as defined in
"Description of the Certificates--Distributions of
Principal--Group I Certificate Principal
Distributions" herein) for such Distribution Date.
On each Distribution Date, prior to the Credit Support
Depletion Date, distributions will generally be made
from the Group II Available Distribution Amount for
such Distribution Date in the order of priority as
follows: (1) first, Class IIA-P receives a certain
portion of the principal received in respect of each
Group II Discount Mortgage Loan, as described in
"Description of the Certificates -- Distributions of
Principal -- Group II Certificate Principal
Distributions" herein; (2) second, interest to the
Class IIA-1 and Class IIA-X Certificates, as described
in "Distributions of the Certificates -- Distributions
of Interest" herein; (3) third, principal to the
S-16
<PAGE>
Class IIA-1 Certificates to the extent due thereon as
described in "Description of the Certificates --
Distributions of Principal -- Group II Certificate
Principal Distributions"; (4) fourth, to pay interest
and principal on each Class of Subordinate
Certificates in the order of their numerical class
designations; (5) fifth, the remaining Group II
Available Distribution Amount for such Distribution
Date will be distributed to Component R-2 of the Class
R Certificate, as described in "Description of the
Certificate--Distributions of Principal--Group II
Certificate Principal Distributions".
No distribution of interest or principal from the
Group I Available Distribution Amount or from the
Group II Available Distribution Amount will be made on
any Class of Subordinate Certificates on any
Distribution Date until all distributions of interest
and principal have been made on such date on each
Class of Certificates having a higher priority of
payment with respect to the same Available
Distribution Amount.
The "CREDIT SUPPORT DEPLETION DATE" is the first
Distribution Date on which the aggregate of the Class
Principal Balances of the Subordinate Certificates has
been or will be reduced to zero.
On each Distribution Date on or after the Credit
Support Depletion Date, distributions will generally
be made from the Group I Available Distribution Amount
in the order and priority as follows: (1) first,
Component IA-1-4 receives a certain portion of the
principal received in respect of each Group I Discount
Mortgage Loan, as described in "Description of the
Certificates--Distributions of Principal--Group I
Certificate Principal Distributions"; (2) second, the
Class IA Certificates (and Components of the Class
IA-1 Certificates) entitled to interest receive
accrued and unpaid interest, as described in
"Description of the Certificates -- Distributions of
Interest"; (3) third, the Class IA Certificates (and
Components of the Class IA-1 Certificates) entitled to
principal (other than Component IA-1-4 of the Class
IA-1 Certificates) receive principal pro rata
according to their respective Class Principal
Balances; and (4) fourth, Component R-2 of the Class R
Certificate receive the remainder of the Available
Distribution Amount for such Distribution Date.
On each Distribution Date on or after the Credit
Support Depletion Date, distributions will be made in
general from the Group II Available Distribution
Amount in the order and priority as follows: (1)
first, Class IIA-P receives a certain portion of the
principal received in respect of each Group II
Discount Mortgage Loan, as described in "Description
of the Certificates -- Distributions of
Principal--Group II Certificate Principal
Distributions"; (2) second, interest to the Class
IIA-1 and
S-17
<PAGE>
Class IIA-X Certificates, as described in
"Description of the Certificates -- Distributions of
Interest" herein; (3) third, principal to the Class
IIA-1 Certificates to the extent due thereon as
described in "Description of the Certificates --
Distributions of Principal -- Group II Certificate
Principal Distributions"; and (4) fourth, the
remaining Group II Available Distribution Amount for
such Distribution Date will be distributed to
Component R-2 of the Class R Certificate.
For a description of the order and priority of
distributions, see "Description of Certificates --
Priority of Distributions" herein.
Interest .............. With respect to each Class of Certificates (except
Class IIA-P and Components IA-1-2 and IA-1-6 of the
Class IA-1 Certificates, which are not entitled to
interest), interest will be passed through monthly on
each Distribution Date, commencing April 25, 1998,
except that (i) interest accrued on the Class IA-4
Certificates on or before the Class IA-4 Accretion
Termination Date (as defined herein) will be added to
the Class IA-4 Principal Balance and (ii) interest
accrued on Component IA-1-3 of the Class IA-1
Certificates on or before the Component IA-1-3
Accretion Termination Date (as defined herein) will be
added to the Component IA-1-3 Principal Balance. With
respect to each Distribution Date, an amount of
interest will accrue on each Class of the Offered
Certificates at a rate generally equal to 1/12th of
the applicable Remittance Rate for such Class
multiplied by the related Class Principal Balance. The
Remittance Rates for the Offered Certificates entitled
to interest are fixed as set forth on the cover page
hereof (except for the Senior Subordinate
Certificates, which bear interest at a variable rate).
On each Distribution Date the Remittance Rate for the
Subordinate Certificates will be equal to weighted
average of the following two factors: (i) 6.75% of the
Certificate Principal Balance of the Class IA
Certificates and (ii) 6.50% of the Certificate
Principal Balance of the Class IIA Certificates, with
each of (i) and (ii) being weighted on the basis of
each respective Certificate Principal Balance..
Interest to be distributed on the Certificates on any
Distribution Date will consist of accrued and unpaid
interest as of previous Distribution Dates and
interest accrued during the preceding calendar month.
All distributions of interest for each Class of
Certificates will generally be made only to the extent
of the applicable Available Distribution Amount as
described herein under "Description of the
Certificates -- Priority of Distributions".
See "Description of the Certificates --
Distributions of Interest" herein.
S-18
<PAGE>
Compensating Interest . Subject to the limitations described in this
Prospectus Supplement under "Yield and Prepayment
Considerations", on each Distribution Date, the
Servicer is obligated to remit to the Certificate
Account an amount equal to the lesser of (a) any
shortfall for the related month in interest
collections resulting from the timing of Payoffs (as
defined herein) made from the 15th day of the calendar
month preceding such Distribution Date to the last day
of such month and (b) the monthly Servicing Fee, any
reinvestment income realized by the Servicer relating
to Payoffs made from the 15th day of the calendar
month preceding such Distribution Date to the 14th day
of the month of such Distribution Date and interest
payments on Payoffs received during the period of the
second day through the 14th day of the month of such
Distribution Date. The amount so passed through will
hereinafter be referred to as "COMPENSATING INTEREST".
Compensating Interest will be allocated to each Class
of Certificates pro rata according to the amount of
interest accrued thereon, and any remaining shortfall
in interest collections resulting from the timing of
Payoffs will be applied pro rata according to the
amount of interest to which each Class of Certificates
would otherwise be entitled in reduction thereof. See
"Description of the Certificates--Distributions of
Interest" herein.
Principal (including
Principal
Prepayments) .......... General. On each Distribution Date, the Class IA
Certificates will be entitled to receive principal
distributions from the Group I Available Distribution
Amount to the extent described herein; the Class IIA
Certificates will be entitled to receive principal
distributions from the Group II Available Distribution
Amount to the extent described herein; and the
Subordinate Certificates will be entitled to receive
distributions from the Group I Available Distribution
Amount and the Group II Available Distribution Amount.
All distributions of principal will be made only to
the extent of the applicable Available Distribution
Amount as described herein under "Description of the
Certificates--Priority of Distributions".
Class IIA-X, Components IA-1-2 and IA-1-6 of the Class
IA-1 Certificates will not be entitled to receive any
distributions of principal.
Distributions to Class IA Certificates.
Distributions to Component IA-1-4 of the Class IA-1
Certificates. Component IA-1-4 of the Class IA-1
Certificates will receive a portion of the Group I
Available Distribution Amount attributable to
principal received on or in respect of any Group I
Discount Mortgage Loan. In addition, on each
Distribution Date for so long as any Class of
Subordinate Certificates remains outstanding,
Component IA-1-4 will receive distributions of
principal equal to
S-19
<PAGE>
a portion of certain losses on Group I Discount
Mortgage Loans. For a description of the principal
distributions to Component IA-1-4 of the Class IA-1
Certificates, see "Description of the
Certificates--Distributions of Principal--Group I
Certificate Principal Distributions" herein.
Distributions to the Class IA Certificates (other than
Component IA-1-4 of the Class IA-1 Certificates). On
each Distribution Date, prior to the Credit Support
Depletion Date, an amount, up to the amount of the
Group I Senior Principal Distribution Amount (as
defined in "Description of the
Certificates--Distributions of Principal--Class IA
Certificates Principal Distributions" herein) for such
Distribution Date, will be distributed as principal to
the following Classes and Components of the Class IA
Certificates in the following order of priority:
(i) first, to Component IA-1-5 of the Class IA-1
Certificates, an amount, up to the amount of the
Lockout Principal Distribution Amount (as defined
herein) for such Distribution Date, until the
Principal Balance of Component IA-1-5 of the Class
IA-1 Certificates has been reduced to zero;
(ii) second, the portion of the Group I Available
Distribution Amount attributable to principal
remaining after the distributions described above,
concurrently as follows:
(A) 3.5714286% to Component IA-1-1 of the
Class IA-1 Certificates, until the
Component IA-1-1 Principal Balance has
been reduced to zero; and
(B) 96.4285714% sequentially as follows:
(1) first, to the Class IA-5
Certificates, to the extent
necessary to reduce the Class IA-5
Principal Balance to its Planned
Principal Balance (as defined
herein) for such Distribution
Date;
(2) second, to the Class IA-6
Certificates, to the extent
necessary to reduce the Class IA-6
Principal Balance to its Planned
Principal Balance for such
Distribution Date;
(3) third, to the Class IA-2
Certificates, to the extent
necessary to reduce the Class IA-2
Principal Balance to its Planned
Principal Balance for such
Distribution Date;
S-20
<PAGE>
(4) fourth, to the Class IA-3
Certificates, to the extent
necessary to reduce the Class IA-3
Targeted Principal Balance to its
Targeted Principal Balance for
such Distribution Date;
(5) fifth, to Component IA-1-3 of the
Class IA-1 Certificates, to the
extent necessary to reduce the
Component IA-1-3 Targeted
Principal Balance to its Targeted
Principal Balance for such
Distribution Date;
(6) sixth, to the Class IA-4
Certificates, until the Class IA-4
Principal Balance has been reduced
to zero;
(7) seventh, concurrently, until the
Class IA-3 Principal Balance has
been reduced to zero, 90% to the
Class IA-3 Certificates and 10% to
Component IA-1-3 of the Class IA-1
Certificates;
(8) eighth, to Component IA-1-3 of the
Class IA-1 Certificates, until the
Component IA-1-3 Principal Balance
has been reduced to zero;
(9) ninth, to the Class IA-5
Certificates, until the Class IA-5
Principal Balance has been reduced
to zero;
(10) tenth, to the Class IA-6
Certificates, until the Class IA-6
Principal Balance has been reduced
to zero; and
(11) eleventh, to the Class IA-2
Certificates, until the Class IA-2
Principal Balance has been reduced
to zero; and
(iii) third, the portion of the Group I Senior Principal
Distribution Amount remaining after the
distributions described above, to Component IA-1-5
of the Class IA-1 Certificates, until the
Component IA-1-5 Principal Balance has been
reduced to zero.
On each Distribution Date on and after the Credit
Support Depletion Date, principal will not be
distributed in the order and priority described above.
Instead, an amount up to the Group I Senior Principal
Distribution Amount for such Distribution Date will be
distributed as principal to the Class IA Certificates
and
S-21
<PAGE>
Components thereof entitled to principal (other
than Component IA-1-4 of the Class IA-1 Certificates),
pro rata according to their respective Class or
Component Principal Balances.
Distributions to the Class IIA Certificates.
Distributions to the Class IIA-P Certificates. Class
IIA-P Certificates will receive a portion of the Group
II Available Distribution Amount attributable to
principal received on or in respect of any Group II
Discount Mortgage Loans. In addition, on each
Distribution Date for so long as any Class of
Subordinate Certificates remains outstnaind, Class
IIA-P will receive distributions of principal equal to
a portion of certain losses on Group II Discount
Mortgage Loans. For a description of the principal
distributions to Class IIA-P , see "Description of the
Certificates -- Distributions of Principal -- Group II
Certificate Principal Distributions" herein.
Distributions to the Class IIA-1 Certificates. On each
Distribution Date an amount, up to the amount of the
Group II Senior Principal Distribution Amount (as
defined herein) for such Distribution Date, will be
distributed as principal to the Class IIA Certificates
until the Class IIA Principal Balance has been reduced
to zero.
Distributions to the Subordinate Certificates. On
each Distribution Date, an amount, up to the aggregate
amount of the Subordinate Distribution Amount (as
defined herein) for such Distribution Date, will be
distributed as principal to the Subordinate
Certificates. On each Distribution Date, each Class
of Subordinate Certificates will be entitled to
receive its pro rata share (by Class Principal
Balance) of the Subordinate Principal Distribution
Amount remaining after distributions of interest and
principal to all Classes of Subordinate Certificates
senior to such Class and distributions of interest to
such Class. [Notwithstanding the foregoing, on any
Distribution Date on which the Subordination Level (as
defined herein) for any Class of Subordinate
Certificates is less than such percentage as of the
Cut-Off Date, the portion of the Subordinate Principal
Prepayments Distribution Amount (as defined herein)
otherwise allocable to the Class or Classes of the
Subordinate Certificates junior to such Class will be
allocated to the most senior Class of Subordinate
Certificates for which the Subordination Level is less
than such percentage as of the Cut-Off Date and to the
Class or Classes of Subordinate Certificates senior
thereto, pro rata according to the Certificate
Principal Balances of such Classes. See "Description
of the Certificates -- Priority of Distributions"
herein.] See "Description of the Certificates --
Priority of Distributions" herein. The relative
seniority, from highest to lowest, of the Subordinate
Certificates shall be as follows: Class M, Class B-1,
Class B-2, Class B-3, Class B-4 and Class B-5.
S-22
<PAGE>
The rights of the holders of the Subordinate
Certificates to receive distributions of principal are
subordinated to the rights of the holders of the
Senior Certificates to receive distributions of
principal. See "Description of the
Certificates--Subordination and Allocation of Losses"
herein.
For a more detailed description of how distributions
of principal will be allocated among the various
Classes of Certificates, see "Description of the
Certificates--Distributions of Principal" herein.
Subordination and
Allocation
of Losses ............. The Subordinate Certificates will be subordinate in
right of payment to and provide credit support for the
Senior Certificates. The Junior Subordinate
Certificates will be subordinate in right of payment
to and provide credit support for the Senior
Subordinate Certificates; the Class B-2 Certificates
will be subordinate in right of payment to and
provide credit support for the Class M and Class B-1
Certificates; and the Class B-1 Certificates will be
subordinate in right of payment to and provide credit
support for the Class M Certificates, to the extent
described herein. The support provided by the
Subordinate Certificates is intended to enhance the
likelihood of regular receipt by the Senior
Certificates of the full amount of the monthly
distributions of interest and principal to which they
are entitled and to afford such holders protection
against certain losses. The protection afforded to
the Senior Certificates by the Subordinate
Certificates will be accomplished by the preferential
right on each Distribution Date of the Senior
Certificates to receive the distributions of interest
and principal to which they are entitled, prior to
distributions of interest or principal to the
Subordinate Certificates. The support provided by the
Junior Subordinate Certificates to the Senior
Subordinate Certificates is intended to enhance the
likelihood of regular receipt by the Senior
Subordinate Certificates of the full amount of monthly
distributions of interest and principal to which they
are entitled and to afford such holders protection
against certain losses. The protection afforded the
Senior Subordinate Certificates by the Junior
Subordinate Certificates will be accomplished by the
preferential right on each Distribution Date of the
Senior Subordinate Certificates to receive
distributions of interest and principal prior to the
distributions of interest or principal to the Junior
Subordinate Certificates. The protection afforded
the Class M Certificates by the Class B-1 and Class
B-2 Certificates, and the protection afforded the
Class B-1 Certificates by the Class B-2 Certificates
will be similarly accomplished by the preferential
right of the Class M Certificates to receive
distributions of interest or principal to the Class
B-1 and Class B-2 Certificates and the preferential
right of the Class B-1 Certificates to receive such
distributions prior to such distributions of interest
or principal to the Class B-2 Certificates.
S-23
<PAGE>
Except for Special Hazard Losses, Fraud Losses and
Bankruptcy Losses in excess of the designated amount
of Special Hazard Coverage, Fraud Coverage and
Bankruptcy Coverage, any loss realized with respect to
a Mortgage Loan in a Mortgage Loan Group will be
allocated among the related Certificates (i) for
losses allocable to principal (a) first, to the Junior
Subordinate Certificates, until the aggregate of the
Class Principal Balances thereof have been reduced to
zero, (b) second, to the Class B-2 Certificates, until
the Class B-2 Principal Balance has been reduced to
zero, (c) third, to the Class B-1 Certificates, until
the Class B-1 Principal Balance has been reduced to
zero, (d) fourth, to the Class M Certificates, until
the Class M Principal Balance has been reduced to zero
and (e) fifth, to the related Senior Certificates
(other than Components IA-1-4, IA-1-2 and IA-1-6 of
the Class IA-1 Certificates [and Class IIA-P,]), pro
rata, according to their Class Principal Balances (or
Component Principal Balances, in the case of
Components IA-1-1, IA-1-3 and IA-1-5 of the Class IA-1
Certificates) in reduction of their respective Class
Principal Balances or Component Principal Balances;
provided however, that if the loss is recognized with
respect to a Group I Discount Mortgage Loan, the
Component IA-1-4 Fraction of such loss will first be
allocated to Component IA-1-4 of the Class IA-1
Certificates and the remainder of such loss will be
allocated as described above in this clause (i); and
(ii) for losses allocable to interest (a) first, to
the Junior Subordinate Certificates, in reduction of
accrued but unpaid interest thereon and then in
reduction of the Class Principal Balances of the
Junior Subordinate Certificates, (b) second, to the
Class B-2 Certificates, in reduction of accrued but
unpaid interest thereon and then in reduction of the
Class B-2 Principal Balance, (c) third, to the Class
B-1 Certificates, in reduction of accrued but unpaid
interest thereon and then in reduction of the Class
B-1 Principal Balance, (d) fourth, to the Class M
Certificates, the reduction of accrued but unpaid
interest thereon and then in reduction of the Class M
Principal Balance, (e) fifth, to the Senior
Certificates (other than Components IA-1-1 and IA-1-4
of the Class IA-1 Certificates), pro rata according to
accrued but unpaid interest thereon and then pro rata
according to their Class Principal Balances (or
Component Principal Balances, in the case of
Components IA-1-3 and IA-1-5 of the Class IA-1
Certificates) in reduction of their respective Class
or Component Principal Balances, as applicable.
The allocation of the principal portion of losses
relating to a Mortgage Loan in a given Mortgage Loan
Group to all Classes of the related Senior
Certificates (other than Component IA-1-4 of the Class
IA-1 Certificates) pro rata according to their
respective Class or Component Principal Balances
(except if the loss is recognized with respect to a
Group I Discount Mortgage Loan, in which event the
Component IA-1-4 Fraction of such loss will first be
allocated to Component IA-1-4 of the Class IA-1
Certificates and the
S-24
<PAGE>
remainder of such loss will be allocated as described
above) and (ii) the interest portion of losses pro
rata according to the amount of interest accrued on
each such Class in reduction thereof and then, pro
rata, in reduction of their related Class Principal
Balance (or Component Principal Balances) is
hereinafter referred to as "PRO RATA ALLOCATION".
Since the Subordinate Certificates will absorb losses
on Mortgage Loans in both Mortgage Loan Groups, a
disproportionate amount of losses with respect to
Mortgage Loans in either Mortgage Loan Group will
adversely impact the availability of subordination to
the Senior Certificates related to the other Mortgage
Loan Group.
Special Hazard Losses, Fraud Losses and Bankruptcy
Losses in excess of the applicable coverage will be
allocated to all outstanding Classes of Certificates
by Pro Rata Allocation. Each of the applicable
coverages may be reduced periodically, as described
herein. See "Description of the
Certificates--Subordination and Allocation of Losses"
herein.
See also "Description of the
Certificates--Distributions of Principal" herein.
Credit Enhancements ... Subordination. The subordination of the Subordinate
Certificates and the further subordination within the
Class of Subordinate Certificates described above and
in "Description of the Certificates -- Subordination
and Allocation of Losses" will provide credit
enhancement to the Senior Certificates and each Class
of Subordinate Certificates with lower numerical Class
designations.
Shifting of Interests. The Class IA Certificates
entitled to principal, other than Component IA-1-5 of
the Class IA-1 Certificates, will receive 100% of
Principal Prepayments received with respect to the
Group I Mortgage Loans until the fifth anniversary of
the first Distribution Date. During the next four
years, the Certificates and Components of the Class
IA-1 Certificates entitled to principal, other than
Components IA-1-5 and IA-1-4 of the Class IA-1
Certificates, will receive a disproportionately large,
but decreasing, share of Principal Prepayments. This
will result in an acceleration of the amortization of
such Class IA Certificates, other than the Components
IA-1-5 and IA-1-4 of the Class IA-1 Certificates,
subject to the priorities described in "Description of
the Certificates --Distributions of Principal" herein,
enhancing the likelihood that holders of such Classes
of Certificates will be paid the full amount of
principal to which they are entitled. For a more
detailed description of how Principal Prepayments are
allocated among the Senior Certificates and the
Subordinate Certificates, see "Description of the
Certificates--Distributions of Principal" herein.
S-25
<PAGE>
Advances .............. With respect to each Mortgage Loan, the Servicer will
make Advances on each Distribution Date to the
Certificate Account to cover any shortfall between (i)
payments scheduled to be received in respect of such
Mortgage Loan and (ii) the amounts actually deposited
in the Certificate Account on account of such
payments; provided that the Servicer determines, in
good faith, on such Distribution Date that such
Advances will be recoverable from insurance proceeds,
Liquidation Proceeds (as defined in the Prospectus) or
other amounts received with respect to such Mortgage
Loan. Advances are reimbursable to the Master
Servicer from cash in the Certificate Account prior to
payments to the Certificateholders if the Servicer
determines that any such Advances previously made are
not recoverable from Liquidation Proceeds or other
amounts recoverable with respect to the applicable
Mortgage Loan. See "Description of the Certificates
-- Advances" herein.
Yield and Prepayment
Considerations ........ The effective yield to maturity of each Class of
Certificates will depend upon, among other things, the
price at which such Certificates are purchased, the
applicable Remittance Rate, the actual characteristics
of the Mortgage Loans in the related Loan Group, the
rate of principal payments (including Principal
Prepayments) on the Mortgage Loans in the related
Mortgage Loan Group and the rate of liquidations on
the Mortgage Loans in the related Mortgage Loan Group.
A higher than anticipated rate of principal payments
(including Principal Prepayments) and liquidations
would reduce the aggregate principal balance of the
Mortgage Loans more quickly than expected, thereby
reducing the aggregate interest payments with respect
to such Mortgage Loans. Therefore, a higher rate of
principal payments (including Principal Prepayments)
and liquidations in a Mortgage Loan Group could result
in a lower than expected yield to maturity on Classes
of Certificates purchased at a premium. Conversely,
a lower than anticipated rate of principal payments
(including Principal Prepayments) and liquidations in
a Mortgage Loan Group could result in a lower than
expected yield to maturity on Classes of Certificates
purchased at a discount, in that payments of principal
with respect to the Mortgage Loans would occur later
than anticipated. Except in limited circumstances
set forth herein, principal distributions to the Class
IA Certificates and Class IIA Certificates relate to
principal payments on the Group I Mortgage Loans and
Group II Mortgage Loans, respectively. Principal
distributions to the Subordinate Certificate relate to
principal payments on both the Group I Mortgage Loans
and Group II Mortgage Loans.
The actual rate of payments of principal (including
Principal Prepayments) and liquidations on the
Mortgage Loans may be influenced by a variety of
economic, geographic, social and other
S-26
<PAGE>
factors. In general, if interest rates generally
rise above the interest rates on the Mortgage Loans,
the rate of prepayment would be expected to decrease.
Conversely, if prevailing interests rates fall
significantly below the interests rates on the
Mortgage Loans, the Mortgage Loans are likely to be
subject to higher prepayment rates than if prevailing
rates remain at or above the interest rates on the
Mortgage Loans. See "Risk Factor" and "Yield and
Prepayment Considerations" herein.
For a discussion of special yield and prepayment
considerations applicable to the Class, Component,
PAC, TAC, and Senior Subordinate Certificates, see
"Risk Factors" herein.
Ratings ............... It is a condition to the issuance of the Offered
Certificates that the Senior Certificates each be
rated "AAA" by Standard & Poor's, a division of The
McGraw-Hill Companies, Inc. ("S&P"), "AAA" by Fitch
Investors Service, L.P. ("FITCH") and "AAA" by Duff &
Phelps Credit Rating Co. ("DCR"), that the Class M
Certificates be rated "AA" by S&P[, "AA" by Fitch and
"AA" by DCR], that the Class B-1 Certificates be rated
not less than "A" by S&P[, "A" by Fitch and "A" by
DCR]; and that the Class B-2 Certificates be rated not
less than "BBB" by S&P[, "BBB" by Fitch and "BBB" by
DCR]. See "Certificate Ratings", "Risk Factors" and
"Yield and Prepayment Considerations" herein. The
ratings on the Offered Certificates address the
likelihood of the receipt by holders of Offered
Certificates of all distributions with respect to the
underlying Mortgage Loans to which they are entitled
and do not address the likely actual rate of Principal
Prepayments, which rate could, if different than
originally anticipated, adversely affect the yield
realized by the Certificateholders. Last Scheduled
Distribution Date The Last Scheduled Distribution
Date for all Class IA Certificates and the Subordinate
Certificates is the Distribution Date in April 2028,
which is the Distribution Date in the month after the
scheduled maturity date for the latest maturing Group
I Mortgage Loan in the Group I Mortgage Pool.
Last Scheduled
Distribution Date ..... The Last Scheduled Distribution Date for all Class IIA
Certificates is the Distribution Date in April 2013,
which is the Distribution Date in the month after the
scheduled maturity date for the latest maturing Group
II Mortgage Loan in the Group II Mortgage Pool.
The actual rate of principal payments on the
Certificates will depend on the rate of payments of
principal (including Principal Prepayments) on the
Mortgage Loans which, in turn, may be influenced by a
variety of economic, geographic and social factors, as
well as the level of prevailing interest rates. No
assurance can be given as to the actual payment
experience on the Mortgage Loans. See "Description
of the Certificates--Last Scheduled
S-27
<PAGE>
Distribution Date" and "Yield and Prepayment
Considerations" herein.
Legal Investment ...... As of the date of their issuance, the Offered
Certificates, other than the Class B-1 and Class B-2
Certificates, will constitute "mortgage related
securities" for purposes of the Secondary Mortgage
Market Enhancement Act of 1984 ("SMMEA"). SMMEA
provides that states may override its provisions on
legal investment and restrict or condition investment
in mortgage related securities by taking statutory
action prior to October 4, 1991. Certain States have
enacted legislation which has overridden the
provisions of SMMEA. See "Certain Legal Investment
Aspects" herein. It is anticipated that the Class
B-1 and Class B-2 Certificates will not be rated in
one of the two highest rating categories by a
nationally recognized statistical rating organization
and, therefore, will not constitute "mortgage related
securities" for purposes of SMMEA.
Institutions whose investment activities are subject
to review by certain regulatory authorities may be or
may become subject to restrictions on investment in
the Offered Certificates, and such restrictions may be
retroactively imposed. The Federal Financial
Institutions Examination Council, the Federal Deposit
Insurance Corporation, the Office of the Comptroller
of the Currency, the Board of Governors of the Federal
Reserve System, the Office of Thrift Supervision and
the National Credit Union Administration have adopted
guidelines, and have proposed policies, regarding the
suitability of investments in various types of
derivative mortgage-backed securities, including
securities such as the Offered Certificates. In
addition, several states have adopted or are
considering regulations that would prohibit regulated
institutions subject to their jurisdiction from
holding mortgage-backed securities such as the Offered
Certificates, including such securities previously
purchased. Investors should consult their own legal
advisors in determining whether and to what extent the
Offered Certificates constitute legal investments for
such investors.
ERISA Considerations .. See "ERISA Considerations" herein and in the Prospectus.
Certain Federal
Income Tax
Consequences .......... For federal income tax purposes, the Company will
cause elections to be made to treat the REMIC II and
the REMIC I as REMICs. The Certificates, other than
the Class R Certificate, will represent ownership of
REMIC regular interests. Such Certificates will
generally be treated as representing ownership of debt
for federal income tax purposes. Certificateholders
will be required to include in income all interest and
original issue discount ("OID") on such Certificates
in accordance with the accrual method of accounting
regardless of the Certificateholders' usual methods of
accounting. For federal income tax purpose, (i)
Component R-1 of the Class R Certificate will be the
residual interest in the REMIC I and (ii)
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<PAGE>
Component R-2 of the Class R Certificate will be the
residual interest in the REMIC II.
Components IA-1-2 and IA-1-6 of the Class IA-1
Certificates will, and the Class M, Class B-1, Class
B-2 and Class B-3 Certificates may, be treated as
having been issued with OID for federal income tax
purposes. Certain Classes of Certificates may be
treated for federal income tax purposes as having been
issued at a premium. The prepayment assumption that
will be used in determining the rate of accrual of
market discount and premium, if any, for federal
income tax purposes is 250% of the Basic Prepayment
Assumption for Group I Mortgage Loans and ____% of the
Basic Prepayment Assumption for Group II Mortgage
Loans ("BPA") as described herein under "Yield and
Prepayment Considerations". No representation is
made that the Mortgage Loans will prepay at any given
percentage of the BPA.
If actual prepayments differ sufficiently from the
prepayment assumption, the calculation of OID for
certain Classes of Offered Certificates might produce
a negative number for certain accrual periods. In
such event, Certificateholders will not be entitled to
a deduction for such amount, but will be required to
carry such amount forward as an offset to OID, if any,
accruing in future accrual periods.
Under the REMIC Regulations (as defined herein), the
Residual Certificate will not be regarded as having
"significant value" for purposes of applying the rules
relating to "excess inclusions". In addition, the
Residual Certificate may constitute "noneconomic"
residual interests for purposes of the REMIC
Regulations. Transfers of interests in the Residual
Certificate will be restricted under the Pooling and
Servicing Agreement to United States Persons (as
defined in the Prospectus) in a manner designed to
prevent a transfer of a noneconomic residual interest
from being disregarded under the REMIC Regulations.
See "Certain Federal Income Tax
Consequences--REMIC--Taxation of Owners of Residual
Certificates" in Prospectus.
The Residual Certificateholders may be required to
report an amount of taxable income with respect to the
early years of the REMIC's term that significantly
exceeds distributions on the Residual Certificate
during such years, with corresponding tax deductions
or losses deferred until the later years of the
REMIC's term. Accordingly, on a present value basis,
the tax detriments occurring in the earlier years may
substantially exceed the sum of any tax benefits in
the later years. As a result the Residual
Certificateholders' after-tax rate of return may be
zero or negative, even if their pre-tax rate of return
is positive.
S-29
<PAGE>
The Offered Certificates will generally be treated as
"qualifying real property loans" for mutual savings
banks and domestic building and loan associations,
"loans secured by an interest in real property" for
domestic building and loan associations, and "real
estate assets" for real estate investment trusts
("REITS") in the same proportion that the assets in
the REMIC would be so treated. In addition, interest
on the Offered Certificates will generally be treated
as "interest on obligations secured by mortgages on
real property" for REITs to the extent that such
Certificates are treated as "real estate assets". See
"Certain Federal Income Tax Consequences" in the
Prospectus.
For further information regarding the federal income
tax consequences of investing in the Offered
Certificates, see "Certain Federal Income Tax
Consequences" herein and in the Prospectus.
S-30
<PAGE>
RISK FACTORS
EFFECT OF PRINCIPAL PREPAYMENTS
The rate of principal payments, amount of each interest payment and yield
to maturity on each Class of the Certificates are directly related to the rate
of payments of principal on the Mortgage Loans in the related Mortgage Loan
Group, which may be in the form of scheduled amortization, principal
prepayments or liquidations. In general, when the level of prevailing
mortgage interest rates declines significantly below the interest rates on the
Mortgage Loans, the rate of prepayment is likely to increase, although the
prepayment rate is influenced by a number of other factors, including general
economic conditions and homeowner mobility. The rate of payment of principal
will also be affected by any repurchase by the Company of the Mortgage Loans
in the related Mortgage Loan Group. See "Maturity Considerations--Prepayment
Considerations" and "Description of Certificates--Termination" in the
Prospectus and "Description of the Certificates--Optional Termination of the
REMIC II" and "Yield and Prepayment Considerations" herein. In such event,
the repurchase price paid by the Company would be passed through to related
Certificateholders on the Distribution Date following the month of
repurchase. All of the Mortgage Loans contain "due-on-sale" clauses.
Consequently, acceleration of maturity as a result of transfers of Mortgaged
Properties will affect the level of Principal Prepayments on the Mortgage
Loans.
"PRINCIPAL PREPAYMENTS" include prepayments in full on a Mortgage Loan
("PAYOFFS") and partial principal prepayments on a Mortgage Loan
("CURTAILMENTS").
The Class IA-3 Certificates (the "ACCRETION DIRECTED CLASS") and
Component IA-1-3 of the Class IA-1 Certificates (the "ACCRETION DIRECTED
COMPONENT") will receive distributions of principal otherwise payable as
interest to Class IA-3 Certificates (on or before the Class IA-3 Accretion
Termination Date (as defined herein)) and Component IA-1-3 of the Class IA-1
Certificates (on or before the Component IA-1-3 Accretion Termination Date (as
defined herein)). Because the Accretion Directed Classes and Accretion
Directed Component receive such distributions of principal, they may amortize
faster than otherwise would be the case. The Class IA-3 and Class IA-4
Certificates are referred to as the "ACCRUAL CLASSES" and Component IA-1-3 of
the Class IA-1 Certificates is referred to as the "ACCRUAL COMPONENT" herein.
If any Certificate is purchased at a discount from its original
Certificate Principal Balance, and if a purchaser of such Certificate
calculates the yield to maturity based on an assumed rate of principal
payments (including Principal Prepayments) and liquidations faster than that
actually received on the Mortgage Loans in the related Mortgage Loan Group,
the actual yield to maturity will be lower than that so calculated. If any
Certificate is purchased at a premium from its original Certificate Principal
Balance, and if a purchaser of such Certificate calculates the yield to
maturity based on an assumed rate of principal payments (including Principal
Prepayments) and liquidations slower than that actually received on the
Mortgage Loans in the related Mortgage Loan Group, the actual yield to
maturity will be lower than that so calculated.
Principal distributions on the Class IA-2, Class IA-5 and Class IA-6
Certificates (the "PACS") on any Distribution Date will generally be payable
in amounts determined on the basis of the planned principal balances for such
Classes of Certificates for such Distribution Date as set forth in Appendix A
(each, a "PLANNED PRINCIPAL BALANCE"). The Planned Principal Balances for the
PACs were determined assuming that the prepayment rate of the Group I Mortgage
Loans occur each month at a constant level between approximately 100% and 500%
of the Basic Prepayment Assumption (as defined herein). However, as discussed
herein, actual principal distributions may deviate from the described amounts,
because the actual prepayment rate of such Group I Mortgage Loans each month
may not occur at any constant level between
S-31
<PAGE>
approximately 100% and 500% of the Basic Prepayment Assumption. If the Class
Principal Balance of the Class IA-4 Certificates or the Component Principal
Balances of the Class IA-1 Certificates (except for Components IA-1-2 and
IA-1-6) are reduced to zero before the Class Principal Balances of the PACs
are reduced to zero, the weighted average life of the PACs will become
significantly more sensitive to changes in the prepayment rate of the Group I
Mortgage Loans, and principal distributions thereon will be more likely to
deviate from the described amounts.
Principal distributions on the Class IA-3 Certificates and Component
IA-1-3 of the Class IA-1 Certificates (the "TACS") on any Distribution Date
will generally be payable in amounts determined on the basis of their targeted
principal balances for such Distribution Date as set forth in Appendix B
(each, a "TARGETED PRINCIPAL BALANCE"). The Targeted Principal Balances of
such Class and Component were determined assuming that the prepayment rate of
the Group I Mortgage Loans remains constant at 250% of the Basic Prepayment
Assumption. However, as discussed herein, actual principal distributions may
deviate from the described amounts, because the actual prepayment rate of the
Group I Mortgage Loans each month may not remain constant at 250% of the Basic
Prepayment Assumption. If the Class Principal Balance of the Class IA-4
Certificates or the Component Principal Balances of the Class IA-1
Certificates (except for Components IA-1-2, IA-1-3 and IA-1-6 of the Class
IA-1 Certificates) are reduced to zero before the Class IA-3 Principal Balance
or Component IA-1-3 Component Principal Balance is reduced to zero, the rate
of principal distributions and the weighted average life of the Class IA-3
Certificates or Component IA-1-3 of the Class IA-1 Certificates will become
significantly more sensitive to changes in the prepayment rate of the Group I
Mortgage Loans.
Principal Prepayments on the Group I Mortgage Loans and other unscheduled
payments of principal may result in principal available for distribution on a
Distribution Date to the PACs and the TACs on such Distribution Date in an
amount greater than the amount necessary to reduce the applicable Class
Principal Balances or Component Principal Balances of the PACs and TACs to
their scheduled amounts. The excess principal after distribution to the
Planned Principal Balance to the PACs and the Targeted Principal Balance to
the TACs on any Distribution Date will be distributed as follows: (i) to the
Class IA-4 Certificates until the Class IA-4 Principal Balance has been
reduced to zero; (ii) a percentage then to the Class IA-3 Certificates without
regard to its Targeted Principal Balance, until the Class IA-3 Principal
Balance has been reduced to zero and a percentage to Component IA-1-3 of the
Class IA-1 Certificates without regard to its Targeted Principal Balance,
until the Component IA-1-3 Component Principal Balance has been reduced to
zero; and (iii) the remainder of such excess will be distributed (a) to
Component IA-1-3 of the Class IA-1 Certificates without regard to its Targeted
Principal Balance, until the IA-1-3 Component Principal Balance has been
reduced to zero, (b) to the Class IA-5 Certificates without regard to its
Planned Principal Balance, until the Class IA-5 Principal Balance has been
reduced to zero, (c) to the Class IA-6 Certificates without regard to its
Planned Principal Balance, until the Class IA-6 Principal Balance has been
reduced to zero, and (d) to the Class IA-2 Certificates without regard to its
Planned Principal Balance, until the Class IA-2 Principal Balance has been
reduced to zero. Any excess remaining after all such payments will be
distributed to Component IA-1-5 of the Class IA-1 Certificates. Accordingly,
the rate of payments on the Group I Mortgage Loans is expected to have a
greater effect on the weighted average life of the TACs, under certain
prepayment scenarios, than on the weighted average lives of the PACs
principally because the rate of Principal Prepayments and other unscheduled
payments of principal could cause the principal available for distribution on
the Class IA Certificates on any Distribution Date to be less than the amounts
necessary to reduce the Class Principal Balance of the PACs to their
respective Planned Principal Balances, in which case the TACs and the Class
IA-4 Certificates will not receive any distributions of principal (other than
the principal they may receive as Accretion Directed Classes or Accretion
Directed Components). Similarly, if on any Distribution Date the principal
available for distribution to the TACs is less than the amount necessary to
reduce their Class Principal Balances to their respective Targeted Principal
Balances, then the Class IA-4
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<PAGE>
Certificates will not receive any distributions of principal (other than the
principal they may receive as an Accretion Directed Class). See "Yield and
Prepayment Considerations" herein.
The yield to maturity on the Class of the Senior Subordinate Certificates
will be extremely sensitive to realized losses on the Mortgage Loans (other
than Special Hazard Losses, Fraud Losses and Bankruptcy Losses in excess of
the applicable coverage therefor provided by the Subordinate Certificates),
because a disproportionately large amount of such losses (rather than a pro
rata portion thereof) generally will be allocable to such Classes of
Certificates following the reduction of the aggregate Class Principal Balances
of the Junior Subordinate Certificates to zero, as described under
"Description of the Certificates--Subordination and Allocation of Losses"
herein.
RISKS OF HOLDING SUBORDINATE CERTIFICATES
The rights of the holders of the Subordinate Certificates to receive
distributions with respect to the Mortgage Loans will be subordinated to such
rights of the holders of the Senior Certificates and the rights of the holders
of each Class of Subordinate Certificates (other than the Class M
Certificates) to receive such distributions with respect to the Mortgage Loans
will be subordinated to such rights of the Class or Classes of Subordinate
Certificates with lower numerical Class designations, in each case only to the
extent described herein. Delinquencies that are not advanced by or on behalf
of the Servicer (because the amounts, if advanced, would be nonrecoverable),
will adversely affect the yield on the Subordinate Certificates. Because of
the priority of distributions, shortfalls resulting from delinquencies not so
advanced will be borne first by the Subordinate Certificates, in reverse order
of their numerical Class designations, and then by the related Senior
Certificates. If, as a result of such shortfalls, the aggregate of the Class
Certificate Balances of all Classes of Certificates exceeds the Pool Principal
Balance, the Class of Subordinate Certificates then outstanding with the
highest numerical Class designation will be reduced by the amount of such
excess.
The weighted average life of, and the yield to maturity on, the
Subordinate Certificates, in decreasing order of their priority of
distributions, will be progressively more sensitive to the rate and timing of
Mortgagor defaults and the severity of ensuing losses on the Mortgage Loans.
If the actual rate and severity of losses on the Mortgage Loans is higher than
those assumed by a holder of a Subordinate Certificate, the actual yield to
maturity of such Certificate may be lower than the yield expected by such
holder based on such assumption. The timing of losses on the Mortgage Loans
will also affect an investor's actual yield to maturity, even if the rate of
defaults and severity of losses over the life of the Mortgage Loans are
consistent with such investor's expectations. In general, the earlier a loss
occurs the greater the effect on an investor's yield to maturity. Losses on
the Mortgage Loans will reduce the Class Certificate Balance of the
Subordinate Certificates to the extent of any losses allocated thereto without
the receipt of cash attributable to such reduction. See "Description of the
Certificates--Allocation of Losses" herein. As a result of such reductions,
less interest will accrue on such Classes of Subordinate Certificates than
otherwise would be the case. The yield to maturity of the Subordinate
Certificates will also be affected by disproportionate allocations of
principal prepayments to the Senior Certificates, Net Interest Shortfalls and
other cash shortfalls in Available Funds. See "Description of the
Certificates--Allocation of Losses" herein.
Since the Subordinate Certificates will absorb losses on Mortgage Loans
in both Mortgage Loan Groups, a disproportionate amount of losses with respect
to Mortgage Loans in either Mortgage Loan Group will adversely impact the
availability of subordination to the Senior Certificates related to the other
Mortgage Loan Group.
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<PAGE>
LIMITED SOURCE OF PAYMENTS--NO RECOURSE TO COMPANY, SERVICER OR TRUSTEE
The Mortgage Loans are to be the sole source of payments on the
Certificates. The Certificates do not represent an interest in or obligation
of the Company, the Servicer, the Trustee or any of their affiliates, except
for the limited obligations of the Company with respect to certain breaches of
its representations and warranties and of the Servicer with respect to its
servicing obligations. Neither the Certificates nor the Mortgage Loans will
be guaranteed by or insured by any governmental agency or instrumentality, the
Company, the Servicer, the Trustee or any of their affiliates. Consequently,
in the event that payments on the Mortgage Loans are insufficient or otherwise
unavailable to make all payments required on the Certificates, there will be
no recourse to the Company, the Servicer, the Trustee or any of their
affiliates.
LIMITED LIQUIDITY
Each Underwriter intends to make a secondary market in the Certificates
being purchased by it, but no Underwriter has an obligation to do so. There
is currently no secondary market for the Offered Certificates and there can be
no assurance that such a market will develop or, if it does develop, that it
will provide Certificateholders with a sufficient level of liquidity of
investment or that it will continue for the life of the Certificates.
GEOGRAPHIC CONCENTRATION
Approximately ___% of the Group I Mortgage Loans and approximately ___%
of the Group II Mortgage Loans (by Cut-Off Date Principal Balances) are
secured by Mortgaged Properties located in the State of California although
property values of residential real estate in California are currently
improving such values have declined in recent years. If the California
residential real estate market should experience an overall decline in
property values again after the dates of origination of the Mortgage Loans,
the rates of delinquency, foreclosure, bankruptcy and loss on the Mortgage
Loans may be expected to increase, and may increase substantially, as compared
to such rates in a stable or improving real estate market.
BOOK-ENTRY SYSTEM
Since transactions in the Class IA Certificates, the Class IIA
Certificates and the Senior Subordinate Certificates (the "BOOK-ENTRY
CERTIFICATES") generally can be effected only through The Depository Trust
Company ("DTC"), participating organizations, indirect participants and
certain banks, the ability of a Certificateholder to pledge a Book-Entry
Certificate to persons or entities that do not participate in the DTC system,
or otherwise to take actions with respect to such Certificates, may be limited
due to a lack of a physical certificate representing the Book-Entry
Certificates. In addition, the Certificateholders may experience some delay
in their receipt of distribution of interest and principal on the Book-Entry
Certificates, since such distributions will be forwarded by the Trustee (or
its duly appointed paying agent, if any) to DTC, and DTC will credit such
distributions to the accounts of DTC Participants (as defined herein) which
will thereafter credit them to the accounts of Certificateholders either
directly or indirectly through indirect participants. Also, issuance of the
Book-Entry Certificates in book-entry form may reduce the liquidity thereof in
any secondary trading market that may develop therefor because investors may
be unwilling to purchase securities for which they cannot obtain delivery of
physical certificates. See "Description of the Certificates--Book-Entry
Registration" herein.
S-34
<PAGE>
THE TRUST
The primary assets of the REMIC I will consist of a pool of Mortgage
Loans (the "MORTGAGE POOL"). The REMIC I will also contain (i) certain
insurance policies related to the Mortgage Loans, (ii) any property which
secured a Mortgage Loan and which is acquired by foreclosure or by deed in
lieu of foreclosure after the Cut-Off Date, (iii) amounts held in the
Certificate Account, and (iv) certain other assets all as described herein.
Funds otherwise required to be held in the Certificate Account may be held in
an investment account and invested for the benefit of the Servicer in Eligible
Investments pursuant to the terms of the Pooling and Servicing Agreement, as
described herein. The Mortgage Loans will be assigned to the Trustee,
together with all principal interest due on the Mortgage Loans after the
Cut-Off Date. The Trustee will, concurrently with such assignment,
authenticate and deliver the Certificates. Each Mortgage Loan will be
identified in a schedule appearing as an exhibit to the Pooling and Servicing
Agreement (the "MORTGAGE LOAN SCHEDULE") which will specify with respect to
each Mortgage Loan, among other things, the applicable Mortgage Loan Group,
the original principal balance and the outstanding principal balance as of the
close of business on the Cut-Off Date, the term of the Mortgage Note and the
Mortgage Interest Rate.
DESCRIPTION OF THE MORTGAGE POOL***
The Mortgage Pool will consist of Mortgage Loans that will have an
aggregate principal balance outstanding as of March ___, 1998 (the "CUT-OFF
DATE"), after deducting payments due on or before that date, of approximately
$_________________. The Group I Mortgage Loans and Group II Mortgage Loans
have an aggregate principal balance outstanding as of the Cut-Off Date, after
deducting payments due on or before that date, of approximately
$_________________________ and $_____________, respectively. Certain of the
risks of loss on certain Mortgage Loans will be covered up to specified limits
by Primary Insurance Policies.
The Mortgage Loans are secured by first mortgages or first deeds of trust
or other similar security instruments creating first liens on one- to
four-family residential properties (the "MORTGAGED PROPERTIES"), which may
include detached homes, duplexes, townhouses, individual condominium units,
individual units in planned unit developments and other attached dwelling
units which are part of buildings consisting of more than four units (so long
as the property subject to the lien of the related Mortgage consists of no
more than four units, and having the additional characteristics described
below and in the Prospectus.
- -------------------
*** The description herein of the Mortgage Pool and the Mortgaged Properties
is based upon the Mortgage Loans at the close of business on the Cut-Off
Date, after deducting the scheduled principal payments due on or before
such date, whether or not actually received. All references herein to
"principal balance" refer to the principal balance as of the Cut-Off Date,
unless otherwise specifically stated or required by the context.
References herein to percentages of Mortgage Loans refer in each case to
the percentage of the aggregate principal balance of the related Mortgage
Loan Group, based on the outstanding principal balances of the Mortgage
Loans after giving effect to scheduled Monthly Payments due on or prior to
the Cut-Off Date, whether or not received. References to weighted
averages refer, in each case, to weighted averages by principal balance as
of the Cut-Off Date of the related Mortgage Loans (determined as described
in the preceding sentence). Prior to the issuance of the Certificates,
Mortgage Loans may be removed from the Mortgage Pool as a result of
principal prepayments in full ("PAYOFFS"), delinquencies or otherwise. In
such event, other Mortgage Loans may be included in the Mortgage Pool. The
Company believes that the information set forth herein with respect to the
Mortgage Pool is representative of the characteristics of the Mortgage
Pool as it will actually be constituted at the time the Certificates are
issued, although the range of Mortgage Interest Rates and certain other
characteristics of the Mortgage Loans in the Mortgage Pool may vary. See
"--Additional Information" herein.
S-35
<PAGE>
Each Mortgage Loan, was acquired by the Company for inclusion in the
Mortgage Pool, was original or acquired by Standard Federal Bank, an affiliate
of the Company, during the period _______, 199__ through ________, 199__ and
will have an original term to maturity of not more than 30 years in the case
of the Group I Mortgage Loans and 15 years in the case of Group II Mortgage
Loans. None of the Mortgage Loans in the Mortgage Pool have been originated
under reduced or no documentation programs.
Approximately % the Mortgage Loans in the Mortgage Pool will have
ACUscores. "ACUSCORES" are statistical credit scores obtained by many
mortgage lenders in connection with loan applications to help assess a
borrower's credit-worthiness. ACUscores are generated by computer models
developed by United Guaranty Residential Insurance Company ("UG") and Fair,
Issac. ACUscores range from 10 to 1,000, with a benchmark score of 100, which
means that a loan scoring 200 would be twice as risky as a loan scoring 100
and a loan scoring 50 is only half as risky as a loan scoring 100. The higher
the score, the greater the loan's relative risk. Any information regarding
ACUscores is not intended to address matters respecting investments in the
securities which are the subject of this document. All information in this
document was prepared by a party or parties other than UG, which parties are
solely responsible therefore, and UG makes no representations as to the
correctness or completeness thereof.
Approximately ___% of the Mortgage Loans have FICO Scores. The weighted
average FICO Score for the Mortgage Loans that were scored is ___. "FICO
SCORES" are statistical credit scores obtained by many mortgage lenders in
connection with the loan application to help assess a borrower's
creditworthiness. FICO Scores are generated by models developed by a third
party and are made available to lenders through three national credit
bureaus. The models were derived by analyzing data on consumers in order to
establish patterns which are believed to be indicative of the borrower's
probability of default. The FICO Score is based on a borrower's historical
credit data, including, among other things, payment history, delinquencies on
accounts, levels of outstanding indebtedness, length of credit history, types
of credit, and bankruptcy experience. FICO Scores range from approximately
250 to approximately 900, with higher scores indicating an individual with a
more favorable credit history compared to an individual with a lower score.
However, a FICO Score purports only to be a measurement of the relative degree
of risk a borrower represents to a lender, i.e., that a borrower with a higher
score is statistically expected to be less likely to default in payment that a
borrower with a lower score. In addition, it should be noted that FICO Scores
were developed to indicate a level of default probability over a two-year
period which does not correspond to a life of a mortgage loan. Furthermore,
FICO Scores were not developed specifically for use in connection with
mortgage loans, but for consumer loans in general. therefore, a FICO Score
does not take into consideration the effect of mortgage loan characteristics
on the probability of repayment by the borrower. the company does not make
any representations or warranties as to the actual performance of any Mortgage
Loan or that a particular FICO Score should be relied upon as a basis for an
expectation that the borrower will repay the Mortgage Loan according to its
terms.
The Company will assign the Mortgage Loans to the Trustee for the
ultimate benefit of the Certificateholders. The Servicer will service the
Mortgage Loans directly as Servicer pursuant to the Pooling and Servicing
Agreement, and will receive compensation for such services. See "Description
of the Certificates--Assignment of Mortgage Loans" in the Prospectus.
The Company will make representations and warranties regarding the
Mortgage Loans in the Pooling and Servicing Agreement, but its assignment of
the Mortgage Loans to the Trustee will be without recourse and the Company'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 Pooling and Servicing Agreement. The Servicer is required to
make certain advances of its own funds in respect of the Mortgage Loans to the
S-36
<PAGE>
limited extent set forth under "Description of the Certificates--Advances and
Limitations Thereon" in the Prospectus "Description of the
Certificates--Advances" herein.
LOAN GROUP I
As of the Cut-Off Date, the Mortgage Interest Rate on each Group I
Mortgage Loan will be not less than ____% and not more than _____% per annum.
As of the Cut-Off Date, the weighted average of the Mortgage Interest Rates on
the Group I Mortgage Loans will be approximately _____% per annum. As of the
Cut-Off Date, the Pass-Through Rate which is equal to the weighted average Net
Mortgage Rate for each Group I Mortgage Loan will be not less than _____% and
not more than ______% per annum. As of the Cut-Off Date, the weighted average
of the Pass-Through Rates for the Group I Mortgage Loans will be approximately
_____% per annum. The weighted average "NET MORTGAGE RATE" is equal to the
weighted average of the Mortgage Interest Rates of the mortgage loans less the
applicable servicing fee with respect thereto.
All of the Group I Mortgage Loans will have principal and interest
payable on the first day of each month (the "DUE DATE"). None of the Group I
Mortgage Loans will be Buydown Loans. The latest original scheduled maturity
of any Group I Mortgage Loan will be April 2028. Each of the Group I Mortgage
Loans will have original terms to maturity of not more than 30 years, and as
of the Cut-Off Date, the weighted average remaining term to maturity (adjusted
for Curtailments) of the Group I Mortgage Loans will be approximately _______
months. At origination, based upon an appraisal of the Mortgaged Property
securing each Group I Mortgage Loan, approximately _____% of the Group I
Mortgage Loans will have had Loan-to-Value Ratios less than or equal to
______%, and approximately _____%, of the Group I Mortgage Loans will have had
Loan-to-Value Ratios greater than _____% but less than or equal to _____%. No
Group I Mortgage Loan will have had a Loan-to-Value Ratio at origination
greater than _____%. At origination, the weighted average of the
Loan-to-Value Ratios of the Group I Mortgage Loans was approximately _____%.
As of the Cut-Off Date, the weighted average of the Loan-to-Value Ratios of
the Group I Mortgage Loans is approximately _____%. As of the Cut-Off Date,
approximately ______% of the Group I Mortgage Loans are covered by a Primary
Insurance Policy. Approximately ______% of the Group I Mortgage Loans with
Loan-to-Value Ratios as of the Cut-Off Date in excess of ______% were covered
by a Primary Insurance Policy. Approximately ___% of the Group I Mortgage
Loans will have ACUscores. The weighted average ACUscore for the Group I
Mortgage Loans is ________. Approximately ___% of the Group I Mortgage Loans
will have FICO scores . The weighted average FICO score for the Group I
Mortgage Loans is ____. At origination, each Group I Mortgage Loan will have
had a principal balance of not less than $_______ nor more than $________, and
the average principal balance of the Group I Mortgage Loans as of the Cut-Off
Date will be approximately $_________. Approximately_____% of the Group I
Mortgage Loans will have been secured by owner-occupied Mortgaged Properties
which were the primary residences of the related Mortgagors, based solely on
representations of the Mortgagors obtained at the origination of the related
Group I Mortgage Loans, and approximately _____% of the Group I Mortgage Loans
will have been secured by owner-occupied Mortgaged Properties which were
second or vacation homes of the related Mortgagors, based solely on such
representations. Approximately ______% of the Group I Mortgage Loans will
have been secured by Mortgaged Properties which were investor properties of
the related Mortgagors, based solely on such representations.
Approximately _____% of the Group I Mortgage Loans are secured by
Mortgaged Properties located in [IDENTIFY STATES AND PERCENTAGES]; and no
other single state contains Mortgage Properties securing more than _____% of
the Group I Mortgage Loans. No more than ______% of the Group I Mortgage
Loans will be secured by Mortgaged
S-37
<PAGE>
Properties located in any one [INSERT NAME OF STATE] zip code area, and no
more than ____% of the Group I Mortgage Loans will be secured by Mortgaged
Properties located in any other single zip code area. [Approximately _____% of
the Group I Mortgage Loans will have been originated for the purpose of
refinancing existing mortgage debt, including cash-out refinancings.
Approximately _____% of the Group I Mortgage Loans will have been originated
for the purpose of purchasing the Mortgaged Property.]
LOAN GROUP II
As of the Cut-Off Date, the Mortgage Interest Rate on each Group II
Mortgage Loan will be not less than ______% and not more than ______% per
annum. As of the Cut-Off Date, the weighted average of the Mortgage Interest
Rates on the Group II Mortgage Loans will be approximately _______% per
annum. As of the Cut-Off Date, the Pass-Through Rate for each Group II
Mortgage Loan will be not less than _____% and not more than _______% per
annum. As of the Cut-Off Date, the weighted average of the Pass-Through Rates
for the Group II Mortgage Loans will be approximately _______% per annum.
All of the Group II Mortgage Loans will have principal and interest
payable on the Due Date. None of the Group II Mortgage Loans will be Buydown
Loans. The latest original scheduled maturity of any Group II Mortgage Loan
will be April 2013. Each of the Group II Mortgage Loans will have original
terms to maturity of not more than 15 years, and as of the Cut-Off Date, the
weighted average remaining term to maturity (adjusted for Curtailments of the
Group II Mortgage Loans) will be approximately ______ months. At origination,
based upon an appraisal of the Mortgaged Property securing each Group II
Mortgage Loan, approximately ______% of the Group II Mortgage Loans will have
had Loan-to-Value Ratios less than or equal to _____%, and approximately
_____% of the Group II Mortgage Loans will have had Loan-to-Value Ratios
greater than ______% but less than or equal to ______%. No Group II Mortgage
Loan will have had a Loan-to-Value Ratio at origination greater than _____%.
At origination, the weighted average of the Loan-to-Value Ratios of the Group
II Mortgage Loans was approximately _____%. As of the Cut-Off Date, the
weighted average of the Loan-to-Value Ratios of the Group II Mortgage Loans is
approximately ______%. As of the Cut-Off Date, approximately ______% of the
Group II Mortgage Loans are covered by a Primary Insurance Policy.
Approximately ______% of the Group II Mortgage Loans with Loan-to-Value Ratios
as of the Cut-Off Date in excess of _____% were covered by a Primary Insurance
Policy. Approximately _____% of the Group II Mortgage Loans will have
ACUscores. The weighted average ACUscore for the Group II Mortgage Loans is
__________. Approximately ___% of the Group II Mortgage Loans will have FICO
scores . The weighted average FICO score for the Group II Mortgage Loans is
____. At origination, each Group II Mortgage Loan will have had a principal
balance of not less than $_________ nor more than $__________ and the average
principal balance of the Group II Mortgage Loans as of the Cut-Off Date will
be approximately $_________. Approximately ______% of the Group II Mortgage
Loans will have been secured by owner-occupied Mortgaged Properties which were
the primary residences of the related Mortgagors, based solely on
representations of the Mortgagor obtained at the origination of the related
Group II Mortgage Loans, and approximately ______% of the Group II Mortgage
Loans will have been secured by owner-occupied Mortgaged Properties which were
second or vacation homes of the related Mortgagors, based solely on such
representations. Approximately ______% of the Group II Mortgage Loans will
have been secured by Mortgaged Properties which were investor properties of
the related Mortgagors based solely on such representations.
Approximately _______% of the Group II Mortgage Loans are secured by
Mortgaged Properties located in [IDENTIFY STATES AND PERCENTAGES]; and no
other single state contains Mortgaged Properties securing more than ____% of
the Group II Mortgage Loans. No more than _____% of the Group II Mortgage
Loans will be secured by Mortgaged Properties located in any one [INSERT NAME
OF STATE] zip code area, and no more than ____% of Group II Mortgage Loans
will be secured by Mortgaged Properties located in any other single zip code
area. [Approximately _____% of the Group II Mortgage Loans will have been
originated for the purpose of refinancing existing mortgage debt, including
cash-out refinancings.
S-38
<PAGE>
Approximately ________% of the Group II Mortgage Loans will have been
originated for the purpose purchasing the Mortgaged Property.]
ADDITIONAL INFORMATION
Additional data with respect to the Mortgage Loans are set forth in the
following tables:
MORTGAGE LOAN SCHEDULES FOR ALL MORTGAGE LOANS
----------------------------------------------
<TABLE>
<CAPTION>
MORTGAGE RATES OF ALL MORTGAGE LOANS(1)
Percentage of
Aggregate Mortgage Pool by
Principal Balance Aggregate Principal
Number of as of the Balance as of the
Mortgage Rate Mortgage Loans Cut-off Date Cut-off Date
- ------------- -------------- ----------------- --------------------
<S> <C> <C> <C>
........... $ %
...........
...........
........... ----- ------- ------
Totals ........... % %
</TABLE> ===== ======= ======
(1) The interest rates (the "Mortgage Rates") borne by the Mortgage Loans as
of the Cut-off Date ranged from ____% per annum to ____% per annum and the
weighted average Mortgage Rate on the Mortgage Loans as of the Cut-off
Date was approximately ____% per annum.
GEOGRAPHICAL DISTRIBUTION
OF ALL MORTGAGE LOANS
<TABLE>
<CAPTION>
Percentage of
Aggregate Mortgage Pool by
Principal Balance Aggregate Principal
Number of as of the Balance as of the
State Mortgage Loans Cut-off Date Cut-off Date
- ------------- -------------- ----------------- --------------------
<S> <C> <C> <C>
Alabama.............. $ %
Arkansas.............
Arizona..............
California...........
Colorado.............
Connecticut..........
Delaware.............
District of Columbia
Florida..............
S-39
<PAGE>
Georgia..............
Hawaii...............
Iowa.................
Illinois.............
Indiana..............
Kansas...............
Kentucky.............
Louisiana............
Maine................
Maryland.............
Massachusetts........
Michigan.............
Minnesota............
Mississippi..........
Missouri.............
Nebraska.............
Nevada...............
New Hampshire........
New Jersey...........
New Mexico...........
New York.............
North Carolina.......
Ohio.................
Oklahoma.............
Oregon...............
Pennsylvania.........
Rhode Island.........
South Carolina.......
South Dakota.........
Tennessee............
Texas................
Utah.................
Vermont..............
Virginia.............
Washington...........
West Virginia........
Wisconsin............
S-40
<PAGE>
Wyoming..............
---------- --------- --------
Totals........... $ %
========== ========= ========
</TABLE>
ORIGINAL PRINCIPAL BALANCE FOR ALL MORTGAGE LOANS(2)
<TABLE>
<CAPTION>
Percentage of
Aggregate Mortgage Pool by
Principal Balance Aggregate Principal
Original Number of as of the Balance as of the
Principal Balance Mortgage Loans Cut-off Date Cut-off Date
- ----------------- -------------- ----------------- --------------------
<S> <C> <C> <C>
............. $ %
.............
.............
.............
---------- --------- --------
Totals ............. $ %
========== ========= ========
</TABLE>
- -------------------
(2) The average outstanding principal balance of the Mortgage Loans as of the
Cut-off Date was approximately $_______. The original principal balances
of the Mortgage Loans ranged from $_______ to $_______.
YEAR OF ORIGINATION FOR ALL MORTGAGE LOANS
<TABLE>
<CAPTION>
Percentage of
Aggregate Mortgage Pool by
Principal Balance Aggregate Principal
Year of Number of as of the Balance as of the
Origination Mortgage Loans Cut-off Date Cut-off Date
- ----------------- -------------- ----------------- --------------------
<S> <C> <C> <C>
............. $ %
.............
.............
.............
---------- --------- --------
Totals ............. $ %
========== ========= ========
</TABLE>
ORIGINAL LOAN-TO-VALUE RATIO
FOR ALL MORTGAGE LOANS(3)
<TABLE>
<CAPTION>
Percentage of
Aggregate Mortgage Pool by
Original Principal Balance Aggregate Principal
Loan-to-Value Number of as of the Balance as of the
Ratio Mortgage Loans Cut-off Date Cut-off Date
- ----------------- -------------- ----------------- --------------------
<S> <C> <C> <C>
............. $ %
S-41
<PAGE>
.............
.............
.............
---------- --------- --------
Totals ............. $ %
========== ========= ========
</TABLE>
- -------------------
(3) The weighted average original Loan-to-Value Ratio of the Mortgage Loans
was approximately ____% as of the Cut-off Date.
REMAINING TERMS TO STATED MATURITY
FOR ALL MORTGAGE LOANS(4)
<TABLE>
<CAPTION>
Percentage of
Aggregate Mortgage Pool by
Principal Balance Aggregate Principal
Number of as of the Balance as of the
Months Remaining Mortgage Loans Cut-off Date Cut-off Date
- ----------------- -------------- ----------------- --------------------
<S> <C> <C> <C>
............. $ %
.............
.............
.............
---------- --------- --------
Totals ............. $ %
========== ========= ========
</TABLE>
- -------------------
(4) The weighted average remaining term to stated maturity of the Mortgage
Loans as of the Cut-off Date was approximately ____ months.
REMAINING TERMS TO EXPECTED MATURITY
FOR ALL MORTGAGE LOANS(5)
<TABLE>
<CAPTION>
Percentage of
Aggregate Mortgage Pool by
Principal Balance Aggregate Principal
Number of as of the Balance as of the
Months Remaining Mortgage Loans Cut-off Date Cut-off Date
- ----------------- -------------- ----------------- --------------------
<S> <C> <C> <C>
............. $ %
.............
.............
.............
---------- --------- --------
Totals ............. $ %
========== ========= ========
</TABLE>
- -------------------
S-42
<PAGE>
(5) Based on payments actually received (or scheduled to be received) on each
Mortgage Loan as of the Cut-off Date. The weighted average remaining term
to expected maturity of the Mortgage Loans as of the Cut-off Date was
approximately ____ months.
TYPES OF MORTGAGED PROPERTIES
OF ALL MORTGAGE LOANS
<TABLE>
<CAPTION>
Percentage of
Aggregate Mortgage Pool by
Principal Balance Aggregate Principal
Number of as of the Balance as of the
Property Type Mortgage Loans Cut-off Date Cut-off Date
- ----------------- -------------- ----------------- --------------------
<S> <C> <C> <C>
............. $ %
.............
.............
.............
---------- --------- --------
Totals ............. $ %
========== ========= ========
</TABLE>
OCCUPANCY OF ALL MORTGAGE LOANS(6)
<TABLE>
<CAPTION>
Percentage of
Aggregate Mortgage Pool by
Principal Balance Aggregate Principal
Number of as of the Balance as of the
Occupancy Mortgage Loans Cut-off Date Cut-off Date
- ----------------- -------------- ----------------- --------------------
<S> <C> <C> <C>
............. $ %
.............
.............
.............
---------- --------- --------
Totals ............. $ %
========== ========= ========
</TABLE>
- -------------------
(6) Based on representations by the Mortgagors at the time of the related
Mortgage Loans.
LOAN DOCUMENTATION FOR ALL MORTGAGE LOANS
<TABLE>
<CAPTION>
Percentage of
Aggregate Mortgage Pool by
Principal Balance Aggregate Principal
Number of as of the Balance as of the
Mortgage Rate Mortgage Loans Cut-off Date Cut-off Date
- ----------------- -------------- ----------------- --------------------
<S> <C> <C> <C>
............. $ %
.............
.............
S-43
<PAGE>
.............
---------- --------- --------
Totals ............. $ %
========== ========= ========
</TABLE>
MORTGAGE RATES FOR GROUP I LOANS(1)
<TABLE>
<CAPTION>
Percentage of
Aggregate Mortgage Pool by
Principal Balance Aggregate Principal
Number of as of the Balance as of the
Mortgage Rate Mortgage Loans Cut-off Date Cut-off Date
- ----------------- -------------- ----------------- --------------------
<S> <C> <C> <C>
............. $ %
.............
.............
.............
---------- --------- --------
Totals ............. $ %
========== ========= ========
</TABLE>
- -------------------
(1) The interest rates (the "Mortgage Rates") borne by the Mortgage Loans as
of the Cut-off Date ranged from ____% per annum to ____% per annum and the
weighted average Mortgage Rate on the Mortgage Loans as of the Cut-off
Date was approximately ____% per annum.
GEOGRAPHICAL DISTRIBUTION
OF GROUP I MORTGAGE LOANS
<TABLE>
<CAPTION>
Percentage of
Aggregate Mortgage Pool by
Principal Balance Aggregate Principal
Number of as of the Balance as of the
State Mortgage Loans Cut-off Date Cut-off Date
- ------------- -------------- ----------------- --------------------
<S> <C> <C> <C>
Alabama.............. $ %
Arkansas.............
Arizona..............
California...........
Colorado.............
Connecticut..........
Delaware.............
District of Columbia
Florida..............
Georgia..............
Hawaii...............
Iowa.................
S-44
<PAGE>
Illinois.............
Indiana..............
Kansas...............
Kentucky.............
Louisiana............
Maine................
Maryland.............
Massachusetts........
Michigan.............
Minnesota............
Mississippi..........
Missouri.............
Nebraska.............
Nevada...............
New Hampshire........
New Jersey...........
New Mexico...........
New York.............
North Carolina.......
Ohio.................
Oklahoma.............
Oregon...............
Pennsylvania.........
Rhode Island.........
South Carolina.......
South Dakota.........
Tennessee............
Texas................
Utah.................
Vermont..............
Virginia.............
Washington...........
West Virginia........
Wisconsin............
Wyoming..............
---------- --------- --------
Totals........... $ %
========== ========= ========
</TABLE>
S-45
<PAGE>
ORIGINAL PRINCIPAL BALANCE FOR GROUP I MORTGAGE LOANS(2)
<TABLE>
<CAPTION>
Percentage of
Aggregate Mortgage Pool by
Principal Balance Aggregate Principal
Original Number of as of the Balance as of the
Principal Balance Mortgage Loans Cut-off Date Cut-off Date
- ----------------- -------------- ----------------- --------------------
<S> <C> <C> <C>
............. $ %
.............
.............
.............
---------- --------- --------
Totals ............. $ %
========== ========= ========
</TABLE>
- -------------------
(2) The average outstanding principal balance of the Mortgage Loans as of the
Cut-off Date was approximately $_______. The original principal balances
of the Mortgage Loans ranged from $_______ to $_______.
YEAR OF ORIGINATION FOR GROUP I MORTGAGE LOANS
<TABLE>
<CAPTION>
Percentage of
Aggregate Mortgage Pool by
Principal Balance Aggregate Principal
Year of Number of as of the Balance as of the
Origination Mortgage Loans Cut-off Date Cut-off Date
- ----------------- -------------- ----------------- --------------------
<S> <C> <C> <C>
............. $ %
.............
.............
.............
---------- --------- --------
Totals ............. $ %
========== ========= ========
</TABLE>
ORIGINAL LOAN-TO-VALUE RATIO
FOR GROUP I MORTGAGE LOANS(3)
<TABLE>
<CAPTION>
Percentage of
Aggregate Mortgage Pool by
Original Principal Balance Aggregate Principal
Loan-to-Value Number of as of the Balance as of the
Ratio Mortgage Loans Cut-off Date Cut-off Date
- ----------------- -------------- ----------------- --------------------
<S> <C> <C> <C>
............. $ %
.............
.............
.............
---------- --------- --------
Totals ............. $ %
========== ========= ========
</TABLE>
S-46
<PAGE>
- -------------------
(3) The weighted average original Loan-to-Value Ratio of the Mortgage Loans
was approximately ____% as of the Cut-off Date.
REMAINING TERMS TO STATED MATURITY
FOR GROUP I MORTGAGE LOANS(4)
<TABLE>
<CAPTION>
Percentage of
Aggregate Mortgage Pool by
Principal Balance Aggregate Principal
Number of as of the Balance as of the
Months Remaining Mortgage Loans Cut-off Date Cut-off Date
- ----------------- -------------- ----------------- --------------------
<S> <C> <C> <C>
............. $ %
.............
.............
.............
---------- --------- --------
Totals ............. $ %
========== ========= ========
</TABLE>
S-47
<PAGE>
- -------------------
(4) The weighted average remaining term to stated maturity of the Mortgage
Loans as of the Cut-off Date was approximately ____ months.
REMAINING TERMS TO EXPECTED MATURITY
FOR GROUP I MORTGAGE LOANS(5)
<TABLE>
<CAPTION>
Percentage of
Aggregate Mortgage Pool by
Principal Balance Aggregate Principal
Number of as of the Balance as of the
Months Remaining Mortgage Loans Cut-off Date Cut-off Date
- ----------------- -------------- ----------------- --------------------
<S> <C> <C> <C>
............. $ %
.............
.............
.............
---------- --------- --------
Totals ............. $ %
========== ========= ========
</TABLE>
- -------------------
(5) Based on payments actually received (or scheduled to be received) on each
Mortgage Loan as of the Cut-off Date. The weighted average remaining term
to expected maturity of the Mortgage Loans as of the Cut-off Date was
approximately ____ months.
S-48
<PAGE>
TYPES OF MORTGAGED PROPERTIES
OF GROUP I MORTGAGE LOANS
<TABLE>
<CAPTION>
Percentage of
Aggregate Mortgage Pool by
Principal Balance Aggregate Principal
Number of as of the Balance as of the
Property Type Mortgage Loans Cut-off Date Cut-off Date
- ----------------- -------------- ----------------- --------------------
<S> <C> <C> <C>
............. $ %
.............
.............
.............
---------- --------- --------
Totals ............. $ %
========== ========= ========
</TABLE>
OCCUPANCY OF GROUP I MORTGAGE LOANS(6)
<TABLE>
<CAPTION>
Percentage of
Aggregate Mortgage Pool by
Principal Balance Aggregate Principal
Number of as of the Balance as of the
Occupancy Mortgage Loans Cut-off Date Cut-off Date
- ----------------- -------------- ----------------- --------------------
<S> <C> <C> <C>
............. $ %
.............
.............
.............
---------- --------- --------
Totals ............. $ %
========== ========= ========
</TABLE>
- -------------------
(6) Based on representations by the Mortgagors at the time of the related
Mortgage Loans.
LOAN DOCUMENTATION FOR GROUP I MORTGAGE LOANS
<TABLE>
<CAPTION>
Percentage of
Aggregate Mortgage Pool by
Principal Balance Aggregate Principal
Number of as of the Balance as of the
Mortgage Rate Mortgage Loans Cut-off Date Cut-off Date
- ----------------- -------------- ----------------- --------------------
<S> <C> <C> <C>
............. $ %
.............
.............
.............
---------- --------- --------
Totals ............. $ %
========== ========= ========
</TABLE>
S-49
<PAGE>
MORTGAGE RATES FOR GROUP II MORTGAGE LOANS(1)
<TABLE>
<CAPTION>
Percentage of
Aggregate Mortgage Pool by
Principal Balance Aggregate Principal
Number of as of the Balance as of the
Mortgage Rate Mortgage Loans Cut-off Date Cut-off Date
- ----------------- -------------- ----------------- --------------------
<S> <C> <C> <C>
............. $ %
.............
.............
.............
---------- --------- --------
Totals ............. $ %
========== ========= ========
</TABLE>
- -------------------
(1) The interest rates (the "Mortgage Rates") borne by the Mortgage Loans as
of the Cut-off Date ranged from ____% per annum to ____% per annum and the
weighted average Mortgage Rate on the Mortgage Loans as of the Cut-off
Date was approximately ____% per annum.
GEOGRAPHICAL DISTRIBUTION
OF GROUP II MORTGAGE LOANS
<TABLE>
<CAPTION>
Percentage of
Aggregate Mortgage Pool by
Principal Balance Aggregate Principal
Number of as of the Balance as of the
State Mortgage Loans Cut-off Date Cut-off Date
- ------------- -------------- ----------------- --------------------
<S> <C> <C> <C>
Alabama.............. $ %
Arkansas.............
Arizona..............
California...........
Colorado.............
Connecticut..........
Delaware.............
District of Columbia
Florida..............
Georgia..............
Hawaii...............
Iowa.................
Illinois.............
Indiana..............
Kansas...............
S-50
<PAGE>
Kentucky.............
Louisiana............
Maine................
Maryland.............
Massachusetts........
Michigan.............
Minnesota............
Mississippi..........
Missouri.............
Nebraska.............
Nevada...............
New Hampshire........
New Jersey...........
New Mexico...........
New York.............
North Carolina.......
Ohio.................
Oklahoma.............
Oregon...............
Pennsylvania.........
Rhode Island.........
South Carolina.......
South Dakota.........
Tennessee............
Texas................
Utah.................
Vermont..............
Virginia.............
Washington...........
West Virginia........
Wisconsin............
Wyoming..............
---------- --------- --------
Totals........... $ %
========== ========= ========
</TABLE>
ORIGINAL PRINCIPAL BALANCE FOR GROUP II MORTGAGE LOANS(2)
S-51
<PAGE>
<TABLE>
<CAPTION>
Percentage of
Aggregate Mortgage Pool by
Principal Balance Aggregate Principal
Original Number of as of the Balance as of the
Principal Balance Mortgage Loans Cut-off Date Cut-off Date
- ----------------- -------------- ----------------- --------------------
<S> <C> <C> <C>
............. $ %
.............
.............
.............
---------- --------- --------
Totals ............. $ %
========== ========= ========
</TABLE>
- -------------------
(2) The average outstanding principal balance of the Mortgage Loans as of the
Cut-off Date was approximately $_______. The original principal balances
of the Mortgage Loans ranged from $_______ to $_______.
YEAR OF ORIGINATION OF GROUP II MORTGAGE LOANS
<TABLE>
<CAPTION>
Percentage of
Aggregate Mortgage Pool by
Principal Balance Aggregate Principal
Year of Number of as of the Balance as of the
Origination Mortgage Loans Cut-off Date Cut-off Date
- ----------------- -------------- ----------------- --------------------
<S> <C> <C> <C>
............. $ %
.............
.............
.............
---------- --------- --------
Totals ............. $ %
========== ========= ========
</TABLE>
ORIGINAL LOAN-TO-VALUE RATIO
FOR GROUP II MORTGAGE LOANS(3)
<TABLE>
<CAPTION>
Percentage of
Aggregate Mortgage Pool by
Original Principal Balance Aggregate Principal
Loan-to-Value Number of as of the Balance as of the
Ratio Mortgage Loans Cut-off Date Cut-off Date
- ----------------- -------------- ----------------- --------------------
<S> <C> <C> <C>
............. $ %
.............
.............
.............
---------- --------- --------
Totals ............. $ %
========== ========= ========
</TABLE>
S-52
<PAGE>
- -------------------
(3) The weighted average original Loan-to-Value Ratio of the Mortgage Loans was
approximately ____% as of the Cut-off Date.
REMAINING TERMS TO STATED MATURITY
FOR GROUP II MORTGAGE LOANS(4)
<TABLE>
<CAPTION>
Percentage of
Aggregate Mortgage Pool by
Principal Balance Aggregate Principal
Number of as of the Balance as of the
Months Remaining Mortgage Loans Cut-off Date Cut-off Date
- ----------------- -------------- ----------------- --------------------
<S> <C> <C> <C>
............. $ %
.............
.............
.............
---------- --------- --------
Totals ............. $ %
========== ========= ========
</TABLE>
- -------------------
(4) The weighted average remaining term to stated maturity of the Mortgage
Loans as of the Cut-off Date was approximately ____ months.
REMAINING TERMS TO EXPECTED MATURITY
FOR GROUP II MORTGAGE LOANS(5)
<TABLE>
<CAPTION>
Percentage of
Aggregate Mortgage Pool by
Principal Balance Aggregate Principal
Number of as of the Balance as of the
Months Remaining Mortgage Loans Cut-off Date Cut-off Date
- ----------------- -------------- ----------------- --------------------
<S> <C> <C> <C>
............. $ %
.............
.............
.............
---------- --------- --------
Totals ............. $ %
========== ========= ========
</TABLE>
- -------------------
(5) Based on payments actually received (or scheduled to be received) on each
Mortgage Loan as of the Cut-off Date. The weighted average remaining term
to expected maturity of the Mortgage Loans as of the Cut-off Date was
approximately ____ months.
S-53
<PAGE>
TYPES OF MORTGAGED PROPERTIES
FOR GROUP II MORTGAGE LOANS
<TABLE>
<CAPTION>
Percentage of
Aggregate Mortgage Pool by
Principal Balance Aggregate Principal
Number of as of the Balance as of the
Property Type Mortgage Loans Cut-off Date Cut-off Date
- ----------------- -------------- ----------------- --------------------
<S> <C> <C> <C>
............. $ %
.............
.............
.............
---------- --------- --------
Totals ............. $ %
========== ========= ========
</TABLE>
OCCUPANCY OF GROUP II MORTGAGE LOANS(6)
<TABLE>
<CAPTION>
Percentage of
Aggregate Mortgage Pool by
Principal Balance Aggregate Principal
Number of as of the Balance as of the
Occupancy Mortgage Loans Cut-off Date Cut-off Date
- ----------------- -------------- ----------------- --------------------
<S> <C> <C> <C>
............. $ %
.............
.............
.............
---------- --------- --------
Totals ............. $ %
========== ========= ========
</TABLE>
- -------------------
(6) Based on representations by the Mortgagors at the time of the related
Mortgage Loans.
LOAN DOCUMENTATION FOR
GROUP II MORTGAGE LOANS
<TABLE>
<CAPTION>
Percentage of
Aggregate Mortgage Pool by
Principal Balance Aggregate Principal
Number of as of the Balance as of the
Mortgage Rate Mortgage Loans Cut-off Date Cut-off Date
- ----------------- -------------- ----------------- --------------------
<S> <C> <C> <C>
............. $ %
.............
.............
.............
---------- --------- --------
Totals ............. $ %
========== ========= ========
</TABLE>
S-54
<PAGE>
The description in this Prospectus Supplement of the Mortgage Pool and
the Mortgaged Properties is based upon the Mortgage Pool as presently
constituted. Prior to the issuance of the Certificates, Mortgage Loans may be
removed from the Mortgage Pool if the Company deems such removal necessary or
appropriate.
DESCRIPTION OF THE CERTIFICATES
GENERAL
The Certificates will be issued pursuant to a Pooling and Servicing
Agreement (the "POOLING AND SERVICING AGREEMENT") to be dated as of the
Cut-Off Date between the Company, as Depositor, LaSalle Home Mortgage
Corporation, as Servicer, and Chase Bank of Texas, N.A., as trustee (the
"TRUSTEE"), a form of which is filed as an exhibit to the Registration
Statement of which this Prospectus Supplement is a part. Reference is made to
the Prospectus for important additional information regarding the terms and
conditions of the Pooling and Servicing Agreement and the Certificates. It is
a condition to the issuance of the Offered Certificates that they receive the
ratings from one or more of Standard & Poor's, a division of The McGraw-Hill
Companies, Inc. ("S&P"), Fitch Investors Service, L.P. ("FITCH") and Duff &
Phelps Credit Rating Co. ("DCR") indicated under "Certificate Ratings"
herein. As of the date of their issuance, the Offered Certificates, other
than the Class B-1 and Class B-2 Certificates, will qualify as "mortgage
related securities" within the meaning of the Secondary Mortgage Market
Enhancement Act of 1984.
The Servicer will be obligated to make Advances with respect to
delinquent payments on the Mortgage Loans as described herein under
"--Advances".
The Certificates will evidence all the beneficial ownership in a trust
(the "REMIC I") established by the Company into which the mortgage loans (the
"MORTGAGE LOANS") will be deposited. The Mortgage Pass-Through Certificates,
Series 1998-1 (the "CERTIFICATES"), will consist of the following fourteen
classes: (i) Class IA-1, Class IA-2, Class IA-3, Class IA-4, Class IA-5, and
Class IA-6, (the "CLASS I-A CERTIFICATES"), (ii) Class IIA (together with the
Class IA Certificates, the "CLASS A CERTIFICATES") Class M, Class B-1 and
Class B-2 (the "SENIOR SUBORDINATE CERTIFICATES"), (iv) Class B-4, Class B-5
and Class B-6 (the "JUNIOR SUBORDINATE CERTIFICATES" and, together with the
Senior Subordinate Certificates, "SUBORDINATE CERTIFICATES") and (v) Class R
(the "RESIDUAL CERTIFICATE" and, together with the Class A Certificates, the
"SENIOR CERTIFICATES"). Only the Senior Certificates (other than the Class
IA-1 Certificates) and the Senior Subordinate Certificates (collectively, the
"OFFERED CERTIFICATES") are offered hereby. The Class IA-1 Certificates and
the Junior Subordinate Certificates are not offered hereby. The Class IA
Certificates, the Class IIA Certificates and the Subordinate Certificates are
each a "CERTIFICATE GROUP". The "CLASS PRINCIPAL BALANCE" for any Class of
Certificates (other than the Class IA-1 Certificates) will equal the aggregate
amount of principal to which such Class is entitled, after giving effect to
prior (i) distributions of principal to such Class, (ii) allocations of losses
required to be borne by such Class and (iii) in the case of the Accrual Class
and the Accrual Component, increases resulting from all interest accrued and
added to the Class Principal Balance thereof. The "CLASS PRINCIPAL BALANCE"
of the Class IA-1 Certificates will equal the sum of the Component Principal
Balances (as defined below) thereof.
The Class IA-1 Certificates will be comprised of six components (each, a
"COMPONENT"), each of which (except for Components IA-1-2 and IA-1-6) will
have a specified principal balance (a "COMPONENT PRINCIPAL BALANCE"), which
functions in a manner comparable to that of a Class Principal Balance, on
which
S-55
<PAGE>
interest will accrue at a designated Remittance Rate. Holders of Class IA-1
Certificates will be entitled to receive distributions on any Distribution
Date to the extent of the amount distributed with respect to the related
Components on such Distribution Date. Holders of Class IA-1 Certificates may
not transfer such Components separately. The Class IA-1 Certificates will be
comprised of Components IA-1-1, IA-1-2, IA-1-3, IA-1-4, IA-1-5 and IA-1-6
with initial Component Principal Balances or Component Notional Principal
Balances of $_____________, $______________, $_____________,
$______________,$_______________, and $_____________, respectively. The Class
Principal Balance of the Class IA-1 Certificates will equal the sum of the
Component Principal Balances thereof. The Component Principal Balance for
each Component will equal the aggregate amount of principal to which such
Component is entitled, after giving effect to (i) prior distributions of
principal to such Component, (ii) allocations of losses required to be borne
by such Component and (iii) increases resulting from all interest accrued and
added to the Component Principal Balances thereof.
The "CERTIFICATE PRINCIPAL BALANCE" for any Certificate will be the
portion of the corresponding Class Principal Balance represented by such
Certificate. The aggregate initial Certificate Principal Balance will be
approximately equal to the aggregate principal balance of the Mortgage Loans
as of the Cut-Off Date. The Class IA Certificates will comprise
approximately %, the Senior Subordinate Certificates will comprise
approximately %, and the Junior Subordinate Certificates will
comprise approximately
%, of the initial aggregate principal balance of the Group I
Mortgage Loans as of the Cut-Off Date. The Class IIA Certificates will
comprise approximately %, the Senior Subordinate Certificates will
comprise approximately %, and the Junior Subordinate Certificates
will comprise approximately
%, of the initial aggregate principal balance of the Group II
Mortgage Loans as of the Cut-Off Date. The Offered Certificates, other than
the Class R Certificate, are offered in minimum denominations equivalent to
not less than $25,000 initial Certificate Principal Balance each and multiples
of $1 in excess thereof. The Class R Certificate will be offered in
registered, certificated form in a single denomination of a 99.99% percentage
interest. The remaining 0.01% percentage interest of the Class R Certificate
will be held by the Trustee as set forth herein under "Certain Federal Income
Tax Consequences".
BOOK-ENTRY REGISTRATION
Each Class of Book-Entry Certificates will initially be represented by a
global Certificate registered in the name of the nominee of DTC. DTC has
advised the Company that DTC's nominee will be Cede & Co. ("CEDE").
Accordingly, Cede is expected to be the holder of record of the Book-Entry
Certificates. No Book-Entry Certificateholder will be entitled to receive a
certificate representing such person's interest in such Certificate. Unless
and until Definitive Certificates (as defined below) are issued under the
limited circumstances described herein, all references herein to actions by
Book-Entry Certificateholders shall refer to actions taken by DTC upon
instructions from DTC Participants (as defined below), and all references
herein to distributions, notices, reports, and statements to Book-Entry
Certificateholders shall refer to distributions, notices, reports, and
statements to Cede, as the registered holder of such Certificates, for
distribution to Book-Entry Certificateholders in accordance with DTC
procedures.
Certificateholders may hold their Book-Entry Certificates through DTC, if
they are DTC Participants (as defined below), or indirectly through
organizations which are DTC Participants. Transfers between DTC Participants
will occur in the ordinary way in accordance with DTC rules. Cede, as nominee
of DTC, will hold the global Certificates for the Book-Entry Certificates.
DTC has advised the Company that it is a limited-purpose trust company
organized under the New York Banking Law, a "banking organization" within the
meaning of the New York Banking Law, a member of the Federal Reserve System, a
"clearing corporation" within the meaning of the New York Uniform
S-56
<PAGE>
Commercial Code and a "clearing agency" registered pursuant to the provisions
of Section 17A of the Securities Exchange Act of 1934, as amended. DTC holds
securities that its participants ("DTC PARTICIPANTS") deposit with DTC. DTC
also facilitates the settlement among DTC Participants of securities
transactions, such as transfers and pledges, in deposited securities through
electronic computerized book-entry changes in DTC Participants' accounts,
thereby eliminating the need for physical movement of securities certificates.
DTC Participants include [Donaldson, Lufkin & Jenrette], securities brokers
and dealers, banks, trust companies, clearing corporations and certain other
organizations. Indirect access to the DTC system also is available to other
entities, 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 DTC PARTICIPANTS").
Certificateholders that are not DTC Participants or Indirect DTC
Participants but desire to purchase, sell, or otherwise transfer ownership of
or other interests in Book-Entry Certificates may do so only through DTC
Participants and Indirect DTC Participants. In addition, unless Definitive
Certificates are issued, Certificateholders will receive all distributions of
principal and interest on the Book-Entry Certificates through DTC
Participants. Under a book-entry format, Certificateholders will receive
payments after the related Distribution Date because, while payments are
required to be forwarded to Cede, as nominee for DTC, on each such date, DTC
will forward such payments to DTC Participants which thereafter will be
required to forward them to Indirect DTC Participants or Certificateholders.
It is anticipated that the sole "Certificateholder" (as such term is used in
the Pooling and Servicing Agreement) for each Class of Book-Entry Certificates
will be Cede, as nominee of DTC, and that Book-Entry Certificateholders will
not be recognized by the Trustee as Certificateholders under the Pooling and
Servicing Agreement. Book-Entry Certificateholders will be permitted to
exercise the rights of Certificateholders under the Pooling and Servicing
Agreement only indirectly through DTC Participants, who in turn will exercise
their rights through DTC.
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 Book-Entry
Certificates and is required to receive and transmit payments of principal and
interest, if any, on such Book-Entry Certificates. DTC Participants and
Indirect DTC Participants with whom Book-Entry Certificateholders have
accounts with respect to the Book-Entry Certificates are required to make
book-entry transfers and receive and transmit such payments on behalf of their
respective Book-Entry Certificateholders. Accordingly, although owners of
Book-Entry Certificates will not possess Definitive Certificates, the Rules
provide a mechanism by which owners of the Book-Entry Certificates through
their DTC Participants will receive payments and will be able to transfer
their interest.
Because DTC can only act on behalf of DTC Participants, who in turn act
on behalf of Indirect DTC Participants and certain banks, the ability of a
Book-Entry Certificateholder to pledge Book-Entry Certificates to persons or
entities that do not participate in the DTC system, or otherwise take actions
in respect of such Book-Entry Certificates, may be limited due to the lack of
a physical certificate for such Book-Entry Certificates.
DTC has advised the Company that it will take any action permitted to be
taken by a Book-Entry Certificateholder under the Pooling and Servicing
Agreement only at the direction of one or more DTC Participants to whose
account with DTC the Certificates are credited. Additionally, DTC has advised
the Company that it will take such actions with respect to a Book-Entry
Certificate only at the direction of and on behalf of the DTC Participant
whose holdings include that Certificate. DTC may take conflicting actions
with respect to other Book-Entry Certificates to the extent that such actions
are taken on behalf of DTC Participants whose holdings include such Book-Entry
Certificates.
S-57
<PAGE>
Although DTC has agreed to the foregoing procedures in order to
facilitate transfers of Book-Entry Certificates among DTC Participants, it is
under no obligation to perform or continue to perform such procedures and such
procedures may be discontinued at any time.
DEFINITIVE CERTIFICATES
The Book-Entry Certificates will be issued in fully registered,
certificated form to Certificateholders or their nominees ("DEFINITIVE
CERTIFICATES"), rather than to DTC or its nominee, only if (i) the Company
advises the Trustee in writing that DTC is no longer willing or able to
discharge properly its responsibilities as Depository with respect to the
Book-Entry Certificates and the Trustee or the Company is unable to locate a
qualified successor, (ii) the Company, at its option, elects to terminate the
book-entry system through DTC or (iii) after the occurrence of an Event of
Default, Certificateholders of Book-Entry Certificates evidencing not less
than 66% of the aggregate outstanding Certificate Principal Balance advise the
Trustee and DTC through DTC Participants in writing that the continuation of a
book-entry system through DTC (or a successor thereto) is no longer in the
best interest of the Certificateholders.
Upon notice of the occurrence of any of the events described in the
immediately preceding paragraph, DTC is required to notify all DTC
Participants of the availability of Definitive Certificates. Upon surrender
by DTC of the global Certificates and receipt from DTC of instructions for
re-registration, the Trustee will issue the Book-Entry Certificates in the
form of Definitive Certificates, and thereafter the Trustee will recognize the
holders of such Definitive Certificates as Certificateholders under the
Pooling and Servicing Agreement.
Distributions of principal and interest on the Definitive Certificates,
as well as the other Classes of Certificates, will be made by the Trustee (or
its duly appointed paying agent, if any) directly to holders of such
Certificates in accordance with the procedures set forth herein and in the
Pooling and Servicing Agreement. Distributions of principal and interest on
each Distribution Date will be made to holders in whose names such
Certificates were registered at the close of business on the related Record
Date. Distributions will be made by wire transfer in immediately available
funds for the account of each such holder or, if a holder has not provided
wire instructions, by check mailed to the address of such holder as it appears
on the register maintained by the Certificate Registrar. The final payment on
any Certificate (whether a Definitive Certificate or the global Certificates
registered in the name of Cede) will be made only upon presentation and
surrender of such Certificate at the offices of the Trustee or its agent or
such office or agency as is specified in the notice of final distribution to
holders of Certificates being retired. The Trustee will provide such notice
to registered Certificateholders not later than the fifteenth day of the month
in which all remaining outstanding Certificates will be retired.
Definitive Certificates, as well as the other Classes of Certificates,
will be transferable and exchangeable at the offices of the Trustee in New
York City. A reasonable service charge may be imposed for any registration of
transfer or exchange, and the Trustee or such agent may require payment of a
sum sufficient to cover any tax or other governmental charge imposed in
connection therewith.
PRIORITY OF DISTRIBUTIONS
Commencing in April 1998, on the 25th day of each month, or if such 25th
day is not a business day, on the immediately succeeding business day (each, a
"DISTRIBUTION DATE"), distributions will be made in the order and priority as
follows:
S-58
<PAGE>
(a) with respect to the Class IA Certificates, Subordinate Certificates
and Class R Certificate, prior to the Credit Support Depletion Date
(as defined herein), to the extent of the Group I Available
Distribution Amount remaining following prior distributions, if any,
on such Distribution Date:
(i) first, to Component IA-1-4, the Component IA-1 Fraction (as
defined herein) of all principal received on or in respect of each
Group I Discount Mortgage Loan (as defined herein);
(ii) second, to the Class IA Certificates (and Components of the Class
IA-1 Certificates) entitled to receive accrued and unpaid interest
on their respective Class Principal Balances, Component Principal
Balances, Class Notional Amounts or Component Notional Amounts, as
the case may be; provided, however, that (i) on or before the
Component IA-1-3 Accretion Date (as defined below), interest
otherwise distributable to Component IA-1-3 will be distributed,
as principal, to certain Classes and Components in the manner
described below and (ii) on or before the Class IA-4 Accretion
Termination Date (as defined below), interest otherwise
distributable to the Class IA-4 Certificates will be distributed,
as principal, to certain Classes and Components as described
below;
(iii) third, to the Class IA Certificates entitled to principal (other
than Components IA-1-2 and IA-1-6 of the Class IA-1 Certificates)
in the order described in "Description of the
Certificates--Distributions of Principal--Group I Certificate
Principal Distributions";
(iv) fourth, the Subordinate Certificates receive interest and then
principal in the following order of seniority, with both interest
and principal being paid to one Class before any payments are made
to the next Class: Class M, Class B-1, Class B-2, Class B-3, Class
B-4 and Class B-5, as described in "Description of the
Certificates--Priority Distributions" and "--Distributions of
Principal--Certificate Principal Distributions"; and
(v) fifth, the R-2 Component of the Class R Certificate receives the
remainder of the Group I Available Distributable Amount (as
defined in "Description of the Certificates--Available
Distribution Amount" herein) for such Distribution Date.
(b) with respect to the Class IIA Certificates, prior to the Credit
Support Depletion Date, to the extent of the Group II Available
Distribution Amount remaining following prior distributions, if any
on such Distribution Date:
(i) first, to the Class IIA Certificates, accrued and unpaid interest
at the Class IIA Remittance Rate on the Class IIA Principal
Balance;
(ii) second, to the Class IIA Certificates, principal in the order
described in "Description of the Certificates--Distributions of
Principal--Group II Certificate Principal Distributions";
(iii) third, to Component R-2 of the Class R Certificate, the remaining
portion, if any, of the Group II Available Distribution Amount for
such Distribution Date; and
S-59
<PAGE>
[With respect to the Subordinate Certificates, notwithstanding the
foregoing, on any Distribution Date on which the Subordination Level (as
defined herein) for any Class of Subordinate Certificates in a Certificate
Group is less than such percentage as of the Cut-Off Date, the portion of the
Subordinate Principal Prepayments Distribution Amount for such Certificate
Group otherwise allocable to the Class or Classes of the Subordinate
Certificates in the related Certificate Group junior to such Class will be
allocated to the most senior Class of Subordinate Certificates in such Certifica
te Group for which the Subordination Level is less than such percentage as of
the Cut-Off Date and to the Class or Classes of Subordinate Certificates in
such Certificate Group senior thereto, pro rata according to the Class
Principal Balances of such Classes.
The "SUBORDINATION LEVEL" on any specified date with respect to any Class
of Subordinate Certificates is the percentage obtained by dividing the sum of
the Class Principal Balances of all Classes of Certificates in the related
Certificate Group which are subordinate in right of payment to such Class by
the sum of the Class Principal Balances of all Classes of Certificates in the
related Certificate Group as of such date prior to giving effect to
distributions or allocations of realized losses on the Mortgage Loans in the
related Loans in the related Loan Group on such date.]
On each Distribution Date on or after the Credit Support Depletion Date,
distributions will be made in the order or priority as follows:
(a) with respect to the Class A Certificates, Subordinate Certificates
and Class R Certificate, on or after the Credit Support Depletion
Date (as defined herein), to the extent of the Group I Available
Distribution Amount remaining following prior distributions if any,
on such Distribution Date:
(i) first, to Component IA-1-4, the Component IA-1-4 Fraction (as
defined herein) of all principal received on or in respect of each
Group I Discount Mortgage Loan (as defined herein);
(ii) second, to the Class IA Certificates (other than Components IA-1-1
and Component IA-1-4 of the Class IA-1 Certificates) accrued and
unpaid interest at their respective Remittance Rates on their
respective Class Principal Balances and Component Principal
Balances;
(iii) third, to the Senior Certificates (other than Components IA-1-2
and IA-1-6 of the Class IA-1 Certificates), principal, in the
order described in "Description of the Certificates--Distributions
of Principal--Group I Certificate Principal Distributions";
(iv) fourth, to Component R-2 of the Class R Certificate, the remaining
portion, if any, of the Group I Available Distribution Amount for
such Distribution Date.
(b) with respect to the Class IIA Certificates, on or after the Credit
Support Depletion Date (as defined herein), to the extent of the
Group II Available Distribution Amount remaining following, prior
distributions, if any, on such Distribution Date:
(i) first, to the Class IIA Certificates, accrued and unpaid interest
at the Class IIA Remittance Rate on the Class IIA Class Principal
Balances;
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(ii) second, to the Class IIA Certificates, principal, in the order
described in "Description of the Certificates--Distributions of
Principal--Group II Certificate Principal Distributions";
(iii) third, to Component R-2 of the Class R Certificate, the remaining
portion, if any, of the Group II Available Distribution Amount for
such Distribution Date.
The "CREDIT SUPPORT DEPLETION DATE" is the first Distribution Date on
which the aggregate of the Class Principal Balances of the Subordinate
Certificates has been or will be reduced to zero.
In addition, if on any Distribution Date on which the aggregate Principal
Balance of the Class IA or Class IIA Certificates would be greater than the
aggregate Scheduled Principal Balance of the Mortgage Loans in the related
Mortgage Loan Group (the "UNDERCOLLATERALIZED GROUP"), after giving effect to
distributions to be made on such Distribution Date, the portion of Available
Funds in respect of principal on the Mortgage Loans in other Mortgage Loan
Group (the "OVERCOLLATERALIZED GROUP") otherwise allocable to the Subordinate
Certificates will be distributed to the Classes of Certificates of the
Certificate Group relating to the Undercollateralized Group (in accordance
with the priorities set forth herein), in reduction of the Certificate and
Component Principal Balances thereof, until the aggregate Principal Balance of
each Certificate or Component included in the Undercollateralized Group is
equal to the aggregate Scheduled Principal Balance of the Mortgage Loans in
the related Mortgage Loan Group. Moreover, the Available Funds from the
Overcollateralized Group will be further reduced (after distributions of
interest to Classes and Components of Classes included in the
Undercollateralized Group) in an amount equal to one month's interest on the
amount by which the Undercollateralized Group is undercollateralized at 6.75%
per annum, plus any shortfall of such amounts from prior Distribution Dates,
with accrued interest thereon. Such amounts will be distributed to the
applicable Classes of Certificates in the priority of interest payable on such
Distribution Date.
Class IA-4 Accrual. The "CLASS IA-4 ACCRETION TERMINATION DATE" is the
earlier to occur of (i) the Distribution Date on which the Component IA-1-3
Principal Balance has been reduced to zero and (ii) the Credit Support
Depletion Date. On each Distribution Date on or before the Class IA-3
Accretion Termination Date, an amount (for any Distribution Date, the "CLASS
IA-4 ACCRUAL AMOUNT") equal to the accrued interest that would otherwise be
distributable in respect of the Class IA-4 Certificates on such Distribution
Date will be added to the Class IA-4 Principal Balance (such amount to
thereafter accrue interest at the Class IA-4 Remittance Rate) and such amount
will be distributed, as principal, to the following Certificates:
(1) first, to the Class IA-3 Certificates, to the extent necessary to
reduce the Class IA-3 Principal Balance to its Targeted Principal
Balance for such Distribution Date;
(2) second, to Component IA-1-3 of the Class IA-1 Certificates, to the
extent necessary to reduce the Component IA-1-3 Principal Balance
to its Targeted Principal Balance for such Distribution Date; and
(3) third, to the Class IA-4 Certificates, until the Principal Balance
of the Class IA-4 Certificates is reduced to zero.
Class IA-1-3 Accrual. The "CLASS IA-1-3 ACCRETION TERMINATION DATE" is
the earlier to occur of (i) the Distribution Date on which the Class IA-3
Principal Balance has been reduced to zero and (ii) the Credit Support
Depletion Date. On each Distribution Date on or before the Class IA-1-3
Accretion Termination Date, an amount (for any Distribution Date, the "CLASS
IA-1-3 ACCRUAL AMOUNT") equal to the
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accrued interest that would otherwise be distributable in respect of Component
IA-1-3 of the Class IA-1 Certificates on such Distribution Date will be added
to the Component IA-1-3 Principal Balance (such amount to thereafter accrue
interest at the Class IA-1-3 Remittance Rate) and such amount will be
distributed, as principal, to the following Certificates:
(1) first, to the Class IA-3 Certificates, to the extent necessary to
reduce the Class IA-3 Principal Balance to its Targeted Principal
Balance for such Distribution Date;
(2) second, concurrently as follows:
(a) 90.000000% to the Class IA-3 Certificates, until the Principal
Balance of the Class IA-3 Certificates has been reduced to
zero; and
(b) 10.000000% to Component IA-1-3 of the Class IA-1 Certificates,
to the extent necessary to reduce the Component IA-1-3
Principal Balance to its Targeted Principal Balance for such
Distribution Date; and
(3) third, to Component IA-1-3 of the Class IA-1 Certificates, until
the Principal Balance of Component IA-1-3 of the Class IA-1
Certificates has been reduced to zero;
Distributions of interest and principal to the Class IA Certificates and
the Class IIA Certificates will be based solely on payments received with
respect to the Group I Mortgage Loans and the Group II Mortgage Loans,
respectively. Distributions of interest and principal on the Subordinate
Certificates and the Residual Certificate will be based on payments received
with respect to both the Group I Mortgage Loans and the Group II Mortgage
Loans.
DISTRIBUTIONS OF INTEREST
With respect to each Class of Certificates (except for Components IA-1-1
and IA-1-4 of the Class IA-1 Certificates, which are not entitled to
interest), interest will be passed through monthly on each Distribution Date,
commencing in April 1998, except that (1) interest accrued on the Class IA-4
Certificates on or before the Component IA-4 Accretion Termination Date will
be added to the Component IA-4 Principal Balance, (2) interest accrued on
Component IA-1-3 of the Class IA-1 Certificates prior to the Component IA-1-3
Accretion Termination Date will be added to the Component IA-1-3 Principal
Balance. With respect to each Distribution Date, an amount of interest will
accrue or accrete, as applicable, on each Class of Certificates or, on each
Component of the Class IA-1 Certificates (other than Components IA-1-1 and
IA-1-4 of such Certificates), generally equal to 1/12th of the applicable
Remittance Rate for such Class or Component multiplied by the related Class
Principal Balance, Component Principal Balance or Component Notional Amount,
as applicable. Interest to be distributed on the Certificates on any
Distribution Date will consist of accrued and unpaid interest as of the
previous Distribution Dates and interest accrued during the preceding calendar
month. All distributions of interest for each Class of Certificates (or in
the case of the Class IA-1 Certificates, each Component of such Class other
than Components IA-1-1 and IA-1-4) will generally be made only to the extent
of the Available Distribution Amount for the related Loan Group as described
herein under "--Priority of Distributions".
The Remittance Rates for the Offered Certificates are fixed as set forth
on the cover page hereof.
The "COMPONENT IA-1-2 NOTIONAL AMOUNT" with respect to any Distribution
Date will equal the product of (x) the aggregate Class Principal Balances of
the Class IA-5, Class IA-6 and Class IA-2
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Certificates as of any date of determination and (y) a fraction, the numerator
of which is the difference between the Remittance Rate for Component IA-1-2 of
the Class IA-1 Certificates and the Remittances Rates for the Class IA-5, IA-6
and Class IA-2 Certificates as of such date of determination and the
denominator of which is the Remittance Rate for Component IA-1-2 of the Class
IA-1 Certificates. The Component IA-1-2 Notional Amount as of the Cut-Off
Date will be approximately $___________________.
The "COMPONENT IA-1-6 NOTIONAL AMOUNT" with respect to any Distribution
Date will equal the product of (x) the aggregate Scheduled Principal Balance,
as of the second preceding Due Date after giving effect to payments scheduled
to be received as of such Due Date, whether or not received, or with respect
to the initial Distribution Date, as of the Cut-Off Date, of the Group I
Premium Rate Mortgage Loans and (y) a fraction, the numerator of which is the
weighted average of the Stripped Interest Rates for the Group I Premium Rate
Mortgage Loans as of such Due Date and the denominator of which is 6.750%. The
Class IA-1-6 Notional Amount as of the Cut-Off Date will be approximately
$_______________.
The "GROUP I PREMIUM RATE MORTGAGE LOANS" means all Group I Mortgage
Loans having Pass-Through Rates in excess of 6.75%.
The "STRIPPED INTEREST RATE" means, for each Group I Premium Rate
Mortgage Loan, the excess, if any, of the Pass-Through Rate for such Mortgage
Loan over 6.750%. The "Pass-Through Rate" for each Mortgage Loan is equal to
the Mortgage Interest Rate thereon less the sum of the rates at which the
related Servicing Fee is calculated.
Compensating Interest. The Servicer, is obligated to remit to the
Certificate Account on the day prior to each Distribution Date with respect to
the Mortgage Loans in each Mortgage Loan Group an amount equal to the lesser
of (a) any shortfall for the related month of interest collections resulting
from the timing of Payoffs on the related Mortgage Loans made from the 15th
day of the calendar month preceding such Distribution Date to the last day of
such month and (b) the applicable monthly Servicing Fee payable to the
Servicer, any reinvestment income realized by the Servicer, relating to
Payoffs on the related Mortgage Loans made during the related Prepayment
Period and interest payments on such Payoffs received during the period of the
first day through the 14th day of the month of such Distribution Date.
DISTRIBUTIONS OF PRINCIPAL
General. On each Distribution Date, Certificateholders of each
Certificate Group will be entitled to receive principal distributions from the
related Available Distribution Amount to the extent and in the priority
described herein. See "--Priority of Distributions" herein. Except in limited
circumstances described herein, the Class IA Certificates will receive
principal collected from Group I Loans, the Class IIA Certificates will
receive principal collected from the Group II Loans and the Subordinate
Certificates will receive principal collected from each Mortgage Loan Group.
Components IA-1-2 and IA-1-6 of the Class IA-1 Certificates will not
receive any distributions of principal.
Class IA Certificate Principal Distributions
Component IA-1-4 Principal Distribution Amount. On each Distribution
Date, Component IA-1-4 of the Class IA-1 Certificates will receive a portion
of the Group I Available Distribution Amount attributable
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to principal received on or in respect of any Group I Mortgage Loan with a
Pass-Through Rate of less than 6.750% (a "GROUP I DISCOUNT MORTGAGE LOAN"),
equal to the amount of such principal so attributable multiplied by a
fraction, the numerator of which is 6.750% minus the Pass-Through Rate on such
Discount Mortgage Loan and the denominator of which is 6.750% (the "COMPONENT
IA-1-4 FRACTION"). In addition, on each Distribution Date for so long as any
of the Subordinate Certificates remain outstanding, Component IA-1-4 of the
Class IA-1 Certificates will also be allocated principal, to the extent of
amounts available to pay the Group I Subordinate Principal Distribution Amount
on such Distribution Date, in an amount generally equal to (i) the Component
IA-1-4 Fraction of any loss on a Group I Discount Mortgage Loan other than a
Special Hazard Loss in excess of the Group I Special Hazard Coverage, a Fraud
Loss in excess of the Group I Fraud Coverage or a Bankruptcy Loss in excess of
the Group I Bankruptcy Coverage (each, as defined herein) and (ii) the sum of
amounts, if any, by which the foregoing amount on each prior Distribution Date
exceeded the amount actually distributed in respect thereof on such prior
Distribution Dates and not subsequently distributed; provided, however, that
such payments in respect of losses shall not cause a further reduction of the
outstanding Component IA-1-4 Principal Balance. The aggregate of the amounts
payable to Component IA-1-4 of the Class IA-1 Certificates described in this
paragraph are referred to herein as the "COMPONENT IA-1-4 PRINCIPAL
DISTRIBUTION AMOUNT".
Group I Senior Principal Distribution Amount. On each Distribution Date
prior to the Credit Support Depletion Date, an amount, up to the amount of the
Group I Senior Principal Distribution Amount (as defined below) for such
Distribution Date, will be distributed as principal from the Group I Available
Distribution Amount allocable to principal (after payments made in respect of
the Component IA-1-4 Principal Distribution Amount) and, in certain limited
circumstances set forth herein, from the Group II Available Distribution
Amount allocable to principal to the following Classes of Class IA
Certificates and Class R Certificate in the following order of priority:
(i) first, to Component IA-1-5 of the Class IA-1 Certificates, an
amount, up to the amount of the Lockout Principal Distribution Amount for such
Distribution Date, until the Principal Balance of Component IA-1-5 of the
Class IA-1 Certificates has been reduced to zero;
(ii) second, the portion of the Group I Available Distribution
Amount remaining after the distributions described above, concurrently as
follows:
(A) 3.5714286% to Component IA-1-1 of the Class IA-1 Certificates,
until the Component IA-1-1 Principal Balance has been reduced to
zero; and
(B) 96.4285714% sequentially as follows:
(1) first, to the Class IA-5 Certificates, to the extent necessary
to reduce the Class IA-5 Principal Balance to its Planned
Principal Balance (as defined herein) for such Distribution
Date;
(2) second, to the Class IA-6 Certificates, to the extent necessary
to reduce the Class IA-6 Principal Balance to its Planned
Principal Balance for such Distribution Date;
(3) third, to the Class IA-2 Certificates, to the extent necessary
to reduce the Class IA-2 Principal Balance to its Planned
Principal Balance for such Distribution Date;
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(4) fourth, to the Class IA-3 Certificates, to the extent necessary
to reduce the Class IA-3 Targeted Principal Balance to its
Targeted Principal Balance for such Distribution Date;
(5) fifth, to Component IA-1-3 of the Class IA-1 Certificates, to
the extent necessary to reduce the Component IA-1-3 Targeted
Principal Balance to its Targeted Principal Balance for such
Distribution Date;
(6) sixth, to the Class IA-4 Certificates, until the Class IA-4
Principal Balance has been reduced to zero;
(7) seventh, concurrently, in each case to the extent necessary to
reduce the Class IA-3 Principal Balance and the Component IA-1-3
Principal Balance to zero, 90.0000000% to the Class IA-1
Certificates and 10.0000000% to Component IA-1-3 of the Class
IA-1 Certificates;
(8) eighth, to Component IA-1-3 of the Class IA-1 Certificates,
until the Component IA-1-3 Principal Balance has been reduced to
zero;
(9) ninth, to the Class IA-5 Certificates until the Class IA-5
Principal Balance has been reduced to zero; (10)tenth, to the
Class IA-6 Certificates until the Class IA-6 Principal Balance
has been reduced to zero; and
(11) eleventh, to the Class IA-2 Certificates, until the Class IA-2
Principal Balance has been reduced to zero; and
(iii) third, the portion of the Group I Available Distribution Amount
attributable to principal remaining after the distributions described above,
to Component IA-1-5 of the Class IA-1 Certificates, until the Component IA-1-5
Principal Balance has been reduced to zero.
On each Distribution Date on and after the Credit Support Depletion Date,
an amount up to the Group I Senior Principal Distribution Amount for such
Distribution Date will be distributed as principal to the Class IA
Certificates (other than Components IA-1-2 and IA-1-6 of the Class IA-1
Certificates), pro rata according to their respective Class or Component
Principal Balances, as applicable.
The "SCHEDULED PRINCIPAL BALANCE" of a Mortgage Loan as of any
Distribution Date is the unpaid principal balance of such Mortgage Loan as
specified in the amortization schedule at the time relating thereto (before
any adjustment to such schedule by reason of bankruptcy or similar proceeding
or any moratorium or similar waiver or grace period) as of the first day of
the month preceding the month of such Distribution Date, after giving effect
to any previously applied Curtailments, the payment of principal due on such
first day of the month and any reduction of the principal balance of such
Mortgage Loan by a bankruptcy court, irrespective of any delinquency in
payment by the related Mortgagor.
The "GROUP I SENIOR PRINCIPAL DISTRIBUTION AMOUNT" for any Distribution
Date will equal the sum of (i) the Group I Senior Percentage (as defined
below) of the Principal Payment Amount (as defined herein) for Group I
Mortgage Loans (exclusive of the portion thereof attributable to the Component
IA-1-4 Principal Distribution Amount), (ii) the Group I Senior Prepayment
Percentage (as defined under
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"--Principal Prepayments" below) of the Principal Prepayment Amount for Group
I Mortgage Loans (exclusive of the portion thereof attributable to the
Component IA-1-4 Principal Distribution Amount), and (iii) the Group I Senior
Liquidation Amount (as defined below).
The "GROUP I SENIOR PERCENTAGE" for any Distribution Date will equal the
sum of the Class Principal Balances of the Class IA and the Class R
Certificates divided by the aggregate Scheduled Principal Balance of all Group
I Mortgage Loans immediately preceding such Distribution Date. The Group I
Senior Percentage as of the Cut-Off Date will be approximately ______%.
The "GROUP I SENIOR LIQUIDATION AMOUNT" is the aggregate, for each Group
I Mortgage Loan which became a Liquidated Mortgage Loan during the calendar
month preceding the month of the Distribution Date, of the lesser of (i) the
Group I Senior Percentage of the principal balance of such Mortgage Loan
(exclusive of the Component IA-1-4 Fraction thereof, with respect to any Group
I Discount Mortgage Loan) and (ii) the Group I Senior Prepayment Percentage of
the Liquidation Principal with respect to such Mortgage Loan.
"LIQUIDATION PRINCIPAL" is the principal portion of Liquidation Proceeds
received with respect to each Mortgage Loan which became a Liquidated Mortgage
Loan (as defined herein) (but not in excess of the principal balance thereof)
during the calendar month preceding the month of the Distribution Date,
exclusive of the portion thereof attributable to the applicable Component
1A-1-4 Principal Distribution Amount. A "LIQUIDATED MORTGAGE LOAN" is a
Mortgage Loan as to which the Servicer or servicer has determined that all
amounts which it expects to recover from or on account of such Mortgage Loan,
whether from insurance proceeds, Liquidation Proceeds or otherwise have been
recovered.
The "LOCKOUT PRINCIPAL DISTRIBUTION AMOUNT" for any Distribution Date
will equal the sum of (i) the Adjusted Lockout Percentage (as defined below)
of the Principal Payment Amount for Group I Mortgage Loans (exclusive of the
portion thereof attributable to the Component IA-1-4 Principal Distribution
Amount), (ii) the Lockout Prepayment Percentage (as defined herein) of the
Principal Prepayment Amount for Group I Mortgage Loans (exclusive of the
portion thereof attributable to the Component IA-1-4 Principal Distribution
Amount) and (iii) the Lockout Liquidation Amount (as defined below).
The "ADJUSTED LOCKOUT PERCENTAGE" will equal (i) for any Distribution
Date prior to the Distribution Date in April 2003, 0% and (ii) for any
Distribution Date on or after the Distribution Date in April 2003, the Lockout
Percentage.
The "LOCKOUT PERCENTAGE" for any Distribution Date will equal the sum of
the Class IA-1-5 Principal Balance divided by the aggregate Class Principal
Balance of the Class IA Certificates (less the Component IA-1-4 Principal
Balance), in each case immediately prior to the Distribution Date. The Lockout
Percentage as of the Cut-Off Date will be approximately ______%.
The "LOCKOUT LIQUIDATION AMOUNT" is the aggregate, for each Group I
Mortgage Loan which became a Liquidated Mortgage Loan during the calendar
month preceding the month of the Distribution Date, of the lesser of (i) the
Lockout Percentage of the principal balance of such Mortgage Loan (exclusive
of the Component IA-1-4 Fraction thereof, if applicable) and (ii) the Lockout
Percentage on any Distribution Date occurring prior to the fifth anniversary
of the first Distribution Date, and the Lockout Prepayment Percentage (as
defined herein) on any Distribution Date thereafter, in each case, of the
Liquidation Principal with respect to such Mortgage Loan.
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The "LOCKOUT PREPAYMENT PERCENTAGE" will equal the product of (a) the
Lockout Percentage and (b) the Step Down Percentage.
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The "STEP DOWN PERCENTAGE" for any Distribution Date will be the percentage
indicated below:
<TABLE>
<CAPTION>
IN STEP DOWN
DISTRIBUTION DATE OCCURRING PERCENTAGE
----------------------
<S> <C>
April 1998 through March 2003 0%
April 2003 through March 2004 20%
April 2004 through March 2005 40%
April 2005 through March 2006 60%
April 2006 through March 2007 80%
April 2008 and thereafter 100%
</TABLE>
Group II Certificate Principal Distributions
Group II Senior Principal Distribution Amount. On each Distribution Date,
an amount, up to the Group II Senior Principal Distribution Amount (as defined
below) for such Distribution Date will be distributed as principal from the
Group I Available distribution Amount allocable to principal and, in certain
limited circumstances set forth herein, from the Group I Available
distribution Amount allocable to principal to the Class IIA Certificates.
The "GROUP II SENIOR PRINCIPAL DISTRIBUTION AMOUNT" for any Distribution
Date will equal the sum of (i) the Group II Senior Percentage (as defined
below) of the Principal Payment Amount (as defined below) for Group II
Mortgage Loans, (ii) the Group II Senior Prepayment Percentage (as defined
under "--Principal Prepayments" below) of the Principal Prepayment Amount (as
defined below) for Group II Mortgage Loans and (iii) the Group II Senior
Liquidation Amount as defined below).
The "GROUP II SENIOR PERCENTAGE" for any Distribution Date will equal the
sum of the Class Principal Balances of the Class IIA and the Class R
Certificates divided by the aggregate Scheduled Principal Balance of all Group
II Mortgage Loans immediately proceeding such Distribution Date. The Group II
Servicer Percentage as of the Cut-Off Date will be approximately ___%.
The "GROUP II SENIOR LIQUIDATION AMOUNT" is the aggregate, for each Group
II Loan, which became a Liquidated Mortgage Loan during the calendar month
preceding the month of the Distribution Date, of the lesser of (i) the Group
II Senior Percentage of the principal balance of such Mortgage Loan and (ii)
the Group II Senior Prepayment Percentage of the Liquidation Principal with
respect to such Mortgage Loan.
Subordinate Certificate Principal Distributions
Subordinate Principal Distribution Amount. On each Distribution Date, an
amount calculated for each Mortgage Loan Group, up to the applicable
Subordinate Principal Distribution Amount (as defined below) for such
Distribution Date, will be distributed as principal to the Subordinate
Certificates. On each Distribution Date, except Distribution Dates on which
the Subordination Level for any Class of the Subordinate Certificates is less
than such Subordination Level as of the Cut-Off Date, each Class of the
Subordinate Certificates will be entitled to receive its pro rata (by Class
Principal Balance) share of each Subordinate Principal Distribution Amount, to
the extent of the Available Distribution Amount for each Mortgage Loan Group
remaining after distributions of interest and principal to the applicable
Senior Certificates, distributions of interest and principal to all Classes of
Subordinate Certificates senior to such Class and distributions of interest to
such Class. See "--Priority of Distributions" herein. The relative
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seniority, from highest to lowest, of the Subordinate Certificates shall be as
follows: Class M, Class B-1, Class B-2, Class B-3, Class B-4 and Class B-5.
The "SUBORDINATE PRINCIPAL DISTRIBUTION AMOUNT" for any Distribution Date
for each Mortgage Loan Group will be equal to the sum of (i) the applicable
Subordinate Percentage of the Principal Payment Amount for such Mortgage Loan
Group (exclusive of the portion thereof attributable to the Component IA-1-4
Principal Distribution Amount for Group I Mortgage Loans), (ii) the applicable
Subordinate Principal Prepayments Distribution Amount (as defined below) and
(iii) the applicable Subordinate Liquidation Amount (as defined below);
provided, however, that the Subordinate Distribution Amount applicable to
Group I Mortgage Loans shall be reduced by the amounts required to be
distributed to Component IA-1-4 of the Class IA-1 Certificates pursuant to
clause (i) of paragraph (a) under "--Priority of Distributions" herein on such
Distribution Date. The "SUBORDINATE PRINCIPAL PREPAYMENTS DISTRIBUTION
AMOUNT" as of any Distribution Date is the Subordinate Prepayment Percentage
of the Principal Prepayment Amount for such Mortgage Loan Group; provided,
however, that the Subordinate Principal Prepayment Distribution Amount
applicable to Group I Mortgage Loans shall be reduced by the portion thereof
attributable to the Component IA-1-4 Principal Distribution Amount. Any
reduction in the Group I Subordinate Principal Distribution Amount pursuant to
the proviso above, shall first offset the amount calculated pursuant to clause
(i), second clause (iii) and then clause (ii), in each case of the definition
thereof.
The "SUBORDINATE LIQUIDATION AMOUNT" will equal the excess, if any, of
the aggregate Liquidation Principal for each Mortgage Loan Group which became
Liquidated Mortgage Loans during the calendar month preceding the month of the
Distribution Date, over the applicable Senior Liquidation Amount for such
Distribution Date.
The "SUBORDINATE PREPAYMENT PERCENTAGE" for any Distribution Date will
equal the excess of 100% over the applicable Senior Prepayment Percentage.
Initially the Subordinate Prepayment Percentage for the Group I Mortgage Loans
and the Group II Mortgage Loans will be approximately %_____ and %_____,
respectively.
The rights of the holders of the Subordinate Certificates to receive
distributions of interest and principal are subordinated to the rights of the
holders of the Class IA Certificates and Class IIA Certificates to receive
scheduled distributions of interest and principal. See "--Subordination and
Allocation of Losses" herein.
For any Distribution Date and for any Mortgage Loan Group, the "PRINCIPAL
PAYMENT AMOUNT" is the sum with respect to the Mortgage Loans in such group of
(i) scheduled principal payments on the Mortgage Loans due on the related Due
Date, (ii) the principal portion of repurchase proceeds received with respect
to any Mortgage Loan which was repurchased as permitted or required by the
Pooling and Servicing Agreement during the calendar month preceding the month
of the Distribution Date and (iii) any other unscheduled payments of principal
which were received on the Mortgage Loans during the preceding calendar month,
other than Payoffs, Curtailments or Liquidation Principal. For any
Distribution Date and for any Mortgage Loan Group, the "PRINCIPAL PREPAYMENT
AMOUNT" is the sum with respect to the Mortgage Loans in such group of all
Curtailments and all Payoffs from the Mortgage Loans in such group which were
received during the applicable Prepayment Period. Principal distributions to
each of the Class IA Certificates, the Class IIA Certificates and the
Subordinate Certificates will be based on the Principal Payment Amount,
Principal Prepayment Amount and Liquidation Principal for the related Mortgage
Loan Group.
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With respect to each Distribution Date and each Payoff and Curtailment
with respect to each Mortgage Loan, the related "PREPAYMENT PERIOD" will be
the calendar month preceding the month in which the related Distribution Date
occurs.
PRINCIPAL PREPAYMENTS
The "GROUP I SENIOR PREPAYMENT PERCENTAGE" and "GROUP II SENIOR
PREPAYMENT PERCENTAGE" for any Distribution Date occurring prior to the month
of the fifth anniversary of the first Distribution Date will equal 100%. The
"GROUP I SENIOR PREPAYMENT PERCENTAGE" and "GROUP II SENIOR PREPAYMENT
PERCENTAGE" in each of the months of the fifth through ninth anniversaries of
the first Distribution Date will be as follows: for any Distribution Date in
or after the month of the fifth anniversary of the month of the first
Distribution Date but before the sixth anniversary of the month of the first
Distribution Date, the Group I or Group II Senior Percentage, as applicable,
for such Distribution Date plus 70% of the related Subordinate Percentage for
such Distribution Date; for any Distribution Date in or after the month of the
sixth anniversary of the month of the first Distribution Date but before the
seventh anniversary of the month of the first Distribution Date, the Group I
or Group II Senior Percentage, as applicable, for such Distribution Date plus
60% of the related Subordinate Percentage for such Distribution Date; for any
Distribution Date in or after the month of the seventh anniversary of the
month of the first Distribution Date but before the eighth anniversary of the
month of the first Distribution Date, the Group I or Group II Senior
Percentage, as applicable, for such Distribution Date plus 40% of the related
Subordinate Percentage for such Distribution Date; and for any Distribution
Date in or after the month of the eighth anniversary of the month of the first
Distribution Date but before the ninth anniversary of the month of the first
Distribution Date. The Group I or Group II Senior Percentage, as applicable,
for such Distribution Date plus 20% of the related Subordinate Percentage for
such Distribution Date. For any Distribution Date in or after the month of
the ninth anniversary of the month of the first Distribution Date, the Group I
or Group II Senior Prepayment Percentage will be the Group I or Group II
Senior Percentage, respectively, for such Distribution Date.
Notwithstanding the foregoing, if on any Distribution Date the Group I
or Group II Senior Percentage for such Distribution Date exceeds the initial
Group I or Group II Senior Percentage, respectively, as of the Cut-Off Date,
then the Group I or Group II Senior Prepayment Percentage, as applicable, for
such Distribution Date will equal 100%. The scheduled reductions in the Group
I and Group II Senior Prepayment Percentages for Distribution Dates occurring
on or after the month of the fifth anniversary of the month of the first
Distribution Date will be subject to certain conditions specified in the
Pooling Agreement. Such conditions may include requirements that no such
reduction may occur if delinquencies or losses on the Mortgage Loans in the
related Mortgage Loan Group exceed specified limits at the time of, or on a
date preceding. The Distribution Date for which such reduction would
otherwise be applicable. Notwithstanding the foregoing,. on any Distribution
Date if the delinquencies or losses on the Mortgage Loans in a Mortgage Loan
Group exceed such limits such that the Pooling and Servicing Agreement
restricts a reduction of the Group I or Group II Senior Prepayment Percentage,
as applicable, then the Group I or Group II Senior Prepayment Percentage, as
applicable, for such Distribution Date will equal 100% for such Distribution
Date. If on any Distribution Date the allocation to the Group I or Group II
Senior Certificates (other than the related Class P Certificates) in the
percentage required would reduce the sum of the Class Principal Balances of
such Certificates below zero, the Group I or Group II Senior Prepayment
Percentage, as applicable, for such Distribution Date will be limited to the
percentage necessary to reduce such sum to zero.
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SUBORDINATION AND ALLOCATION OF LOSSES
The Subordinate Certificates will be subordinate in right of payment to
and provide credit support to the Senior Certificates, the Junior Subordinate
Certificates will be subordinate in right of payment to and provide credit
support to the Senior Subordinate Certificates and each Class of Senior
Subordinate Certificates will be subordinate in right of payment to and
provide credit support to each Class of Senior Subordinate Certificates with a
lower numerical Class designation. The support provided by the Subordinate
Certificates is intended to enhance the likelihood of regular receipt by the
Senior Certificates of the full amount of the monthly distributions of
interest (except with respect to Components IA-1-1 and IA-1-4 of the Class
IA-1 Certificates, which are not entitled to interest) and principal (except
with respect to the Components IA-1-2 and IA-1-6 of the Class IA-1
Certificates, which are not entitled to principal) to which they are entitled
and to afford such Certificates protection against certain losses. The
protection afforded to the Senior Certificates by the Subordinate
Certificates will be accomplished by the preferential right on each
Distribution Date of such Senior Certificates to receive distributions of
interest (except with respect Components IA-1-1 and IA-1-4 of the Class IA-1
Certificates) and principal (except with respect to Components IA-1-2 and
IA-1-6 of the Class IA-1 Certificates) prior to distributions of interest or
principal to such Subordinate Certificates. The protection afforded a Class
of Senior Subordinate Certificates by the Classes of Senior Subordinate
Certificates with higher numerical Class designations will be similarly
accomplished by the preferential right of those Classes with lower numerical
Class designations to receive distributions of principal and interest prior to
distributions of principal and interest to those Classes of Senior Subordinate
Certificates with higher numerical Class designations. The support provided
by the Junior Subordinate Certificates to the Senior Subordinate Certificates
is intended to enhance the likelihood of regular receipt by such Senior
Subordinate Certificates of the full amount of monthly distributions of
interest and principal to which they are entitled and to afford such
Certificateholders protection against certain losses. The protection
afforded to the Senior Subordinate Certificates by the Junior Subordinate
Certificates will be accomplished by the preferential right on each
Distribution Date of such Senior Subordinate Certificates to receive
distributions of interest and principal, prior to distributions of interest
and principal to such Junior Subordinate Certificates.
Except for Special Hazard Losses, Fraud Losses and Bankruptcy Losses in
excess of the designated amounts of the applicable Special Hazard Coverage,
Fraud Coverage and Bankruptcy Coverage (each, as defined herein) for a
Mortgage Loan Group, any loss realized with respect to a Mortgage Loan will be
allocated among the Certificates related to such Mortgage Loan (i) for losses
allocable to principal (a) first, to the Junior Subordinate Certificates,
until the aggregate of the Class Principal Balances thereof has been reduced
to zero, (b) second, to the Class B-2 Certificates, until the Class Principal
Balance thereof has been reduced to zero, (c) third, to the Class B-1
Certificates, until the Class Principal Balance thereof has been reduced to
zero, (d) fourth, to the Class M Certificates, until the Class Principal
Balance thereof has been reduced to zero, and (e) fifth, to the Senior
Certificates related to such Mortgage Loan (other than Components 1A-1-2 and
1A-1-6 of the Class IA-1 Certificates), pro rata, according to their Class or
Component Principal Balances in reduction of their respective Class or Componen
t Principal Balances, as applicable; provided, however, that if the loss is
recognized with respect to a Group I Discount Mortgage Loan, the applicable
Component IA-1-4 Fraction of such loss will first be allocated to Component
IA-1-4 of the Class IA-1 Certificates and the remainder of such loss will be
allocated as described above in this clause (i); and (ii) for losses allocable
to interest (a) first, to the Junior Subordinate Certificates, in reduction of
accrued but unpaid interest thereon and then in reduction of the Class
Principal Balances of such Certificates, (b) second, to the Class B-2
Certificates, in reduction of accrued but unpaid interest thereon and then in
reduction of the Class Principal Balance of such Certificates, (c) third, to
the Class B-1 Certificates, in reduction of accrued but unpaid interest
thereon and then in reduction of the Class Principal Balance of such
Certificates, (d) fourth, to the Class M Certificates, in reduction of accrued
but unpaid interest thereon and then in reduction of the Class Principal
Balance of such Certificates, and (e) fifth, to the Senior Certificates
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related to such Mortgage Loan (other than the Components 1A-1-1 and 1A-1-4 of
the Class IA-1 Certificates), pro rata according to accrued but unpaid
interest thereon and then pro rata according to their Class or Component
Principal Balances (other than Components 1A-1-2 and IA-1-6 of the Class IA-1
Certificates) in reduction of their respective Class or Component Principal
Balances.
The allocation of the principal portion of losses relating to a Mortgage
Loan in a given Loan Group to all Classes of Certificates in the related
Certificate Group (other than Components 1A-1-2 and 1A-1-6 of the Class IA-1
Certificates) pro rata according to their respective Class or Component
Principal Balances (except if the loss is recognized with respect to a Group I
Discount Mortgage Loan, in which event the applicable Component IA-1-4
Fraction of such loss will first be allocated to Component IA-1-4 of the Class
IA-1 Certificates, and the remainder of such loss will be allocated as
described above), and the allocation of the interest portion of such losses to
the Certificates related to such Mortgage Loan pro rata according to the
amount of interest accrued but unpaid on each such Class or Component (other
than Component 1A-1-4 of the Class IA-1 Certificates) in reduction thereof and
then in reduction of their related Class or Component Principal Balances, is
hereinafter referred to as "PRO RATA ALLOCATION".
On each Distribution Date, if the aggregate Class Principal Balance of
all outstanding Classes of Certificates in a Certificate Group exceeds the
aggregate principal balance of the Mortgage Loans in the related Mortgage Loan
Group (after giving effect to distributions of principal and the allocation of
all losses on the Classes of Certificates in such Certificate Group on such
Distribution Date), such excess will be deemed a principal loss and will be
allocated to the most junior Class of Subordinate Certificates then
outstanding.
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.
Special Hazard Losses incurred on a Mortgage Loan in excess of the
Special Hazard Coverage for the related Loan Group will be allocated to the
outstanding Class or Classes of Certificates in the related Certificate Group
by Pro Rata Allocation. The "GROUP I SPECIAL HAZARD COVERAGE" is expected to
equal approximately $_______________ as of the Cut-Off Date. The "GROUP II
SPECIAL HAZARD COVERAGE" is expected to equal approximately $______________)
as of the Cut-Off Date. On each anniversary of the Cut-Off Date, the Special
Hazard Coverage for each Mortgage Loan Group will be reduced, but not
increased, to an amount equal to the lesser of (i) the greatest of (a) the
aggregate principal balance of the Mortgage Loans in the related Mortgage Loan
Group located in the single ____________ zip code area containing the largest
aggregate principal balance of such Mortgage Loans, (b) ___% of the aggregate
unpaid principal balance of the Mortgage Loans in the related Mortgage Loan
Group and (c) twice the unpaid principal balance
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of the largest single Mortgage Loan in the related Mortgage Loan Group, in
each case calculated as of the Due Date in the immediately preceding month and
(ii) the Special Hazard Coverage for such Mortgage Loan Group as of the
Cut-Off Date as reduced by the Special Hazard Losses allocated to the
Certificates in the related Certificate Group since the Cut-Off Date.
Fraud Losses incurred on a Mortgage Loan in excess of the Fraud Coverage
for the related Mortgage Loan Group will be allocated to the outstanding Class
or Classes of Certificates in the related Certificate Group by Pro Rata
Allocation. The "GROUP I FRAUD COVERAGE" is expected to equal approximately
$______________ as of the Cut-Off Date. The "GROUP II FRAUD COVERAGE" is
expected to equal approximately $________________ as of the Cut-Off Date.
Fraud Coverage for a Mortgage Loan Group will be reduced, from time to time,
by the amount of Fraud Losses allocated to the Certificates of the related
Certificate Group. On each anniversary of the Cut-Off Date, Fraud Coverage
for a Mortgage Loan Group will be reduced to the lesser of (i) with respect to
each Mortgage Loan Group, on the first, second, third and fourth
anniversaries of the Cut-Off Date, _____% of the aggregate principal balance
of the Mortgage Loans in the related Mortgage Loan Group as of the Due Date in
the preceding month and (ii) the excess of the Fraud Coverage for such
Mortgage Loan Group as of the Cut-Off Date over cumulative Fraud Losses
allocated to the Certificates in such Certificate Group since the Cut-Off
Date. On the fifth anniversary of the Cut-Off Date, Fraud Coverage for each
Mortgage Loan Group will be reduced to zero.
Bankruptcy Losses incurred on a Mortgage Loan in excess of the Bankruptcy
Coverage for the related Mortgage Loan Group will be allocated to the
outstanding Class or Classes of Certificates in the related Certificate Group
by Pro Rata Allocation. The "GROUP I BANKRUPTCY COVERAGE" is expected to
equal approximately $____________ as of the Cut-Off Date. The "GROUP II
BANKRUPTCY COVERAGE" is expected to equal approximately $__________ as of the
Cut-Off Date. Bankruptcy Coverage for a Mortgage Loan Group will be reduced,
from time to time, by the amount of Bankruptcy Losses allocated to the
Certificates in the related Certificate Group.
Special Hazard Coverage, Fraud Coverage or Bankruptcy Coverage for a
Mortgage Loan Group may also be reduced upon written confirmation from the
Rating Agencies that such reduction will not adversely affect the then current
ratings assigned to the Offered Certificates of the related Certificate Group
by the Rating Agencies. Such a reduction, in the event of Special Hazard
Losses, Fraud Losses or Bankruptcy Losses on the Mortgage Loans in such
Mortgage Loan Group, could adversely affect the level of protection afforded
the Senior Certificates by subordination of the Subordinate Certificates of
such Certificate Group or the level of protection afforded the Senior
Subordinate Certificates of such Certificate Group by subordination of the
Junior Subordinate Certificates.
THE CLASS R CERTIFICATE
The Class R Certificate will be comprised of two Components, Component
R-1 and Component R-2. Component R-1 represents the residual interest in the
REMIC I and Component R-2 represents the residual interest in the REMIC II.
On each Distribution Date, in addition to payments of interest and
principal to Component R-2 of the Class R Certificate described herein, any
amounts remaining (which are expected to be zero) in the Certificate Account
from the Available Distribution Amount for each Loan Group after distributions
of interest and principal on the Certificates and payment of expenses, if any,
of the REMIC II will be distributed to the Class R Certificateholders,
together with Excess Liquidation Proceeds (as defined below), if any.
Distributions of such remaining amounts to Component R-2 of the Class R
Certificateholders will be subordinate to all payments required to be made
with respect to the other Offered Certificates on any Distribution Date.
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Any amounts remaining in the Certificate Account upon reduction of the
aggregate Certificate Principal Balance to zero, payment of any outstanding
expenses and termination of the REMIC II will be distributable to Component
R-2 the Class R Certificateholders. Such remaining assets are expected to be
minimal. See "--Optional Termination of the Trust" herein.
ADVANCES
With respect to each Mortgage Loan, the Servicer will make Advances to
the Certificate Account on each Distribution Date to cover any shortfall
between (i) payments scheduled to be received in respect of such Mortgage Loan
and (ii) the amounts actually deposited in the Certificate Account on account
of such payments; provided that the Servicer determines, in good faith, on
such Distribution Date that such Advances will be recoverable from insurance
proceeds, Liquidation Proceeds or other amounts received with respect to such
Mortgage Loan. Advances are reimbursable to the Servicer from cash in the
Certificate Account remitted by the Servicer with respect to Mortgage Loans in
the same Mortgage Loan Group prior to payments to the Certificateholders if
the Servicer determines that such Advances previously made are not recoverable
from insurance proceeds, Liquidation Proceeds or other amounts recoverable
with respect to the applicable Mortgage Loan and so notifies the Trustee.
AVAILABLE DISTRIBUTION AMOUNT
On each Distribution Date, the Available Distribution Amount for any
Distribution Date which will be determined separately with respect to each
Mortgage Loan Group, and, in each case, will generally include scheduled
principal and interest payments due on the related Due Date, Curtailments
received in the previous calendar month (as set forth below), Payoffs received
in the applicable Prepayment Period to the extent set forth below and amounts
received with respect to liquidations of Mortgage Loans with respect to such
Mortgage Loan Group in the previous calendar month, will be distributed by or
on behalf of the Trustee to the Certificateholders, as specified herein.
The Due Date related to each Distribution Date is the first day of the
month in which such Distribution Date occurs. The determination date (the
"DETERMINATION DATE") is a day not later than the 10th day preceding the
related Distribution Date in the month in which such Distribution Date occurs.
The "AVAILABLE DISTRIBUTION AMOUNT" for any Distribution Date for each
Mortgage Loan Group, as more fully described in the Pooling and Servicing
Agreement, will equal the sum, with respect to the Mortgage Loans in such
Mortgage Loan Group, of the following amounts:
(1) the total amount of all cash received by or on behalf of the Servicer
with respect to such Mortgage Loans by the Determination Date for
such Distribution Date and not previously distributed (including
Liquidation Proceeds), except:
(a) all scheduled payments of principal and interest collected but
due on a date subsequent to the related Due Date;
(b) all Curtailments received after the previous calendar month
(together with any interest payment received with such
prepayments to the extent that it represents the payment of
interest accrued on such Mortgage Loans for the period
subsequent to the previous calendar month);
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(c) all Payoffs received after the applicable Prepayment Period
immediately preceding such Determination Date (together with any
interest payment received with such Payoffs to the extent that
it represents the payment of interest accrued on the Mortgage
Loans for the period subsequent to the previous calendar month);
(d)Liquidation Proceeds and insurance proceeds received on such
Mortgage Loans after the previous calendar month;
(e) all amounts in the Certificate Account which are due and
reimbursable to a servicer or the Servicer pursuant to the
terms of the Pooling and Servicing Agreement;
(f) the Servicing Fee for each such Mortgage Loan; and
(g) the excess, if any, of aggregate Liquidation Proceeds on such
Mortgage Loans received during the previous calendar month over
the amount that would have been received if Payoffs had been
made with respect to such Mortgage Loans on the date such
Liquidation Proceeds were received ("EXCESS LIQUIDATION
PROCEEDS");
(2) the total, to the extent not previously distributed, of the following
amounts, to the extent advanced or received, as applicable, by the
Servicer:
(a) all Advances made by the Servicer to the Trustee with respect to
such Distribution Date relating to such Mortgage Loans; and
(b) any amounts payable as Compensating Interest by the Servicer on
such Distribution Date relating to such Mortgage Loans; and
(3) the total amount of any cash received by the Trustee or the Servicer
in respect of the obligation of the Company to repurchase any such
Mortgage Loans.
LAST SCHEDULED DISTRIBUTION DATE
The Last Scheduled Distribution Date for the Class IA Certificates, the
Subordinate Certificates and the Class R Certificates is the Distribution Date
in April 2028, which is the Distribution Date in the month after the scheduled
maturity date for the latest maturing Group I Mortgage Loan.
The Last Scheduled Distribution Date for the Class IIA Certificates is
the Distribution Date in April 2013, which is the Distribution Date in the
month after the scheduled maturity date for the
latest maturing Group II Mortgage Loan.
The actual rate of principal payments on the Certificates will depend on
the rate of payments of principal (including Principal Prepayments) on the
related Mortgage Loans which, in turn, may be influenced by a variety of
economic, geographic and social factors, as well as the level of prevailing
interest rates. No assurance can be given as to the actual payment experience
on the Mortgage Loans.
OPTIONAL TERMINATION OF THE TRUST
On any Distribution Date after the first date on which the aggregate
outstanding principal balance of the Mortgage Loans is less than 5% of the
aggregate principal balance of the Mortgage Loans as of the
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Cut-Off Date, the Company may repurchase the Mortgage Loans and all property
acquired in respect of any Mortgage Loan remaining in the REMIC I, and thereby
effect the termination of the REMIC I, the REMIC II and the retirement of the
Certificates. The repurchase price will equal, after deductions of related
advances by the Servicer, the sum of (1) 100% of the aggregate outstanding
principal balance of such Mortgage Loans (other than Liquidated Mortgage
Loans), plus accrued interest thereon at the applicable Pass-Through Rates
through the last day of the month of such repurchase, less any Bankruptcy
Losses realized with respect to the Mortgage Loans not already allocated to
the Certificates and (2) the fair market value of all other property remaining
in the REMIC II. The proceeds of such repurchase will be treated as a
prepayment of the Mortgage Loans for purposes of distributions to
Certificateholders. Accordingly, an optional termination of the REMIC II will
cause the outstanding principal balance of the Certificates to be paid in full
through the distribution of such proceeds and the allocation of the associated
Realized Losses, if any, on each Mortgaged Property in the REMIC I the fair
market value of which is less than the aggregate principal balance of the
related Mortgage Loans as of the time that the REMIC I acquired such
Mortgaged Property, and upon such payment in full the REMIC II and the REMIC I
will be terminated. In no event will either the Master Trust or the REMIC II
continue beyond the expiration of 21 years from the death of the survivor of
certain persons identified in the Pooling and Servicing Agreement. See
"Description of Certificates-Termination" in the Prospectus.
SERVICING
SERVICING COMPENSATION AND PAYMENT OF EXPENSES
The Servicer will receive a fee (the "SERVICING FEE") for its services as
Servicer under the Pooling and Servicing Agreement. The Servicer will retain
as its Servicing Fee an amount which will be calculated as a per annum
percentage for each related Mortgage Loan. The Servicing Fee with respect to
each Group I Mortgage Loan will range from a minimum of % to a
maximum of %, with a weighted average of %. The
Servicing Fee with respect to each Group II Mortgage Loan will range from a
minimum of % to a maximum of %, with a weighted average
of %.
The Servicer will pay all expenses incurred in connection with its
activities as Servicer. The Servicer is entitled to reimbursement for certain
expenses incurred by it in connection with the liquidation of defaulted
Mortgage Loans. In addition, the Servicer is entitled to reimbursement of
expenditures incurred by it in connection with the restoration of a damaged
Mortgaged Property.
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YIELD AND PREPAYMENT CONSIDERATIONS
GENERAL
The effective yield to maturity of each Class of Certificates will depend
upon, among other things, the price at which such Certificates are purchased,
the applicable Remittance Rate, the actual characteristics of the Mortgage
Loans in the related Loan Group, the rate of principal payments (including
Principal Prepayments) on the Mortgage Loans in the related Loan Group and the
rate of liquidations on the Mortgage Loans in the related Loan Group. The
effective yield to maturity to holders of the Certificates will be lower than
the yield to maturity otherwise produced by the applicable Remittance Rate and
purchase price of such Certificates because principal and interest
distributions will not be payable to such Certificateholders until the 25th
day of the month following the month of accrual (without any additional
distribution of interest or earnings thereon with respect to such delay).
Distributions to the Group I Certificates and the Group II Certificates relate
to payments on the Group I Mortgage Loans and Group II Mortgage Loans,
respectively. Distributions of the Subordinate Certificates and the Residual
Certificate relate to payments on both the Group I Mortgage Loans and Group II
Mortgage Loans.
PRINCIPAL PREPAYMENTS AND COMPENSATING INTEREST
When a Mortgagor prepays a Mortgage Loan in full between Due Dates for
such Mortgage Loan, the Mortgagor pays interest on the amount prepaid only to
the date of prepayment instead of for the entire month. Also, when a
Curtailment is made on a Mortgage Loan together with the scheduled Monthly
Payment for a month on or after the related Due Date, the principal balance of
the Mortgage Loan is reduced by the amount of the Curtailment as of such Due
Date, but such principal is not distributed to related Certificateholders
until the Distribution Date in the next month; therefore, one month of
interest shortfall accrues on the amount of such Curtailment.
In order to reduce the adverse effect on Certificateholders from the
deficiency in interest payable as a result of a Payoff on a Mortgage Loan
between its Due Dates, the 'Servicer will pass through Compensating Interest
to the related Certificateholders to the limited extent and in the manner set
forth below. The Servicer is obligated to remit to the Certificate Account on
the day prior to each Distribution Date with respect to the Mortgage Loans in
each Loan Group an amount equal to the lesser of (a) any shortfall for the
related month in interest collections resulting from the timing of Payoffs on
the related Mortgage Loans made from the 15th day of the calendar month
preceding such Distribution Date to the last day of such month and (b) the
applicable monthly Servicing Fee payable to the Servicer, any reinvestment
income realized by the Servicer relating to Payoffs on the related Mortgage
Loans made during the related Prepayment Period and interest payments on such
Payoffs received during the period of the first day through the 14th day of
the month of such Distribution Date. Accordingly, no Compensating Interest
will be payable with respect to Payoffs in the related Loan Group received
during such period. Payoffs received during the period from the 15th day
through the last day of any month will be passed through on the Distribution
Date in the following month, and, in order to provide for a full month's
interest payment with respect to the prior month, Compensating Interest will
be passed through to related Certificateholders with respect to such period.
To the extent that the amount allocated to a Loan Group to pay
Compensating Interest is insufficient to cover the deficiency in interest
payable as a result of a Payoff or Curtailment on a Mortgage Loan, such
remaining deficiency will be allocated to the Certificates of the related
Certificate Group pro rata according to the amount of interest to which each
related Class of Certificates would otherwise be entitled in reduction
thereof.
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LOCKOUT CERTIFICATES
Investors in the Lockout Certificates should be aware that because the
Lockout Certificates will generally not be entitled to receive principal
distributions prior to the Distribution Date occurring in April 2003 (other
than the Lockout Liquidation Amount), the weighted average lives of the
Lockout Certificates will be longer than would otherwise be the case, and the
effect on the market value of the Lockout Certificates arising out of changes
in market interest rates or market yields for similar securities will be
greater than for other Classes of Class IA Certificates entitled to such
distributions.
RATE OF PAYMENTS
The rate of principal payments on the Certificates entitled to receive
principal generally is directly related to the rate of principal payments on
the Mortgage Loans in the related Mortgage Loan Group, which may be in the
form of scheduled payments or Principal Prepayments. See "Risk Factors"
herein and "Yield Considerations" in the Prospectus. Mortgagors may prepay
the Mortgage Loans at any time without penalty. A higher than anticipated
rate of Principal Prepayments would reduce the aggregate principal balance of
the Mortgage Loans more quickly than expected. As a consequence, aggregate
interest payments with respect to the Mortgage Loans would be substantially
less than expected, therefore, a higher rate of Principal Prepayments in a
Mortgage Loan Group could result in a lower than expected yield to maturity on
each related Class of Certificates purchased at a premium and in certain
circumstances such investors may not fully recoup their initial investments.
Conversely, a lower than anticipated rate of Principal Prepayments in a
Mortgage Loan Group would reduce the return to investors on any related
Classes of Certificates purchased at a discount, in that principal payments
with respect to the Mortgage Loans would occur later than anticipated. There
can be no assurance that Certificateholders will be able to reinvest amounts
received with respect to the Certificates at a rate which is comparable to the
applicable Remittance Rate. Investors should fully consider all of the
associated risks.
SPECIAL SENSITIVITIES
The Class IA-4 Certificates will be especially sensitive to the rate of
prepayments on the Group I Mortgage Loans because such Certificates will
receive distributions of principal on any Distribution Date only to the extent
of a percentage of the Group I Senior Principal Distribution Amount (as
defined herein, remaining, if any, after (i) the Lockout Certificates receive
their distributions from the Lockout Principal Distribution Amount, if any,
for such Distribution Date, (ii) the PACs receive principal on such
Distribution Date to the extent of their Planned Principal Balances, and (iii)
the TACs receive principal on such Distribution Date to the extent of each
their Targeted Principal Balances. Furthermore, if the Group I Senior
Principal Distribution Amount on any Distribution Date is not sufficient to
reduce each PAC to its Planned Principal Balance and each TAC to its Target
Principal Balance, the Class IA-4 Certificates will receive no principal
distributions on such Distribution Date.
The Class IA-2, Class IA-5 and IA-6 Certificates are PACs. If a higher
than expected rate of Principal Prepayments is to occur with respect to the
Group I Mortgage Loans, and the Class IA-4 Certificates are retired, the PACs
would receive distributions of principal in excess of the related Planned
Principal Balance.
The Class IA-3 Certificates are TACs. lf a higher than expected rate of
Principal Prepayments is to occur with respect to the Group I Mortgage Loans,
and the Class IA-4 Certificate are retired, the Class IA-3 Certificates would
receive distributions of principal in excess of its related Targeted Principal
Balance.
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BASIC PREPAYMENT ASSUMPTION
Prepayments on mortgage loans are commonly measured relative to a
prepayment standard or model The two prepayment models used in this Prospectus
Supplement (each, a "BASIC PREPAYMENT ASSUMPTION" or "BPA") represent an
assumed rate of prepayment each month relative to the then outstanding
principal balance of a pool of mortgage loans. For Group I Mortgage Loans, a
100% Basic Prepayment Assumption assumes a constant prepayment rate
of % per annum of the then outstanding principal balance of such
mortgage loans in the first month of the life of the mortgage loans and an
additional 12/11% per annum in month thereafter through the eleventh month.
Beginning in the twelfth month and in each month thereafter during the life of
the mortgage loans, a 100% BPA assumes a constant prepayment rate of _____%
per annum each month. For Group and Group II Mortgage Loans, a 100% Basic
Prepayment Assumption assumes a per annum rate of prepayment of %
of the then outstanding principal balance of a pool mortgage loans in the
first month after formation of such pool of mortgage loans, following which,
such annual prepayment rate increases by 0.2% each month until the 30th month
after formation of such pool of mortgage loans and remains constant at 6% per
annum in the 30th month after formation of such pool of mortgage loans and in
each month thereafter. As used in the tables below, a 50% BPA assume a
current rates equal to 50% of the BPA. Correspondingly, a 250% BPA assumes
prepayment rates equal to 250% of the BPA, and so forth.
Neither of the BPAs purports to be either an historical description of
the prepayment experience of any pool of mortgage loans or a prediction of the
anticipated rate of prepayment of any pool of mortgage loans, including the
Mortgage Pool, and there is no assurance that the Mortgage Loans in any group
of Mortgage Loans will prepay at any given percentage of the applicable BPA.
The actual rate of Principal Prepayments on the Mortgage Loans may be
influenced by a variety of economic, geographic, social and other factors. In
general, if prevailing interest rates fall significantly below the interest
rates on the Mortgage Loans, the Mortgage Loans are likely to be subject to
higher prepayment rates than if prevailing rates remain at or above the
interest rates on the Mortgage Loans. Conversely, if interest rates rise
above the interest rates on the Mortgage Loans, the rate of prepayment would
be expected to decrease. A comparatively low interest-rate environment may
result in a higher than expected rate of prepayments on the Mortgage Loans and
an earlier than expected retirement of the Certificates.
The Company makes no representation as to the specific factors that will
affect the prepayment of the Mortgage Loans or the relative importance of such
factors. Factors not identified by the Company or discussed herein may
significantly affect the prepayment rate of the Mortgage Loans. In
particular, the Company makes no representation as to the percentage of the
principal amount of the Mortgage Loans that will be paid as of any date or as
to the overall rate of prepayment.
For purposes of the tables set forth in Appendix C, it is assumed that
the Mortgage Loans included in the Mortgage Pool on the Closing Date have the
actual characteristics of the Mortgage Loans described herein and that (i)
scheduled payments on all Mortgage Loans are received on the first day of each
month beginning April 1, 1998, (ii) any Payoffs on the Mortgage Loans are
received on the last day of each month beginning on March 31, 1998 and include
30 days of interest thereon, (iii) there are no defaults or delinquencies on
the Mortgage Loans, (iv) optional termination of the REMIC II does not occur,
(v) there are no partial prepayments on the Mortgage Loans and prepayments are
computed after giving effect to scheduled payments received on the following
day, (vi) the Mortgage Loans in each Mortgage Loan Group prepay at the
indicated constant percentages of the applicable BPA, (vi) the date of
issuance for the Certificates is March ___, 1998, (viii) cash distributions
are received by the Certificateholders on the 25th day of each month when due
and (ix) the scheduled monthly payments for each Mortgage Loan are computed
based upon its unpaid principal balance, Mortgage Interest Rate and amortized
remaining term such that the Mortgage
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Loan will fully amortize on its maturity date (collectively, the "MODELING
ASSUMPTIONS"). The approximate Class Principal Balances of the Junior
Subordinate Certificates as of the Cut Off-Date will be as follows: Class B-3,
$______________, Class B-4 $________________ and Class B-5 $_________________.
Any discrepancy between the actual characteristics of the Mortgage Loans
and the characteristics of the Mortgage Loans set forth above may affect the
percentages of the initial Class Principal Balances set forth in the tables
and the weighted average lives of the Offered Certificates. In addition, to
the extent that the characteristics of the Mortgage Loans differ and the
initial Class Principal Balances differ from those assumed in preparing the
tables in Appendix C, the outstanding Class Principal Balance of any Class of
Offered Certificates may be reduced to zero earlier or later than indicated by
such tables.
Variations in actual prepayment experience may increase or decrease the
percentages of the original outstanding Class Principal Balances and the
weighted average lives shown in the tables in Appendix C. Such variations may
occur even if the average prepayment experience of all the Mortgage Loans
equals the indicated percentage of the Basic Prepayment Assumption. There is
no assurance, however, that prepayment of the Mortgage Loans of any Loan Group
will conform to any given percentage of the applicable Basic Prepayment
Assumption. The Company makes no representations that the actual rates of
prepayments on the Mortgage Loans will in any way correspond to any of the
assumptions made herein.
Based on the foregoing assumptions, the tables in Appendix C indicate the
projected weighted average lives of the Offered Certificates and set forth the
percentages of the initial outstanding Class Principal Balances of each such
Class of Offered Certificates that would be outstanding after each of the
dates shown at various constant percentages of the applicable Basic Prepayment
Assumption.
There are no historical prepayment data available for the Mortgage Pool,
and comparable data is not available because the Mortgage Loans do not
constitute a representative sample of mortgage loans generally. In addition,
historical data available with respect to mortgage loans underlying mortgage
pass through certificates issued by GNMA, FNMA and FHLMC may not be comparable
to prepayments expected to be experienced by the Mortgage Pool because the
Mortgage Loans may have characteristics which differ from the mortgage loans
underlying certificates issued by GNMA, FNMA and FHLMC.
The Company makes no representation that the Mortgage Loans will prepay
in the manner or at any of the rates assumed above. Each investor must make
its own decision as to the appropriate prepayment assumptions to be used in
deciding whether or not to purchase any of the Certificates. Since the rate
of principal payments (including prepayments) with respect to, and repurchases
of, the Mortgage Loans will significantly affect the yields to maturity on the
Offered Certificates, prospective investors are urged to consult their
investment advisors as to both the anticipated rate of future principal
payments (including prepayments) on the Mortgage Loans and the suitability of
the Certificates to their investment objectives.
YIELD CONSIDERATIONS WITH RESPECT TO THE SENIOR SUBORDINATE CERTIFICATES
The tables beginning on page ____ have been prepared using the Modeling
Assumptions, except that it has been assumed that (i) defaults occur monthly
on the last day of the previous month at rates which in the aggregate are
equal to the following percentages of the aggregate principal balance of the
Mortgage Loans in the applicable Mortgage Loan Group as of the Cut-Off Date
for the number of months indicated (and none thereafter); (ii) the scheduled
monthly payments for each Mortgage Loan in the applicable Mortgage Loan Group
are computed based upon its unpaid principal balance after giving effect to
any default; (iii) certain delinquency experience levels specified in the
Pooling and Servicing Agreement for the determination of the Group I and Group
II Senior Prepayment Percentages, as
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applicable, and the Group I and Group II Subordinate Prepayment Percentages,
as applicable, are not exceeded; and (iv) prepayments are calculated as
assumed above but before giving effect to any such defaults (unless such
defaults would reduce the aggregate principal balance of the Mortgage Loans in
the applicable Mortgage Loan Group below the aggregate amount of such assumed
prepayments, in which case prepayments are limited to the outstanding
principal balance of such Mortgage Loans after such defaults).
<TABLE>
<CAPTION>
Principal Balance of Defaulted Principal Balance of Defaulted
Mortgage Loans in Loan Group I as a Mortgage Loans in Loan Group II
Percentage of the Aggregate as a Percentage of the Aggregate
Principal Balance of the Mortgage Principal Balance of the Mortgage
Number of Months Commencing Loans in Loan Group I as of Loans in Loan Group II as of
in April 1998 the Cut-Off Date the Cut-Off Date
- --------------------------- ----------------------------------- ---------------------------------
<S> <C> <C>
N.A. ...................... % %
24 ........................ % %
24 ........................ % %
24 ........................ % %
</TABLE>
For example, if defaulted Group II Loans total % of the
aggregate principal balance of the Group II Mortgage Loans as of the Cut-Off
Date as assumed for purposes of the following tables (approximately
$ , which is ____% of $ ), and such defaults
occur at an amount per month equal to approximately $
(111/124th of $ ) in each month of the 24-month period
commencing in April 1998, the effect on the pre-tax yield to maturity of the
Senior Subordinate Certificates from such aggregate defaults on the Group II
Mortgage Loans over such 24-month period would be as shown in the tables
below.
In addition, it was assumed that (i) Realized Losses on liquidation of
the Mortgage Loans occur at a rate of 20% and 40%, with respect to the Group I
Mortgage Loans, and 20% and 30%, with respect to the Group II Loans, of the
outstanding principal balance of such defaulted Mortgage Loans at the time of
default as indicated in the table (referred to as a "LOSS SEVERITY
PERCENTAGE") in the month in which the Mortgage Loans first default, (ii)
there are no Special Hazard Losses, Fraud Losses or Bankruptcy Losses, (iii)
the Senior Subordinate Certificates are purchased at the assumed purchase
prices equal to the indicated percentages of the applicable Class Principal
Balance, plus accrued interest from the Cut-Off Date and (iv) all scheduled
payments on Mortgage Loans are advanced by the Servicer whether or not
received from the related Mortgagors.
The rate of distributions in reduction of the Class Principal Balance of
the Senior Subordinate Certificates will be related to the actual amortization
schedule of the Mortgage Loans; accordingly, the interest distributions and
distributions in reduction of the Class Principal Balances of the Senior
Subordinate Certificates may result in yields to maturity which differ from
those reflected below.
The Mortgage Loans will not have the characteristics assumed, and it is
unlikely that they will prepay at any of the constant rates specified. The
assumed percentages of the applicable BPA, the principal balance of the
defaulted Mortgage Loans and the loss severities on the Mortgage Loans shown
in the tables below
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are for illustrative purposes only and the Company makes no representations
with respect to the reasonableness of such assumptions or that the actual
rates of prepayment and liquidation and loss severity experience of the
Mortgage Loans will in any way correspond to any of the assumptions made
herein. In addition, it is unlikely that liquidations will occur in the
month of default, and the timing of such liquidations may cause the pre-tax
yield to maturity of the Senior Subordinate Certificates to differ from those
shown below.
Pre-Tax Yield to Maturity of the Class M Certificates
at an Assumed Purchase Price of ___________% of the Class M
Principal Balance plus Accrued Interest from the Cut-Off Date
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
Defaulted Mortgage Loans expressed as a Percentage of the BPA
percentage of the aggregate principal ---------------------
balance of the Group I and Group II
Mortgage Loans of the Cut-Off Date Loss
over the 24-month period Severity
commencing in April 1998 0% 50% 100% 150% 200% Percentage
0.00% ..................................
0.85% ..................................
0.85% ..................................
1.25% ..................................
1.25% ..................................
3.00% ..................................
3.00% ..................................
</TABLE>
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<PAGE>
Pre-Tax Yield to Maturity of the Class B-1 Certificates
at an Assumed Purchase Price of __________% of the Class B-1
Principal Balance plus Accrued Interest from the Cut-Off Date
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
Defaulted Mortgage Loans expressed as a Percentage of the BPA
percentage of the aggregate principal ---------------------
balance of the Group I and Group II
Mortgage Loans of the Cut-Off Date Loss
over the 24-month period Severity
commencing in April 1998 0% 50% 100% 150% 200% Percentage
- ------------------------ -- --- ---- ---- ---- ----------
0.00% ..................................
0.85% ..................................
0.85% ..................................
1.25% ..................................
1.25% ..................................
3.00% ..................................
3.00% ..................................
</TABLE>
Pre-Tax Yield to Maturity of the Class B-2 Certificates
at an Assumed Purchase Price of __________% of the Class B-2
Principal Balance plus Accrued Interest from the Cut-Off Date
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
Defaulted Mortgage Loans expressed as a Percentage of the BPA
percentage of the aggregate principal ---------------------
balance of the Group I and Group II
Mortgage Loans of the Cut-Off Date Loss
over the 24-month period Severity
commencing in April 1998 0% 50% 100% 150% 200% Percentage
- ------------------------ -- --- ---- ---- ---- ----------
0.00% ..................................
0.85% ..................................
0.85% ..................................
1.25% ..................................
1.25% ..................................
3.00% ..................................
3.00% ..................................
</TABLE>
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<PAGE>
The pre-tax yields to maturity set forth in the preceding tables
were calculated by determining the monthly discount rates which, when applied
to the assumed streams of cash flows to be paid on each Class of the Senior
Subordinate Certificates, would cause the discounted present value of such
assumed stream of cash flows to equal the assumed offering prices (including
accrued interest) of each Class of the Senior Subordinate Certificates set
forth above. In all cases monthly rates are then converted to the corporate
bond equivalent yields shown above. Implicit in the use of any discounted
present value or internal rate of return calculation such as these is the
assumption that intermediate cash flows are invested at the discount rate or
internal rate of return. Thus these calculations do not take into account the
different interest rates at which investors may be able to reinvest funds
received by them as distributed on the Senior Subordinate Certificates.
Consequently, these yields to maturity do not purport to reflect the return on
any investment in the Senior Subordinate Certificates when such reinvestment
rates are considered.
The characteristics of the Mortgage Loans will not correspond exactly to
those assumed in preparing the tables above. The yield to maturity of each
Class of the Senior Subordinate Certificates therefore will differ even if all
the Mortgage Loans prepay monthly at the related assumed prepayment rate. In
addition, it is not likely that the Mortgage Loans will prepay at the same
percentage of the applicable BPA, and the timing of changes in the rate of
prepayments may affect significantly the yield to maturity received by a
holder of a Class of Senior Subordinate Certificates. There is no historical
prepayment data available for the Mortgage Pool, and comparable data is not
available because the Mortgage Loans do not constitute a representative sample
of mortgage loans generally. In addition, historical data available with
respect to mortgage loans underlying mortgage pass-through certificates issued
by GNMA, FNMA or FHLMC may not be comparable to prepayments expected to be
experienced by the Mortgage Pool, because the Mortgage Loans may have
characteristics which differ from mortgage loans underlying certificates
issued by GNMA, FNMA and FHLMC.
The Company makes no representation that the Mortgage Loans will prepay
in the manner or at any of the rates assumed above. Each investor must make
its own decision as to the appropriate prepayment assumptions to be used in
deciding whether or not to purchase any of the Senior Subordinate
Certificates. Since the rate of principal payments (including Principal
Prepayments) with respect to, and repurchases of, the Mortgage Loans will
significantly affect the yield to maturity on each Class of the Senior
Subordinate Certificates, prospective investors are urged to consult their
investment advisors as to both the anticipated rate of future principal
payments (including Principal Prepayments) on the Mortgage Loans and the
suitability of the Senior Subordinate Certificates to their investment
objectives.
ADDITIONAL YIELD CONSIDERATIONS APPLICABLE SOLELY TO THE CLASS R CERTIFICATES
The Class R Certificateholders' after-tax rate of return on their
Certificates will reflect their pre-tax rate of return, reduced by the taxes
required to be paid with respect to such Certificates. Holders of interests
in the Class R Certificate may have tax liabilities with respect to their
Certificates during the early years of the REMIC's term that substantially
exceed any distributions payable thereon during any such period. In
addition, holders of interests in the Class R Certificate may have tax
liabilities with respect to their Certificates the present value of which
substantially exceeds the present value of distributions payable thereon and
of any tax benefits that may arise with respect thereto. Accordingly, the
after-tax rate of return on the Class R Certificate may be negative or may
otherwise be significantly adversely affected. The timing and amount of
taxable income attributable to the Class R Certificate will depend on, among
other things, the timing and amounts of prepayments and losses experienced
with respect to the Mortgage Pool.
The Class R Certificateholders should consult their own tax advisors as
to the effect of taxes and the receipt of any payments made to such holders in
connection with the purchase of interests in the Class R
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Certificate on after-tax rates of return on the Class R Certificate. See
"Certain Federal Income Tax Consequences" herein and in the Prospectus.
ADDITIONAL INFORMATION
The Company intends to file with the Securities and Exchange Commission
certain additional yield tables and other computational materials with respect
to one or more Classes of the Offered Certificates on a Current Report on Form
8-K. Such tables and materials were prepared by the [Donaldson, Lufkin &
Jenrette] at the request of certain prospective investors, based on
assumptions provided by, and satisfying the special requirements of, such
prospective investors. Such tables and materials are preliminary in nature,
and the information contained therein is subject to, and superseded by, the
information in this Supplement.
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<PAGE>
CREDIT ENHANCEMENTS
SUBORDINATION
The Senior Certificates of a Certificate Group are entitled to receive
distributions of interest (except with respect to Components IA-1-1 and IA-1-4
of the Class IA-1 Certificates, which are not entitled to interest) and
principal (except with respect to Components IA-1-2 and IA-1-6 of the Class
IA-1 Certificates, which are not entitled to principal) before distributions
of interest or principal to the Subordinate Certificates. No Subordinate
Certificates will receive distributions of interest or principal on any
Distribution Date until the Senior Certificates have received all
distributions of interest and principal due on or before such Distribution
Date. See "Description of the Certificates--Priority of Distributions"
herein.
Losses on Mortgage Loans in a Mortgage Loan Group will be allocated, in
each case until the applicable Class or Component Principal Balances of the
Classes or Components of the related Certificate Group have been reduced to
zero, first, to the Junior Subordinate Certificates; second, to the Class B-2
Certificates; third, to the Class B-1 Certificates; fourth, to the Class M
Certificates; and fifth, to the outstanding Classes of Senior Certificates in
the related Certificate Group by Pro Rata Allocation: provided, however, that
only a certain specified amount of Special Hazard Losses, Fraud Losses and
Bankruptcy Losses in a Mortgage Loan Group will be allocated solely to the
Subordinate Certificates in the related Certificate Group, following which
such losses will be allocated among all outstanding Classes of Certificates in
the related Certificate Group by Pro Rata Allocation, provided, further, that
in the event any loss is incurred with respect to a Group I Discount Mortgage
Loan, the applicable Component IA-1-4 Fraction of such loss will first be
allocated to the related Component IA-1-4 of the Class IA-1 Certificates and
the remainder of such loss will be allocated as described above.
SHIFTING OF INTERESTS
The Senior Certificates of a Certificate Group entitled to principal,
other than the Lockout Certificates (unless the Credit Support Depletion Date
has occurred), will receive 100% of Principal Prepayments received with
respect to the Mortgage Loans in the related Mortgage Loan Group until the
fifth anniversary of the first Distribution Date. During the next four years,
such Senior Certificates, other than the Lockout Certificates (unless the
Credit Support Depletion Date has occurred) will receive a disproportionately
large, but decreasing, share of Principal Prepayments received with respect to
the Mortgage Loans in the related Mortgage Loan Group. This will result in an
acceleration of the amortization of such Senior Certificates, other than the
Lockout Certificates, subject to the priorities described in "Description of
the Certificates --Distributions of Principal" herein, enhancing the
likelihood that holders of such Classes of Certificates will be paid the full
amount of principal to which they are entitled.
Although the Lockout Certificates are Senior Certificates, Component
IA-1-5 of the Class IA-1 Certificates will generally not be entitled to
receive principal distributions (other than the Lockout Liquidation Amount)
until the Distribution Date in April 2003 and thereafter will not be entitled
to receive the disproportionate allocation of Principal Prepayments from Group
I Mortgage Loans that the other Class IA Certificates are entitled to receive.
See "Description of the Certificates--Distributions of Principal" herein.
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<PAGE>
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
For federal income tax purposes, the Company will cause an election to be
made to treat each of the REMIC I and the REMIC II as a REMIC. The
certificates issued by the REMIC II, other than the Class R Certificate, will
be designated as REMIC regular interests. As REMIC regular interests, such
Certificates will generally be treated as representing ownership of debt for
federal income tax purposes. Certificateholders will be required to include
in income all interest and original issue discount ("OID") on such
Certificates in accordance with the accrual method of accounting regardless of
the Certificateholders' usual methods of accounting. For federal income tax
purposes the Class R Certificate will represent the residual interest in each
of the REMIC I and the REMIC II.
Of all Classes of Offered Certificates, only the Senior Subordinate
Certificates may be treated as having been issued with OID for federal income
tax purposes. The prepayment assumption that will be used in determining the
rate of accrual of market discount and premium, if any, for federal income tax
purposes is % of the BPA for Loan Group I, % of the
BPA for Loan Group II as described herein under "Yield and Prepayment
Considerations". No representation is made that the Mortgage Loans will
prepay at any given percentage of the BPA.
In certain circumstances OID Regulations (as defined in "Certain Federal
Income Tax Consequences" in the Prospectus) permit the holder of a debt
instrument to recognize original issue discount under a method that differs
from that used by the issuer. Accordingly, it is possible that the holder of
a Certificate may be able to select a method for recognizing original issue
discount that differs from that used by the Company in preparing reports to
the Certificateholders and the IRS.
If actual prepayments differ sufficiently from the prepayment assumption,
the calculation of OID for certain Classes of Offered Certificates might
produce a negative number for certain accrual periods. In such event,
Certificateholders will not be entitled to a deduction for such amount, but
will be required to carry such amount forward as an offset to OID, if any,
accruing in future accrual periods.
Certain Classes of Certificates may be treated for federal income tax
purposes as having been issued at a premium. Whether any holder of a
Certificate will be treated as holding a Certificate with amortizable bond
premium will depend on such Certificateholder's purchase price and the
distributions remaining to be made on such Certificate at the time of its
acquisition by such Certificateholder. Holders of such Classes of
Certificates should consult their own tax advisors regarding the possibility
of making an election to amortize any such premium. See "Certain Federal
Income Tax Consequences--REMIC--Taxation of Owners of Regular Certificates" in
the Prospectus.
The Offered Certificates will generally be treated as "qualifying real
property loans" for mutual savings banks and domestic building and loan
associations, "loans secured by an interest in real property" for domestic
building and loan associations, and "real estate assets" for real estate
investment trusts ("REITS") in the same proportion that the assets in the
REMICs would be so treated. In addition, interest on the Offered
Certificates will generally be treated as "interest on obligations secured by
mortgages on real property" for REITs to the extent that such Offered
Certificates are treated as "real estate assets". Recently enacted
legislation repealed the provisions of Section 593(d) of the Internal Revenue
Code allowing the reserve method of accounting for bad debts, effective for
taxable years beginning after December 31, 1995. See "Certain Federal Income
Tax Consequences" in the Prospectus.
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<PAGE>
NEW WITHHOLDING REGULATIONS
The Treasury Department has issued new regulations (the "NEW
REGULATIONS") which make certain modifications to the withholding, backup
withholding and information reporting rules described above. The New
Regulations attempt to unify certification requirements and modify reliance
standards. The new Regulations will be effective for payments made after
December 31, 1998, subject to certain transition rules. Prospective investors
are urged to consult their own tax advisors regarding the New Regulations.
SPECIAL TAX CONSIDERATIONS APPLICABLE TO THE RESIDUAL CERTIFICATES
The Internal Revenue Service has issued regulations under the provisions of
the Code related to
REMICs (the "REMIC REGULATIONS") that significantly affect holders of
interests in the Class R Certificate. The REMIC Regulations impose
restrictions on the transfer or acquisition of certain residual interests,
including the Class R Certificate. In addition, the REMIC Regulations
contain restrictions that apply to the transfer of "noneconomic" residual
interests to United States persons. Pursuant to the Pooling and Servicing
Agreement, the Class R Certificate may not be transferred to non-United States
persons.
The Small Business Job Protection Act of 1996 has eliminated the special
rule permitting Section 59 institutions ("THRIFT INSTITUTIONS") to use net
operating losses and other allowable deductions to offset their excess
inclusion income from REMIC residual certificates that have "significant
value" within the meaning of the REMIC Regulations, effective for taxable
years beginning after December 31, 1995, except with respect to residual
certificates continuously held by a thrift institution since November 1, 1995.
In addition, the Small Business Job Protection Act of 1996 provides three
rules for determining the effect on excess inclusions on the alternative
minimum taxable income of a residual holder. First, alternative minimum
taxable income for such residual holder is determined without regard to the
special rule that taxable income cannot be less than excess inclusions.
Second, a residual holder's alternative minimum taxable income for a tax year
cannot be less than excess inclusions for the year. Third, the amount of any
alternative minimum tax net operating loss deductions must be computed without
regard to any excess inclusions. These rules are effective for tax years
beginning after December 31, 1986, unless residual holder elects to have such
rules apply only to tax years beginning after August 20, 1996.
The REMIC Regulations provide that a transfer to a United States person
of "noneconomic" residual interests will be disregarded for all federal income
tax purposes, and that the purported transferor of "noneconomic" residual
interests will continue to remain liable for any taxes due with respect to the
income on such residual interests, unless "no significant purpose of the
transfer was to impede the assessment or collection of tax". Based on the
REMIC Regulations, the Class R Certificate may constitute noneconomic residual
interests during some or all of its term for purposes of the REMIC Regulations
and, accordingly, unless no significant purpose of a transfer is to impede the
assessment or collection tax, transfers of interests in the Class R
Certificate may be disregarded and purported transferors may remain liable for
any taxes due with respect to the income on the Class R Certificate. All
transfers of interests in the Class R Certificate will be subject to certain
restrictions under the terms of the Pooling and Servicing Agreement that are
intended to reduce the possibility of any such transfer being disregarded to
the extent that interests in the Class R Certificate constitute noneconomic
residual interests. See "Certain Federal Income Tax Consequences--REMIC--
Taxation of Owners of Residual Certificates" in the Prospectus.
The Class R Certificateholders may be required to report an amount of
taxable income with respect the earlier accrual periods of the REMIC's term
that significantly exceeds the amount of cash distributions
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received by such Class R Certificateholders from the REMIC with respect to
such periods. Consequently, the Class R Certificateholders should have other
sources of funds sufficient to pay any federal income taxes due in the earlier
years of the REMIC as a result of their ownership of interests in such Class R
Certificate. In addition, the required inclusion of this amount of taxable
income during the REMIC's earlier accrual periods and the deferral of
corresponding tax losses or deductions until later accrual periods or until
the ultimate sale or disposition of interests in the Class R Certificate (or
possibly later under the "wash sale" rules of Section 1091 of the Code) may
cause the Class R Certificateholders' after-tax rate of return to be zero or
negative even if the Class R Certificateholders' pre-tax rate of return is
positive. That is, on a present value basis, the Class R Certificateholders'
resulting tax liabilities could substantially exceed the sum of any tax
benefits and the amount of any cash distributions on such Class R Certificate
over its life.
As discussed above, the rules for accrual of original issue discount with
respect to certain Class of Certificates are subject to significant complexity
and uncertainty. Because original issue discount on
Certificates will be deducted by the related REMIC in determining its taxable
income, any changes required by the Internal Revenue Service in the
application of those rules to the Certificates may significantly affect the
timing of original issue discount deductions to the related REMIC and
therefore the amount of the related REMIC's taxable income allocable to
holders of interests in the Class R Certificate.
Purchasers of interests in the Class R Certificate are strongly advised
to consult their own tax advisors as to the economic and tax consequences of
investment in such Certificate.
For further information regarding the federal income tax consequences of
investing in the Class R Certificate, see "Certain Yield and Prepayment
Considerations-- Additional Yield Considerations Applicable Solely to the
Class R Certificates" herein and "Certain Federal Income Tax Consequences--
REMIC --Taxation of Owners of Residual Certificates" in the Prospectus.
An individual, trust or estate that holds (whether directly or in
directive through certain pass-through entities) an interest in the Class R
Certificate may have significant additional gross income with respect to, but
may be subject to limitations on the deductibility of, servicing and trustee's
fees and other administrative expenses properly allocable to the related REMIC
in computing such Certificateholder's regular tax liability and will not be
able to deduct such fees or expenses to any extent in computing such
Certificateholder's alternative minimum tax liability. Such expenses will be
allocated for federal income tax information reporting purposes entirely to
the Class R Certificate. However, it is possible that the IRS may require
all or some portion of such fees and expenses to be allocated to the Class R
Certificate. See "Certain Federal Income Tax Consequences--REMIC --Taxation
of Owners of Residual Certificates" in the Prospectus.
The Company will be designated as the "tax matters persons" with respect
to the REMIC I and the REMIC II as defined in the REMIC Regulations (defined
below), and in connection therewith will be required to hold not less than
0.01% of the Class R Certificate.
For further information regarding the federal income tax consequences of
investing in the Certificates, see "Certain Federal Income Tax Consequences"
in the Prospectus.
CERTAIN LEGAL INVESTMENT ASPECTS
As of the date of their issuance, the Offered Certificates, other than
the Class B-1 and Class B-2 Certificates, 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
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institutions, life insurance companies, and pension funds) created pursuant to
or existing under the laws of the United States or of any state whose
authorized investments are subject to state regulation to the same extent
that, under applicable law, obligations issued by or guaranteed as to
principal and interest by the United States or any agency or instrumentality
thereof constitute legal investments for such entities. Under SMMEA, if a
state enacted legislation prior to October 4, 1991 specifically limiting the
legal investment authority of any of such entities with respect to "mortgage
related securities", the Offered Certificates, other than the Class B-1 and
Class B-2 Certificates, will constitute legal investments for entities subject
to such legislation only to the extent provided therein. Certain states have
enacted such legislation. Investors should consult their own legal advisors in
determining whether and to what extent the Offered Certificates constitute
legal investments for such investors.
SMMEA also amended the legal investment authority of federally-chartered
depository institutions as follows: federal savings and loan associations and
federal savings banks may invest in, sell or otherwise deal with the Offered
Certificates, other than the Class B-1 and Class B-2 Certificates, without
limitation as to the percentage of their assets represented thereby, federal
credit unions may invest in the Offered Certificates, other than the Class B-1
and Class B-2 Certificates, and national banks may purchase the Offered
Certificates, other than the Class B-1 and Class B-2 Certificates, for their
own accounts without regard to the limitations generally applicable to
investment securities set forth in 12 U.S.C. 24 (Seventh), in each case
subject to such regulations as the applicable federal regulatory authority may
prescribe.
Institutions whose investment activities are subject to review by certain
regulatory authorities hereafter may be or may become subject to restrictions
on investment in the Offered Certificates, and such restrictions may be
retroactively imposed. The Federal Financial Institutions Examination
Council, the Federal Deposit Insurance Corporation, the Office of the
Comptroller of the Currency, the Board of Governors of the Federal Reserve
System, the Office of Thrift Supervision and the National Credit Union
Administration have adopted guidelines, and have proposed policies, regarding
the suitability of investments in various types of derivative mortgage-backed
securities, including securities such as the Offered Certificates. In
addition, several states have adopted or are considering regulations that
would prohibit regulated institutions subject to their jurisdiction from
holding mortgage-backed securities such as the Offered Certificates, including
such securities previously purchased. Investors should consult their own
legal advisors in determining whether and to what extent the Offered
Certificates constitute legal investments for such investors.
There may be other restrictions on the ability of certain investors,
including depository institutions, either to purchase the Offered Certificates
or to purchase the Offered Certificates representing more than a specified
percentage of the investor's assets. Investors should consult their own legal
advisors in determining whether and to what extent the Offered Certificates
constitute legal investments for such investors.
ERISA CONSIDERATIONS
Any fiduciary of an employee benefit plan or other benefit plan or
arrangement which is subject to the Employee Retirement Income Security Act of
1974, as amended ("ERISA"), or Section 4975 of the Internal Revenue Code of
1986, as amended (the "CODE") (each, a "PLAN"), or other person that proposes
to use "plan assets" of any Plan to acquire any Offered Certificates should
consult with its counsel with respect to the potential consequences under
ERISA and Section 4975 of the Code of the acquisition and ownership of such
Certificates by, on behalf of or with "plan assets" of any Plan. See "ERISA
Considerations" in the Prospectus.
S-90
<PAGE>
UNDERWRITERS' PTE
The Underwriters are recipient of a final prohibited transaction
exemption (the "UNDERWRITERS' PTE") which may afford protection from
violations under Sections 406 and 407 of ERISA and Section 4975 of the Code
for Plans that acquire Offered Certificates (other than the Senior Subordinate
Certificates). It is not clear whether exemptive relief is available under
the Underwriters' PTE for Plans that acquire interests in the Class R
Certificate. Plans (or persons using "plan assets" of any Plan) that acquire
Offered Certificates (other than the Senior Subordinate Certificates) may be
eligible for exemptive relief under the Underwriters' PTE if:
(a) The Class of such Certificates acquired by the Plan is not
subordinated to other Classes of Certificates with respect to the right to
receive payment in the event of defaults or delinquencies on the underlying
Mortgage Loans;
(b) The Plan is an "accredited investor"(as defined in Rule
5Ol(a)(I)of Regulation D under the Securities Act of 1933, as amended (the
"ACT"));
(c) The acquisition of such Certificates by the Plan is on terms
(including the price paid 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;
(d) The sum of all payments made to and retained by the Underwriters
in connection with the distribution of such Certificates represents not more
than reasonable compensation for underwriting such Certificates; the sum of
all payments made to and retained by the Company pursuant to the sale of the
Mortgage Loans to the REMIC I represents not more than the fair market value
of the Mortgage Loans, and the sum of all payments made to and retained by the
Company or any other servicer represents not more than reasonable compensation
for their services under the Pooling and Servicing Agreement and reimbursement
of their reasonable expenses in connection therewith;
(e) The Certificates acquired by the Plan have received a rating from
S&P, Fitch or DCR that is in the three highest generic rating categories; and
(f) The Trustee is not an affiliate of any other member of the
Restricted Group (as defined below).
In addition, the Underwriters' PTE will not provide exemptive relief for
certain transactions prohibited by Section 406(b)(1) of ERISA or Section
4975(c)(1)(E) of the Code that may result from an investment of any "plan
assets" of any Plan in such Certificates if:
(g) The Plan's investment in any Class of such Certificates exceeds
25% of the outstanding Certificates of that Class at the time of acquisition;
(h) 25% or more of the Plan assets with respect to which the
investing fiduciary has discretionary authority or renders investment advice
are invested in certificates evidencing interests in trusts sponsored or
containing assets sold or serviced by the Company;
(i) The Plan is sponsored by the Company, the Underwriters, the
Trustee, any servicer, the obligor under any credit support mechanism, or any
mortgagor with respect to Mortgage Loans constituting
S-91
<PAGE>
more than 5% of the aggregate unamortized principal balance of the Mortgage
Loans on the Closing Date (a "MAJOR OBLIGOR") or their affiliates
(collectively, the "RESTRICTED GROUP"):
(j) The Plan fiduciary responsible for the decision to invest or any
of its affiliates is a Major Obligor; or
(k) In connection with an acquisition of Certificates in the initial
issuance, less than 50% of each Class of Certificates in which Plans have
invested and less than 50% of the aggregate interests in the REMIC I are
acquired by persons independent of members of the Restricted Group.
Whether the conditions of the Underwriters' PTE will be satisfied with
respect to Offered Certificates of a particular Class will depend upon the
facts and circumstances existing at the time the Plan acquires (or "plan
assets" of the Plan are used to acquire) Certificates of that Class. Any Plan
fiduciary or other person that proposes to use "plan assets" of any Plan to
acquire such Offered Certificates in reliance upon the Underwriters' PTE
should determine whether such acquisition will satisfy all applicable
conditions and consult with its counsel regarding other factors that may
affect the applicability of the Underwriters' PTE. Purchasers using insurance
company general account assets to effect the purchase of the Senior
Subordinate Certificates should consider the availability of exemptive relief
under Sections I and III of PTCE 95-60. See "ERISA Considerations" in the
Prospectus.
PROHIBITED TRANSACTION CLASS EXEMPTIONS
To qualify for exemption under PTCE 83-1 (see "ERISA Considerations" in
the Prospectus), a Certificate (i) must entitle its holder to more than
nominal pass-through payments of both principal and interest from the Mortgage
Loans, (ii) must not be subordinated to other Classes of Certificates with
respect to the right to receive payments in the event of defaults or
delinquencies on the underlying Mortgage Loans and (iii) must not be issued by
a trust which holds cooperative apartment Mortgage Loans. See "ERISA
Considerations" in the Prospectus. Because the REMIC II will not hold
cooperative apartment Mortgage Loans, PTCE 83-1 will afford exemptive relief
to Plans (or persons using "plan assets" of any Plan) that acquire Class IA or
Class IIA Certificates from the prohibited transaction rules of ERISA or
Section 4975 of the Code.
RESTRICTIONS ON THE SENIOR SUBORDINATE AND RESIDUAL CERTIFICATES
Because the Senior Subordinate Certificates will not qualify for
exemptive relief under the Underwriters' PTE or PTCE 83-1, because it is not
clear whether the Residual Certificate may qualify for exemptive relief under
the Underwriter's PTE, and because the Class R Certificate will not qualify
for exemptive relief under PTCE 83-1, purchases of such Certificates by, on
behalf of or with -plan assets" of any Plan are not to be registered unless
the transferee (i) provides an opinion of counsel satisfactory to the Trustee
and the Company that the purchase of any such Certificate by, on behalf of or
with "plan assets" of such Plan is permissible under applicable law, will not
constitute or result in a nonexempt prohibited transaction under ERISA or
Section 4975 of the Code, and will not subject the Servicer, the Company or
the Trustee to any obligation in addition to those undertaken in the Pooling
and Servicing Agreement or (ii) represents that it is an insurance company
using assets of its general account to effect such purchase in reliance upon
the availability of exemptive relief under Sections I and III of PTCE 95-60.
S-92
<PAGE>
METHOD OF DISTRIBUTION
Subject to the terms and conditions set forth in the Underwriting
Agreement, the Company has agreed to sell to the Underwriters, and the
Underwriters have agreed to purchase, all of the Offered Certificates, other
than the 0.01% percentage interest of the Class R Certificate to be Kirk
Flores, General counsel of the Company and by the Trustee. The aggregate
proceeds (excluding accrued interest) to the Company from the sale of the
Offered Certificates, before deducting expenses estimated to be
$ , will be approximately % of the initial aggregate
Certificate Principal Balance of the Offered Certificates. Under the terms
and conditions of the Underwriting Agreement, the Underwriters are committed
to take and pay for all of such Offered Certificates, if any are taken.
Distribution of such Offered Certificates will be made by the Underwriters
from time to time in negotiated transactions or otherwise at varying prices to
be determined at the time of sale. The difference between the purchase price
for the Offered Certificates paid to the Company and the proceeds from the
sale of such Certificates realized by the Underwriters will constitute
underwriting discounts and commissions.
The Company has agreed to indemnify the Underwriters against certain
civil liabilities, including
liabilities under the Act.
LEGAL MATTERS
Certain legal matters will be passed upon for the Company by Mayer, Brown
& Platt, Chicago, Illinois. Certain legal matters will be passed upon for ABN
AMRO Incorporated by Mark Egert, General counsel of ABN AMRO Incorporated.
Thatcher, Proffitt & Wood, New York, New York, will pass upon certain legal
matters on behalf of Donaldson, Lufkin & Jenrette.
CERTIFICATE RATINGS
It is a condition to the issuance of the Offered Certificates that the
Class A Certificates and the Residual Certificate each be rated in the highest
rating category of each of S & P, Fitch and DCR (collectively, the "RATING
AGENCIES"), [that the Class M Certificates be rated in the second highest
rating category of each of the Rating Agencies; that the Class B-1
Certificates be rated in the third highest rating category of each of the
Rating Agencies; and that the Class B-2 Certificates be rated in the fourth
highest rating category of each of the Rating Agencies.]
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 Agency. Each security rating should be evaluated independently of any
other security rating.
The ratings by DCR assigned to this issue do not constitute a
recommendation to purchase or sell these securities. Rather they are an
indication of the likelihood of the payment of principal and interest as set
forth in the transaction documentation. The ratings do not address the effect
on the Certificates' yield attributable to prepayments or recoveries on the
underlying Mortgage Loans.
The ratings on the Offered Certificates address the likelihood of the
receipt by Certificateholders of all distributions with respect to the
underlying Mortgage Loans to which they are entitled. The ratings do not
represent any assessment of the likelihood that the rate of Principal
Prepayments by Mortgagors might differ from those originally anticipated. As
a result of such differences in the rate of Principal Prepayments,
S-93
<PAGE>
Certificateholders might suffer a lower than anticipated yield to maturity.
See "Risk Factors" and "Yield and Prepayment Considerations" herein.
The Company has not requested a rating on the Offered Certificates by
any rating agency other than S&P, DCR and Fitch. However, there can be no
assurance as to whether any other rating agency will rate the Offered
Certificates, or, if it does, what rating would be assigned by any such other
rating agency. A rating on the Offered Certificates by another rating agency,
if assigned at all, may be lower than the rating assigned to the Offered
Certificates by S&P, DCR or Fitch.
S-94
<PAGE>
APPENDIX A
PLANNED PRINCIPAL BALANCE TABLES
[TO COME]
S-95
<PAGE>
APPENDIX B
TARGETED PRINCIPAL BALANCE TABLES
[TO COME]
S-96
<PAGE>
APPENDIX C
BASIC PREPAYMENT ASSUMPTION TABLES
[TO COME]
S-97
<PAGE>
GLOSSARY
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.
Accretion Directed Class ............................................ S-26
Accretion Directed Component ........................................ S-26
Accrual Classes ..................................................... S-26
Accrual Component ................................................... S-26
Act ................................................................. S-74
ACUscores ........................................................... S-31
Adjusted Lockout Percentage ......................................... S-50
Available Distribution Amount ....................................... S-57
Bankruptcy Losses ................................................... S-55
Basic Prepayment Assumption ......................................... S-62
Book-Entry Certificates ............................................. S-29
BPA ........................................................... S-24, S-62
Cede ................................................................ S-40
Certificate Group ................................................... S-39
Certificate Principal Balance ....................................... S-40
Certificates ................................................ i, S-7, S-39
Class A Certificates ............................................. i, S-39
Class I-A Certificates .............................................. S-39
Class IA Certificates ............................................... i
Class IA-1-3 Accretion Termination
Date ................................................................ S-45
Class IA-1-3 Accrual Amount ......................................... S-45
Class Principal Balance ............................................. S-39
Closing Date ........................................................ S-7
Code ................................................................ S-73
Company ........................................................... i, S-7
Compensating Interest ............................................... S-14
Component ...................................................... S-8, S-39
Component IA-1-2 Notional Amount .................................... S-46
Component IA-1-4 Fraction ........................................... S-48
Component IA-1-4 Principal Distribution
Amount .............................................................. S-48
Component IA-1-6 Notional Amount .................................... S-47
Component Notional Amount ........................................... S-8
Component Principal Balance .................................... S-8, S-39
Credit Support Depletion Date ................................. S-13, S-45
Curtailments ........................................................ S-26
Cut-Off Date ................................................... S-7, S-30
Cut-off Date Pool Principal Balance ................................. S-9
DCR ...................................................... S-4, S-22, S-39
Debt Service Reduction .............................................. S-55
Deficient Valuation ................................................. S-55
Definitive Certificates ............................................. S-42
Determination Date .................................................. S-57
Group I Discount Mortgage Loan ................................ S-11, S-47
Distribution Date ................................................... S-42
DTC ........................................................... S-11, S-29
DTC Participants .................................................... S-40
Due Date ............................................................ S-32
Excess Liquidation Proceeds ......................................... S-58
ERISA ............................................................... S-73
FICO Scores ......................................................... S-31
Fitch .................................................... S-4, S-22, S-39
Fraud Losses ........................................................ S-55
Group I Bankruptcy Coverage ......................................... S-56
Group I Fraud Coverage .............................................. S-56
Group I Mortgage Loans .............................................. S-2
Group I Premium Rate Mortgage Loans ................................. S-47
Group I Senior Liquidation Amount ................................... S-50
Group I Senior Percentage ........................................... S-50
Group I Senior Prepayment Percentage ................................ S-53
Group I Senior Principal Distribution
Amount .............................................................. S-49
Group I Special Hazard Coverage ..................................... S-55
Group II Bankruptcy Coverage ........................................ S-56
Group II Fraud Coverage ............................................. S-56
Group II Mortgage Loans ............................................. S-2
Group II Senior Liquidation Amount .................................. S-51
Group II Senior Percentage .......................................... S-51
Group II Senior Prepayment Percentage ............................... S-53
Group II Senior Principal Distribution
Amount .............................................................. S-51
Group II Special Hazard Coverage .................................... S-55
Indirect DTC Participants ........................................... S-41
Junior Subordinate Certificates .................................. i, S-39
Liquidation Principal ............................................... S-50
Lockout Liquidation Amount .......................................... S-50
Lockout Percentage .................................................. S-50
Lockout Prepayment Percentage ....................................... S-50
Lockout Principal Distribution Amount ............................... S-50
Loss Severity Percentage ............................................ S-64
Major Obligor ....................................................... S-75
Servicing Fee ....................................................... S-59
Modeling Assumptions ................................................ S-63
Mortgage Loan Group ............................................ S-2, S-10
Mortgage Loan Group I .......................................... S-2, S-10
Mortgage Loan Group II ......................................... S-2, S-10
Mortgage Loan Schedule .............................................. S-30
Mortgage Loans ............................................ S-2, S-9, S-39
Mortgage Pool .................................................. S-2, S-30
S-98
<PAGE>
Mortgaged Properties ........................................... S-9, S-30
Net Mortgage Rate ................................................... S-32
New Regulations ..................................................... S-71
Offered Certificates ................................................ S-39
OID ........................................................... S-23, S-70
Overcollateralized Group ............................................ S-45
PACs ................................................................ S-26
Payoffs ............................................................. S-26
Plan ................................................................ S-73
Planned Principal Balance ...................................... S-3, S-26
Pooling and Servicing Agreement ..................................... S-39
Prepayment Period ................................................... S-53
Principal Payment Amount ............................................ S-52
Principal Prepayment Amount ......................................... S-52
Principal Prepayments ............................................... S-26
Pro Rata Allocation ........................................... S-20, S-55
Rating Agencies ..................................................... S-4
REITs ......................................................... S-25, S-70
REMIC ........................................................... S-2, S-9
REMIC I ................................................... S-2, S-9, S-39
REMIC II ........................................................ S-2, S-9
REMIC Regulations ................................................... S-71
Remittance Rate ..................................................... S-7
Residual Certificate ............................................. i, S-39
Restricted Group .................................................... S-75
Rules ............................................................... S-41
S&P ...................................................... S-4, S-22, S-39
Scheduled Principal Balance ......................................... S-49
Senior Certificates .............................................. i, S-39
Senior Subordinate Certificates .................................. i, S-39
Servicer ............................................................ S-7
SMMEA ......................................................... S-23, S-72
Special Hazard Losses ............................................... S-55
Step Down Percentage ................................................ S-51
Stripped Interest Rate .............................................. S-47
Subordinate Certificates ......................................... i, S-39
Subordinate Liquidation Amount ...................................... S-52
Subordinate Prepayment Percentage" .................................. S-52
Subordinate Principal Distribution
Amount .............................................................. S-52
Subordination Level ................................................. S-44
TACs ................................................................ S-27
Targeted Principal Balance ..................................... S-3, S-27
thrift institutions ................................................. S-71
Trustee ........................................................ S-7, S-39
UG .................................................................. S-31
Undercollateralized Group ........................................... S-45
Underwriters' PTE ................................................... S-74
Underwriters ........................................................ i
S-99
<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 $294,705
Blue Sky Fees and Expenses 10,000
Legal Fees and Expenses 250,000
Accounting Fees and Expenses 100,000
Trustee's Fees and Expenses (including counsel fees) 25,000
Printing and Engraving Fees 50,000
Rating Agency Fees 100,000
Miscellaneous 25,000
--------
Total $854,705
______________________
* 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
* previously filed
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.
II-2
<PAGE>
The Registrant hereby undertakes:
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
Amendment to the Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Troy, State of Michigan
on the 20th day of February, 1998.
ABN AMRO Mortgage Corporation
By
--------------------------------------
Name: Stewart W. Fleming
Title: Vice President and Director
Pursuant to the requirements of the Securities Act of 1933, this
Amendment to the Registration Statement has been signed below by the following
persons in the capacities and on the dates indicated.
Signature Title
--------- -----
Joseph Krul* Chairman of the Board and President
- ----------------------- --------------------------------------
Joseph Krul
Michael Maher* Chief Financial Officer and Treasurer
- ----------------------- --------------------------------------
Michael Maher
Stanley H. Rhodes* Senior Vice President and Director
- ----------------------- --------------------------------------
Stanley H. Rhodes
/s/ Stewart W. Fleming Vice President and Director
- ----------------------- --------------------------------------
Stewart W. Fleming
Martin Eisenberg* Vice President
- ----------------------- --------------------------------------
Martin Eisenberg
By: /s/ Stewart W. Fleming
-------------------------------
Stewart W. Fleming
(Attorney-in-fact)
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
- ---------------------------------
*/ previously filed
EXHIBIT 5.1
February 20, 1998
ABN AMRO Mortgage Corporation
181 West Madison Street, Suite 3250
Chicago, Illinois 60602-4510
Ladies and Gentlemen:
We have acted as your counsel in connection with the preparation of the
Registration Statement on Form S-3 (the "Registration Statement"), and the
Prospectus and form of Prospectus Supplement forming a part thereof
(collectively, the "Prospectus"), filed by you with the Securities and
Exchange Commission (the "Commission") under the Securities Act of 1933, as
amended (the "Act") relating to the Certificates (as defined below). The
Registration Statement and the Prospectus relate to the offer and sale of up
to $1,000,000 aggregate principal amount of the Mortgage Pass-Through
Certificates (Issuable in Series) (the "Certificates") to be created and
issued pursuant to one or more Pooling and Servicing Agreements to be entered
into between you, one or more trustees and possibly another entity as the
master servicer (collectively, the "Agreement") as described in the
Registration Statement. A form of Pooling and Servicing Agreement is included
as an Exhibit to the Registration Statement. We have examined the
Registration Statement, the Prospectus and such other documents as we have
deemed necessary or advisable for purposes of rendering this opinion.
Additionally, our advice has formed the basis for the description of the
selected Federal income tax consequences of the purchase, ownership and
disposition of the Certificates to an original purchaser that appears under
the heading "Certain Federal Income Tax Consequences" in the Prospectus (the
"Tax Description"). Except as otherwise indicated herein, all terms defined
in the Prospectus are used herein as so defined.
We have assumed for the purposes of the opinions set forth below that the
Certificates will be issued in Series created as described in the Registration
Statement and that the Certificates will be sold by you for reasonably equivalen
t consideration. We have also assumed that, except with respect to ABN AMRO
Mortgage Corporation, the Agreement and the Certificates will be duly
authorized by all necessary corporate action and that the Certificates will be
duly issued, executed, authenticated and delivered in accordance with the
<PAGE>
ABN AMRO Mortgage Corp.
February 20, 1998
Page 2
provisions of the Agreement. In addition, we have assumed that the parties to
each Agreement will satisfy their respective obligations thereunder. We
express no opinion with respect to any Series of Certificates for which we do
not act as counsel to you.
The opinion set forth in paragraph 2 of this letter is based upon the
applicable provisions of the Internal Revenue Code of 1986, as amended,
Treasury regulations promulgated and proposed thereunder, current positions of
the Internal Revenue Service (the "IRS") contained in published Revenue
Rulings and Revenue Procedures, current administrative positions of the IRS
and existing judicial decisions. This opinion is subject to the explanations
and qualifications set forth under the caption "Certain Federal Income Tax
Consequences" in the Prospectus. No tax rulings will be sought from the IRS
with respect to any of the matters discussed herein.
On the basis of the foregoing examination and assumptions, and upon
consideration of applicable law, it is our opinion that:
1. When a Pooling and Servicing Agreement for a Series of
Certificates has been duly and validly authorized, executed and delivered by
the Depositor, the Servicer and the Trustee, and the Certificates of such
Series have been duly executed, authenticated, delivered and sold as
contemplated in the Registration Statement, such Certificates will be legally
and validly issued, fully paid and nonassessable, and the holders of such
Certificates will be entitled to the benefits of such Pooling and Servicing
Agreement.
2. While the Tax Description does not purport to discuss all possible
Federal income tax ramifications of the purchase, ownership, and disposition
of the Certificates, particularly to purchasers subject to special rules under
the Internal Revenue Code of 1986, we hereby adopt and confirm the opinions
set forth in the Prospectus under the headings "Summary of Terms -- Federal
Income Tax Considerations," "Summary of Terms -- ERISA," "Certain Federal
Income Tax Consequences" and "ERISA Considerations". There can be no
assurance, however, that the tax conclusions presented therein will not be
successfully challenged by the IRS, or significantly altered by new
legislation, changes in IRS positions or judicial decisions, any of which
challenges or alterations may be applied retroactively with respect to
completed transactions. We note, however, that the form of Prospectus
Supplement filed herewith does not relate to a specific transaction.
Accordingly, the above-referenced description of the selected Federal income
tax consequences may, under certain circumstances, require modification when
an actual transaction is undertaken.
<PAGE>
ABN AMRO Mortgage Corp.
February 20, 1998
Page 3
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and to the reference to our firm in the Prospectus
under the caption "Certain Federal Income Tax Consequences" and "Legal
Matters". In giving such consent, we do not admit that we are "experts"
within the meaning of the term used in the Act or the rules and regulations of
the Securities and Exchange Commission issued thereunder, with respect to any
part of the Registration Statement, including this opinion as an exhibit or
otherwise.
Very truly yours,
MAYER, BROWN & PLATT
MBP:DC
