<PAGE>
- --------------------------------------------------------------------------------
As filed with the Securities and Exchange Commission on February 20, 1998
Registration No. 333-42127
=======================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
AMENDMENT NO. 1
TO FORM S-3
REGISTRATION STATEMENT
under
THE SECURITIES ACT OF 1933
--------------------
ABN AMRO MORTGAGE CORPORATION
(Exact name of registrant as specified in governing instruments)
--------------------
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)
--------------------
Joseph Krul, President
ABN AMRO Mortgage Corporation
181 West Madison Street
Chicago, Illinois 60602
(248) 643-2530
(Name and address of agent for service)
--------------------
Copies to:
Diane Citron, Esq.
Mayer, Brown & Platt
190 South LaSalle Street
Chicago, Illinois 60603-3441
(312) 782-0600
--------------------
Approximate date of commencement of proposed sale to the public:
From time to time after this Registration Statement becomes effective.
--------------------
If the only securities being registered on this form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. [ ]
If any of the securities being registered on this form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or interest
reinvestment plans, please check the following box. [X]
--------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
Proposed Maximum Proposed Maximum
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 $1,000,000 100% $1,000,000 $295.00/(2)/
Certificates/(1)/
</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) Previously paid.
--------------------
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>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A +
+REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE +
+SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY +
+OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES+
+EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE +
+SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE +
+SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE +
+UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF +
+ANY SUCH STATE. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION, DATED ________ ___, 199
-
PROSPECTUS SUPPLEMENT
(To Prospectus dated __________ __, 1997)
$___________
ABN AMRO Mortgage Corporation
Depositor
Mortgage Pass-Through Certificates,
Class ___, Series 199__-___
_______________________________________________
The Series 199__-___ Mortgage Pass-Through Certificates will consist of ___
class[es] of Senior Certificates (the Class A-___, Class A- ___ and Class A-___
Certificates, respectively, and collectively the "Class A Certificates"), ___
class[es] of Subordinate Certificates (the Class B-___ and Class B-___
Certificates, respectively, and collectively the "Class B Certificates") and ___
class[es] of Class R Certificates (the "Residual Certificates" and along with
the Class A and Class B Certificates, collectively, the "Certificates" or the
"Series 199 - Certificates"). [Only the Class A-___, A-___ and A-___
Certificates are offered hereby.] The Class A Certificates and the Class B
Certificates will represent interests in a pool (the "Mortgage Pool") of
[adjustable] [fixed] rate one- to four-unit residential mortgage loans (the
"Mortgage Loans") originated or acquired by [LaSalle Home Mortgage Corporation
("LaSalle") and Standard Federal Bank ("Standard Federal"), each an affiliate of
the Depositor] [and] [names of other Qualified Lenders] and certain other
property related to the Mortgage Pool held in trust for the benefit of the
Certificateholders. The servicing of the Mortgage Loans will be performed by
various servicers identified herein (each, a "Servicer"), and will be supervised
by [LaSalle] [and] [name of other or additional Master Servicer] (in such
capacity, individually and collectively, the "Master Servicer"). [The
Certificates will be credit enhanced by [Special Hazard Insurance] [a
(Continued on next page)
--------------------------------------------
[See "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 In addition to standard hazard insurance policies
Policy 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 For each Mortgage Loan with a Loan-to-Value Ratio
Insurance 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 certain 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 _____:
Year
--------------------------------------------------------
Month 19 19 19 19 19
----- ---- ---- ---- ---- ----
January................. % % % % %
February................
March...................
April...................
S-14
<PAGE>
May.....................
June....................
July....................
August..................
September...............
October.................
November................
December................
THE MORTGAGE POOL
As of the Cut-off Date, the mortgage pool (the "Mortgage Pool") will consist
of Mortgage Loans evidenced by Mortgage Notes that had an aggregate principal
balance of $__________. The Mortgage Notes are by mortgages or deeds of trust
or other similar security instruments creating a lien on one- to four-unit
residential properties located in __________ (the "Mortgaged Properties") and
having the additional characteristics described below and in the Prospectus./1//
--
Each Mortgage Loan was acquired by the Depositor for inclusion in the
Mortgage Pool, was originated or acquired by [LaSalle][Standard Federal][or]
[names of other Qualified Lenders] during the period __________ , 199_ through
__________ , 199_ and had an original term to maturity of not more than___
years. The weighted average term to maturity as of the Cut-off Date of the
Mortgage Loans is _____ years. As of the Cut-off Date, the weighted average
interest rate borne by the Mortgage Loans was ___% per annum [and the weighted
average Maximum Rate [and weighted average Minimum Rate] [was] [were] ___% [and
___%] per annum[, respectively]. [The Maximum Adjustment for each Mortgage Loan
is ___%.]] All of the Mortgage Loans have principal and interest payable on the
[first] day of each month (each an "Installment Due Date"). See "Description of
the Certificates -- General," "-- Adjustment to Master Servicing Fees in
Connection with Prepayment Interest Shortfall" and "-- Example of Distribution"
in the Prospectus. The latest date on which any Mortgage Loan matures is
_______________, 20__. At origination, based upon [LaSalle's][Standard
Federal's][insert name of
- -------------------
/1// The description herein of the Mortgage Pool and the Mortgaged Properties
is based upon the Mortgage Pool as it was constituted at the close of
business on _______________,199_, as adjusted for all scheduled principal
payments due on or before such date. Prior to the issuance of the
Certificates, Mortgage Loans may be removed from the Mortgage Pool (i) as
a result of principal prepayments thereof in full, or (ii) as a result of
delinquencies or otherwise, as set forth in the Agreement. In either
event, other mortgage loans may be included in the Mortgage Pool. The
Depositor believes that the information set forth herein with respect to
the Mortgage Pool as presently constituted is representative of the
characteristics of the Mortgage Pool as it will be constituted at the
time the Certificates are issued, although the range of adjustable
Mortgage Interest Rates and maturities, and certain other characteristics
of the Mortgage Loans in the Mortgage Pool may vary.
S-15
<PAGE>
Qualified Lender's] appraisal of the Mortgaged Property securing each Mortgage
Loan, the weighted average Loan-to-Value Ratio of the Mortgage Loans was ___%.
[No Mortgage Loan in the Mortgage Pool is covered by a primary mortgage guaranty
insurance policy.] At origination, each Mortgage Loan had a principal balance of
not less than $__________ nor more than $__________ and the average principal
balance of the Mortgage Loans was approximately $__________ . Substantially all
of the Mortgaged Properties are owner occupied primary or second residences
intended to be used principally by the Mortgagor, based on representations made
by the Mortgagor at the time of origination of the corresponding Mortgage Loan.
In its underwriting of loans on second residences, the Depositor includes the
debt on both the Mortgagor's primary and second residences in its primary debt
ratio calculations.
The Depositor will assign the Mortgage Loans to the Trustee for the ultimate
benefit of the Certificateholders. The Master Servicer will service the
Mortgage Loans directly or through [name of Qualified Lender] as Servicer
pursuant to the Agreement, and will receive compensation for such services. See
"Description of the Certificates -- Assignment of Mortgage Loans" in the
Prospectus.
The Depositor will make representations and warranties regarding the Mortgage
Loans in the Agreement, but its assignment of the Mortgage Loans to the Trustee
will be without recourse and the Depositor's obligations relating to the
Mortgage Loans will be limited to the representations and warranties made by it
and to its servicing obligations, if any, under the Agreement. The Master
Servicer is required to make certain advances of its own funds in respect of the
Mortgage Loans to the limited extent set forth under "Description of the
Certificates -- Advances and Limitations Thereon" in the Prospectus
["Description of the Certificates -- Advances" herein].
Each Class A Certificate represents an undivided beneficial interest in the
Mortgage Loans in the Mortgage Pool. The Certificate Balance of each Class A
Certificate will decrease more rapidly than the decreases in the Principal
Balances of the Mortgage Loans due to the disproportionate distributions to
Class A Certificateholders of amounts attributable to principal prepayments on
the Mortgage Loans.
Set forth below is a description of additional characteristics of the
Mortgage Loans:
[Month] [Year] of Origination of Mortgage Loans
Aggregate Principal % of
[Month] [Year] Number of Balance Outstanding Mortgage
of Origination Mortgage Loans As of Cut-Off Date Pool
- -------------- -------------- ------------------- --------
........................ $ %
Total................... $ 100%
Types of Mortgaged Properties
Aggregate Principal % of
Number of Balance Outstanding Mortgage
Property Type Mortgage Loans As of Cut-Off Date Pool
- ------------- -------------- ------------------- --------
........................ $ %
Total................... $ 100%
Loan Purpose
S-16
<PAGE>
Aggregate Principal % of
Number of Balance Outstanding Mortgage
Loan Purpose Mortgage Loans As of Cut-Off Date Pool
- ------------ -------------- ------------------- --------
Purchase......................... $ %
Refinance........................
Cash-out Refinance...............
Total................... $ 100%
Occupancy of the Mortgaged Property
Aggregate Principal % of
Number of Balance Outstanding Mortgage
Type of Loan Mortgage Loans As of Cut-Off Date Pool
- ------------ -------------- ------------------- --------
Owner Occupied................... $ %
Non-Owner Occupied...............
Second homes.....................
Total................... $ 100%
Geographical Distribution of Mortgaged Properties
Aggregate Principal % of
Number of Balance Outstanding Mortgage
State Mortgage Loans As of Cut-Off Date Pool
- ----- -------------- ------------------- --------
........................ $ %
Total................... $ 100%
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%
[Initial Mortgage Rates
<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%]
[Current Mortgage Interest Rates(1)
<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%
- --------------------
(1) The weighted average Mortgage Interest Rate as of the Cut-Off Date was
____% per annum.]
[Mortgage Loan Gross Margins(1)
<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%]
[Months Remaining Until Annual
Monthly Payment Adjustment
<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)
Aggregate Principal % of
Maximum Mortgage Number of Balance Outstanding Mortgage
Interest Rate (%) Mortgage Loans As of Cut-Off Date Pool
- ----------------- -------------- ------------------- --------
Total............... $ 100%
- --------------------
(1) The weighted average Maximum Mortgage Interest Rate is ____% per annum.]
Remaining Term to Stated Maturity
Aggregate Principal % of
Number of Balance Outstanding Mortgage
Remaining Term (Months) Mortgage Loans As of Cut-Off Date Pool
- ----------------------- -------------- -------------------- --------
Total............... $ 100%
YIELD CONSIDERATIONS AND RISKS
[Rate Limitations
The Mortgage Loans are subject to lifetime Maximum Rates[,] [and] [lifetime
Minimum Rates] [and] [annual] [semi-annual] Maximum Adjustments.] See "Yield
Considerations -- Maximum and Minimum Rates, Maximum Adjustment, Payment Caps
and Deferred Interest" in the Prospectus.]
Prepayment Considerations
Because the Class A Percentage of principal payments and the Class A
Prepayment Percentage of principal prepayments on the Mortgage Loans will be
distributed to the Class A Certificateholders, thus reducing the Certificate
Balance of the Class A Certificates, the rate of principal payments on the Class
A Certificates, the aggregate amount of each interest payment on the Class A
Certificates and the yield to maturity of such Class A Certificates are directly
related to the rate of payments of principal on the Mortgage Loans. In
addition, affiliates of the Depositor may solicit certain Mortgagors to
refinance their Mortgage Loans, which would result in the prepayment of such
Mortgage Loans. The principal payments on the Mortgage Loans may be in the form
of scheduled principal payments or prepayments (for this purpose, the term
"prepayment" includes prepayments and liquidations due to default, casualty,
condemnation and the like). Any such prepayments will result in distributions
to Certificateholders in the month following the month of such prepayment of
amounts which would otherwise be distributed over the remaining term of the
Mortgage Loans. In addition, the Class A Certificateholders are entitled to
receive a disproportionate share of such prepayments, further accelerating the
rate at which they will receive distributions in respect of principal on the
Mortgage Loans. See "Maturity Considerations" in the Prospectus. In general,
the prepayment rate of the Mortgage Loans may be influenced by a number of
factors, including prevailing interest rate adjustments and the direction of
recent changes therein, general economic conditions and homeowner mobility.
[Mortgagors are permitted to prepay [some of] the Mortgage Loans, in whole or in
part, at any time without paying a Prepayment Premium.] [The rate of principal
payments is likely to be affected by the Lock-out Periods and Prepayment Premium
S-21
<PAGE>
provisions or Yield Maintenance Charges applicable to the Mortgage Loans, and by
the extent to which the Master Servicer is able to enforce such provisions.]
The rate of payment of principal may also be affected by any repurchase by the
Depositor or the Master Servicer of the Mortgage Loans. See "Description of the
Certificates -- Optional Termination" herein and "Description of the
Certificates -- Termination" in the Prospectus. In such event, a portion of the
repurchase price paid by the Depositor or the Master Servicer will be remitted
to the Certificate Account and subsequently distributed to the
Certificateholders in the month following the month of such repurchase. In the
case of a Mortgage Pool with a range of Mortgage Interest Rates,
disproportionate prepayments of Mortgage Loans with higher Mortgage Interest
Rates will result in a lower effective pass-through rate to Certificateholders.
See "Yield Considerations" in the Prospectus. Because the Class A
Certificateholders receive the Class A Prepayment Percentage of principal
prepayments plus the Class A Percentage of other principal payments on each
Distribution Date the yield to maturity will be impacted to a greater degree
than if such Certificateholders only received the Class A Percentage of such
principal prepayments.
[The Mortgage Loans comprising the Mortgage Pool are ARMs. The rate of
principal prepayment with respect to adjustable rate mortgage loans has
fluctuated in recent years. As is the case with conventional fixed-rate
mortgage loans, adjustable rate mortgage loans may be subject to a greater rate
of principal prepayment in a declining interest rate environment. For example,
if prevailing interest rates fall significantly, adjustable rate mortgage loans
could be subject to higher prepayment rates than if prevailing interest rates
remain constant because the availability of fixed-rate mortgage loans at
competitive interest rates may encourage Mortgagors to refinance their ARMs to
"lock in" a lower fixed interest rate. The Maximum [and Minimum] Rates,
[Minimum Monthly Payments] Maximum Adjustments,] [Prepayment Premiums,] Gross
Margins, Payment Caps and other features of the ARM programs of mortgage lenders
in recent years have significantly varied in response to market conditions such
as interest rates, consumer demand and regulatory restrictions. The lack of
uniformity of the terms and provisions of such ARM programs have made it
impracticable to compile meaningful comparative data on prepayment rates and
accordingly, there can be no certainty as to the rate of prepayment on the
Mortgage Loans in stable or changing interest rate environments. See "Yield
Considerations" and "Maturity Considerations" in the Prospectus.]
[The adjustable Mortgage Interest Rate on an ARM which negatively amortizes
changes more frequently than adjustments in the related Mortgagor's Monthly
Payment. During a period of declining interest rates, the component of each
Mortgagor's Monthly Payment in excess of interest accrued on the Principal
Balance of each Mortgage Loan will be applied to reduce the outstanding
Principal Balance on the related Mortgage Loan, thereby resulting in accelerated
amortization of such Mortgage Loan. Any such accelerated amortization of the
Principal Balance of the Mortgage Loans comprising the Mortgage Pool will
shorten the weighted average life of the Class A Certificates over that which
would result in the absence of such accelerated amortization. Conversely, to
the extent that any of the Mortgage Loans negatively amortize over their
respective terms, the weighted average life of the Class A Certificates will
increase beyond that which would otherwise be the case.]
[The Mortgage Loans comprising the Mortgage Pool are Fixed-Rate Mortgage
Loans. The rate of prepayment with respect to conventional fixed-rate mortgage
loans has fluctuated significantly in recent years. In general, if prevailing
interest rates fall significantly below the interest rates at the time of
origination, fixed rate mortgage loans are likely to be subject to higher
prepayment rates than if prevailing rates remain at or above those at the time
such mortgage loans were originated. Conversely, if prevailing interest rates
rise appreciably above the interest rates at the time of origination, fixed-rate
mortgage loans
S-22
<PAGE>
are likely to experience a lower prepayment rate than if prevailing rates remain
at or below those at the time such mortgage loans were originated. However,
there can be no assurance that any Mortgage Pool comprised of fixed-rate
Mortgage Loans will conform to past experience or any published prepayment
forecast. See "Yield Considerations" and "Maturity Considerations" in the
Prospectus.]
Although all of the Mortgage Loans included in the Mortgage Pool are by their
terms assumable under certain limited conditions, such Mortgage Loans also
contain "due-on-sale" provisions under which the Mortgage Loans become due and
payable, at the option of the holder thereof, upon the sale of the Related
Mortgaged Property. It is the Depositor's policy to enforce "due-on-sale"
provisions with respect to most fixed-rate Mortgage Loans and some ARMs;
however, where such provisions are not enforced the prospective purchaser must
meet the Depositor's creditworthiness standards and applicable law at the time
of transfer must not limit the Depositor's ability to make the interest rate and
payment adjustments permitted by the related Mortgage Note. [The Depositor has
agreed in the Agreement to waive its contractual right to decrease the Maximum
Rate or the Minimum Rate applicable to any Mortgage Note upon an assumption of
the related ARM.] [The Mortgage Notes provide that upon assumption the Maximum
Rate will be recast to equal the original percentage specified in the related
Mortgage Note above the Mortgage Interest Rate in effect on the date of
assumption.] [In the event that the assumption of any Mortgage Loan would cause
the Maximum Rate to decrease below the Maximum Rate in effect for such Mortgage
Loan at the time of issuance of the Certificates, the Depositor intends to, but
is not obligated to repurchase such Mortgage Loan from the Trust Fund at a
purchase price, subject to the REMIC Regulations, equal to the unpaid principal
balance of such Mortgage Loan plus interest at the Mortgage Pass-Through Rate,
less any unreimbursed Advances.] Acceleration of Mortgage Loans as a result of
enforcement of such "due-on-sale" provisions in connection with transfers of the
related Mortgaged Properties or the occurrence of certain other events resulting
in acceleration will affect the level of prepayments on the Mortgage Loans,
thereby affecting the weighted average life of the Class A Certificates. See
"Maturity Considerations" in the Prospectus.
Yield on the Class A Certificates
The yield of the Class A Certificates will depend upon, among other things,
the price at which the Class A Certificates are purchased, the amount of
principal payments, including both scheduled and unscheduled payments, and the
rate at which such principal is paid to the Class A Certificateholders.
[The after-tax yield to Certificateholders may be effected by lags between
the time interest income accrues to Certificateholders and the time the related
interest income is received by Certificateholders. See "Certain Federal Income
Tax Consequences" in the Prospectus.]
Effect of Shortfall
If on any Distribution Date, after taking into account any Advances, there
are not sufficient funds to make full distributions to the Class A
Certificateholders, the amount of the resulting payment deficiency (a
"shortfall"), together with interest at the Pass-Through Rate, will be added to
the amount the Class A Certificateholders are entitled to receive on the next
Distribution Date. If any shortfalls occur, the weighted average life of the
Class A Certificates would be increased over that had such shortfalls not
occurred.
S-23
<PAGE>
DESCRIPTION OF THE CERTIFICATES
The Class A Certificates will be issued pursuant to the Agreement. A form
of the Agreement is filed as an exhibit to the Registration Statement of which
the Prospectus and this Prospectus Supplement are a part. Copies of the
Agreement will be sent to Certificateholders by the Master Servicer upon written
request. Reference is made to the Prospectus for additional information
regarding the terms and conditions of the Agreement. For a more detailed
discussion of the Certificates, see the Agreement.
The Depositor is not limited in the number of Series of Certificates which
may be issued.
The following summaries do not purport to be complete and are subject to,
and are qualified in their entirety by reference to, the provisions of the
Agreement. When particular provisions or terms used in the Agreement are
referred to, the actual provisions (including definitions of terms) are
incorporated by reference.
The Class A Certificates will be transferable and exchangeable at the
Corporate Trust Office or agency of the Trustee in [Chicago, Illinois] [New
York, New York]. No service charge will be made for any registration of
exchange or transfer of the Class A Certificates on the Certificate Register
maintained by the Trustee, but the Trustee may require payment of a sum
sufficient to cover any related tax or other governmental charge. There is at
present no market for the Class A Certificates, and [although the Underwriters
have indicated their intention to make a secondary market for the Class A
Certificates,] there can be no assurance that a secondary market for the Class A
Certificates will develop. As is the case with any interest-sensitive security,
should a secondary market develop for the Class A Certificates, fluctuating
market interest rates may affect the market value of the Class A Certificates.
The Depositor [or the Mortgage Asset Seller][or the Qualified Lender] under
certain circumstances will be required to repurchase certain defective or
defaulted Mortgage Loans from the Trust Fund for a purchase price equal to the
[unpaid principal balance of] [Trust Fund's adjusted basis in] each such
Mortgage Loan, determined pursuant to the applicable provisions of the Code,
plus accrued and unpaid interest thereon. In certain of these cases, the
Depositor may be entitled to substitute a replacement mortgage loan in lieu of
repurchasing such Mortgage Loans. See "Description of the Certificates --
Assignment of Mortgage Loans," "--Representations and Warranties" and "--
Realization upon Defaulted Mortgage Loans" in the Prospectus.
The Depositor [will] [will not] be entitled to purchase delinquent or
defaulted Mortgage Loans from the Trust Fund prior to foreclosure or Mortgage
Loans as to which the Mortgagor has tendered a deed in lieu of foreclosure for a
purchase price equal to the Trust Fund's adjusted basis in each such Mortgage
Loan or deed pursuant to applicable provisions of the Code. See "Description of
the Certificates -- Realization upon Defaulted Mortgage Loans" in the
Prospectus.
Distributions
[Note: The description of distributions set forth below will be modified as
----
appropriate to reflect the terms of a particular Series.]
Distributions of principal and interest on the Class A Certificates will be
made by the Trustee or a duly authorized paying agent (the "Paying Agent") on
the 25th day of each month, or if such day is not
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a Business Day, the next succeeding Business Day (each a "Distribution Date"),
beginning ____________, 199__, to the persons in whose names such Certificates
are registered at the close of business on the last Business Day of the
preceding month (the "Record Date"). Distributions will be made by the Trustee
or the Paying Agent by check mailed to the person entitled thereto as it appears
on the Certificate Register or, in the case of a Class A Certificateholder who
has a Certificate with a Certificate Balance in excess of $5 million and who has
so notified the Trustee or the Paying Agent in writing in accordance with the
Agreement, by wire transfer in immediately available funds to the account of
such Certificateholder at a bank or other depository institution having
appropriate wire transfer facilities; provided, however, that the final
distribution in retirement of Class A Certificates will be made only upon
presentation and surrender of such Certificates at the office of the Trustee
specified in the final distribution notice to Class A Certificateholders.
The Pool Receipts on any Determination Date equal all payments or other
receipts on account of principal and interest on the Mortgage Loans or property
acquired in respect thereof due after the Cut-off Date, including, but not
limited to, Advances and Principal Prepayments, if any, but excluding amounts in
respect of the Retained Yield.
The Pool Distribution on any Distribution Date is an amount equal to all
previously undistributed Pool Receipts received by the Master Servicer due after
the Cut-off Date, or received prior to the Cut-off Date but due thereafter, and
before the related Determination Date except for certain amounts not included in
the Pool Distribution in accordance with the Agreement.
The Administration Fee with respect to any Mortgage Loan in any month is an
amount paid out of interest on such Mortgage Loan and equal to ______ % per
annum of the Principal Balance for the related Mortgage Loan, but subject to
adjustment as provided in the Agreement. The Administration Fee represents
consideration for the Master Servicer's services as Master Servicer and includes
amounts allocated to cover certain expenses, including payments of the Trustee's
fees [and premiums for Primary Mortgage Insurance on specific Mortgage Loans].
Class A Distribution.
--------------------
On any Distribution Date the amount required to be distributed to the Class
A Certificateholders (the "Class A Distribution") will be equal to the lesser of
(x) the Pool Distribution for the related Distribution Date or (y) the sum of:
(i) one month's interest at the Pass-Through Rate on the Class A
Principal Balance (net of the Class A Percentage of the amount by which the
aggregate amount of interest otherwise payable on the prepaid Mortgage Loans
by adjustment of the Administration Fee exceeds the related aggregate
Administration Fee available for payment thereof);
(ii) the outstanding balance in the Class A Interest Shortfall
Account;
(iii) the Class A Percentage of each scheduled payment of principal
payable on the Mortgage Loans on the preceding Installment Due Date;
(iv) the Class A Prepayment Percentage of Principal Prepayments; and
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(v) the Redirected Distribution Amount.
In the event that clause (y) is greater than clause (x), distributions
shall be allocated first to the interest component of the Class A Distribution
calculated pursuant to clause (y)(i) hereof; second to any balance in the Class
A Interest Shortfall Account in accordance with clause (y)(ii) hereof; and third
to the principal component of the Class A Distribution calculated pursuant to
clauses (y)(iii)--(v) hereof.
The Class A Certificate Balance for any Distribution Date is the original
Class A Principal Balance less the sum of (A) all amounts previously distributed
to holders of Class A Certificates on previous Distribution Dates on account of
amounts described in clauses (y)(iii)--(y)(v) of the definition of Class A
Distribution and (B) if such Distribution Date is subsequent to the date on
which the Class B Certificate Balance equals zero, the principal amount of the
Bankruptcy Losses, Fraud Losses, Special Hazard Losses and Excess Credit Losses
since such date.
The Class A Interest Shortfall on any Distribution Date is the excess, if
any, of the amount computed pursuant to clause (y)(i) of the definition of Class
A Distribution over the amount distributed to the Class A Certificateholders on
such Distribution Date. The Class A Interest Shortfall Account is a ledger
account established on the books of the Master Servicer to reflect any unpaid
Class A Interest Shortfall owed to the Class A Certificateholders [and accrued
interest thereon at the Pass-Through Rate]. The balance in such account will be
decreased on each Distribution Date by disbursements to the Class A
Certificateholders of any previously due Class A Interest Shortfalls and accrued
interest thereon at the Pass-Through Rate from the Distribution Date that said
Class A Interest Shortfall first accrued through such Distribution Date and
increased on each Distribution Date by any new Class A Interest Shortfall
allocable to the Class A Certificates and by accrued and unpaid interest on
previously due and unpaid Class A Interest Shortfalls at the Pass-Through Rate.
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The Class A Prepayment Percentage for each Distribution Date is the
percentage indicated below for the period during which such Distribution Date
occurs:
<TABLE>
<CAPTION>
Distribution Date Class A Prepayment Percentage
----------------- -----------------------------
<S> <C>
__________ through ________ ....... 100%
__________ through ________ ....... Class A Percentage, plus 70% of the
difference
between the Class A Percentage and 100%
__________ through ________ ....... Class A Percentage, plus 60% of the
difference
between the Class A Percentage and 100%
__________ through ________ ....... Class A Percentage, plus 40% of the
difference
between the Class A Percentage and 100%
__________ through ________ ....... Class A Percentage, plus 20% of the
difference
between the Class A Percentage and 100%
__________ and thereafter ....... Class A Percentage;
</TABLE>
provided, however, that the application of the foregoing reduction provisions is
subject to satisfaction of certain criteria regarding the amortization,
delinquency and loss experience of the Mortgage Loans, and provided further,
that if the Class A Percentage as of any Distribution Date is greater than the
initial Class A Percentage, the Class A Prepayment Percentage for such
Distribution Date shall be 100%.
The Class A Percentage initially will be approximately _______% and on each
Distribution Date will be adjusted to reflect the then current entitlement of
the holders of the Class A Certificates to distributions of scheduled payments
of principal in respect of the Mortgage Loans, based on the Class A Certificate
Balance and the aggregate outstanding Principal Balance of the Mortgage Loans in
the Trust Fund.
[As to any Distribution Date, prior to giving effect to any amounts
distributable to Class B Certificateholders on such Distribution Date, with
respect to which the Class B Certificate Balance is less than or equal to the
Minimum Required Class B Certificate Balance, the Redirected Distribution Amount
will be equal to the amount otherwise distributable to holders of the Class B
Certificates as Class B Distribution on such Distribution Date pursuant to
clauses (y)(iii) and (y)(iv) under the definition of Class B Distribution for
such Distribution Date. As to any Distribution Date with respect to which the
Class B Certificate Balance is greater than the Minimum Required Class B
Certificate Balance, the Redirected Distribution Amount will be an amount equal
to the excess, if any, of (A) the amount, if any, otherwise distributable to
holders of the Class B Certificates on such Distribution Date pursuant to
clauses (y)(iii) and (y)(iv) under the definition of the Class B Distribution
for such Distribution Date, over (B) the amount of the difference between the
Class B Certificate Balance on such Distribution Date and the Minimum Required
Class B Certificate Balance.]
Class B Distribution.
--------------------
On any Distribution Date, the Class B Distribution will be equal to the
lesser of:
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(x) the Pool Distribution for the related Distribution Date reduced by any
amounts required to be paid to the Class A Certificateholders on such
Distribution Date; or
(y) the sum of:
(i) one month's interest at the Pass-Through Rate on the Class B
Certificate Balance (net of the Class B Percentage of the amount by which
the aggregate amount of interest otherwise payable on the prepaid Mortgage
Loans by adjustment of the Administration Fee exceeds the related aggregate
Administration Fee available for payment thereof);
(ii) the outstanding balance in the Class B Interest Shortfall
Account;
(iii) the Class B Percentage of each scheduled payment of principal
payable on the Mortgage Loans on the preceding Installment Due Date; and
(iv) the Class B Prepayment Percentage of Principal Prepayments;
provided that the Class B Distribution shall be limited to an amount, which,
after payment to the Class B Certificateholders, would not reduce the Class B
Principal Balance below the Minimum Required Class B Principal Balance.
In the event that clause (y) is greater than clause (x), distributions will
be allocated first to the interest component of the Class B Distribution
calculated pursuant to clause (y)(i) hereof; second to any balance in the Class
B Interest Shortfall Account in accordance with clause (y)(ii) hereof; and third
to the principal component of the Class B Distribution calculated pursuant to
clauses (y)(iii) and (iv) hereof. The amount distributable pursuant to clause
(x) hereof shall never be less than zero. At any time when the Class B
Certificate Balance equals zero, the Class B Certificates shall not be entitled
to any further Class B Distributions.
The Class B Certificate Balance on any Distribution Date is the difference
between the Pool Principal Balance and the Class A Certificate Balance.
The Class B Interest Shortfall on any Distribution Date is the excess, if
any, of the amount computed pursuant to clause (y)(i) of the definition of Class
B Distribution over the amount distributed to the Class B Certificateholders
with respect to such clause on such Distribution Date. The Class B Interest
Shortfall Account is a ledger account established on the books of the Master
Servicer to reflect any unpaid Class B Interest Shortfall owed to the Class B
Certificateholders. The balance in such account will be decreased on each
Distribution Date by disbursements with respect to clause (y)(ii) of the
definition of Class B Distribution to the Class B Certificateholders of any
previously due Class B Interest Shortfalls and interest otherwise distributable
with respect to clause (y)(ii) of the definition of Class B Distribution to the
Class B Certificateholders but used instead to cover Excess Credit Losses,
Bankruptcy Losses, Special Hazard Losses or Fraud Losses and increased on each
Distribution Date by any new Class B Interest Shortfall allocable to the Class B
Certificates with respect to clause (y)(ii) of the definition of Class B
Distribution.
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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
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(3) by reducing the Class B Certificate Balance by the amount of such
Fraud Losses, Bankruptcy Losses, Special Hazard Losses and Excess Credit
Losses not otherwise covered by (1) and (2) above.
For each Distribution Date, the Class B Certificate Balance will be reduced
by the amount of Fraud Losses, Bankruptcy Losses, Special Hazard Losses and
Excess Credit Losses allocated to it net of the amount of Class B Interest
Shortfalls created pursuant to (2) above. Class B Interest Shortfalls generally
will be paid back only out of amounts otherwise distributable to pay Class B
principal with a corresponding reduction of the Class B Certificate Balance.
The initial Class B Certificate Balance will be an amount equal to
approximately ____% of the initial Pool Principal Balance. Holders of the
Class B Certificates will be entitled to receive on each Distribution Date
distributions of principal on the basis of the Class B Percentage evidenced by
their respective Class B Certificates, provided that, to the extent any Fraud
Losses, Bankruptcy Losses, Special Hazard Losses or Excess Credit Losses occur
during the month prior to the month of such Distribution Date, the amount
distributable to Class B Certificateholders in respect of the Class B Percentage
of principal will be used, to the extent available, to make up any shortfall and
the Class B Certificate Balance will be reduced by the amount of such losses.
This reduction of the Class B Certificate Balance on any Distribution Date for
Fraud Losses, Bankruptcy Losses, Special Hazard Losses or Excess Credit Losses
occurring during the month prior to the month of the related Distribution Date
will have the effect of decreasing the percentage of principal payments on the
Mortgage Loans to which holders of the Class B Certificates will be entitled on
and after the Distribution Date, thereby increasing, as a relative matter, the
respective interests of the holders of the Class A Certificates in future
principal payments on the Mortgage Loans. In addition, no distributions in
respect of the Class B Percentage of principal may be made to the holders of the
Class B Certificates on any Distribution Date to the extent the Class B
Certificate Balance is or would be, after taking such distribution into account,
less than the Minimum Required Class B Certificate Balance. Any amount not
permitted to be distributed to the holders of the Class B Certificates as a
result of the limitations specified above will be added to distributions of
principal made to holders of the Class A Certificates on the applicable
Distribution Date. The effect of the foregoing provisions, to the extent they
reduce the amounts otherwise distributed to the Class B Certificateholders on
any Distribution Date, is to accelerate the rate at which the Certificate
Balances of the Class A Certificates are reduced.
As of any Distribution Date following all distributions required to be made
on such date, the Minimum Required Class B Certificate Balance is the lesser of
(a) the greatest of (i) ____% of the Pool Principal Balance as of such
Distribution Date, (ii) two times the then largest outstanding Principal Balance
of any Mortgage Loan in the Mortgage Pool and (iii) the aggregate amount of the
outstanding Principal Balances of all Mortgage Loans secured by Mortgaged
Properties located in the ZIP code area which, of all ZIP code areas, has the
highest aggregate amount of outstanding Principal Balances of Mortgage Loans and
(b) the Class B Certificate Balance as of the immediately preceding Distribution
Date, less any Special Hazard Losses during the month immediately preceding the
month of such Distribution Date.
As described above, one form of protection afforded to the Class A
Certificateholders in the event of shortfalls in collections on the Mortgage
Loans will be effected by the preferential right of the Class A
Certificateholders to receive the amount of principal [and interest] otherwise
due the Class B Certificateholders with respect to the Class B Distribution on
each Distribution Date with respect to the
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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
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[___________] 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
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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
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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.
S-35
<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.
<TABLE>
<CAPTION>
Page
----
<S> <C>
Adjustment Date............................................... S-6
Advances..................................... S-2, S-9, S-10, S-34
Agreement..................................................... S-5
ARMs.................................................... S-4, S-13
Balloon Payments..............................................S-13
Bankruptcy Losses.............................................S-29
Certificates.................................................. S-1
Class A Certificate Balance............................. S-9, S-26
Class A Certificateholders.................................... S-2
Class A Certificates..................................... S-1, S-4
Class A Distribution..........................................S-25
Class A Interest Shortfall Account............................S-26
Class A Percentage............................................S-27
Class A Prepayment Percentage........................... S-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
</TABLE>
S-39
<PAGE>
<TABLE>
<CAPTION>
Page
----
<S> <C>
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
</TABLE>
S-40
<PAGE>
SUBJECT TO COMPLETION - DATED MARCH ___, 1998
ABN AMRO Mortgage Corporation
(Depositor)
Mortgage Pass-Through Certificates
(Issuable in Series)
--------------------
ABN AMRO Mortgage Corporation (the "Depositor") may sell, from time to time
on terms to be determined at the time of sale, one or more series (each a
"Series") of Mortgage Pass-Through Certificates (the "Certificates") evidencing
beneficial ownership interests in assets deposited into a trust (a "Trust Fund")
by the Depositor pursuant to a Pooling and Servicing Agreement (the "Agreement")
executed by the Depositor, the Trustee and the Master Servicer for each Series.
Each Trust Fund will consist of separate pools (the "Pools") of mortgage assets
("Mortgage Assets"), which may include adjustable or fixed rate, conventional,
one-to-four-unit residential first mortgage loans, including loans secured by
shares in cooperative corporations ("Mortgage Loans"), certificates backed by
mortgage loans ("Mortgage Certificates") or any combination of the foregoing and
other assets to be held by each Trust Fund in connection with the Mortgage Loans
and Mortgage Certificates, including any insurance policies, reserve funds,
accounts, letters of credit or other credit enhancements specified in the
related Prospectus Supplement. The Mortgage Loans will have been originated or
purchased by one or more qualified mortgage lenders as described herein (a
"Qualified Lender") and sold to the Depositor by such Qualified Lender or
another seller (in such capacity, a "Mortgage Asset Seller"). The Qualified
Lenders and Mortgage Asset Sellers may include affiliates of the Depositor, and
certain of the mortgage loans underlying the Mortgage Certificates may have been
originated or purchased by affiliates of the Depositor. The Prospectus
Supplement for a Series will name the entity or entities, which may include an
affiliate of the Depositor, which will act directly or through one or more other
qualified mortgage loan servicers, as master servicer (individually and
collectively, the "Master Servicer") of the Mortgage Loans for such Series. The
Pass-Through Rate or Rates with respect to each Series of Certificates and
specific information regarding the Mortgage Assets comprising each Pool will be
set forth in the related Prospectus Supplement.
Each Series of Certificates will consist of one or more Classes of
Certificates, which may include one or more senior Classes of Certificates and
one or more subordinate Classes of Certificates (respectively, the "Senior
Certificates" and the "Subordinate Certificates"). A Class of Certificates of a
Series may be divided into two or more Classes representing interests in
specified percentages of principal or interest, or both, in the Mortgage Assets
comprising the related Pool, as set forth in the related Prospectus Supplement.
Certain Series or Classes of Certificates may be covered by one or more forms of
credit enhancement, in each case as described in the related Prospectus
Supplement.
The obligations of the Master Servicer with respect to the Certificates
will be limited to its contractual servicing obligations, supervision of other
Servicers, if any, and the obligation, if the amount available for distribution
to holders of Certificates evidencing interests in the related Pool on any
Distribution Date is less than the amount due them, to advance cash to such
Certificateholders to the extent the Master Servicer determines such advances
are recoverable from future payments and collections on the Mortgage Assets or
otherwise. See "Description of the Certificates -- Advances and Limitations
Thereon" herein.
(Continued on next page)
------------------------------
See "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.
------------------------------
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 _________, 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.
2
<PAGE>
[Inside Cover]
PROSPECTUS SUPPLEMENT
The Prospectus Supplement relating to each Series of Certificates to be
offered hereunder will set forth with respect to such Series of Certificates,
among other things, (i) the aggregate principal balance of the Mortgage Loans,
Notional Amount, if any, Pass-Through Rate or Rates (or the manner of
determining such rate or rates) and authorized denominations of each Class of
such Certificates; (ii) certain information concerning the Mortgage Assets
comprising the Pool, including the type and characteristics of the Mortgage
Assets included in each such Pool on the date of issue and insurance policies or
other forms of credit enhancement relating to such Mortgage Assets; (iii) the
order of the application of payments to each Class of Certificates and the
specified aggregate original percentage interest of each such Class in the
Mortgage Assets comprising the Pool; (iv) the identity of each Class of
Subordinate Certificates included in such Series of Certificates, if any; (v)
information regarding any Subordinated Amount, Shifting Interest Credit
Enhancement, Reserve Fund and Retained Yield; (vi) the Installment Due Dates,
Determination Dates and Distribution Dates; (vii) additional information
regarding yield considerations, maturity considerations and prepayment
considerations, if applicable; (viii) whether the Trust Fund will elect to be
treated as one or more REMICs; (ix) additional information with respect to the
plan of distribution of such Certificates; and (x) certain 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
3
<PAGE>
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.
4
<PAGE>
Until 90 days after the date of each Prospectus Supplement, all dealers
effecting transactions in the registered securities covered by such Prospectus
Supplement, whether or not participating in this distribution thereof, may be
required to deliver such Prospectus Supplement and the Prospectus. This is in
addition to the obligation of dealers to deliver a Prospectus Supplement and
Prospectus when acting as underwriters of the Series of Certificates covered by
such Prospectus Supplement and with respect to their unsold allotments or
subscriptions.
No person has been authorized to give information or to make any
representation other than those contained in this Prospectus and any Prospectus
Supplement with respect hereto and, if given or made, such information or
representation must not be relied upon. This Prospectus and any Prospectus
Supplement with respect hereto do not constitute an offer to sell or a
solicitation of an offer to buy any securities other than the Certificates
offered hereby and thereby nor an offer of the Certificates to any person in any
state or other jurisdiction in which such offer would be unlawful. The delivery
of this Prospectus at any time does not imply that information herein is correct
as of any time subsequent to its date.
5
<PAGE>
SUMMARY
This summary is qualified in its entirety by reference to the detailed
information appearing elsewhere in this Prospectus and in the related Prospectus
Supplement which will be prepared in connection with each Series of
Certificates. The Supplement for each Series will specify the extent (if any)
to which the terms of such Series or the related Mortgage Assets vary from the
description of Certificates and Mortgage Assets in general which is contained in
this Prospectus. All capitalized terms used in this Prospectus but not defined
herein shall have the meanings given them in the Agreement.
Securities Offered Mortgage Pass-Through Certificates (Issuable in
Series).
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 may evidence beneficial interests in
mortgage loans or mortgage-backed securities including
(a) mortgage participations or pass-though
certificates representing beneficial interests in
certain loans, (b) collateralized mortgage obligations
secured by such loans or (c) pass-through certificates
representing beneficial interests in certain
securities consisting in whole or in part of interests
in governmental certificates (e.g., GNMA Certificates,
FHLMC Certificates and FNMA
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Certificates), or any combination thereof. Any GNMA
Certificates included in a Pool will be guaranteed as
to full and timely payment of principal and interest
by GNMA, which guaranty is backed by the full faith
and credit of the United States. Any FHLMC
Certificates included in the Pool will be guaranteed
as to the timely payment of interest and ultimate
collection (and if so specified in the related
Prospectus Supplement timely payment of principal) by
FHLMC. Any FNMA Certificates included in a Pool will
be guaranteed as to timely payment of scheduled
payments of principal and interest by FNMA. No FHLMC
or FNMA Certificates will be backed, directly or
indirectly, by the full faith and credit of the United
States. No Private Certificates will be backed,
directly or indirectly, by any agency or
instrumentality of the United States but may have
other forms of credit support, as described in such
Prospectus Supplement. Any Private Certificate will
have been acquired in a secondary transaction and not
from the issuer or any affiliate of the issuer of such
Private Certificate and, unless otherwise specified in
the related Prospectus Supplement, each Private
Certificate will evidence an interest in, or will be
secured by a pledge of Mortgage Loans that conform to
the descriptions of Mortgage Loans contained herein.
Each Mortgage Certificate will evidence an interest in
a pool of mortgage loans and/or in principal
distributions and interest distributions thereon. Such
loans may have been originated or purchased by
affiliates of the Depositor. The Prospectus Supplement
for each Series will specify the aggregate approximate
principal balance of GNMA, FHLMC and FNMA Certificates
and of Private Certificates included in a Pool and
will describe the principal characteristics of the
underlying mortgage loans or cooperative loans and any
insurance, guaranty or other credit support applicable
to such loans, the Mortgage Certificates or both. In
addition, the related Prospectus Supplement will
describe the terms upon which distributions will be
made to the Trustee as the holder of the Mortgage
Certificates. The Mortgage Certificates included in
any Pool will be registered in the name of the Trustee
or its nominee or in the case of book-entry Mortgage
Certificates in the name of a financial intermediary
with a Federal Reserve Bank or a clearing corporation
and will be held by the Trustee only for the benefit
of the related Series of Certificates. See "The Pools
-- Mortgage Certificates -- Additional Information."
Agreement The Certificates of each Series offered by this
Prospectus and the related Prospectus Supplement will
be issued pursuant to a separate Pooling and Servicing
Agreement (the "Agreement") among the Depositor and
the Master Servicer and the Trustee specified in such
Prospectus Supplement. See "Description of the
Certificates."
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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 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
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<PAGE>
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 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.
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<PAGE>
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 added to the
Certificate Balance thereof and will thereafter accrue
interest.
Interest on each Mortgage Loan that does not provide for
negative amortization will be passed through to the
Certificateholders monthly at the Mortgage Pass-Through
Rate for that Mortgage Loan from the date identified in
the related Prospectus Supplement. Interest on Mortgage
Loans that provide for negative amortization will accrue
on the Principal Balance thereof at the Mortgage
Interest Rates identified in the related Prospectus
Supplement. In the event the amount of interest paid by
an obligor on a Mortgage Note (a "Mortgagor") on such a
Mortgage Loan in any month is less than the amount of
interest accrued on the Principal Balance thereof, such
excess interest ("Deferred Interest") will be added to
the Principal Balance of such negatively amortizing
Mortgage Loan. The amount of interest that will be
deposited into the Certificate Account with respect to
each Mortgage Loan in any month will equal the amount of
interest paid by a Mortgagor less a fee for the
servicing of the Mortgage Loan and related expenses
payable to the Master Servicer specified in the related
Prospectus Supplement (the "Administration Fee"), and,
to the extent specified in the related Prospectus
Supplement, less an amount, if any, retained by a
Mortgage Asset Seller or a Servicer (the "Retained
Yield"). The Administration Fee or the Retained Yield
may be fixed or may adjust as specified in the related
Prospectus Supplement. See "Prepayment and Yield
Considerations" and "Description of the Certificates"
herein.
In the event a Mortgagor prepays all or part of the
principal balance of a Mortgage Loan, such Mortgagor
will only pay interest on the amount prepaid to the date
of prepayment. Unless otherwise specified in the related
Prospectus Supplement, in order to minimize any
resulting shortfall in interest for the corresponding
month in which the prepayment was made (such shortfall,
a "Prepayment Interest Shortfall"), the Master Servicer
will adjust or forego a portion of the current
Administration Fees due to the Master Servicer, to the
extent available, so that up to
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<PAGE>
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 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."
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<PAGE>
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
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,
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<PAGE>
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 shall generally be applied
to reduce the ownership interest of the Subordinate
Certificates in the Pool. If the Certificate Balance of
the Subordinate Certificates has been reduced to zero,
the Senior Certificates will bear all Realized Losses
whether or not there is any remaining Subordinated
Amount.
b. Alternative Credit Enhancement including Insurance,
Letters of Credit and Surety Bonds
As an alternative, or in addition to the credit
enhancement afforded by the Subordinate Certificates,
credit enhancement with respect to a Series of
Certificates may be provided by mortgage insurance,
hazard insurance, by the deposit of cash, certificates
of deposit, letters of credit, surety bonds, a separate
pool of mortgage loans or mortgage certificates, a
limited guaranty insurance policy issued by one or more
insurance companies, or by such other methods as may be
set forth in the Prospectus Supplement for such Series.
To the extent described in the related Prospectus
Supplement and to the extent it will not result in the
downgrading of any rating on the related Certificates by
the Rating Agency rating such Certificates, certain
insurance policies (or deposits in lieu thereof) may
cover more than one Series of Certificates.
Advances Unless otherwise specified in the related Prospectus
Supplement, in the event of delinquencies in payments on
the Mortgage Loans, the Master Servicer will make
advances of cash ("Advances") to the holders of each
Class of Certificates, but only to the extent that it
determines such Advances will be recoverable from future
payments and collections on the Mortgage Loans or
otherwise. Any such Advances will be recoverable to the
Master Servicer as described herein or in the applicable
Prospectus Supplement. See "Description of the
Certificates -- Advances and Limitations Thereon."
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<PAGE>
Optional Termination Unless otherwise specified in the related Prospectus
Supplement, the Depositor may, at its option with
respect to any Series of Certificates, repurchase all
Mortgage Assets remaining outstanding at such time as
the aggregate outstanding Principal Balance of such
Mortgage Assets is less than 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
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
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<PAGE>
Series must include in income their allocable share of
interest income of the Trust Fund and may, subject to
applicable limitations, deduct their allocable share of
the expenses of the Trust Fund. If the stripped bond
rules do apply with respect to a particular Series, the
income with respect to such Series generally will be
accounted for under the original issue discount rules
under a constant yield to maturity method, which may
require inclusion prior to the receipt of the cash
associated with such income.
ERISA A fiduciary of any employee benefit plan subject to the
Employee Retirement Income Security Act of 1974, as
amended ("ERISA"), or the Code should carefully review
with its own legal advisors whether the purchase or
holding of Certificates could give rise to a transaction
prohibited or otherwise impermissible under ERISA or the
Code. See "ERISA Considerations" herein and in the
related Prospectus Supplement.
Legal Investment The Certificates offered hereby and by the related
Prospectus Supplement will generally constitute
"mortgage-related securities" under the Secondary
Mortgage Market Enhancement Act of 1984 ("SMMEA") so
long as they are rated by a Rating Agency in one of its
two highest rating categories. Any such Certificates
would be "legal investments" for certain types of
institutional investors to the extent provided in SMMEA,
subject to state laws overriding SMMEA. A number of
states have enacted legislation overriding the legal
investment provisions of SMMEA. Certificates that do not
constitute "mortgage-related securities" under SMMEA
will require registration, qualification or an exemption
under applicable state securities laws and may not be
"legal investments" to the same extent as "mortgage-
related securities." See "Legal Investment" herein.
Rating Each Class of Certificates offered by means of this
Prospectus and the related Prospectus Supplement will be
rated in an Investment Grade rating category by the
Rating Agency or Agencies identified in such Prospectus
Supplement. A rating is not a recommendation to buy,
sell or hold securities and may be subject to revision
or withdrawal at any time by the assigning Rating
Agency. Further, such ratings do not address the effects
of prepayments on the yield anticipated by an investor.
Risk Factors In considering an investment in any Series of the
Certificates, investors should recognize that there are
certain 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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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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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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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 -- Retained Yield, Administration Fees, Compensation and Payment of
Expenses." With respect to those Mortgage Loans serviced through a Servicer,
such Servicer will be required to service the related Mortgage Loans in
accordance with the applicable agreement between such Servicer and the Master
Servicer (a "Servicing Agreement") and will receive the fee for such services
specified in such Servicing Agreement; however, the Master Servicer will remain
liable for its servicing obligations under the Agreement as if the Master
Servicer alone were servicing such Mortgage Loans.
General Characteristics of the Mortgage Loans
Both ARMs and fixed-rate Mortgage Loans are eligible for inclusion in
Pools. Unless otherwise specified in the applicable Prospectus Supplement, all
of the Mortgage Loans in a Pool will (i) have individual principal balances at
origination of not more than $2,000,000, (ii) have monthly payments due on the
first day of each month (each, an "Installment Due Date"), (iii) have a 5- to
40-year term at origination, (iv) have an adjustable or fixed rate of interest,
(v) have level or variable monthly payments over the term of the Mortgage Loan,
and (vi) be secured by a lien on the underlying Mortgaged Property or by a
leasehold interest therein.
Unless otherwise specified in a Prospectus Supplement, the Mortgage Loans
will be secured by Mortgages on Mortgaged Properties that may be located in any
jurisdiction within the USA. 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
fixed- or adjustable-rate conventional one-to-four-unit residential first
mortgage loans or cooperative loans. Private Certificates contained in a Pool
may represent all or some of the regular and/or residual interests in a REMIC or
interests in a grantor trust. It is expected that Private Certificates will be
issued pursuant to participation or pooling and servicing agreements entered
into from time to time between the related seller and the related Trustee for
the Certificates or custodian. In addition, an affiliate of such seller or of
the depositor under such pooling and servicing agreement may be a servicer for
such pool of mortgage loans. The mortgage loans underlying the Private
Certificates may be subserviced by one or more loan servicing institutions under
the supervision of the servicer. Each Private Certificate will have been
acquired in a secondary transaction and not from the issuer or any affiliate of
the issuer of such Private Certificate and, unless otherwise specified in the
related Prospectus Supplement, each Private Certificate will evidence an
interest in, or will be secured by a pledge of mortgage loans that conform to
the descriptions of Mortgage Loans herein.
It is expected that all collections received by the servicers on the
mortgage loans (net of servicing fees to be retained by the servicers and such
other amounts as may be specified in the related pooling and servicing
agreement) will be deposited with the Trustee for the Certificates. Monthly
distributions of the principal and interest components of such collections
(adjusted to the stated rate or pass-through rate (as the case may be) borne by
such Private Certificate) will be made to the Trustee for the Certificates of
the related Series for deposit into the Certificate Account for such Series.
The mortgage loans underlying any such Private Certificates may be covered
by (i) individual policies of primary mortgage insurance insuring against all or
a portion of any foreclosure losses on the particular mortgage loans covered
thereby, (ii) subordination arrangements and/or (iii) such other policies of
insurance and other forms of credit enhancement (including, without limitation,
obligations to advance delinquent payments) as may be specified in the related
Prospectus Supplement.
More specific information concerning the Private Certificates underlying a
particular Series of Certificates, the mortgage loans underlying such Private
Certificates, and related servicing and insurance, subordination or other credit
support arrangements will be set forth in the related Prospectus Supplement.
THE DEPOSITOR
The Depositor was incorporated in Delaware in 1991 and is a wholly owned
limited purpose indirect subsidiary of ABN AMRO Bank N.V. 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
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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 other
responsibilities with respect to any Mortgage Asset. The Depositor does not have
nor is it expected in the future to have any significant assets with which to
meet any obligations with respect to any Trust Fund. If the Depositor were
required to repurchase or substitute a Mortgage Asset, its only source of funds
to make the required payment would be funds obtained from the related Mortgage
Asset Seller or, if applicable, the Master Servicer or the Servicer.
USE OF PROCEEDS
Unless otherwise specified in the related Prospectus Supplement,
substantially all of the net proceeds to be received from the sale of each
Series of Certificates will be used either by the Depositor to purchase the
Mortgage Assets related to that Series or to return to the Depositor the amounts
previously used to effect such a purchase (including the repayment of any loans
made to the Depositor by any of its affiliates), the costs of carrying the
Mortgage Loans and/or Mortgage Certificates until the sale of the Certificates
and other expenses connected with pooling the Mortgage Loans and/or Mortgage
Certificates and issuing the Certificates. Any remaining proceeds will be used
for the general corporate purposes of the Depositor which are related to the
foregoing activities.
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PREPAYMENT AND YIELD CONSIDERATIONS
General
Determination of Mortgage Pass-Through Rates
Unless otherwise specified in the related Prospectus Supplement, the
"Mortgage Pass-Through Rate" for each Mortgage Loan included in a Pool will be
determined by deducting from the Mortgage Interest Rate borne by or accruing on
such loan an Administration Fee (and, if so specified in a related Prospectus
Supplement, a Retained Yield). The Administration Fee and Retained Yield, if
any, may be uniform with respect to all Mortgage Loans in a Pool or may vary on
a loan-by-loan basis. With respect to ARMs, the Administration Fee and/or the
Retained Yield, if any, will generally vary on a loan-by-loan basis to produce a
uniform margin (the "Net Margin") by which the Mortgage Pass-Through Rate with
respect to each Mortgage Loan in a Pool will exceed the applicable Index for
such loan. For example, if the Net Margin for a Class or Series of Certificates
were established to be 125 basis points over the Index applicable to the ARMs
included in the Pool for such class or series, an individual Mortgage Loan whose
terms provide for a Mortgage Interest Rate of 200 basis points over the
applicable Index would be assigned an Administration Fee and Retained Yield, if
any, totaling 75 basis points and a Mortgage Loan whose Mortgage Interest Rate
is 175 basis points over the Index would be assigned an Administration Fee and
Retained Yield, if any, totaling 50 basis points. The related Prospectus
Supplement will specify whether the Administration Fee and Retained Yield, if
any, assigned to that Mortgage Loan at the time of formation of a Pool will be
fixed throughout the term of the related Agreement, except to the limited extent
described below, or will vary. If the lifetime Maximum Rate or the periodic
Maximum Adjustment applicable to a Mortgage Loan prevents its Mortgage Interest
Rate from adjusting at any Adjustment Date to the full extent of the Index plus
the Gross Margin applicable to such loan, the Mortgage Pass-Through Rate for
such loan may be less than the Index plus the Net Margin applicable to the
related Class or Series of Certificates that is specified in the Prospectus
Supplement for such class or series. Similarly, if the lifetime Minimum Rate
or, if applicable, the periodic Maximum Adjustment prevents the Mortgage
Interest Rate from fully adjusting, the Mortgage Pass-Through Rate for such loan
may exceed the Index plus the Net Margin.
Determination of Certificate Pass-Through Rate
Unless otherwise specified in the related Prospectus Supplement, the Pass-
Through Rate for each Class of Certificates of a Series will, for Pools
consisting of ARMs, and may, for Pools consisting of Fixed-Rate Mortgage Loans,
be all, or a portion specified in the related Prospectus Supplement, of the
weighted average of the Mortgage Pass-Through Rates of the Mortgage Loans
included in the Pool. The weighted average Mortgage Pass-Through Rate with
respect to Pools comprised of ARMs generally will change with any changes in the
adjustable Mortgage Interest Rates borne by or accruing on the underlying ARMs
and may change with principal prepayments, negative amortization or accelerated
amortization of the ARMs. The weighted average Mortgage Pass-Through Rate for a
Pool consisting of Fixed-Rate Mortgage Loans with different Mortgage Pass-
Through Rates may change due to differing prepayment rates and differing
amortization rates of the Mortgage Loans included in the Pool.
Yield
The yield on any Certificate will depend on, among other things, the price
paid by the Certificate holder, the Pass-Through Rate of the Certificate in
effect from time to time and the prepayment experience with respect to the
Mortgage Assets represented by the Certificate. If any Certificate is offered
at a discount from or premium over its original principal amount or is offered
without any principal amount or with a lower proportionate share of the
principal amount of the Mortgage Assets, the actual yield to maturity realized
on such Certificate may be dramatically affected by the prepayment
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experience on the Mortgage Assets comprising the related Pool. In extreme cases,
as described below, holders of certain Certificates could fail to recoup their
investment.
The following discussions of certain yield considerations is intended to be
general in nature and reference is made to the discussion in each Prospectus
Supplement regarding yield and prepayment considerations and other risks.
Price
Subject to the effect of the amount of interest payable in connection with
prepayments as described in the Prospectus Supplement relating to a Series of
Certificates, prepayments of principal in whole or in part or accelerated
amortization, if any, on the Mortgage Assets comprising a Pool will increase the
yield on a Certificate purchased at a price less than the aggregate Principal
Balance of the Mortgage Assets represented by such Certificate and will decrease
the yield on a Certificate purchased at a price equal to, slightly less than
(due to effects of payment delays), or greater than the aggregate Principal
Balance of the Mortgage Assets represented by such Certificate. Additionally,
and as more fully described in the Prospectus Supplement relating thereto, if
any Certificate is offered without any principal amount or with a lower
disproportionate share of the principal amount of the underlying Mortgage
Assets, the yield realized on such Certificate will be extremely sensitive to
levels of prepayments of the Mortgage Assets represented thereby. In extreme
cases, holders of any such Certificates could fail to recoup their original
investment.
Effective Pass-Through Rate
Each monthly installment of interest due on a Mortgage Loan is calculated
as one-twelfth of the product of the applicable Mortgage Interest Rate and the
principal balance outstanding on the scheduled payment Installment Due Date for
such Mortgage Loan in the preceding month. The Mortgage Pass-Through Rate with
respect to each Mortgage Loan will be similarly calculated on a loan-by-loan
basis, after subtracting the Retained Yield, if any, and the Administration Fee
applicable to each Mortgage Loan from the applicable Mortgage Interest Rate,
unless otherwise specified in the related Prospectus Supplement. In the case of
a Pool with a range of Mortgage Pass-Through Rates, disproportionate prepayments
of Mortgage Loans with higher Mortgage Pass-Through Rates will result in a lower
effective pass-through rate to Certificateholders.
The yield on interest bearing Classes of Certificates evidencing Pools
comprised of Mortgage Loans will be slightly lower than the yield otherwise
produced by the applicable Pass-Through Rate because while interest will accrue
on each Mortgage Loan from the Installment Due Date for such Mortgage Loan each
month, in each case as specified in the related Prospectus Supplement, the
distribution in respect of interest will not be made until the Distribution Date
in the month following the month of accrual. When a Mortgage Loan is prepaid in
full between Installment Due Dates, the Mortgagor is required to pay interest on
the amount prepaid only to the date of prepayment and not thereafter. In
addition, if a partial prepayment is applied by the Master Servicer to reduce
the principal balance of the related Mortgage Loan as of a date prior to the
receipt of such payment, on the following Installment Due Date, the Mortgagor
would pay interest on the lower principal balance. In the event a Mortgagor
prepays all or part of the Principal Balance on a Mortgage Loan and there is a
Prepayment Interest Shortfall, unless otherwise specified in the related
Prospectus Supplement, the Master Servicer may adjust or forego all or part of
the current Administration Fees due to it, to the extent available, so that up
to a full month's interest payment will be passed through to the
Certificateholders at the Mortgage Pass-Through Rate. To the extent sufficient
current Administration Fees due to the Master Servicer are not so available, the
yield to Certificateholders will be slightly less than it would be if such
current Administration Fees due to the Master Servicer were available. See
"Description of the Certificates -- Example of Distribution" herein.
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Other Yield Considerations
Mortgage Interest Rates on Negatively Amortizing ARMs. Since a
portion of the interest accrued on Negatively Amortizing ARMs may be deferred
and payable at a future time, the interest paid by a Mortgagor on such a
Mortgage Loan on a given Installment Due Date (the "Interest Remittance Amount")
which is distributed to Certificateholders may not be equal to interest at the
applicable Mortgage Pass-Through Rates on such Mortgage Loan. During periods of
negative amortization, any Deferred Interest that is added to the Principal
Balance of a Mortgage Loan bears interest at the applicable Mortgage Pass-
Through Rate. The distribution to Certificateholders of the Interest Remittance
Amount, rather than interest calculated at the applicable Mortgage Pass-Through
Rate, will not materially affect the yield to Certificateholders if the
Certificates are purchased at or near par. Negative Amortization will lengthen
the average life of the Certificates, and if the Certificates are purchased at a
discount or premium, a yield effect can occur. See "-- Price" and "Maturity
Considerations -- Prepayment Considerations." Any Deferred Interest will be
includible in taxable income of classes entitled thereto as it accrues, rather
than when it is received. See "Certain Federal Income Tax Consequences."
Mortgage Interest Rates on Non Negatively Amortizing ARMs. The
Mortgage Interest Rates on ARMs adjust periodically in response to movements in
the applicable Index. The Index applicable as of any interest adjustment date
will be the most recent index figure available during a period before such
adjustments are made as specified in the related Prospectus Supplement. In
addition, because ARMs included in a Pool may have different origination dates,
the Mortgage Interest Rates on the ARMs comprising a Pool will not necessarily
adjust at the same dates. At any given time, the Mortgage Interest Rates on any
of the ARMs included in a Pool could be scheduled to adjust within one to 12
months. Accordingly, the yield to Certificateholders on Pools comprised of ARMs
will be adjusted on a delayed basis relative to movements in the applicable
Index.
Maximum and Minimum Rates, Maximum Adjustment, Payment Caps and Deferred
Interest
In the case of a Pool comprised of ARMs, and as more fully described above
under the caption "The Pools -- The Mortgage Loans -- Description of ARMs"
herein and "Description of the Mortgage Notes" in the related Prospectus
Supplement, the lifetime Maximum and Minimum Rates, the periodic Maximum
Adjustment, and Payment Caps and Deferred Interest, in the case of Negatively
Amortizing ARMs, on the ARMs could affect the yield on the related Series of
Certificates. In the event that despite prevailing market interest rates the
Mortgage Interest Rate on an ARM cannot increase due to the Maximum Rate or, if
applicable, the Maximum Adjustment, the yield on the related Certificates could
be impacted adversely. Conversely, should the Mortgage Interest Rate on an ARM
not be able to decrease due to the Minimum Rate or, if applicable, the Maximum
Adjustment at a time when market interest rates are below such level, the yield
on the related Certificates could be higher than that which would otherwise be
the case. In that event, the Mortgagor may be more likely to prepay the
Mortgage Loan in full and obtain refinancing at a lower rate. In addition, to
the extent that a Payment Cap on a Negatively Amortizing ARM restricts an
increase in the related Mortgagor's Monthly Payment or because the adjustable
Mortgage Interest Rate changes more frequently than the adjustments in a Monthly
Payment, Deferred Interest could result and impact the yield on the related
Certificates.
Distribution Shortfalls
If on any Distribution Date the aggregate amount of payments received from
Mortgagors on the related Mortgage Loans, any Advances, funds otherwise payable
to the Subordinate Certificateholders and monies available in the Reserve Fund,
if any, do not provide sufficient funds to make full distributions to the Senior
Certificateholders, unless otherwise specified in the related Prospectus
Supplement, the amount of the shortfall together with interest at the related
applicable Pass-Through Rate
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or Rates, will be added to the amount the Senior Certificateholders are entitled
to receive on the next Distribution Date. The allocation of any such shortfall
and recoveries thereof between the Classes of Senior Certificates if the Senior
Certificates are comprised of more than one class, and the effect of any such
shortfall on yield will be discussed in the Prospectus Supplement relating to
such Certificates.
Classes of Certificates
The Certificates of a Series may be divided into two or more classes, in
which each class will evidence interests in specified allocations of the
principal payments only, or of the interest payments only, or both principal and
interest payments in respect of the Mortgage Assets in the related Trust Fund.
In the event Certificates are so subdivided, the yield of any class evidencing
interest payments only will be adversely impacted by prepayments and partial
prepayments. If appropriate, the Prospectus Supplement for such Series will
offer examples of cash flows on the Certificates, based on specified Mortgage
Interest Rates.
MATURITY CONSIDERATIONS
General
The weighted average life of the Certificates will be dependent in large
part on the principal prepayment experience on the Mortgage Assets comprising a
Pool. Although a number of factors may affect the prepayment experience of a
particular Pool, there can be no assurance that any Pool will conform to the
Depositor's past experience or any published prepayment forecast.
The following discussion of certain maturity considerations is intended to
be general in nature and reference is made to the discussion in the related
Prospectus Supplement regarding prepayment and maturity considerations and other
risks.
Maturity
Unless otherwise specified in the related Prospectus Supplement, all of the
Mortgage Loans will have original terms to maturity of not more than 40 years.
Prepayment Considerations
A substantial portion of the Mortgage Loans will be secured by the
principal residence of the related Mortgagors. Each Mortgage Loan may contain
prohibitions on prepayment or require payment of a Prepayment Premium, in each
case as described in the related Prospectus Supplement. The prepayment
experience of the Mortgage Loans, and of the mortgage loans underlying the
Mortgage Certificates, comprising a Pool will affect the weighted average life
of the related Series of Certificates. Based on public information with respect
to the mortgage industry, a significant number of the Mortgage Loans, and of the
mortgage loans underlying the Mortgage Certificates, could be paid in full prior
to maturity.
The payment behavior of the Mortgage Loans and of the mortgage loans
underlying the Mortgage Certificates may be influenced by a variety of
political, economic, tax, geographic, demographic, social and other factors.
These factors may include the age, payment terms and geographic distribution of
such loans; characteristics of the Mortgagors; amount of the Mortgagors' equity;
the availability of mortgage financing in general; changes in local industry and
population as they affect population migration; local housing availability and
apartment vacancy rates; and the use of junior liens or other individualized
financing arrangements. In a fluctuating interest rate environment, payment
behavior may be influenced by the difference between the interest rates of the
Mortgage Loans and of the mortgage loans underlying
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the Mortgage Certificates and the prevailing mortgage rates for both fixed and
adjustable rate mortgages; the availability of fixed-rate mortgages with
interest rates that are competitive with those of the Mortgage Loans and of the
mortgage loans underlying the Mortgage Certificates and the availability of
adjustable rate mortgages with interest rates determined by indices which are
different from the applicable Index; and the extent to which the Mortgage Loans
and the mortgage loans underlying the Mortgage Certificates are assumed or
refinanced or the Mortgaged Properties are sold or conveyed. The relative
contribution of these factors may vary over time.
In the event the Depositor substitutes a Mortgage Loan for another Mortgage
Loan (upon the satisfaction of the conditions set forth in the Agreement) and
the principal balance of such substituted Mortgage Loan is less than the
principal balance of the Mortgage Loan replaced, the amount of such difference
shall be required to be paid by the Depositor to the Trust Fund and such amount
will be passed through to the Certificateholders as a prepayment. See
"Description of the Certificates -- Assignment of Mortgage Loans."
Assumptions of the mortgage loans will reduce the level of principal
prepayments in the related Pool that would otherwise occur if such mortgage
loans had been accelerated. To the extent it has knowledge of any conveyance or
prospective conveyance by any Mortgagor of the related Mortgaged Property, the
Master Servicer will retain the right to accelerate the maturity of such
Mortgage Loan under any applicable "due-on-sale" clause if credit or other
factors warrant such enforcement. However, as discussed above, the Mortgage
Loans provide for assumption by qualifying buyers, and the Master Servicer may
in certain cases encourage the assumption of Mortgage Loans by persons meeting
relevant underwriting standards and in no event will it exercise any such right
of acceleration if prohibited by law. If the Master Servicer determines not to
enforce such a "due-on-sale" clause, it will enter into an assumption and
modification agreement with the person to whom such property has been conveyed
or is proposed to be conveyed, pursuant to which such person becomes liable
under the Mortgage Loan. Any fees collected by the Master Servicer in
connection with the execution of an assumption agreement may be retained by the
Master Servicer or the applicable Servicer as additional servicing compensation.
See "Description of the Certificates -- Collection and Other Servicing
Procedures" herein.
The rate of prepayments with respect to conventional one-to-four-unit
residential first mortgage loans, including ARMs and fixed-rate loans, has
fluctuated significantly in recent years. In general, if prevailing interest
rates fall significantly below the interest rates at the time of origination,
mortgage loans are likely to be subject to higher prepayment rates than if
prevailing rates remain at or above those at the time such mortgage loans were
originated because the availability of fixed-rate loans at competitive interest
rates may encourage borrowers to refinance their ARMs or above market fixed-rate
loans to "lock-in" low fixed interest rates. Conversely, if prevailing interest
rates rise appreciably above the interest rates at the time of origination,
mortgage loans are likely to experience a lower prepayment rate than if
prevailing rates remain at or below those at the time such mortgage loans were
originated. However, there can be no assurance that any Pool will conform to
past experience or any published prepayment forecast.
The Maximum and Minimum Rates, Maximum Adjustments, Gross Margins, Payment
Caps and other features of the ARM programs of mortgage lenders during recent
years have significantly varied in response to market conditions such as
interest rates, consumer demand and regulatory restrictions. The lack of
uniformity of the terms and provisions of such ARM programs have made it
impractical to compile meaningful comparative data on prepayment rates of ARMs
and accordingly, there can be no certainty as to the rate of prepayments on ARMs
in either stable or changing interest rate environments. The ARMs comprising a
Pool or underlying the Mortgage Certificates comprising a Pool may experience a
rate of principal prepayments which is different from the principal prepayment
rate for ARMs included in any other Pool for other adjustable rate mortgages
having different or similar characteristics and for
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fixed-rate mortgages. In addition, there can be no assurance that any Pool will
conform to past prepayment experience or any published prepayment forecast.
As described under "The Pools -- The Mortgage Loans -- Description of
ARMs," if interest rates rise without a simultaneous increase in the related
Monthly Payments, Deferred Interest and negative amortization may result in the
case of Negatively Amortizing ARMs. However, borrowers may pay amounts in
addition to their Monthly Payments in order to avoid such negative amortization
and increase tax deductible interest payments. To the extent that any of the
Mortgage Loans or any mortgage loans underlying any Mortgage Certificate
negatively amortize over their respective terms, future interest accruals are
computed on the higher outstanding Principal Balance and a smaller portion of
the Monthly Payment is applied to principal than is necessary to amortize the
unpaid principal over its remaining term. Accordingly, the weighted average life
of such mortgage loans will be increased beyond that which would otherwise be
the case. During a period of declining interest rates, the portion of each
Monthly Payment in excess of scheduled interest and principal will be applied to
reduce the outstanding Principal Balance on the related Negatively Amortizing
ARM, thereby resulting in accelerated amortization of such mortgage loan. Any
such increase in amortization of the Principal Balances of any Negatively
Amortizing ARMs comprising a Pool or underlying Mortgage Certificate comprising
a Pool will shorten the weighted average life of such Negatively Amortizing ARMs
over that which would be the case in the absence of such accelerated
amortization. The application of partial prepayments to reduce the principal
amount of a Negatively Amortizing ARM will tend to reduce the weighted average
life of the mortgage loan and will adversely affect the yield to (i) holders of
Certificates which purchased their Certificates at a premium, if any, (ii)
holders of classes with lower proportionate shares of the principal amount in
the underlying Mortgage Assets, if any, and (iii) holders of IO Certificates.
The pooling of Negatively Amortizing ARMs having Monthly Payment adjustment
dates in different months, together with different Initial Mortgage Rates,
Maximum Rates, Minimum Rates and stated maturity dates, could result in some
Negatively Amortizing ARMs experiencing negative amortization while the
amortization of other Negatively Amortizing ARMs is accelerated. The weighted
average life of Certificates of a Series will reflect a composite of the
repayment and prepayment characteristics of the Mortgage Assets in the related
Pool.
The number of foreclosures and the principal amount of the Mortgage Loans
and mortgage loans underlying Mortgage Certificates foreclosed in relation to
such mortgage loans which are repaid in accordance with their terms will affect
the weighted average life of the Mortgage Assets in the Pool and that of the
related Series of Certificates. Servicing decisions made with respect to the
Mortgage Loans and mortgage loans underlying Mortgage Certificate, including the
use of payment plans prior to demand for acceleration and the restructuring of
mortgage loans in bankruptcy proceedings, as well as the Master Servicer's
servicing policy generally not to accept payment from the Mortgagor of less than
the total of the scheduled monthly payments due on the Mortgage Loans, may also
have an impact upon the payment behavior of particular Pools. See "Description
of the Certificates -- Collection and Other Servicing Procedures." In
particular, the return to holders of Certificates which purchased their
Certificates at a premium, if any, the return on classes with lower
proportionate shares of the principal amount of the interest in the underlying
mortgage loans, if any, and the return on interest only classes, if any, may be
adversely affected by servicing policies and decisions resulting in
foreclosures.
As may be described in the Prospectus Supplement relating to any Series,
the related Agreement may provide that all or a portion of the principal
collected on or with respect to the related Mortgage Loans may be applied by the
related Trustee to the acquisition of additional Mortgage Loans during a
specified period (rather than used to fund payments of principal to
Certificateholders during such period) with the result that the related
Certificates possess an interest-only period, also commonly referred to as a
revolving period, which will be followed by an amortization period. Any such
interest-only or revolving period may, upon the occurrence of certain events to
be described in the related Prospectus
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Supplement, terminate prior to the end of the specified period and result in the
earlier than expected amortization of the related Certificates.
The Prospectus Supplement for a Series of Sequential Pay Certificates may
contain a table setting forth percentages of the initial Certificate Balance of
each class expected to be outstanding after each of the dates shown in such
table. Any such table will be based upon a number of assumptions stated in such
Prospectus Supplement, including assumptions that prepayments on the mortgage
loans underlying the related Mortgage Certificates or on the Mortgage Loans are
made at rates corresponding to various percentages of the prepayment model
specified in the related Prospectus Supplement. It is unlikely, however, that
the prepayment of the mortgage loans underlying the Mortgage Certificates, or of
the Mortgage Loans, underlying any Series will conform to any of the percentages
of the prepayment model described in the table set forth in such Prospectus
Supplement.
See "Description of the Certificates -- Termination" herein and
"Description of the Certificates -- Optional Termination" in the Prospectus
Supplement for a description of the Depositor's or Master Servicer's option to
repurchase the Mortgage Assets comprising part of a Trust Fund when the
aggregate outstanding Principal Balance of such Mortgage Assets is less than a
specified percentage of the aggregate outstanding Principal Balance of such
Mortgage Assets as of the related Cut-off Date. The Depositor or a Mortgage
Asset Seller may also be required to repurchase Mortgage Assets from any Pool
because of breaches in its representations and warranties to the Trustee. Any
such repurchases will shorten the weighted average lives of the Certificates.
DESCRIPTION OF THE CERTIFICATES
Each Series of Certificates will be issued pursuant to a separate Agreement
(the "Agreement") for such Series between the Depositor, the Master Servicer and
the Trustee. The Agreement for each Series of Certificates will contain similar
terms and conditions, except for provisions with respect to the Pass-Through
Rate or Rates for each Class of such Series, the Delivery Date for such Series,
the specific Mortgage Loans relating to such Series, whether such Series
includes Senior Certificates and Subordinate Certificates and/or whether such
Series is enhanced by insurance or other forms of credit enhancement, whether
the Trust Fund relating to a Series of Certificates will elect to be treated as
a REMIC, the order and amount of distributions of principal or interest or both
on the various Classes of Certificates included in such Series, and any other
variations described in the Prospectus Supplement for such Series. If so
specified in the related Prospectus Supplement, the Mortgage Assets may be
divided into Asset Groups and the Certificates of separate Classes will evidence
ownership interests of a corresponding Asset Group. The following summaries of
certain provisions of each Agreement do not purport to be complete and are
subject to, and are qualified in their entirety by reference to, the provisions
of the Agreement relating to each Pool and the related Prospectus Supplement.
Reference is made to the form of Agreement filed as an exhibit to the
Registration Statement of which this Prospectus forms a part for a complete
statement of the particular provisions and terms used in the Agreement and
referred to herein.
General
The Certificates of each Series will be issued in fully registered
certificated or book-entry form and will represent ownership interests in the
Trust Fund created pursuant to the Agreement for such Series. Except as
otherwise specified in the related Prospectus Supplement, the Trust Fund for a
Series of Certificates will consist of: (i) the Mortgage Loans as from time to
time are subject to the Agreement for such Series (which may be, if so specified
in the related Prospectus Supplement for such Series, exclusive of the Retained
Yield, if any, for each such Mortgage Loan); (ii) Mortgage Certificates; (iii)
such assets as from time to time are required to be deposited in one or more
trust accounts established and maintained pursuant to such Agreement; (iv) any
property which initially secured a
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Mortgage Loan and which is acquired by foreclosure or deed in lieu of
foreclosure; and (iv) the interests of the Holders of such Certificates in any
insurance policies or other forms of credit enhancement required to be
maintained pursuant to such Agreement. See "Credit Enhancements" herein. To the
extent set forth in the related Prospectus Supplement, the beneficial interests
in the Mortgage Loans relating to a Series of Certificates may be in the form of
participation interests therein which will represent REMIC "regular interests"
in a Trust Fund which contains the Mortgage Loans relating to such Series.
The Certificates of each Series in certificated form may be transferred or
exchanged at the Corporate Trust Office of the Trustee or other offices
specified in the related Prospectus Supplement without the payment of any
service charge, other than any tax or other governmental charge payable in
connection therewith. In the event a Series of Certificates is issued, in whole
or in part, in book-entry form through the facilities of DTC or a similar
institution (the "Repository") transfers or exchanges may be similarly effected
through a participating member of the Repository, as described in the related
Prospectus Supplement. Prior to issuance there has been no market for any
Series of Certificates, and there can be no assurance that one will develop or
if one does develop that it will provide the Holders of Certificates of such
Series with liquidity or that it will remain for the life of the Certificates of
such Series.
Each Certificate of a Series will evidence the specified interest of the
Holder thereof in payments of principal or interest or both in respect of the
Pool comprising part of the Trust Fund for such Series of Certificates. Each
Class may bear a different Pass-Through Rate, based upon the specified interest
of such Class in payments of principal and interest. Certain Series or Classes
of Certificates, or certain of the Mortgage Loans or Mortgage Certificates
relating to a Series, may be enhanced by mortgage or hazard insurance or other
forms of credit enhancement, in each case as described in the related Prospectus
Supplement for such Series. The specific characteristics and percentage
interests of each Class of Certificates of a Series and the minimum or specified
denominations of such Certificates will be set forth in the Prospectus
Supplement for such Series. Any statements made herein relating to the Classes
of Certificates which are not offered for sale hereby are solely for the
information of the Holders of Certificates being offered hereby.
A Series of Certificates may contain one or more Classes of Senior
Certificates which are senior in right of distribution to one or more Classes of
Subordinated Certificates (one or more of which may be senior in right of
distribution to one or more other Classes of Subordinated Certificates) and may
also contain one or more Classes of: Certificates upon which interest will
accrue but will be added to the Certificate Balance, rather than distributed,
until the time specified in the related Prospectus Supplement and thereafter
will be distributed as so specified ("Compounding Certificates"); Certificates
entitled to principal distributions (with disproportionate, nominal or no
interest distributions) or to interest distributions (with nominal or no
principal distributions) ("Stripped Certificates"); Certificates entitled to
minimum distributions of principal in accordance with a specified schedule based
on the assumed rate of prepayment on the Mortgage Loans ("Prepayment
Certificates"); Certificates with principal distribution on the classes of such
Series made in the sequence specified in the related Prospectus Supplement
("Sequential Pay Certificates"); Certificates entitled to distributions of
principal in accordance with a specified schedule that is intended to slow the
amortization rate of such Certificates relative to the related Mortgage Loans
("Non-Accelerated Certificates"); other types of Certificates; or a combination
thereof, all as set forth in the related Prospectus Supplement. The relative
interests of the Senior Certificates and the Subordinated Certificates of a
Series of certain certificates ("Shifting Interest Certificates") in the Pool
will be subject to adjustment from time to time if funds available for
distribution on Senior Certificates of such Series are insufficient to cover the
amounts of principal otherwise payable to the holders of such Senior
Certificates on a Distribution Date as specified in the related Prospectus
Supplement.
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If so provided in the related Prospectus Supplement, the Trust Fund may
include guaranteed investment contracts pursuant to which moneys held in the
funds and accounts established for the related Series will be invested at a
specified rate. The Trust Fund may also include certain other agreements, such
as interest rate exchange agreements, interest rate cap or floor agreements,
currency exchange agreements or similar agreements provided to reduce the
effects of interest rate or currency exchange rate fluctuations on the Mortgage
Assets on one or more Classes of Certificates. The principal terms of any such
guaranteed investment contract or other agreement (any such agreement, a "Cash
Flow Agreement"), including, without limitation, provisions relating to the
timing, manner and amount of payments thereunder and provisions relating to the
termination thereof, will be described in the Prospectus Supplement for the
related Series. In addition, the related Prospectus Supplement will provide
certain information with respect to the obligor under any such Cash Flow
Agreement.
As used herein, the term "Fractional Undivided Interest" shall mean the
percentage of the principal portion of a Trust Fund evidenced by a Certificate
and the term "Percentage Interest" shall mean the percentage of the aggregate
distributions allocable to a Class of Certificates evidenced by a Certificate of
such Class. The term "Principal Balance" means the principal balance of a
Mortgage Loan remaining to be paid at the close of business on the Cut-off Date
(after deduction of all principal payments due on or before the Cut-off Date
whether or not paid) and reduced by all amounts distributed to Certificate
holders and allocable to principal of such Mortgage Loan and, in the case of
Negatively Amortizing ARMs, increased by Deferred Interest added to principal of
such ARMs. The term "Residual Holder" shall mean a Certificateholder entitled
to receive the "residual interest" in the REMIC as defined in Section 860G(a)(2)
of the Code. The terms defined in this paragraph may be assigned different
meanings in the Prospectus Supplement relating to a particular Series of
Certificates.
Except as otherwise specified in the related Prospectus Supplement for a
Series of Certificates, the Mortgage Loans will have Installment Due Dates on
the first day of the month ("First of the Month Mortgage Loans"). Except as
otherwise specified in the related Prospectus Supplement, distributions of
principal and interest received in respect of the Mortgage Loans relating to
such Series of Certificates will be made by the Trustee or other paying agent
(the "Paying Agent") on the 25th day of each month or if such 25th day is not a
Business Day (as defined in the related Agreement) on the next succeeding
Business Day (each, a "Distribution Date") and will be paid to the persons in
whose names such Certificates are registered at the close of business on the
last Business Day of the prior month (or in the event the last day of the month
is not a Business Day, on the Business Day immediately preceding such last day)
(the "Record Date"). Unless otherwise specified in the related Prospectus
Supplement, such distributions will begin with the month succeeding the month in
which the Cut-off Date occurs. The aggregate principal balances of the
Certificates on the Cut-off Date will be the sum of the aggregate principal
balances of the Mortgage Loans and the Mortgage Certificates as of the first day
of the month in which the Cut-off Date occurs, after deducting payments of
principal and interest due on or before such date. In the event a Series of
Certificates represents interests in a Pool consisting of Mortgage Loans other
than First of the Month Mortgage Loans, the related Prospectus Supplement will
more fully describe any resulting effect on the holders of Certificates of such
Series.
In addition, the related Prospectus Supplement will specify whether the
related Agreement will provide that all or a portion of principal collected on
the Mortgage Loans may be retained by the Trustee (and held in certain temporary
investments, including Mortgage Loans) for a specified period prior to being
used to distribute payments of principal to certain Certificateholders.
The result of such retention and temporary investment by the Trustee of
such principal would be to slow the amortization rate of the related
Certificates relative to the amortization rate of the related Mortgage Loans, or
to attempt to match the amortization rate of the related Certificates to an
amortization schedule established at the time such Certificates are issued. Any
such feature applicable to any Certificates may terminate, resulting in the
current funding of principal payments to the related
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Certificateholders and an acceleration of the amortization of such Certificates
upon the occurrence of certain events as set forth in the related Prospectus
Supplement.
Such distributions with respect to certificated Certificates will be made
by check mailed to the address of each Holder as it appears on the Certificate
Register for such Series or, if provided by the Agreement for such Series, in
the case of any Holder of a Certificate of such Series with an initial
Certificate Balance or Notional Amount equal to or in excess of the amount
specified in the Agreement and described in the related Prospectus Supplement
and who has so notified the Trustee or any applicable Paying Agent, by wire
transfer in immediately available funds to the account of such Holder at a bank
or other depository institution having appropriate wire transfer facilities;
except that the final distribution in retirement of a certificated Certificate
will be made only upon presentation and surrender of such Certificate at the
office or agency of the Trustee specified in the final distribution notice to
such Certificateholder. In the event a Series of Certificates is issued, in
whole or in part, in book-entry form, distributions on such Certificates,
including the final distribution in retirement of such Certificates, will be
made through the facilities of the Repository in accordance with its usual
procedures in the manner described in the Prospectus Supplement for such Series.
Assignment of Mortgage Loans
General
At the time of issuance of each Series of Certificates, the Depositor will
cause the Mortgage Loans, including loans underlying Mortgage Certificates,
comprising the Pool relating to such Series to be assigned to the Trustee for
such Series, together with all principal and interest due on or with respect to
such Mortgage Loans subsequent to the Cut-off Date. If so specified in the
Prospectus Supplement for a Series of Certificates, all right, title and
interest in and to the Retained Yield, if any, may be expressly reserved as
described in such Prospectus Supplement, and such Retained Yield will not
constitute part of the Trust Fund for such Series. The Trustee will, in
exchange for the Trust Fund for such Series of Certificates and concurrently
with such assignment, execute and deliver the Certificates to a certificate
registrar appointed pursuant to the Agreement for such Series (the "Certificate
Registrar") for authentication and delivery to the Depositor or its designee.
Each Mortgage Loan relating to such Series will be identified in a schedule
appearing as an exhibit to the Agreement for such Series which will include
information about each such Mortgage Loan including, among other things, its
Principal Balance as of the close of business on the Cut-off Date, its current
Mortgage Interest Rate and Mortgage Pass-Through Rate, its current scheduled
monthly payment of principal and interest, its stated maturity, its
Administration Fee, its Retained Yield, if any, its Loan-to-Value Ratio, and, if
such Mortgage Loan is an ARM, its applicable Index, its Gross Margin, its
lifetime Minimum Rate (if any), its lifetime Maximum Rate, its periodic Maximum
Adjustment, the frequency of its interest rate adjustment and its First Monthly
Payment Adjustment Date.
The Trustee for a Series of Certificates will be authorized to appoint one
or more custodians, which may include affiliates of the Depositor or the Trustee
(together, the "Custodians"), under a custodial agreement to maintain possession
of and review the documents with respect to the Mortgage Loans relating to such
Series, as the agent of such Trustee. Any such custodial agreement will be on
such terms as the Depositor, the Trustee and each Custodian shall agree.
In addition, the Depositor will, as to each Mortgage Loan, deliver to the
Trustee the Mortgage Note endorsed without recourse in blank or to the order of
the Trustee, the original Mortgage with evidence of recording indicated thereon,
an Officer's Certificate to the effect that a title insurance policy was issued
and remains in full force and effect, and an assignment of the Mortgage in
recordable form unless otherwise described in the related Prospectus Supplement.
The Agreement will generally require that the assignment of each Mortgage be
properly recorded and delivered to the Trustee within one year
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following the issuance of the Certificates; provided that assignments of
Mortgages need not be recorded in any state for which the Depositor delivers to
the Trustee an opinion of counsel to the effect that recordation of such
assignments is not necessary to secure or perfect the interest in such Mortgaged
Properties in the name of the Trustee. (Section 2.1. of the Agreement).
Unless otherwise specified in the related Prospectus Supplement, the
Trustee will review and hold such documents in trust for the benefit of the
Certificateholders. If any such document is found by the Trustee (within 45
days or within a longer specified period with respect to assignments which must
be recorded) to be defective in any material respect and the Depositor does not
cure such defect within 60 days after notice by the Trustee given to the
Depositor within the relevant period, the Depositor will, after the Trustee's
notice to the Depositor of the defect, either (i) within the three month period
commencing on the closing date of the sale of the related Series of Certificates
repurchase the related Mortgage Loan at a price, unless otherwise specified in
the related Prospectus Supplement, equal to the principal balance of such
Mortgage Loan, plus accrued interest on such principal balance at the Mortgage
Interest Rate to the next scheduled Installment Due Date of such Mortgage Loan,
or (ii) within the three month period commencing on the closing date of the sale
of the related Series of Certificates (or within the two year period commencing
on such closing date if the related Mortgage Loan is a "defective obligation"
within the meaning of the Code) unless otherwise provided in the related
Prospectus Supplement, substitute a different mortgage loan upon satisfaction of
the conditions set forth in the Agreement. Except as otherwise specified in the
related Prospectus Supplement, this repurchase or substitution obligation
constitutes the sole remedy available to the Certificateholders or the Trustee
for a material defect in a constituent document. (Section 2.2.) The related
Prospectus Supplement will specify any restrictions with respect to repurchases,
substitutions and any alternative arrangements.
Because assignments by the Depositor to the Trustee of the Mortgage Loans
secured by Mortgaged Properties located in certain states may not be recorded,
it might be possible for the Depositor to transfer such Mortgage Loans to bona
fide purchasers for value without notice, notwithstanding the Trustee's rights.
However, in most instances the Depositor would not be able to deliver the
original documents evidencing the Mortgage Notes or the mortgages because under
the terms of the Agreement and any Custodial Agreement, such documents are to be
retained in the possession of the Trustee or the specified Custodian, except
when released to the Depositor in connection with its servicing activities.
Moreover, under the law of California and certain other states, a subsequent
transferee who failed to obtain delivery of the original evidence of
indebtedness would not, in the absence of special facts, be able to defeat the
Trustee's interest in a Mortgage Loan so long as such evidence of indebtedness
remained in the possession of the Trustee.
Pursuant to the Agreement, the Master Servicer will service and administer
the Mortgage Loans assigned to the Trustee as more fully set forth below.
Representations and Warranties
Unless otherwise specified in the related Prospectus Supplement, in the
Agreement, the Depositor will represent and warrant to the Trustee (or will
assign to the Trustee representations and warranties of the Mortgage Asset
Seller) with respect to the Mortgage Loans comprising the Mortgage Assets in a
Trust Fund, upon delivery of the Mortgage Loans to the Trustee hereunder, among
other things: (i) that the information set forth in the schedule of Mortgage
Loans appearing as an exhibit to the Agreement is correct in all material
respects at the date or dates respecting which such information is furnished as
specified therein; (ii) that as of the date of the transfer of the Mortgage
Loans to the Trustee, the Depositor is the sole owner and holder of each
Mortgage Loan free and clear of all liens, pledges, charges or security
interests of any nature and has full right and authority, subject to no interest
or participation of, or agreement with, any other party, to sell and assign the
same; (iii) that as of the date of initial issuance of the Certificates, no
payment of principal of or interest on or in respect of any
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Mortgage Loan is more than 89 days past due; (iv) that to the best of the
Depositor's knowledge, as of the date of the transfer of the Mortgage Loans to
the Trustee there is no valid offset, defense or counterclaim to any Mortgage
Note or Mortgage; (v) that as of the date of the initial issuance of the
Certificates, there is, to the best of the Depositor's knowledge, no proceeding
pending or threatened for the total or partial condemnation of any of the
Mortgaged Property and the Mortgaged Property is free of material damage and in
good repair and neither the Mortgaged Property nor any improvement located on or
being part of the Mortgaged Property is in violation of any applicable zoning
law or regulation; (vi) that each Mortgage Loan complies in all material
respects with applicable state or federal laws, regulations and other
requirements, pertaining to usury, equal credit opportunity and disclosure laws
and each Mortgage Loan was not usurious at the time of origination; (vii) that
to the best of the Depositor's knowledge, as of the date of the initial issuance
of the Certificates, all taxes, government assessments and insurance premiums in
respect to the Mortgaged Properties previously due and owing have been paid;
(viii) that each Mortgage Note and the related Mortgage are genuine and each is
the legal, valid and binding obligation of the maker thereof, enforceable in
accordance with its terms except as such enforcement may be limited by
bankruptcy, insolvency, reorganization or other similar laws affecting the
enforcement of creditor's rights generally and by general equity principles
(regardless of whether such enforcement is considered in a proceeding in equity
or at law); all parties to the Mortgage Note and the Mortgage had legal capacity
to execute the Mortgage Note and the Mortgage and each Mortgage Note and
Mortgage have been duly and properly executed by the Mortgagor; (ix) that each
Mortgage is a valid and enforceable first lien on the property securing the
related Mortgage Note, which may arise thereunder and that each Mortgage Loan is
covered by an ALTA mortgagee title insurance policy or other form of policy or
insurance generally acceptable to FNMA or FHLMC, issued by, and is a valid and
binding obligation of, a title insurer acceptable to FNMA or FHLMC insuring the
originator, its successors and assigns, as to the lien of the Mortgage in the
original principal amount of the Mortgage Loan subject only to (a) the lien of
current real property taxes and assessments not yet due and payable, (b)
covenants, conditions and restrictions, rights of way, easements and other
matters of public record as of the date of recording of such Mortgage acceptable
to mortgage lending institutions in the area in which the Mortgaged Property is
located or specifically referred to in the appraisal performed in connection
with the origination of the related Mortgage Loan and (c) such other matters to
which like properties are commonly subject which do not individually, or in the
aggregate, materially interfere with the benefits of the security intended to be
provided by the Mortgage; (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%.
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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.
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 decline due to the
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<PAGE>
transfer of additional Mortgage Loans to the Trust Fund. 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), but
excluding any portion thereof allocable to Retained Yield, if any:
(i) all Mortgagor payments on account of principal, including
principal prepayments by Mortgagors, on the Mortgage Loans;
(ii) all Mortgagor payments on account of interest on the Mortgage
Loans, which may be net of that portion thereof which the Master Servicer
is entitled to retain as Administration Fees pursuant to the Agreement (as
adjusted);
(iii) all proceeds from Liquidation Proceeds net of unpaid
Administration Fees;
(iv) all proceeds received by the Master Servicer under any title,
hazard or other insurance policy covering any Mortgage Loan or the related
Mortgaged Property, other than proceeds to be applied to the restoration or
repair of the property subject to the related Mortgage or released to the
Mortgagor in accordance with the Master Servicer's normal servicing
procedures;
(v) all amounts required to be transferred to the Certificate
Account from the Reserve Fund, if any, pursuant to the Agreement;
(vi) any Advances made as described under "Description of the
Certificates -- Advances and Limitations Thereon";
(vii) all Repurchase Proceeds of Mortgage Loans; and
(viii) all other amounts required to be deposited in the
Certificate Account pursuant to the Agreement;
provided, however, that with respect to any payment of interest received by the
Master Servicer relating to a Mortgage Loan (whether paid by the Mortgagor or
received as Liquidation Proceeds, insurance proceeds or otherwise, but not as a
result of any Deferred Interest) which is less than the full amount of interest
then due with respect to such Mortgage Loan, the Master Servicer or any other
holder of the Retained Yield, if it has retained any Retained Yield with respect
to such Mortgage Loan, shall retain as its Retained Yield only its pro rata
share of such interest payment. (Section 3.2.)
Unless otherwise specified in the related Prospectus Supplement, the
Agreement will provide that amounts deposited in the Certificate Account may be
invested in Eligible Investments, as defined below,
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<PAGE>
maturing in general not later than the Business Day preceding the next
Distribution Date. If a REMIC election (see "Certain Federal Income Tax
Consequences") is made with respect to a Series of Certificates, then (i)
earnings on such Eligible Investments shall belong to the Depositor unless
otherwise specified in the related Prospectus Supplement and (ii) investments
will be restricted in such a manner as to constitute "permitted investments" (as
defined in Section 860G(a)(5) of the Code) and dispositions thereof will not be
made if the result thereof would be to cause any part of the proceeds to be
subject to the 100 Percent Tax on Prohibited Transactions imposed by Section
860F(a)(1) of the Code or would be to cause a loss of REMIC status. If a REMIC
election is not made, all income and gain realized on any such investment will
be for the account of the Master Servicer. The amount of any loss incurred in
connection with any such investment must be deposited in the Certificate Account
by the Master Servicer out of its own funds immediately as realized.
The Master Servicer is authorized to make withdrawals from the Certificate
Account for various purposes set forth in the Agreement.
Unless otherwise specified in the related Prospectus Supplement, "Eligible
Investments" shall include any one or more of the following obligations or
securities: (a) direct obligations of, or guaranteed as to full and timely
payment of principal and interest by, the United States or any agency or
instrumentality thereof; (b) direct obligations of, or guaranteed as to timely
payment of principal and interest by, FHLMC, FNMA or the Federal Farm Credit
System, qualified by a Rating Agency as 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;
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<PAGE>
(iv) all amounts representing scheduled payments of principal and
interest due after the immediately preceding Installment Due Date;
(v) all Principal Prepayments and Repurchase Proceeds with respect
to Mortgage Loans received after the related Prepayment Period (as defined
below) and all related payments of interest representing interest for any
period of time after the immediately preceding Installment Due Date for
such Mortgage Loans;
(vi) where permitted by the Agreement, that portion of Liquidation
Proceeds which represents unpaid Administration Fees to which the Master
Servicer is entitled; and
(vii) any other amount not included in the Pool Distribution in
accordance with the Agreement.
Unless otherwise provided in the applicable Prospectus Supplement, the term
"Prepayment Period" shall refer to the month preceding the month in which such
distribution occurs.
Distributions of interest on Certificates which received interest will be
made periodically at the intervals and at the Pass-Through Rate specified or
determined in the manner described in the related 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.
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Interest. Each Class of Certificates of a Series will accrue interest from
the date and at the fixed or adjustable Pass-Through Rate set forth (or
determined as set forth) in the related Prospectus Supplement, except for any
Class of PO Certificates, which will not accrue interest. The "Accrual Period"
with respect to any Distribution Date shall be the period from (and including)
the first day of the month preceding the month in which such Distribution Date
falls (or, in the case of the first Distribution Date, from the Closing Date)
through the last day of such preceding month, or such other period as may be
specified in the related Prospectus Supplement. Accrued interest will be
distributed (to the extent of available funds and subject to negative
amortization, if any, on the underlying Mortgage Loans) at the times and in the
manner specified in such Prospectus Supplement. Distributions of interest on
any Class of Compounding Certificates will commence at the time specified in
such Prospectus Supplement; until then, interest on the Compounding Certificates
will be added to the Certificate Balance thereof and will thereafter accrue
interest. Unless otherwise specified in the related Prospectus Supplement,
interest on the Certificates of each Class will accrue at the applicable Pass-
Through Rate from the date specified in the related Prospectus Supplement
(calculated on the basis of a 360-day year consisting of twelve 30-day months)
through the last day of the Accrual Period for the Distribution Date on which
the Certificate Balance of the Certificates of such Class is a fully amortized.
Principal. The "Certificate Balance" of a Certificate of a Series at any
time is equal to the initial Certificate Balance of such Certificate (plus, in
the case of Compounding Certificates, interest added to the Certificate Balance
thereof) less all distributions of principal thereon through the preceding
Distribution Date and adjustments, if any, in respect of losses and represents
the amount in respect of principal which the holder thereof is then entitled to
receive from the cash flow on the assets included 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
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<PAGE>
subordination may be limited to the Subordinated Amount specified in the related
Supplement or, in the case of Shifting Interest Certificates, to the
proportionate interest of the Subordinated Certificates in distributions and
will be effected by a subordination of the right to receive current
distributions, to the extent and under the circumstances set forth in the
related Prospectus Supplement. In addition, a Reserve Fund may be established,
which may be funded in part by an initial deposit therein and in part by the
deposit therein of amounts otherwise distributable to holders of Subordinated
Certificates. The terms of any subordination arrangement will be described in
the Prospectus Supplement. See "Credit Enhancements -- Subordination."
Compounding Certificates. Compounding Certificates of a Series will not be
entitled to distributions of principal or interest until the date specified in
the related Prospectus Supplement. On each Distribution Date prior to the first
Distribution Date on which interest is distributed on a Class of Compounding
Certificates, the amount of interest accrued during the prior Distribution
Period or Accrual Period will be added to the Certificate Balance of such Class
and will accrue interest at the applicable Pass-Through Rate from the time it is
added to the Certificate Balance or from such other date as may be specified in
the related Prospectus Supplement.
Stripped Certificates. Stripped Certificates may consist of PO
Certificates, IO Certificates or Certificates entitled to distributions of
principal on Mortgage Loans and/or Mortgage Certificates with disproportionate
or nominal interests distributions or of interest on Mortgage Loans and/or
Mortgage Certificates with nominal principal distributions.
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
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Certificates in the related Pool prepay at a rate specified in the related
Prospectus Supplement. Such distributions of principal will commence on the
Payment Date specified in the related Prospectus Supplement.
Residual Certificates. A Series of REMIC Certificates will include a Class
of Residual Certificates representing the right to receive, in addition to any
other distributions to which they are entitled in accordance with their terms,
distributions of all of the Surplus (if any) with respect to each Distribution
Date. The "Surplus" for a Series of REMIC Certificates as of any Distribution
Date equals the amount, if any, by which the sum of distributions, payments and
other amounts received exceeds the sum of (i) the amount required to be
distributed to Certificateholders on such Distribution Date and (ii) certain
expenses, all as more specifically described in the related Prospectus
Supplement. In addition, after the aggregate Certificate Balance of all Classes
of Regular Certificates has been fully amortized, the holders of the Residual
Certificates will be the sole owners of the related Pool and will have sole
rights with respect to the Mortgage Loans and/or Mortgage Certificates and other
assets remaining in such Pool. Some or all of the Residual Certificates of a
Series may be offered by this Prospectus and the related Prospectus Supplement;
if so, the terms of such Residual Certificates will be described herein and
therein. Any qualifications on direct or indirect ownership of Residual
Certificates offered hereby and by the related Prospectus Supplement, as well as
restrictions on the transfer of such Residual Certificates, will be set forth in
the related Prospectus Supplement. If such Residual Certificates are not so
offered, the Depositor may (but need not) sell some or all of such Residual
Certificates on or after the date of original issuance of such Series in
transactions exempt from registration under the Securities Act and otherwise
under circumstances that will not adversely affect the REMIC status of the Pool.
If Residual Certificates offered hereby and by the related Prospectus Supplement
have a Certificate Balance or a Pass-Through Rate, references herein with
respect to distributions on Certificates and Regular Certificates and related
matters should be deemed to include Residual Certificates, as appropriate.
Non-Accelerated Certificates. Non-Accelerated Certificates are entitled to
distributions of principal according to an amortization schedule established at
the time such Certificates are issued. The scheduled amortization rate of such
Certificates is intended to be slower than the amortization rate of the related
Mortgage Loans.
Advances and Limitations Thereon
Unless otherwise specified in the related Prospectus Supplement, the Master
Servicer will make an Advance each month for distribution to the
Certificateholders equal to the sum of the amount of delinquent Monthly Payments
due on the applicable Installment Due Date immediately preceding each such
Distribution Date, adjusted to the applicable Mortgage Pass-Through Rate less an
amount that the Master Servicer determines would not be recoverable from
Liquidation Proceeds or otherwise. Additionally, if otherwise specified in the
related Prospectus Supplement, the Trustee, on behalf of the Master Servicer,
may make such Advances. In making Advances, the Master Servicer is endeavoring
to maintain a regular flow of scheduled interest and principal payments to the
Certificateholders, rather than to guarantee or insure against losses.
Accordingly, any funds of the Master Servicer so advanced are recoverable
without interest by it out of amounts which represent late recoveries of
principal and/or interest respecting which any such Advance was made, or out of
related Liquidation Proceeds. If related Liquidation Proceeds are insufficient,
unreimbursed Advances ("Nonrecoverable Advances") may be recovered out of any
funds in the Certificate Account. In addition, Advances may be made by
withdrawals from funds on deposit in the Certificate Account. The Master
Servicer will make Advances whenever it determines that funds will ultimately be
available to reimburse it. If the Master Servicer makes an Advance on any
Distribution Date, it will be included with the distribution to the Certificate
holders on such Distribution Date. In the event the Trustee purchases any
foreclosed property and such property becomes part of the Trust Fund, the Master
Servicer will continue to make Advances on such property as if the Mortgage Loan
were still outstanding in the manner described above. At the time the
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Trustee sells such property, the Master Servicer shall be reimbursed for all
such Advances in an amount not to exceed the sale price. (Section 4.3.)
Adjustment to Master Servicing Fees in Connection with Prepayment Interest
Shortfall
When a Mortgagor prepays the entire Mortgage Loan between Installment Due
Dates for such Mortgage Loan, the Mortgagor pays interest on the amount prepaid
only to the date of prepayment. In addition, a partial prepayment may be
applied by the Master Servicer to reduce the principal balance of the related
Mortgage Loan as of a date prior to the receipt of such payment. Unless
otherwise specified in the related Prospectus Supplement, in order that
Certificateholders will not be adversely affected by a Prepayment Interest
Shortfall, the Master Servicer may forego all or a portion of the Master
Servicing Fees so that the distributions made to such Certificateholders on the
Distribution Date in the following month will include an amount equal to up to a
full month's interest payment, at the applicable Mortgage Pass-Through Rate,
that would otherwise have been included in such distribution with respect to any
such Mortgage Loan prepaid in full or in part. Any such payments by the Master
Servicer of a Prepayment Interest Shortfall may be covered only from and to the
extent of the aggregate Master Servicing Fees attributable to payments being
distributed on the related Distribution Date. Any such prepayments together
with the full month's interest thereon at the applicable Mortgage Pass-Through
Rate will be paid to the Certificateholders on the Distribution Date in the
month following the month in which the last day of the related Prepayment Period
occurred. Except with respect to a First of the Month Mortgage Loan, in the
event a Mortgage Loan is prepaid in full in a given month on a date after the
scheduled due date of such Mortgage Loan in such month, the Master Servicer will
retain as an increase in the Master 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:
<TABLE>
<CAPTION>
<S> <C> <C>
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.
</TABLE>
Succeeding monthly periods follow the pattern of (B) through (F).
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(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.
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(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.
(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
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be effected in DTC in accordance with DTC rules on behalf of the relevant
European international clearing system by its Depositary; however, such cross-
market transactions will require delivery of instructions to the relevant
European international clearing system by the counterparty in such system in
accordance with its rules and procedures and within its established deadlines
(European time). The relevant European international clearing system will, if
the transaction meets its settlement requirements, deliver instructions to its
Depositary to take action to effect final settlement on its behalf by delivering
or receiving securities in DTC, and making or receiving payment in accordance
with normal procedures for same-day funds settlement applicable to DTC. CEDEL
Participants and Euroclear Participants may not deliver instructions directly to
the Depositaries.
Because of time-zone differences, credits of securities received in CEDEL
or Euroclear as a result of a transaction with a DTC Participant will be made
during subsequent securities settlement processing and dated the Business Day
following the DTC settlement date. Such credits or any transactions in such
securities settled during such processing will be reported to the relevant
Euroclear or CEDEL Participants on such Business Day. Cash received in CEDEL or
Euroclear as a result of sales of securities by or through a CEDEL Participant
or Euroclear Participant to a DTC Participant will be received with value on the
DTC settlement date but will be available in the relevant CEDEL or Euroclear
cash account only as of the Business Day following settlement in DTC. For
information with respect to tax documentation procedures relating to the
Certificates, see "Certain Federal Income Tax Consequences -- Qualification as a
REMIC -- Reporting and Other Administrative Matters", "-- Foreign Investors" and
"-- Investment in Certificates Not Representing Interests in a REMIC --
Reporting" and "-- Foreign Investors" and "Global Clearance, Settlement and Tax
Documentation Procedures" in Annex I hereto.
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
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and indirect participants will make debits or credits, as the case may be, on
their records on behalf of the selling and purchasing Certificate Owners.
DTC is a limited-purpose trust company organized under the laws of the
State of New York, a member of the Federal Reserve System, a "clearing
corporation" within the meaning of the New York Uniform Commercial Code, and a
"clearing agency" registered pursuant to the provisions of Section 17A of the
Exchange Act. DTC accepts securities for deposit from its participating
organizations ("DTC Participants") and facilitates the clearance and settlement
of securities transactions between DTC Participants in such securities through
electronic book-entry changes in accounts of DTC Participants, thereby
eliminating the need for physical movement of certificates. DTC Participants
include securities brokers and dealers, banks and trust companies and clearing
corporations and may include certain other organizations. Indirect access to
the DTC system is also available to others such as banks, brokers, dealers and
trust companies that clear through or maintain a custodial relationship with a
DTC Participant, either directly or indirectly ("indirect participants").
CEDEL is incorporated under the laws of Luxembourg as a professional
depository. CEDEL holds securities for its participating organizations ("CEDEL
Participants") and facilitates the clearance and settlement of securities
transactions between CEDEL Participants through electronic book-entry changes in
accounts of CEDEL Participants, thereby eliminating the need for physical
movement of certificates. Transactions may be settled in CEDEL in any of 28
currencies, including United States dollars. CEDEL provides to its CEDEL
Participants, among other things, services for safekeeping, administration,
clearance and settlement of internationally traded securities and securities
lending and borrowing. CEDEL interfaces with domestic markets in several
countries. As a professional depository, 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.
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Securities clearance accounts and cash accounts with the Euroclear Operator
are governed by the Terms and Conditions Governing Use of Euroclear and the
related Operating Procedures of the Euroclear System and applicable Belgian law
(collectively, the "Terms and Conditions"). The Terms and Conditions govern
transfers of securities and cash within Euroclear, withdrawals of securities and
cash from Euroclear, and receipts of payments with respect to securities in
Euroclear. All securities in Euroclear are held on a fungible basis without
attribution of specific certificates to specific securities clearance accounts.
The Euroclear Operator acts under the Terms and Conditions only on behalf of
Euroclear Participants, and has no record of or relationship with persons
holding through Euroclear Participants.
Distributions with respect to Certificates held through CEDEL or Euroclear
will be credited to the cash accounts of CEDEL Participants or Euroclear
Participants in accordance with the relevant system's rules and procedures, to
the extent received by its Depositary. Such distributions will be subject to
tax reporting in accordance with relevant United States tax laws and
regulations. See "Certain Income Tax Consequences". CEDEL or the Euroclear
Operator, as the case may be, will take any other action permitted to be taken
by a Certificateholder on behalf of a CEDEL Participant or Euroclear Participant
only in accordance with its relevant rules and procedures and subject to its
Depositary's ability to effect such actions on its behalf through DTC.
Certificates will be issued in registered form to Certificate Owners, or
their nominees, rather than to DTC (such Certificates being referred to herein
as "Replacement Certificates"), only if (i) DTC or the Depositor advises the
Trustee in writing that DTC is no longer willing or able to discharge properly
its responsibilities as nominee and depository with respect to the Certificates
and the Depositor or the Trustee is unable to locate a qualified successor, or
(ii) the Depositor, at its sole option and with the consent of 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
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instruments in both the European and United States domestic markets. Initial
settlement and all secondary trades will settle in same-day funds.
Secondary market trading between investors holding Global Securities
through CEDEL and Euroclear will be conducted in the ordinary way in accordance
with their normal rules and operating procedures and in accordance with
conventional eurobond practice (i.e., seven calendar day settlement).
Secondary market trading between investors holding Global Securities
through DTC will be conducted according to the rules and procedures applicable
to United States corporate debt obligations.
Secondary cross-market trading between CEDEL or Euroclear and DTC
Participants holding Certificates will be effected on a delivery-against-payment
basis through the respective Depositaries of CEDEL and Euroclear (in such
capacity) and as Participants.
Non-United States holders (as described below) of Global Securities will be
subject to United States withholding taxes unless such holders meet certain
requirements and deliver appropriate United States tax documents to the
securities clearing organizations or their participants.
Initial Settlement
All Global Securities will be held in book-entry form by DTC in the name of
CEDE & Co. as nominee of DTC. Investors' interests in the Global Securities
will be represented through financial institutions acting on their behalf as
direct and indirect participants in DTC. As a result, CEDEL and Euroclear will
hold positions on behalf or their participants through their respective
Depositaries, which in turn will hold such positions in accounts as DTC
Participants.
Investors electing to hold their Global Securities through DTC will follow
the settlement practices applicable to United States corporate debt obligations.
Investor securities custody accounts will be credited with their holdings
against payment in same-day funds on the settlement date.
Investors electing to hold their Global Securities through CEDEL or
Euroclear accounts will follow the settlement procedures applicable to
conventional eurobonds, except that there will be no temporary global security
and no "lock-up" or restricted period. Global Securities will be credited to
the securities custody accounts on the settlement date against payment in same-
day funds.
Secondary Market Trading
Since the purchaser determines the place of delivery, it is important to
establish at the time of the trade where both the purchaser's and seller's
accounts are located to ensure that settlement can be made on the desired value
date.
Trading between DTC Participants. Secondary market trading between DTC
Participants will be settled using the procedures applicable to United States
corporate debt obligations issued in same-day funds.
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
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Participant or Euroclear Participant at least one Business Day prior to
settlement. CEDEL or Euroclear will instruct the respective Depositary, as the
case may be, to receive the Global Securities against payment. Payment will
include interest accrued on the Global Securities from and including the last
coupon payment date to and excluding the settlement date, on the basis of (i)
the actual number of days in such accrual period and a year assumed to consist
of 360 days. For transactions settling on the 31st of the month, payment will
include interest accrued to and excluding the first day of the following month.
Payment will then be made by the respective Depositary of the DTC Participant's
account against delivery of the Global Securities. After settlement has been
completed, the Global Securities will be credited to the respective clearing
system and by the clearing system, in accordance with its usual procedures, to
the CEDEL Participant's or Euroclear Participant's account. The securities
credit will appear the next day (European time) and the cash debt will be back-
valued to, and the interest on the Global Securities will accrue from, the value
date (which would be the preceding day when settlement occurred in New York). If
settlement is not completed on the intended value date (i.e., the trade fails),
the CEDEL or Euroclear cash debt will be valued instead as of the actual
settlement date.
CEDEL Participants and Euroclear Participants will need to make available
to the respective clearing systems the funds necessary to process same-day funds
settlement. The most direct means of doing so is to preposition funds for
settlement, either from cash on hand or existing lines of credit, as they would
for any settlement occurring within CEDEL or Euroclear. Under this approach,
they may take on credit exposure to CEDEL or Euroclear until the Global
Securities are credited to their accounts one day later.
As an alternative, if CEDEL or Euroclear has extended a line of credit to
them, CEDEL Participants or Euroclear Participants can elect not to preposition
funds and allow that credit line to be drawn upon the finance settlement. Under
this procedure, CEDEL Participants or Euroclear Participants purchasing Global
Securities would incur overdraft charges for one day, assuming they cleared the
overdraft when the Global Securities were credited to their accounts. However,
interest on the Global Securities would accrue from the value date. Therefore,
in many cases the investment income on the Global Securities earned during that
one-day period may substantially reduce or offset the amount of such overdraft
charges, although this result will depend on each CEDEL Participant's or
Euroclear Participant's particular cost of funds.
Since the settlement is taking place during New York business hours, DTC
Participants can employ their usual procedures for sending Global Securities to
the respective Depositary for the benefit of CEDEL Participants or Euroclear
Participants. The sale proceeds will be available to the DTC seller on the
settlement date. Thus, to the DTC Participant a cross-market transaction will
settle no differently than a trade between two DTC Participants.
Trading between CEDEL or Euroclear seller and DTC purchaser. Due to time
zone differences in their favor, CEDEL Participants and Euroclear Participants
may employ their customary procedures for transactions in which Global
Securities are to be transferred by the respective clearing system, through the
respective Depositary, to a DTC Participant. The seller will send instructions
to CEDEL or Euroclear through a CEDEL Participant or Euroclear Participant at
least one Business Day prior to settlement. In these cases, CEDEL or Euroclear
will instruct the respective Depositary, as appropriate, to deliver the Global
Securities to the DTC Participant's account against payment. Payment will
include 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).
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Should the CEDEL Participant or Euroclear Participant have a line of credit with
its respective clearing system and elect to be in debt in anticipation of
receipt of the sale proceeds in its account, the back-valuation will extinguish
any overdraft incurred over that one-day period. If settlement is not completed
on the intended value date (i.e., the trade fails), receipt of the cash proceeds
in the CEDEL Participant's or Euroclear Participant's account would instead be
valued as of the actual settlement date.
Finally, day traders that use CEDEL or Euroclear and that purchase Global
Securities from DTC Participants for delivery to CEDEL Participants or Euroclear
Participants should note that these trades would automatically fail on the sale
side unless affirmative action were taken. At least three techniques should be
readily available to eliminate this potential problem:
(a) borrowing through CEDEL or Euroclear for one day (until the purchase
side of the day trade is reflected in their CEDEL or Euroclear accounts) in
accordance with the clearing system's customary procedures;
(b) borrowing the Global Securities in the United States from a DTC
Participant no later than one day prior to settlement, which would give the
Global Securities sufficient time to be reflected in their CEDEL or Euroclear
account in order to settle the sale side of the trade; or
(c) staggering the value dates for the buy and sell sides of the trade so
that the value date for the purchase from the DTC Participant is at least one
day prior to the value date for the sale to the CEDEL Participant or Euroclear
Participant.
Certain U.S. Federal Income Tax Documentation Requirements
A beneficial owner of Global Securities holding securities through CEDEL or
Euroclear (or through DTC if the holder has an address outside the United
States) will be subject to the 30% United States withholding tax that generally
applies to payments of interest (including original issue discount) on
registered debt issued by United States persons, unless (i) each clearing
system, bank or other financial institution that holds customers' securities in
the ordinary course of its trade or business in the chain of intermediaries
between such beneficial owner and the United States entity required to withhold
tax complies with applicable certification requirements and (ii) such beneficial
owner takes one of the following steps to obtain an exemption or reduced tax
rate:
Exemption for non-United States Persons (Form W-8). Beneficial owners of
Global Securities that are non-United States persons can obtain a complete
exemption from the withholding tax by filing a signed Form W-8 (Certificate of
Foreign Status). If the information shown on Form W-8 changes, a new Form W-8
must be filed within 30 days of such change.
Exemption for non-United States Persons with effectively connected income
(Form 4224). A non-United States person, including a non-United States
corporation or bank with a United States branch, for which the interest income
is effectively connected with its conduct of a trade or business in the United
States, can obtain an exemption from the withholding tax by filing Form 4224
(Exemption from Withholding of Tax on Income Effectively Connected with the
Conduct of a Trade or Business in the United States).
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.
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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
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;
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(i) the amount remaining in the Reserve Fund, if any, on the
Distribution Date after any withdrawal reported under clause (f) above;
(j) the weighted average Mortgage Pass-Through Rate as of the first
day of the month immediately preceding the month of the Distribution Date;
and
(k) all Advances recovered during the related Prepayment Period.
In addition, within a reasonable period of time after the end of each
calendar year, the Master Servicer will cause the Trustee to furnish a report to
each Certificateholder of record at any time during such calendar year (a) as to
the aggregate of amounts reported pursuant to clauses (a) through (k) above for
such calendar year or, in the event such person was a Certificateholder of
record during a portion of such calendar year, for the applicable portion of
such year and (b) such other customary information as the Master Servicer deems
necessary or desirable for Certificateholders to prepare their tax returns.
(Section 4.4.) Information in the monthly and annual reports provided to the
Certificateholders will not have been examined and reported upon by an
independent public accountant. However, the Master Servicer will provide to the
Trustee annually a report by independent public accountants with respect to the
Master Servicer's servicing of the Mortgage Loans. (Section 3.12.) See "--
Evidence as to Compliance" below.
Reports to the Trustee
No later than 25 days after each Distribution Date, the Master Servicer
will provide the Trustee with a report, certified by a Servicing Officer,
setting forth the status of the Certificate Account as of the close of business
on such Distribution Date, stating that all distributions required to be made by
the Master Servicer under the Agreement have been made (or if any required
distribution has not been made by the Master Servicer specifying the nature and
status thereof and showing, for the period covered by such statement, the
aggregate of deposits into and withdrawals from the Certificate Account for each
category of deposits and withdrawals specified in the Agreement). Such
statement shall also include information as to the aggregate unpaid Principal
Balances of all the Mortgage Loans and Mortgage Certificates as of the day prior
to the immediately preceding applicable Installment Due Date. Copies of such
reports may be obtained by Certificateholders upon request in writing from the
Trustee or from the Master Servicer that is identified in the related Prospectus
Supplement.
Collection and Other Servicing Procedures
The Master Servicer will make reasonable efforts to collect all payments
called for under the Mortgage Loans and any applicable credit enhancement
applicable thereto and will, consistent with the Agreement, follow such
collection procedures as it follows with respect to its own conventional one-to-
four-unit residential first mortgage loans. Consistent with the above, the
Master Servicer may, in its discretion, (i) waive any assumption fee, late
payment charge or other charge in connection with a Mortgage Loan; and (ii)
arrange a schedule, running for no more than 180 days after the Installment Due
Date for payment of any installment on any Mortgage Note, for the liquidation of
delinquent items. (Section 3.2.) In servicing ARMs, the Master Servicer will on
occasion accommodate borrower inquiries 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.
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In connection with any assumption or substitution, the Mortgage Interest
Rate will not be changed, but the Maximum Rate and Minimum Rate may be revised
as described above under "Yield Considerations and Risks" if so specified in the
related Prospectus Supplement. (Section 3.6.)
Certain of the Mortgage Loans may provide for payment by the Mortgagor to
the Master Servicer of amounts to be used for payment of taxes, assessments,
hazard insurance premiums or comparable items for the account of the Mortgagor.
Such amounts, if any, will not become part of the Trust Fund and
Certificateholders will possess no interest therein. The Master Servicer may
deal with these amounts in accordance with its normal servicing procedures.
(Section 3.2.)
Pursuant to each Agreement, the Master Servicer will be responsible for
servicing and administering the Mortgage Loans, but will be permitted to enter
into a Servicing Agreement with a Qualified Lender or another eligible
institution (the other party to such Servicing Agreement hereafter referred to
as a "Servicer"), to perform all or part of such functions under its supervision
that it would otherwise be required to perform as described below.
The Master Servicer, or the Servicer, subject to general supervision of the
Master Servicer, will diligently perform all services and duties specified in
each Agreement, or Servicing Agreement, in the same manner as prudent mortgage
lending institutions would perform with respect to mortgages of the same type as
the Mortgage Loans in those jurisdictions where the related Mortgaged Properties
are located. The Master Servicer will monitor the performance of the Servicer
and will have the right to remove such Servicer at any time if it considers such
removal to be in the best interest of the related Certificateholders. The
duties to be performed by the Master Servicer, directly or through the Servicer,
will include collection and remittance of principal and interest payments,
collection of insurance claims and, if necessary, foreclosure. In the event a
Servicing Agreement shall be terminated by the Master Servicer the servicing
function of the Servicer thereunder shall be either transferred to a substitute
servicer or performed by the Master Servicer. The Master Servicer shall be
entitled to retain the portion of the Administration Fee paid to the Servicer
under a terminated Servicing Agreement in the event the Master Servicer shall
elect to perform such servicing functions itself.
The Master Servicer will be paid an Administration Fee for the performance
of its services and duties under each Agreement as specified in the related
Prospectus Supplement. Additionally, the Master Servicer or the Servicer may be
entitled to retain late charges, assumption fees and similar charges to the
extent collected from Mortgagors.
Hazard Insurance
The Depositor and/or the Master Servicer will obtain for each Mortgage Loan
a hazard insurance policy providing for no less than the coverage of the
standard form of fire insurance policy with extended coverage in the applicable
state. The Master Servicer will cause to be maintained for each Mortgage Loan
such hazard insurance policy. Such coverage will be in an amount equal to the
lesser of the principal balance of the Mortgage Loan and the replacement cost of
the improvements securing such Mortgage Loan. As set forth above, all amounts
collected by the Master Servicer under any hazard policy (except for amounts to
be applied to the restoration or repair of the Mortgaged Property or released to
the Mortgagor in accordance with the Master Servicer's normal servicing
procedures) will be credited to the Certificate Account. In the event that the
Master Servicer maintains a blanket policy 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.)
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In general, the standard form of fire and extended coverage policy covers
physical damage to or destruction of the improvements on the property by fire,
lighting, explosion, smoke, windstorm and hail, and riot, strike and civil
commotion, subject to the conditions and exclusions particularized in each
policy. Although the policies relating to the Mortgage Loans will be
underwritten by different insurers and therefore do not contain identical terms
and conditions, the basic terms thereof are dictated by applicable law and most
such policies typically do not cover any physical damages resulting from the
following: war, revolution, governmental actions, flood and other water-related
causes, earth movement (including earthquakes, landslides and mud flows),
nuclear reactions, hurricanes, wet or dry rot, vermin, rodents, insects or
domestic animals, theft and, in certain cases, vandalism. The foregoing list is
merely indicative of certain kinds of uninsured risks and is not intended to be
all-inclusive. If any Mortgaged Property was located in a federally designated
special flood hazard area at the time of origination, the Master Servicer will
cause to be maintained a flood insurance policy on such Mortgaged Property up to
the maximum amount available or to the full amount of the related Mortgage Loan.
The hazard insurance policies covering Mortgaged Properties typically will
contain a clause which in effect requires the insured at all times to carry
insurance of a specified percentage (generally 80% to 90%) of the full
replacement value of the improvements on the property in order to recover the
full amount of any partial loss. If the insured's coverage falls below this
specified percentage then the insurer's liability in the event of partial loss
shall not exceed the greater of (i) the actual cash value (generally defined as
replacement cost at the time and place of loss, less physical depreciation) of
the improvements damaged or destroyed or (ii) such proportion of the loss as the
amount of insurance carried bears to the specified percentage of the full
replacement cost of such improvements. Since residential properties have
appreciated in value over time, from time to time, in the past, the effect of
this requirement in the event of partial loss may be that hazard insurance
proceeds will be insufficient to restore fully the damaged property. However,
until the Subordinated Amount is reduced to zero (and provided any applicable
special loss limitation described in the related Prospectus Supplement has not
been exceeded), Senior Certificateholders will not realize a loss by reason of
uninsured hazard losses or application of the requirement if there are
sufficient funds otherwise due the Subordinate Certificate holders or held in
the Reserve Fund, if any, to pay Senior Certificateholders the amount which they
are entitled to receive.
Realization Upon Defaulted Mortgage Loans
The Master Servicer will be obligated under the Agreement to follow such
practices and procedures as it deems necessary or advisable and as are normal
and usual in its general mortgage servicing activities to realize upon defaulted
Mortgage Loans. However, in the case of damage to a Mortgaged Property, the
Master Servicer is not required to expend its own funds in connection with
foreclosure or to restore any damaged property unless it reasonably determines
(i) that such foreclosure and/or restoration will increase the Liquidation
Proceeds to Certificateholders after reimbursement to the Master Servicer for
its expenses and (ii) that such expenses will be recoverable to it through
Liquidation Proceeds of the sale of the Mortgaged Property. In the event that
the Master Servicer has expended its own funds to restore damaged property, it
will be entitled to charge the Certificate Account, out of related Liquidation
Proceeds, an amount equal to expenses incurred by it. (Section 3.7.)
The Master Servicer may sell property securing a defaulted Mortgage Loan at
a trustee's sale or, in the event a deficiency judgment is available against the
Mortgagor or other person (see "Certain Legal Aspects of the Mortgage Loans --
Anti-Deficiency Legislation and Other Limitations on Lenders" herein 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
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purchase price equal to the Principal Balance plus accrued and unpaid interest
thereon. In the event the Master Servicer purchases such a Mortgage Loan, any
gain realized in a liquidation proceeding on such Mortgage Loan will not be paid
to the Trust Fund. If the Master Servicer does not purchase such a Mortgage
Loan, any gain realized in a liquidation proceeding on such Mortgage Loan will
be paid to the Trust Fund for distribution to the Certificateholders, less
reasonable reimbursement to the Master Servicer for its expenses. If the Trust
Fund elects to be treated as a REMIC, such gain would become an asset of the
REMIC Residual Holders to the extent such gain is not necessary to make payments
due to the holders of regular interests. Often, the holder of property acquired
through foreclosure maximizes recovery by providing financing to a new
purchaser. The Trustee will not be empowered to provide such financing and the
Master Servicer may, but will not be obligated to, do so. This may result in a
Pool experiencing greater losses with respect to defaulted Mortgage Loans than
might otherwise be the case.
Until the Subordinated Amount is reduced to zero (and provided any
applicable special loss limitation has not been exceeded), if Liquidation
Proceeds are less than the sum of the Principal Balance of the defaulted
Mortgage Loan and the Master Servicer's expenses, Senior Certificateholders will
not realize a loss.
Except as otherwise specified in the related Prospectus Supplement, with
respect to any payment of interest received by the Master Servicer in respect to
a Mortgage Loan (whether paid by the Mortgagor or received as Liquidation
Proceeds, insurance proceeds or otherwise) which is less than the full amount of
interest then due with respect to the related Mortgage Loan, the Retained Yield,
if any, will be prorated accordingly. (Section 3.2.)
With respect to a Series of Certificates for which a REMIC election (see
"Certain Federal Income Tax Consequences" herein) is made, if the Trustee
acquires ownership of any Mortgaged Property as a result of a default or
imminent default of any Mortgage Loan secured by such Mortgaged Property, the
Trustee will be required to dispose of such property within two years after the
date on which ownership of such property is acquired.
Retained Yield, Administration Fees, Compensation and Payment of Expenses
The Prospectus Supplement for a Series of Certificates will specify whether
any Retained Yield is retained by the Master Servicer with respect to the
Mortgage Loans comprising the related Pool. If so, the Retained Yield, which
may be adjustable, will be established on a loan-by-loan basis and will be
specified in the schedule of Mortgage Loans attached as an exhibit to the
Agreement. The Retained Yield will be deducted from Mortgagor payments as
received and before they are credited to the Certificate Account and will not be
included as part of the Trust Fund.
Unless otherwise specified in the related Prospectus Supplement, the Master
Servicer is entitled to receive a Master Servicing Fee with respect to each
Mortgage Loan, which may be variable, as described in the Agreement. The Master
Servicer's aggregate Master Servicing Fee for any month may be subject to
adjustment as described above under "Adjustment to Master Servicing Fees in
Connection with Prepayment Interest Shortfall." The Master Servicer may either
retain the Master Servicing Fees to which it is entitled before making required
deposits to the Certificate Account or may withdraw them from the Certificate
Account.
Since the Master Servicer's Retained Yield, if any, and the Master
Servicing Fees are percentages of the then outstanding Principal Balance of each
Mortgage Loan each month, the Master Servicer's aggregate compensation will
decrease as the Mortgage Loans amortize. In addition to such compensation, the
Master Servicer will retain all assumption fees, late payment charges and other
charges, to the extent collected from Mortgagors.
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The Master Servicer will pay certain expenses incurred in connection with
its servicing of the Mortgage Loans, including, without limitation, payment of
the fees and disbursements of the Trustee and independent accountants, and
payment of expenses incurred in connection with distributions and reports to
Certificateholders. (Section 3.9.)
The Master Servicer is entitled to reimbursement for certain expenses
incurred by it in connection with the liquidation of defaulted Mortgage Loans,
including under certain circumstances reimbursement of expenditures incurred by
it in connection with the restoration of Mortgaged Properties, such right of
reimbursement being prior to the rights of Certificateholders to receive any
related Liquidation Proceeds. The Master Servicer is also entitled to
reimbursement from the Certificate Account for Advances. (Sections 3.3 and 3.7.)
Evidence as to Compliance
The Agreement will provide that on or before April 30 of each year,
beginning, with respect to a Series of Certificates, with the April 30 of the
year which begins not less than six months after the initial issuance of such
Series of Certificates, a firm of independent public accountants will furnish a
statement to the Trustee to the effect that such firm has examined certain
documents and records relating to the servicing of the Mortgage Loans of each
Series and that, either (a) on the basis of such examination conducted
substantially in compliance with the audit program for mortgages serviced for
FHLMC, such firm is of the opinion that such servicing has been conducted in
compliance with the manner of servicing set forth in the Agreement except for
(i) such exceptions as such firm believes to be immaterial and (ii) such other
exceptions as are set forth in such statement or (b) that their examination
conducted substantially in compliance with the uniform single audit program for
mortgage bankers disclosed no exceptions or errors in the records relating to
mortgage loans serviced for others that in their opinion are material and that
such program requires them to report. (Section 3.12.) The Agreement will also
provide for delivery to the Trustee of an annual statement signed by an officer
of each Master Servicer to the effect that such Master Servicer has fulfilled
its obligations under the Agreement throughout the preceding calendar year.
(Section 3.11.)
Certain Matters Regarding the Master Servicer
Unless otherwise specified in the applicable Prospectus Supplement, a
Master Servicer may not resign from its obligations and duties as Master
Servicer under the Agreement, except upon determination that its duties
thereunder are no longer permissible under applicable law or are in material
conflict by reason of applicable law with any other activities of a type and
nature presently carried on by it. No such resignation will become effective
until the Trustee or a successor Master Servicer has assumed such Master
Servicer's obligations and duties under the Agreement. (Section 6.4.) If a
Master Servicer resigns for any of the foregoing reasons, it is possible that
the Trustee would be unable or unwilling to assume responsibility for servicing
the Mortgage Loans under the Agreement and would therefore seek to appoint
another institution as mortgage servicer as described under "Rights Upon
Default" below. Such Master Servicer may, however, arrange for its duties under
the Agreement to be performed by a subservicer, or the other Master Servicer, if
any, so long as the Master Servicer remains responsible for the performance of
such duties.
The Agreement will also provide that neither the Master Servicer nor any
director, officer, employee or agent of the Master Servicer will be under any
liability to the Trust Fund or the Certificate holders for any action taken or
for refraining from the taking of any action in good faith pursuant to the
Agreement, or for errors in judgment; provided, however, that neither the Master
Servicer nor any such person will be protected against any liability which would
otherwise be imposed by reason of willful misfeasance, bad faith or gross
negligence in the performance of duties or by reason of reckless disregard of
obligations and duties thereunder. The Agreement further provides that the
Master Servicer and any
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director, officer, employee or agent of any Master Servicer is entitled to
indemnification by the Trust Fund and will be held harmless against any loss,
liability or expense incurred in connection with any legal action relating to
the Agreement or the Certificates, other than any loss, liability or expense
incurred by reason of willful misfeasance, bad faith or gross negligence in the
performance of duties thereunder or by reason of reckless disregard of
obligations and duties thereunder. In addition, the Agreement provides that the
Master Servicer is not under any obligation to appear in, prosecute or defend
any legal action which is not incidental to its servicing responsibilities under
the Agreement and which in its opinion may involve it in any expense or
liability. Any Master Servicer may, however, in its discretion, subject to the
terms and conditions of the Agreement, undertake any such action which it may
deem necessary or desirable in respect of the Agreement and the rights and
duties of the parties thereto and the interests of the Certificateholders
thereunder. In such event, the legal expenses and costs of such action and any
liability resulting therefrom will be expenses, costs and liabilities of the
Trust Fund and such Master Servicer and the other Master Servicer, if any, will
be entitled to be reimbursed therefor and charge the Certificate Account for
such reimbursement, such right of reimbursement being prior to the rights of
Certificateholders to receive any amounts in the Certificate Account. (Section
6.3.)
Any person into which a Master Servicer may be merged or consolidated, or
any person resulting from any merger, conversion or consolidation to which such
Master Servicer is a party, or any person succeeding to the business of such
Master Servicer will be such Master Servicer's successor under the Agreement.
(Section 6.2.)
Back-Up Master Servicer
Pursuant to the Agreement relating to any Series, ABN AMRO Bank N.V. or
another successor back-up master servicer appointed pursuant to such Agreement
will serve as back-up master servicer (the "Back-Up Master Servicer") and assume
the duties of the Master Servicer after a notice of termination of the Master
Servicer or if the Master Servicer fails to perform certain duties. The Back-Up
Master Servicer shall have no liability for any act of the Master Servicer prior
to such assumption.]
Special Servicing Agreements
The Pooling and Servicing Agreement may permit the Master Servicer to enter
into a special servicing agreement with an unaffiliated holder of subordinated
mortgage pass-through certificates. Pursuant to such an agreement, such holder
may instruct the Master Servicer and if applicable, any sub-Servicer, to
commence or delay foreclosure proceedings with respect to delinquent Mortgage
Loans. Such commencement or delay at such holder's direction will be taken by
the Master Servicer only after such holder deposits a specified amount of cash
with the Master Servicer. Such cash will be available for distribution to the
Certificateholders if proceeds resulting from a liquidation or foreclosure are
less than they otherwise may have been had the Master Servicer acted pursuant to
their normal servicing procedures.
Events of Default
Events of Default under the Agreement consist of (i) any failure by the
Master Servicer to distribute or cause to be distributed to Certificateholders
any required payment which continues 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
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Fractional Undivided Interests aggregating not less than 25% of the Trust Fund
or 51% of the Percentage Interest of any Class of Certificates; and (iii)
certain decrees or orders in any insolvency, readjustment of debt, marshalling
of assets and liabilities or similar proceedings and certain actions by the
Master Servicer indicating its insolvency, reorganization or inability to pay
its obligations. (Section 7.1.)
Rights Upon Default
So long as an Event of Default remains unremedied, the Trustee or
Certificateholders holding Certificates evidencing Fractional Undivided
Interests aggregating not less than 25% of the Trust Fund or 51% of the
Percentage Interest of any Class of Certificates may terminate all of the rights
and obligations of the Master Servicer under the Agreement (without prejudice to
its rights to the Retained Yield, if any, which rights the Master Servicer will
retain under all circumstances), whereupon the Trustee will succeed to all of
the Master Servicer's responsibilities, duties and liabilities under the
Agreement and will be entitled to monthly servicing compensation not to exceed
the Administration Fees. In the event that the Trustee is unwilling or unable to
so act, it may select, pursuant to the public bid or such other procedure
described in the Agreement, or petition a court of competent jurisdiction to
appoint, a housing and home finance institution, bank or mortgage servicing
institution with a net worth of at least $15,000,000 to act as successor to the
Master Servicer under the Agreement. In the event such public bid procedure is
used, the successor Master Servicer would be entitled to servicing compensation
in such amounts, up to the servicing compensation provided by Section 3.9 of the
Agreement, as may be agreed by the Trustee, and the Depositor, or if the Trust
Fund elects REMIC status, the Residual 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 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
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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.)
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.)
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CREDIT ENHANCEMENTS
General
For any Series, credit enhancement may be provided with respect to one or
more Classes thereof or the related Mortgage Assets. Credit enhancement may be
in the form of the establishment of one or more reserve funds, subordination of
one or more Classes of the Certificates of such Series, letters of credit, use
of a bankruptcy bond, repurchase bond or special hazard insurance policy,
certificate guarantee insurance policy, the use of cross-support features or
another method of credit enhancement described in the related Prospectus
Supplement, or combination of the foregoing, in any case, in such amounts and
having such terms and conditions as are acceptable to each Rating Agency which
assigns a rating to the Certificates of the Related Series.
To the extent any of the forms of credit enhancement described above and
further described below or other forms of credit enhancement are obtained for a
Series of Certificates, or deposits made in lieu thereof, a description of such
credit enhancement will be more fully set forth in the related Prospectus
Supplement.
Subordination
Unless otherwise specified in the related Prospectus Supplement, each
Series of Certificates will include Subordinate Certificates. The rights of the
Subordinate Certificateholders to receive distributions with respect to the
Mortgage Loans are subordinate to such rights of the Senior Certificateholders
to the extent of the then Subordinated Amount, as described below, or as
otherwise described in the applicable Prospectus Supplement. The Subordinated
Amount (before giving effect to Aggregate Losses described below) will be
determined in accordance with a schedule described in the applicable Prospectus
Supplement. The Subordinated Amount, as so determined at any time, will be
reduced by an amount equal to Aggregate Losses. Aggregate Losses will be
defined in the Agreement as generally including the aggregate amount of
delinquencies, losses and other deficiencies (other than any deficiency
consisting of interest on any unpaid amounts due the Senior Certificateholders)
in the amounts due the Senior Certificateholders previously borne by the
Subordinated Certificateholders, whether by way of withdrawal from the Reserve
Fund, if any, described below, reduction in amounts otherwise available to the
Subordinate Certificateholders or otherwise (as adjusted for the aggregate
amounts of such delinquencies, losses and other deficiencies previously
recovered on the Mortgage Loans).
Shifting Interest Credit Enhancement
The protection afforded to the Senior Certificateholders of a Series of
Certificates by the subordination feature described above under "Subordination"
will be effected by the preferential right of the Senior Certificateholders to
receive current distributions from the Pool and, if so specified in the related
Prospectus Supplement, such subordination feature will be enhanced by
distributing to one or more Classes of Senior Certificates on certain
Distribution Dates, as payments of principal, certain Principal Prepayments in
the related Pool under the circumstances and for the period of time set forth
therein ("Shifting Interest Credit Enhancement"). Shifting Interest Credit
Enhancement will have the effect of accelerating the amortization of the Senior
Certificates while increasing the respective interest evidenced by the
Subordinated Certificates in the related Trust Fund. Increasing the respective
interest 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
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If so specified in the related Prospectus Supplement, interest collections
on the Mortgage Loans may exceed interest payments on the Certificates for the
related Payment Date. Such amounts may be deposited into the Reserve Fund or
applied as a payment of principal on the Certificates. To the extent such
amounts are applied as principal payments on the Certificates, the effect will
be to reduce the principal balance of the Certificates relative to the
outstanding balance of the Mortgage Loans, thereby creating
"Overcollateralization" and additional protection to the Certificateholders, as
specified in the related Prospectus Supplement.
Reserve Fund
In addition to the preferential right of the Senior Certificateholders to
receive current distributions from the Pool (to the extent of the then
Subordinated Amount), to the extent described in the related Prospectus
Supplement the Master Servicer may establish and maintain with the Trustee a
reserve fund (the "Reserve Fund"). The related Prospectus Supplement will state
whether or not the Reserve Fund, if any, will be part of the Trust Fund. Unless
otherwise specified in the related Prospectus Supplement, the Depositor will
make an initial cash deposit (the "Initial Deposit") to the Reserve Fund, if
any, equal to the amount specified in the related Prospectus Supplement and
following the initial issuance of the Certificates and until the balance of such
Reserve Fund equals the sum of (i) the Initial Deposit, if any, and (ii) an
amount specified in the applicable Prospectus Supplement (the "Specified Reserve
Fund Balance"), the Trustee or the applicable Paying Agent will withhold
distributions of principal and interest otherwise available to the Subordinate
Certificateholders and deposit such amounts in such Reserve Fund, unless
otherwise described in the Prospectus Supplement. After the Specified Reserve
Fund Balance is attained, the Trustee or the applicable Paying Agent will
withhold distributions of principal only from the Subordinate Certificateholders
and deposit such amounts in the Reserve Fund, if any, as necessary to maintain
the Specified Reserve Fund Balance applicable at the time, unless otherwise
described in the Prospectus Supplement. Amounts in the Reserve Fund, if any,
will be transferred to the Certificate Account for distribution to Senior
Certificateholders to the extent required to make full distributions to such
holders on a particular Distribution Date. The related Prospectus Supplement
will set forth when and to what extent the Specified Reserve Fund Balance may be
reduced. Unless otherwise specified in the Prospectus Supplement, if the
Subordinated Amount is reduced to zero, under certain circumstances, an amount
equal to the sum of (i) the Initial Deposit and (ii) the funds remaining in any
Reserve Fund at the time the Subordinated Amount is reduced to zero will be
distributed to the Holders of the Subordinate Certificates.
Letter of Credit
Credit enhancement with respect to a Series of Certificates may be provided
by the issuance of a letter of credit by a bank or financial institution
specified in the related Prospectus Supplement (the "L/C Bank"). The maximum
obligation of the L/C Bank under the letter of credit will be to honor requests
for payment thereunder in an aggregate fixed dollar amount, net of unreimbursed
payments thereunder, equal to the percentage set forth in the related Prospectus
Supplement of the aggregate principal balance on the related Cut-off Date of the
Mortgage Loans evidenced by each Series. The duration of coverage and the
amount and frequency of any reduction in coverage provided by the letter of
credit with respect to a Series of Certificates will be in compliance with the
requirements established by the Rating Agency rating such Series, and will be
set forth in the Prospectus Supplement relating to such Series of Certificates.
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.
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Special Hazard Insurance Policy
If so specified in the Prospectus Supplement with respect to a Series of
Certificates, the Depositor or the Master Servicer will obtain a special hazard
insurance policy (the "Special Hazard Insurance Policy") for such Series, issued
by the insurer specified in such Prospectus Supplement (the "Special Hazard
Insurer") and covering any special hazard amount ("Special Hazard Amount"). The
Master Servicer will in that event exercise its best reasonable efforts to keep
or cause to be kept a Special Hazard Insurance Policy in full force and effect,
unless coverage thereunder has been exhausted through payment of claims. The
Master Servicer will pay the premiums on each Special Hazard Insurance Policy on
a timely basis. Claims under such Special Hazard Insurance Policy will
generally be limited to a percentage set forth in the Prospectus Supplement
(expected to be not greater than 1%) of the aggregate principal balance as of
the Cut-off Date of the Mortgage Loans comprising the related Pool. The terms
of any Special Hazard Insurance Policy will be more fully described in the
applicable Prospectus Supplement.
Bankruptcy Bond
If so specified in the Prospectus Supplement with respect to a Series of
Certificates, the Depositor or the Master Servicer will obtain a bankruptcy bond
(the "Bankruptcy Bond") for such Series. The obligor on, and the amount of the
coverage of, any such Bankruptcy Bond will be set forth in the applicable
Prospectus Supplement. The Master Servicer will exercise its best reasonable
efforts to maintain and keep or cause to be maintained and kept the Bankruptcy
Bond in full force and effect, unless coverage thereunder has been exhausted
through payment of claims. The Master Servicer will pay or cause to be paid the
premiums for each Bankruptcy Bond on a timely basis. Each Bankruptcy Bond will
cover certain losses resulting from an extension of the maturity of a Mortgage
Loan, or a reduction by the bankruptcy court of the principal balance of or the
Mortgage Rate on a Mortgage Loan, and the unpaid interest on the amount of a
principal reduction during the pendency of a proceeding under the federal
Bankruptcy Code. See "Certain Legal Aspects of the Mortgage Loans."
Cross-Support Features
If the Mortgage Assets for a Series are divided into separate Asset Groups,
the beneficial ownership of which is evidenced by a separate Class or Classes of
a Series, credit enhancement may be provided by a cross-support feature which
requires that distributions be made on Senior Certificates evidencing the
beneficial ownership of one Asset Group prior to distributions to Subordinate
Certificates evidencing beneficial ownership in another Asset Group within the
Trust Fund. The related Prospectus Supplement for a Series which includes a
cross-support feature will describe the manner and conditions for applying such
cross-support feature.
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
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The following discussion contains summaries of certain legal aspects of
mortgage loans which are general in nature. Because such legal aspects are
governed by applicable state law (which laws may differ substantially), the
summaries do not purport to be complete nor to reflect the laws of any
particular state, nor to encompass the laws of all states in which the security
for the Mortgage Loans or the mortgage loans underlying the Mortgage
Certificates is situated. The summaries are qualified in their entirety by
reference to the applicable federal and state laws governing the Mortgage Loans
and the mortgage loans underlying the Mortgage Certificates.
General
The Mortgage Loans and the mortgage loans underlying the Mortgage
Certificates (other than Co-op Loans) will be secured by either deeds of trust
or mortgages, depending upon the prevailing practice in the state in which the
underlying property is located. A mortgage creates a lien upon the real
property described in the mortgage. Under a deed of trust, the borrower grants
the property, irrevocably until the debt is paid, in trust, generally with a
power of sale, to the trustee to secure payment of the loan. The trustee's
authority under a deed of trust and the mortgagee's authority under a mortgage
are governed by the express provisions of the deed of trust or mortgage,
applicable law, and, in some cases, with respect to the deed of trust, the
directions of the beneficiary. There are two parties to a mortgage: the
mortgagor, who is the borrower and homeowner; and the mortgagee, who is the
lender. In a mortgage state instrument, the mortgagor delivers to the mortgagee
a note or bond evidencing the loan and the mortgage. Although a deed of trust
is similar to a mortgage, a deed of trust has three parties; the borrower-
homeowner called the trustor (similar to a mortgagor), a lender called the
beneficiary (similar to a mortgagee), and a third-party grantee called the
trustee. The lien created by the mortgage or deed of trust is not prior to the
lien for real estate taxes and assessments and other charges imposed under
governmental police powers. Priority between mortgages or deeds of trust
depends on their terms or the terms of separate subordination or inter-creditor
agreements, the knowledge of the parties in some cases and generally on the
order of recordation of the mortgage in the appropriate recording office.
Foreclosure
Foreclosure of a deed of trust is generally accomplished by a non-judicial
trustee's sale under a specific provision in the deed of trust that authorizes
the trustee to sell the property to a third party upon any default by the
borrower under the terms of the note or deed of trust. In certain states, such
foreclosure also may be accomplished by judicial action in the manner provided
for foreclosure of mortgages. In some states, the trustee must record a notice
of default and send a copy to the borrower-trustor and to any person who has
recorded a request for a copy of a notice of default and notice of sale. In
addition, the trustee must provide notice in some states to any other individual
having an interest of record in the real property, including any junior
lienholders. If the deed of trust is not reinstated within 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.
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Delays in completion of the foreclosure occasionally may result from
difficulties in locating necessary parties defendant. When the mortgagee's right
to foreclosure is contested, the legal proceedings necessary to resolve the
issue can be time-consuming. After the completion of a judicial foreclosure
proceeding, the court may issue a judgment of foreclosure and appoint a receiver
or other officer to conduct the sale of the property. In some states, mortgages
may also be foreclosed by advertisement, pursuant to a power of sale provided in
the mortgage. Foreclosure of a mortgage by advertisement is essentially similar
to foreclosure of a deed of trust by non-judicial power of sale.
In case of foreclosure under either a deed of trust or a mortgage, the sale
by the receiver or other designated officer, or by the trustee, is a public
sale. However, because of the difficulty a potential buyer at the sale would
have in determining the exact status of title and because the physical condition
of the property may have deteriorated during the foreclosure proceedings, it is
uncommon for a third party to purchase the property at the foreclosure sale.
Rather, it is common for the lender to purchase the property from the trustee or
receiver for an amount equal to the unpaid principal amount of the note, accrued
and unpaid interest and the expenses of foreclosure. Thereafter, subject to the
right of the borrower in some states to remain in possession during the
redemption period, the lender will assume the burdens of ownership, including
maintaining hazard insurance and making such repairs at its own expense as are
necessary to render the property suitable for sale. The lender commonly will
obtain the services of a real estate broker and pay the broker a commission in
connection with the sale of the property. Depending upon market conditions, the
ultimate proceeds of the sale of the property may not equal the lender's
investment in the property. Any loss may be reduced by the receipt of mortgage
insurance proceeds. Courts have applied equitable principles to a lender's
utilization of the foreclosure process in order to avert a mortgagor's loss of
his residence for technical or trivial defaults. Some courts have been faced
with the issue of whether the particular foreclosure statutes in their states
meet federal or state constitutional requirements for fair and adequate notice.
In most instances, such courts have upheld such notice provisions as being
reasonable or as not involving sufficient state action to invoke such
constitutional provisions.
Rights of Redemption
In some states, after sale pursuant to a deed of trust or foreclosure of a
mortgage, the borrower and certain foreclosed junior lienors are given a
statutory period in which to redeem the property from the foreclosure sale. In
certain other states, this right of redemption applies only to sale following
judicial foreclosure, and not to sale pursuant to a non-judicial power of sale.
In most states where the right of redemption is available, statutory redemption
may occur upon payment of the foreclosure purchase price, accrued interest and
taxes. In some states, the right to redeem is an equitable right. The effect
of a right of redemption is to diminish the ability of the lender to sell the
foreclosed property. The exercise of a right of redemption would defeat the
title of any purchaser at a foreclosure sale, or of any 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.
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Some state statutes may require the beneficiary or mortgagee to exhaust the
security afforded under a deed of trust or mortgage by foreclosure in an attempt
to satisfy the full debt before bringing a personal action against the borrower.
In certain other states, the lender has the option of bringing a personal action
against the borrower on the debt without first exhausting such security;
however, in some of these states, the lender, following judgment on such
personal action, may be deemed to have elected a remedy and may be precluded
from exercising remedies with respect to the security. Consequently, the
practical effect of the election requirement, when applicable, is that lenders
will usually proceed first against the security rather than bringing a personal
action against the borrower.
Other statutory provisions may limit any deficiency judgment against the
former borrower following a foreclosure sale to the excess of the outstanding
debt over the fair market value of the property at the time of such sale. The
purpose of these statutes is to prevent a beneficiary or a mortgagee from
obtaining a large deficiency judgment against the former borrower as a result of
low or no bids at the foreclosure sale.
In some states, exceptions to the anti-deficiency statutes are provided in
certain instances where the value of the lender's security has been impaired by
acts or omissions of the borrower, for example, in the event of waste of the
property.
In addition to anti-deficiency and related legislation, numerous other
federal and state statutory provisions, including the federal bankruptcy laws,
the federal Soldiers' and Sailors' Civil Relief Act of 1940 and state laws
affording relief to debtors, may interfere with or affect the ability of a
secured mortgage lender to realize upon its security. For example, in a Chapter
13 case under the federal Bankruptcy Code, if a court determines that the value
of a debtor's principal residence is less than the principal balance of the
loan, the court may, as part of the rehabilitation plan, unless the home is the
sole collateral for the mortgage loan, reduce the amount of the secured
indebtedness to the value of the home as it exists at the time of the case,
leaving the lender as a general unsecured creditor for the difference between
that value and the amount of outstanding indebtedness. A bankruptcy court may
grant the debtor a reasonable time to cure a payment default, and in the case of
a mortgage loan not secured by the debtor's principal residence, also may reduce
the monthly payments due under such mortgage loan, change the rate of interest
and alter the mortgage loan repayment schedule. Regardless of whether a
mortgage loan is secured by the debtor's principal residence, the rehabilitation
plan may provide for the reinstatement of any payment defaults over a period of
up to 5 years. In addition, the federal Soldiers' and Sailors' Civil Relief Act
of 1940 may reduce the rate of interest payable on any mortgage loan as to which
the mortgagor is a military reservist called to active duty, and may interfere
with the lender's right to foreclose upon the related mortgage or deed of trust.
In a Chapter 7, Chapter 11 or Chapter 13 case under the federal Bankruptcy Code,
the lender is precluded from foreclosing without authorization from the
bankruptcy court. If the debtor's principal residence is not the only security
for the mortgage loan, the lender's lien may be transferred to other collateral
and/or be limited in amount to the value of 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
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statutory liability upon lenders who originate or service mortgage loans and who
fail to comply with the provisions of the law. In some cases, this liability may
affect assignees of the mortgage loans.
Junior Liens; Rights of Senior Lienholders
The rights of the Trust Fund (and therefore the Certificateholders) as
beneficiary under a junior deed of trust or as mortgagee under a junior mortgage
are subordinate to those of the mortgagee or beneficiary under the senior
mortgage or deed of trust, including the prior rights of the senior mortgagee or
beneficiary to receive hazard insurance and condemnation proceeds and to cause
the property securing the junior mortgage loan to be sold upon default of the
mortgagor or trustor, thereby extinguishing the junior mortgagee's or junior
beneficiary's lien unless the holders thereof assert their subordinate interest
in a property in foreclosure litigation or satisfy the defaulted senior loan.
As discussed more fully below, in many states a junior mortgagee or beneficiary
may satisfy a defaulted senior loan in full, or may cure such default and bring
the senior loan current, in either event adding the amounts expended to the
balance due on the junior loan.
The standard form of the mortgage or deed of trust used by most
institutional lenders confers on the mortgagee or beneficiary the right both to
receive all proceeds collected under any hazard insurance policy and all awards
made in connection with any condemnation proceedings, and to apply such proceeds
and awards to any indebtedness secured by the mortgage or deed of trust, in such
order as the mortgagee or beneficiary may determine. Thus, in the event
improvements on the property are damaged or destroyed by fire or other casualty,
or in the event the property is taken by condemnation, the mortgagee or
beneficiary under the underlying first mortgage or deed of trust will have the
prior right to collect any insurance proceeds payable under a hazard insurance
policy and any award of damages in connection with the condemnation and to apply
the same to the indebtedness secured by the first mortgage or deed of trust.
Proceeds in excess of the amount of first mortgage indebtedness will, in most
cases, be applied to the indebtedness of a junior mortgage or trust deed.
The form of mortgage or deed of trust used by most institutional lenders
typically contains a "future advance" clause, which provides, in essence, that
additional amounts advanced to or on behalf of the mortgagor or trustor by the
mortgagee or beneficiary are to be secured by the mortgage or deed of trust.
While such a clause is valid under the laws of most states, the priority of any
advance made under the clause depends, in some states, on whether the advance
was an "obligatory" or "optional" advance. If the mortgagee or beneficiary is
obligated to advance the additional amounts, the advance is entitled to receive
the same priority as amounts initially made under the mortgage or deed of trust,
notwithstanding that there may be intervening junior mortgages or deeds of trust
and other liens between the date of recording of the mortgage or deed of trust
and the date of the future advance, and notwithstanding that the mortgagee or
beneficiary had actual knowledge of such intervening junior mortgages or deeds
of trust and other liens at the time of the advance. Where the mortgagee or
beneficiary is not obligated to advance the additional amounts and has actual
knowledge of the intervening 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
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obligations, the mortgagee or beneficiary is given the right under the mortgage
or deed of trust to perform the obligation itself, at its election, with the
mortgagor or trustor agreeing to reimburse the mortgagee or beneficiary for any
sums expended by the mortgagee or beneficiary on behalf of the trustor. All sums
so expended by the mortgagee or beneficiary become part of the indebtedness
secured by the mortgage or deed of trust.
"Due-on-Sale" Clauses
The Agreement will provide that, when any mortgaged property underlying a
Mortgage Loan is about to be conveyed by the mortgagor, the Master Servicer
will, to the extent it has knowledge of such prospective conveyance, exercise
its rights to accelerate the maturity of such Mortgage Loan under the "due-on-
sale" clause applicable thereto, if any, unless it is not exercisable under
applicable law or if such exercise would result in loss of insurance coverage
with respect to such Mortgage Loan or would, in the Master Servicer's judgment,
be reasonably likely to result in litigation by the mortgagor. In either case,
the Master Servicer is authorized to take or enter into an assumption and
modification agreement from or with the person to whom such Mortgaged Property
has been or is about to be conveyed, pursuant to which such person becomes
liable under the Mortgage Note and, unless prohibited by applicable state law,
the mortgagor remains liable thereon, provided that the Mortgage Loan will
continue to be covered by any related primary mortgage insurance policy and the
Mortgage Interest Rate with respect to such Mortgage Loan and the payment terms
shall remain unchanged. The Master Servicer will also be authorized, with the
prior approval of any primary mortgage insurer (unless such approval is
precluded by the terms of the Mortgage Loan) to enter into, on behalf of the
Trustee, a substitution of liability agreement with such person, pursuant to
which the original mortgagor is released from liability and such person is
substituted as mortgagor and becomes liable under the Mortgage Note.
By virtue of the Garn-St Germain Depository Institutions Act of 1982 (the
"Act"), a Servicer or the Master Servicer may generally be permitted to
accelerate any Mortgage Loan which contains a "due-on-sale" clause upon transfer
of an interest in the property subject to the deed of trust or mortgage. With
respect to any Mortgage Loan secured by a residence occupied or to be occupied
by the borrower, this ability to accelerate will not apply to certain types of
transfers, including (i) the granting of a leasehold interest which has a term
of three years or less and which does not contain an option to purchase, (ii) a
transfer to a relative resulting from the death of a borrower, or a transfer
where the spouse or child(ren) becomes an owner of the property in each case
where the transferee(s) will occupy the property, (iii) a transfer resulting
from a decree of dissolution of marriage, legal separation agreement or from an
incidental property settlement agreement by which the spouse becomes an owner of
the property, (iv) the creation of a lien or other encumbrance subordinate to
the lender's security instrument which does not relate to a transfer of rights
of occupancy in the property (provided that such lien or encumbrance is not
created pursuant to a contract for deed), (v) a transfer by devise, descent or
operation of law on the death of a joint tenant or tenant by the entirety, and
(vi) other transfers as set forth in the Act and the regulations thereunder. As
a result, a lesser number of Mortgage Loans which contain "due-on-sale" 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
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may be substantial. For any particular Series of Certificates, it is possible
that such Cleanup Costs could become a liability of the related Trust Fund and
reduce the amounts otherwise distributable to the related Certificateholders if
such Cleanup Costs are incurred in connection with a Mortgaged Property held by
such Trust Fund. Moreover, certain states by statute impose a lien for any
Cleanup Costs incurred by such state on the property that is the subject of such
Cleanup Costs (a "Superlien"). All subsequent liens on such property are
subordinated to such Superlien and, in some states, even prior recorded liens
are subordinated to such Superliens. In the latter states, the security interest
of the Trustee in a property that is subject to such a Superlien could be
adversely affected.
Traditionally, residential mortgage lenders have not taken steps to
evaluate whether hazardous wastes or hazardous substances are present with
respect to any mortgaged property prior to the origination or the mortgage loan
or prior to foreclosure or accepting a deed-in-lieu of foreclosure.
Accordingly, unless otherwise specified in the Prospectus Supplement, the
Qualified Lenders will not have made such evaluation prior to the origination of
the Mortgage Loans nor will the Mortgage Asset Seller or the Depositor have
required that such evaluation be made by the originators who have sold the
Mortgage Loans to them. Neither the applicable Servicer nor the Master Servicer
will be required to undertake any such evaluations prior to foreclosure or
accepting a deed-in-lieu of foreclosure. Neither the Depositor, the Trustee nor
the Master Servicer makes any representations or warranties or assumes any
liability with respect to the absence or effect of hazardous wastes or hazardous
substances on any Mortgaged Property or any casualty resulting from the presence
or effect of hazardous wastes or hazardous substances. See "Description of the
Certificates--Realization Upon Defaulted Mortgage Loans."
Subordinate Financing
Certain of the Mortgage Loans may not restrict the ability of the borrower
to use the Mortgaged Property as security for one or more additional loans.
Where a borrower encumbers a mortgage property with one or more junior liens,
the senior lender is subjected to additional risk. First, the borrower may have
difficulty servicing and repaying multiple loans. Moreover, if the subordinate
financing permits recourse to the borrower (as is frequently the case) and the
senior loan does not, a borrower may have more incentive to repay sums due on
the subordinate loan. Second, acts of the senior lender that prejudice the
junior lender or impair the junior lender's security may create a superior
equity in favor of the junior lender. For example, if the borrower and the
senior lender agree to an increase in the principal amount of or the interest
rate payable on the senior loan, the senior lender may lose its priority to the
extent any existing junior lender is harmed or the borrower is additionally
burdened. Third, if the borrower defaults on the senior loan and/or any junior
loan or loans, the existence of junior loans and actions taken by junior lenders
can impair the security available to the senior lender and can interfere with or
delay the taking of action by the senior lender. Moreover, the bankruptcy of a
junior lender may operate to stay foreclosure or similar proceedings by the
senior lender.
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.
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The Depositor will represent and warrant for the benefit of
Certificateholders that the Mortgage Loans were originated in full compliance
with applicable state laws, including usury laws.
Enforceability of Certain Provisions
Standard forms of note, deed of trust and mortgage generally contain
provisions obligating the borrower to pay a late charge if payments are not
timely made and in some circumstances may provide for prepayment fees or
penalties if the obligation is paid prior to maturity. In certain states, there
are or may be specific limitations upon late charges which a lender may collect
from a borrower for delinquent payments. Certain states also limit the amounts
that a lender may collect from a borrower as an additional charge if the loan is
prepaid. Under the Agreement, late charges and prepayment fees (to the extent
permitted by law and not waived by the Master Servicer or the Servicers) will be
retained by the Master Servicer or the Servicers as additional servicing
compensation.
Courts have imposed general equitable principles upon foreclosure. These
equitable principles are generally designed to relieve the borrower from the
legal effect of defaults under the loan documents. Examples of judicial remedies
that may be fashioned include judicial requirements that the lender undertake
affirmative and expensive actions to determine the causes for the borrower's
default and the likelihood that the borrower will be able to reinstate the loan.
In some cases, courts have substituted their judgment for the lender's judgment
and have required lenders to reinstate loans or recast payment schedules to
accommodate borrowers who are suffering from temporary financial disability. In
some cases, courts have limited the right of lenders to foreclose if the default
under the mortgage instrument is not monetary, such as the borrower failing to
adequately maintain the property or the borrower executing a second mortgage or
deed of trust affecting the property. In other cases, some courts have been
faced with the issue of whether federal or state constitutional provisions
reflecting due process concerns for adequate notice require that borrowers under
the deeds of trust receive notices in addition to the statutorily-prescribed
minimum requirements. For the most part, these cases have upheld the notice
provisions as being reasonable or have found that the sale by a trustee under a
deed of trust or under a mortgage having a power of sale does not involve
sufficient state action to afford constitutional protections to the borrower.
Co-op Loans
To the extent set forth in the Prospectus Supplement, certain of the
Mortgage Loans may have been made in connection with a purchase or refinance of
cooperative apartments. Such Co-op Loans are not secured by liens on real
estate. The "owner" of a cooperative apartment does not own the real estate
constituting the apartment but owns shares of stock in a corporation which holds
title to the building in which the apartment is located, and by virtue of owning
such stock is entitled to a proprietary lease to occupy the specific apartment
(the "Lease"). Thus, a Co-op Loan is a personal loan secured by a lien on the
shares and an assignment of the Lease. If the borrower defaults on a Co-op
Loan, the lender's 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
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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
Certificate holder owned such Residual Certificate. For this purpose, the
daily portion will be determined by allocating to each day in the calendar
quarter its ratable portion of the taxable income or net loss of the REMIC for
such quarter and then by allocating the amount so allocated among the Residual
Certificateholders in accordance with their percentage of ownership interests on
such day. Any amount included in the gross income of or allowed as a loss to
any Residual Certificateholder by virtue of the rules described in this
paragraph will be treated as ordinary income or loss. Each Residual Certificate
holder should be aware that taxable income with respect to its Residual
Certificate may exceed cash distributions with respect thereto in any taxable
year.
Taxable Income of the REMIC. The taxable income of the REMIC will
reflect a netting of (i) the income from the Mortgage Loans and other assets of
the REMIC and (ii) the deductions allowed to the REMIC for interest (including
original issue discount) on the Regular Certificates (and any other class of
Certificates constituting "regular interests" in the REMIC not offered hereby)
and, except as described below, for servicing, administrative and other
expenses. The limitation on miscellaneous itemized deductions imposed on
individuals by Code Section 67 will not be applied at the Pool level to such
expenses. See "-- Pass-Through of Miscellaneous Itemized Deductions" below.
As a general rule, the taxable income of the REMIC will be determined in
the same manner as if the REMIC were an individual using the accrual method of
accounting, with certain modifications. The first modification is that a
deduction will be allowed for accruals of interest (including original issue
discount) on the "regular interests" in the REMIC. If a Regular Certificate is
issued at a price in excess of its aggregate principal amount, the net amount of
interest deductions that are allowed the REMIC in each taxable year with respect
to the Regular Certificate will be reduced by an amount equal to the portion of
the excess that is considered to be amortized or prepaid in that year. Although
the matter is
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not entirely certain, it is likely that any such excess would be amortized under
a constant yield method in a manner analogous to the method for accruing
original issue discount described under "Taxation of Owners of Regular
Certificates -- Original Issue Discount" above.
The second modification relates to the accrual of income on a Mortgage Loan
deemed to have been acquired with market discount or premium. Any such market
discount will be includible in the income of the REMIC as it accrues, in advance
of receipt of the cash attributable to such income, under a method similar to
the method described above for accruing original issue discount on the Regular
Certificates. If the REMIC elects under Code Section 171 to amortize any
premium on the Mortgage Loans, the premium may be amortized under a constant
yield method. See "-- Taxation of Owners of Regular Certificates -- Market
Discount" and "-- Premium" above.
The third modification is that no item of income, gain, loss or deduction
allocable to a prohibited transaction (see "-- Prohibited Transactions and other
REMIC -- Level Taxes," below) will be taken into account.
The fourth modification is that the REMIC generally may not deduct any item
that would be disallowed in calculating the taxable income of a partnership by
virtue of Code Section 703(a)(2).
The fifth modification is that the amount of the net income from
"foreclosure property" (if any) must be reduced by the amount of tax imposed
under Code Section 860G(c) with respect to such "foreclosure property."
The REMIC will have an initial aggregate basis in its assets equal to the
aggregate issue price of the "regular interests" and "residual interests" in the
REMIC. Such aggregate basis will be allocated among the individual Mortgage
Loans and other assets of the REMIC in proportion to their respective fair
market values. Accordingly, the Master Servicer will be required to estimate
the fair market value of such interests in order to determine the basis of the
REMIC in the Mortgage Loans and other property held by the REMIC. Generally
with respect to any Certificate offered hereby, its fair market value will be
its issue price as determined in the manner described above under "Taxation of
Owners of Regular Certificates -- Original Issue Discount" above.
Basis Rules and Distributions. Any distribution by a REMIC to a
Residual Certificate holder will not be included in the gross income of such
Residual Certificateholder to the extent it does not exceed the adjusted basis
of such Residual Certificateholder's interest in a Residual Certificate. Such
distribution will reduce the adjusted basis of such interest, but not below
zero. To the extent a distribution exceeds the adjusted basis of the Residual
Certificate, it will be treated as gain from the sale of the Residual
Certificate. See "-- Sales of Certificates," below. The adjusted basis of a
Residual Certificate is equal to the amount paid for such Residual Certificate,
increased by amounts included in the income of the Residual Certificateholder
(see "-- Taxation of Owners of Residual Certificates -- Daily Portions," above)
and decreased by distributions and by net losses taken into account with respect
to such interest.
A Residual Certificateholder is not allowed to take into account any net
loss for any calendar quarter to the extent such net loss exceeds such Residual
Certificateholder's adjusted basis in its Residual Certificate as of the close
of such calendar quarter (determined without regard to such net loss). Any loss
allowed will reduce the adjusted basis of such interest, but not below zero.
Any loss disallowed by reason of this limitation may be carried forward
indefinitely to future calendar quarters and, subject to the same limitation,
may be used only to offset income from the Residual Certificate. The effect of
these basis and distribution rules is that a Residual Certificateholder may not
amortize its basis in a Residual Certificate, but may only recover its basis
through distributions, and through the deduction of any net losses of the REMIC
or upon the sale of its Residual Certificate. See "-- Sales of Certificates"
below.
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Excess Inclusions. Any "excess inclusion" with respect to a Residual
Certificate is subject to certain special tax rules. With respect to a Residual
Certificateholder, the excess inclusion for any calendar quarter is defined as
the excess (if any) of the daily portions of taxable income over the sum of the
"daily accruals" for each day during such quarter that such Residual Certificate
was held by such Residual Certificateholder. The daily accruals are determined
by allocating to each day during a calendar quarter its ratable portion of the
product of the "adjusted issue price" of the Residual Certificate at the
beginning of the calendar quarter and 120 percent of the long-term "applicable
Federal rate" (generally, an average of current yields on Treasury securities of
comparable maturity) in effect at the time of issuance of the Residual
Certificate. For this purpose, the adjusted issue price of a Residual
Certificate offered hereby, if any, as of the beginning of any calendar quarter
is the issue price of the Residual Certificate, (see "-- Taxable Income of the
REMIC" above) increased by the amount of daily portions of income for all prior
quarters and decreased (but not below zero) by any distributions made with
respect to such Residual Certificate and any net losses taken into account with
respect to such Residual Certificates before the beginning of such quarter.
As an exception to the general rules described above, the Treasury
Department has authority to issue regulations that would treat the entire amount
of income accruing on a Residual Certificate as an excess inclusion if the
aggregate Residual Certificates in the REMIC did not have "significant value."
The REMIC Regulations do not provide for such an exception.
For Residual Certificateholders, other than thrift institutions described
in Code Section 593, an excess inclusion cannot be offset by losses from other
sources. For Residual Certificateholders that are subject to tax on unrelated
business taxable income (as defined in Code Section 511), an excess inclusion is
treated as unrelated business taxable income. With respect to Residual
Certificateholders that are nonresident alien individuals or foreign
corporations generally subject to United States 30% withholding tax, an excess
inclusion will be subject to such tax and no tax treaty rate reduction or
exemption may be claimed with respect thereto. See "-- Foreign Investors"
below.
If a thrift institution described in Code Section 593 holds a Residual
Certificate that has "significant value," the thrift institution may offset its
losses against its excess inclusion income. In general, a Residual Certificate
has significant value if (i) the aggregate of the issue prices of the Residual
Certificates in the REMIC is at least equal to 2 percent of the aggregate of the
issue prices of all Regular Certificates and Residual Certificates in the REMIC,
and (ii) the anticipated weighted average life of the Residual Certificates is
at least 20 percent of the anticipated weighted average life of the REMIC.
However, a net operating loss of any other member of an affiliated group of
which the thrift institution is a member may not be used to offset an excess
inclusion attributable to the thrift institution. In addition, a thrift
institution may not offset its losses against an excess inclusion attributable
to a Residual Certificate held by any other member of an affiliated group of
which the thrift institution is a member.
In the case of any Residual Certificate held by a real estate investment
trust, the aggregate excess inclusions with respect to such Residual
Certificate, reduced (but not below zero) by the real estate investment trust's
taxable income (within the meaning of Code Section 857(b)(2), excluding any net
capital gain), will be allocated among the shareholders of such trust in
proportion to the dividends received by such shareholders from such trust, and
any amount so allocated will be treated as an excess inclusion with respect to
the Residual Certificate as if held directly by such shareholders.
Pass-Through of Miscellaneous Itemized Deductions
Under temporary Treasury regulations, if the REMIC is considered to be a
"single-class REMIC," a portion of the REMIC's servicing, administrative and
other non-interest expenses will be allocated as a separate item to those
Regular Certificateholders that are "pass-through interest holders." Generally,
a single class REMIC is defined as (i) a REMIC that is substantially similar to
an investment trust under
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Treasury regulations but for its qualification as a REMIC, or (ii) a REMIC that
is substantially similar to an investment trust but is structured with the
principal purpose of avoiding this allocation requirement imposed by the
temporary regulations. Such a pass-through interest holder would be required to
add its allocable share, if any, of such expenses to its gross income and to
treat the same amount as an item of investment expense. An individual generally
would be allowed a deduction for such expenses only as a miscellaneous itemized
deduction subject to the limitations under Code Section 67, which allows such
deductions only to the extent that in the aggregate such expenses exceed two
percent of the holder's adjusted gross income. In addition, Code Section 68
provides that the amount of itemized deductions otherwise allowable for an
individual whose adjusted gross income exceeds a certain amount (the "Applicable
Amount") will be reduced by the lesser of (i) 3% of the excess of the
individual's adjusted gross income over the Applicable Amount or (ii) 80% of the
amount of itemized deductions otherwise allowable for the taxable year. The
amount of additional taxable income recognized by Regular Certificateholders who
are subject to the limitations of either Code Section 67 or Code Section 68 may
be substantial. The REMIC is required to report to each pass-through interest
holder and to the IRS such holder's allocable share, if any, of the REMIC's non-
interest expenses. The term "pass-through interest holder" generally refers to
individuals, entities taxed as individuals and certain pass-through entities
including regulated investment companies, but does not include real estate
investment trusts. 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 Certificate holder) and provided that
the Certificateholder is not (i) a "10 percent shareholder" within the meaning
of Code Section 871(h)(3)(B) or a controlled foreign corporation described in
Code Section 881(c)(3)(C). The application of these requirements in the REMIC
context is not entirely clear, and foreign investors seeking to qualify for this
exemption should consult their own tax advisors. While the matter is not free
from doubt, the foregoing tax exemption may not apply with respect to a Regular
Certificate held by a Residual Certificateholder, or by a Certificateholder that
owns directly or indirectly a 10% or greater interest in, or is a "controlled
foreign corporation" as defined under the Code related to, a Residual
Certificateholder. If the Certificateholder does not qualify for exemption,
distributions of interest, including distributions in respect of accrued
original issue discount, to such Certificateholder may be subject to a tax rate
of 30%, subject to reduction under any applicable tax treaty. For these
purposes, "United States person" means a citizen or resident of the United
States, a corporation, partnership or other entity created or organized in or
under the laws of the United States or any political subdivision thereof, or an
estate or trust whose income is subject to United States Federal income taxation
regardless of its source.
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Unless otherwise stated in the related Prospectus Supplement, Residual
Certificateholders that are not United States persons should assume that
distributions of income on their Residual Certificates will be subject to a 30%
withholding tax (or such lesser rate as may be provided under any applicable tax
treaty). In the case of any income on a Residual Certificate that is an excess
inclusion, however, the rate of withholding will not be subject to reduction
under any applicable tax treaties. (See "-- Taxation of Owners of Residual
Certificates -- Excess Inclusions" above.)
Purchase of Both Regular and Residual Certificates
Any Certificateholder holding a "regular interest" in the REMIC and persons
related to such Certificateholders should not acquire any interest identified as
a "residual interest" in the REMIC and any Certificateholders holding a
"residual interest" in the REMIC and persons related to such 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
Retained Yield or a Trust Fund issuing IO Certificates. Such a separation also
will occur if the amount of the Administration Fee exceeds reasonable
compensation such that the Master Servicer is treated as the owner of a portion
of the interest payments on the Mortgage Loans. There are no authoritative
guidelines for Federal income tax purposes regarding the maximum amount of
servicing compensation that may be considered reasonable in the context of this
or similar transactions. However, the Service has issued guidance establishing
an elective "safe harbor" for determining the extent to which amounts that a
taxpayer is entitled to receive under certain mortgage servicing contracts
represent reasonable compensation. If the safe harbor is potentially applicable
in a particular situation, the Mortgage Servicer will disclose in the Prospectus
Supplement relating to each Series of Certificates whether it will elect to
limit its compensation to an amount that will qualify as reasonable compensation
under such safe harbor. Such a separation also may occur upon the issuance of a
Certificate that represents an interest in principal payments to be made on
Mortgage Loans together with interest payable thereon at a rate in excess of the
rate at which interest is payable on such Mortgage Loans. Such
Certificateholders may be treated as having purchased two separate instruments:
first, a P&I Certificate representing their undivided interests in payments of
principal on such Mortgage Loans together with interest payments at a rate at or
below the rate at which interest is payable on such Mortgage Loans; and, second,
an IO Certificate representing their undivided interests in the remainder of the
payments of interest to be made on such Mortgage Loans to which their
Certificate entitles them.
Each Certificateholder in such a Trust Fund will be subject to the
"stripped debt" rules of Code Section 1286. As a result, the market discount
rules generally would not be applicable to the initial Certificateholders.
However, the Service has recently provided guidance under which certain mortgage
loans that are stripped bonds may be treated as market discount bonds governed
by Code Section 1278. This treatment is available only if the amount of the
original issue discount with respect to the stripped bond is determined to be de
minimis (see "-- Qualification as a REMIC -- Taxation of Owners of Regular
Certificates -- Original Issue Discount") or the annual stated rate of interest
payable on the stripped bond is no more than 100 basis points lower than the
annual stated rate of interest payable on the original bond from which it (and
any other stripped bonds or coupons) were stripped. If these requirements are
met, and if the stripped bond has market discount (see "-- Qualification as a
REMIC -- Taxation of Owners of Regular Certificates -- Market Discount"), the
Certificateholder may include such market discount as principal is repaid or
upon disposition of the Certificate at a gain or may elect to include such
income currently on the basis of either ratable accrual or a constant instant
rate method. If the market discount rules do not apply, each Certificateholder
in such a Trust Fund (whether a cash or accrual method taxpayer) will be
required to report the income (including interest that is added to principal as
Deferred Interest resulting from negative amortization) that is deemed to accrue
for each day with respect to the Certificate under a constant yield to maturity
method, in accordance with the original issue discount rules of the Code.
In general, the amount of such income that accrues for each day would equal
(i) the product of such Certificateholder's adjusted issue price of such P&I
Certificate at the beginning of an accrual period and the yield of such P&I
Certificate to such holder (ii) allocated ratably to each day in the accrual
period. See "-- Qualification as a REMIC -- Taxation of Owners of Regular
Certificates -- Original Issue Discount" above. Such yield would be computed as
the rate (assuming monthly compounding) that, if used to discount the
Certificateholder's share of future payments on the Mortgage Loans, would cause
the present value of those future payments to equal the price at which the
Certificateholder purchased such Certificate. In computing accrued income under
the stripped debt rules, a Certificateholder's share
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of future payments on the Mortgage Loans will not include any payments made in
respect of any Retained Yield or any other ownership interest in the Mortgage
Loans retained by the Depositor or its affiliates, but will include such
Certificateholder's share of any reasonable servicing fees and other expenses.
There is considerable uncertainty, however, concerning the application of
Code Section 1272(a)(6) and the OID Regulations to instruments such as the P&I
Certificates. Among other things, it is unclear whether provisions of the 1986
Act requiring use of a prepayment assumption in accruing original issue discount
would be applicable to the P&I Certificates in the absence of Treasury
Regulations or whether use of a prepayment assumption may be permitted without
reliance on these rules. It also is not clear whether any other adjustments
would be required to reflect differences between an assumed prepayment rate and
the actual rate of prepayments. Certificateholders are advised to consult their
tax advisors concerning whether a prepayment assumption should be used in
reporting original issue discount with respect to P&I Certificates.
In the case of a P&I Certificate acquired at a price approximately equal to
the principal amount of the Mortgage Loans allocable to such Certificate, the
use or non-use of a reasonable prepayment assumption would not cause the income
required to be reported under the stripped debt rules to differ materially from
the income such Certificateholder would be required to report under an accrual
method of accounting if the stripped debt rules did not apply. In the case,
however, of a P&I Certificate acquired at a discount from, or premium over, such
principal amount, the use of a reasonable prepayment assumption would increase
or decrease the yield used in calculating accruals of income, and thus
accelerate or decelerate, respectively, the reporting of income.
If no prepayment assumption is used, then when a Mortgage Loan prepays in
full, the holder of a P&I Certificate acquired at a discount generally will
recognize ordinary income equal to the difference between the portion of the
prepaid principal amount of the Mortgage Loan that is allocable to such
Certificate and the portion of the adjusted basis of such Certificate that is
allocable to such Certificate holder's interests in the Mortgage Loan. If a
prepayment assumption is used, it appears that no income or loss should be
recognized upon a prepayment unless prepayments have occurred at a rate
different than the assumed prepayment rate.
Variable Rate Certificates. Although the OID Regulations are subject
to a different interpretation, in the absence of substantial legal authority to
the contrary the Master Servicer intends to treat Mortgage Loans subject to the
stripped debt rules and bearing a variable rate of interest as subject to the
provisions of the OID Regulations governing variable rate debt instruments. In
computing the accrual or original issue discount, the Master Servicer may be
required to use the methods described in Code Section 1272(a)(6). With respect
to the application of Code Section 1272(a)(6) to the accrual of original issue
discount, see generally "-- Qualification as a REMIC -- Taxation of Owners of
Regular Certificates -- Original Issue Discount" above. Under the OID
Regulations, interest payments on a variable rate debt instrument may be
characterized as qualified stated interest includible in income when accrued,
original issue discount includible in income when accrued under the original
issue discount rules, or contingent interest payments generally includible in
income in the taxable year in which the payments become fixed. Although the OID
Regulations generally permit a variety of interest rate adjustment mechanisms to
produce "qualified stated interest" (e.g., one or more "qualified floating
rates," "qualified inverse floating rates," or "objective rates") where each
qualified floating rate or objective rate in effect during an accrual period is
set at a current value of that rate, the use of these formulas may in some cases
produce accelerated or deferred interest which must be accrued under a constant
yield method (which could require accrual in advance of the receipt of a
corresponding payment of cash). Moreover, prospective purchasers of P&I
Certificates bearing a variable rate of interest should be aware that the
provisions in the OID Regulations applicable to variable rate instruments may
not apply to the particular rate adjustment mechanisms for the Mortgage Loans or
Mortgage Certificates. If variable rate P&I Certificates are not governed by
the provisions applicable to variable rate debt instruments, the OID
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Regulations provide that such Certificates would be subject to the provisions
applicable to instruments having contingent payments. See "-- Taxation of Owners
of IO Certificates -- Possible Application of Proposed Contingent Payment Rules"
below. The application of those provisions to instruments such as the P&I
Certificates is subject to differing interpretations. Prospective purchasers of
variable rate P&I Certificates are advised to consult their tax advisors
concerning the tax treatment of such Certificates.
If Stripped Bond Rules Do Not Apply. If the stripped bond rules do
not apply to a P&I Certificate, the Certificateholder will be required to report
its pro rata share of the interest income on the Mortgage Loans in accordance
with such Certificateholder's normal method of accounting. However, if the
rules relating to market discount, original issue discount, or premium are
applicable, the amount includible in income on account of a P&I Certificate may
differ significantly from the amount payable thereon from payments of interest
on the Mortgage Loans.
The original issue discount rules will apply to a P&I Certificate to the
extent it evidences an interest in Mortgage Loans or Mortgage Certificates
issued with original issue discount. Under the OID Regulations a Mortgage Loan
would have original issue discount if the points charged at origination (or
other loan discount) exceeded a specified de minimis amount (generally, the
greater of one-sixth of one percent times the number of full years to final
maturity or one-fourth of one percent times the weighted average maturity). The
OID Regulations also treat certain variable rate mortgage loans as having
original issue discount if the loan has an initial rate of interest that differs
from that determined by the formula for setting the interest rate during the
remainder of the loan or if the loan uses an index that does not vary in a
manner approved in the OID Regulations. For a general discussion of the
treatment of variable rate interest, see "-- Taxation of Owners of P&I
Certificates -- Variable Rate Certificates" above. Generally, original issue
discount would be accrued on the basis of a constant yield to maturity.
However, the application of the original issue discount rules to the Mortgage
Loans is unclear in certain respects. See "-- Treatment as Stripped Bonds,"
above.
Premium and Market Discount. Determination of adjustments to a
Certificateholder's income based on premium or market discount with respect to a
Certificate requires that the purchase price of the Certificate be allocated
among the Mortgage Loans constituting the Trust Fund. Generally, such
allocation will provide a tax basis for the Certificateholder's undivided
interest in each Mortgage Loan and will be made on the basis of the relative
fair market values of the Certificateholder's undivided interest in the Mortgage
Loans.
A Certificateholder that acquires an interest in a Mortgage Loan at a
premium may elect under Code Section 171 to amortize such premium under a
constant yield to maturity method over the life of the Mortgage Loan.
Certificateholders should consult their tax advisors concerning whether a
prepayment assumption should be used in calculating yield and concerning
possible alternative methods for amortizing premium.
An investor also should be aware that the Internal Revenue Service may take
the position that the method described below for accruing income under the
current proposed Treasury Regulations applicable to debt instruments providing
for contingent payments applies to a P&I Certificate purchased at such a premium
because all or a portion of its issue price (the "Contingent Principal") may not
be recovered if the related Mortgage Loans were prepaid. See "-- Taxation of
Owners of IO Certificates -- Possible Application of Proposed Contingent Payment
Rules" below. The method of accruing income under the contingent payment rules
may be more likely to be applied if the difference between the issue price of
the Certificate and the amount of Contingent Principal is substantial.
If the portion of a P&I Certificate's purchase price allocable to a
Mortgage Loan in the Trust Fund is less than the Certificateholder's undivided
interest in the Mortgage Loan's "revised issue price" (the sum of the issue
price and the previously accrued original issue discount reduced by the sum of
all
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prior payments of the stated redemption price at maturity), such excess is
"market discount." A Certificateholder that acquires an interest in a Mortgage
Loan with market discount generally will be required under Code Section 1276 to
include accrued and previously unrecognized market discount in income as
ordinary income to the extent of payments of the stated redemption price at
maturity received on the Mortgage Loan at the time that each such payment is
received. In addition, on a sale or other disposition of the P&I Certificate, a
Certificateholder will be required to include as ordinary income any gain to the
extent of accrued and previously unrecognized market discount. Pending the
issuance of Treasury Regulations, market discount may be treated as accruing
either (i) under a constant yield to maturity method, (ii) in proportion to the
original issue discount accruing on a Mortgage Loan, or (iii) in proportion to
the stated interest in the absence of original issue discount. Alternatively, a
Certificate holder may elect to include accrued market discount in income
currently on all market discount obligations acquired by such Certificateholder
during the taxable year in which such election is made and thereafter. A
Certificateholder should be aware that Code Section 1277 may limit the
deductibility of interest paid or accrued to purchase or carry a Mortgage Loan
that is acquired at a market discount unless the election is made to include
accrued market discount in income currently. Certificateholders should consult
their tax advisors as to the application of this rule and the advisability of
making any elections under the market discount rules in their particular
circumstances.
Taxation of Owners of IO Certificates
Because the "stripped debt" rules of Code Section 1286 will apply to the IO
Certificates, income on the IO Certificates must be accrued under the original
issue discount provisions of the Code. The regulations that have been issued to
date under Code Section 1286 do not address the treatment of stripped coupons,
and it is uncertain how the section will be applied to securities such as the IO
Certificates. The OID Regulations do not include rules relating specifically to
"stripped coupons," although they provide guidance as to how the original issue
discount sections of the Code will generally be applied. The discussion below
assumes that an IO Certificateholder will not own any P&I Certificates. IO
Certificateholders should consult their tax advisors concerning the method to be
used in reporting income or loss with respect to the IO Certificates.
Under the stripped coupon rules, it appears that original issue discount
will be required to be accrued for each day on the IO Certificates based on a
constant yield to maturity method. See "--Taxation of Owners of P&I
Certificates -- Treatment as Stripped Bonds," above. It is unclear in the
absence of Treasury Regulations whether a reasonable prepayment assumption is
required or permitted to be applied to calculate such yield to maturity under a
provision of the Tax Reform Act of 1986 (the "1986 Act"). The accrual of income
on the IO Certificates will be significantly slower if a reasonable prepayment
assumption is permitted to be made than if yield is computed assuming no
prepayments.
Possible Application of Contingent Payment Rules. Under the OID
Regulations, debt instruments providing for contingent payments are subject to
different rules than debt instruments providing for non-contingent payments. To
the extent that all or a portion of the issue price ("Contingent Principal") of
the IO Certificates would not be recovered if the related Mortgage Loans were
prepaid, the IO Certificates could be considered to be debt instruments
providing for contingent payments within the meaning of the current Treasury
Regulations dealing with debt instruments that provide for contingent payments.
Treasury Regulations concerning the treatment of debt instruments providing
for one or more contingent payments became effective on June 14, 1996 (the
"Contingent Payment Regulations") for debt instruments issued on or after August
13, 1996. Although the Assets may include debt instruments issued before August
13, 1996 (and thus not technically subject to the Contingent Payment
Regulations), the issuer expects to treat any contingent payments on both sets
of instruments in accordance with the Contingent Payment Regulations.
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The Contingent Payment Regulations establish a "noncontingent bond method"
for the treatment of debt instruments providing for contingent payments that are
issued for money or other publicly traded property. Under this method, the
holder of a contingent payment debt instrument will generally be required to
accrue interest on the debt instrument on the basis of a projected schedule of
the contingent and noncontingent payments to be made on the debt instrument
prepared by the issuer. Such interest accruals will be required to be
calculated on an economic accrual basis applying rules similar to those
applicable to noncontingent debt instruments issued with original issue discount
treating none of the payments on the debt instrument as "qualified stated
interest." In formulating the projected payment schedule, the issuer will be
required to take into account the noncontingent payments provided by the debt
instrument, any readily available forward price quotes for property rights that
are substantially similar to the right to any contingent payments on the debt
instrument and any readily available spot price quotes for an option or
combination of options that are substantially similar to the right to any
contingent payments on the debt instrument. If the debt instrument contains
contingent payments for which such forward or spot quotes are not readily
available, the payment schedule will be required to result in a reasonable yield
for the debt instrument that reflects any quotable contingent payments and the
relative expected values of any nonquotable contingent payments.
In the event that the amount of a contingent payment varied from its
projected amount, the holder will generally be required to include such variance
as a positive or negative adjustment to income in the year in which the payment
is made. Positive adjustments will be treated as ordinary interest income while
negative adjustments will result in ordinary loss. The amount of such ordinary
loss allowable for the year will be limited to the excess of the total interest
accrued to date on the debt instrument over the total amount of any negative
adjustments included as ordinary loss in previous years.
The Contingent Payment Regulations generally treat any gain on sale of a
contingent payment debt instrument as ordinary interest income. Loss realized
on sale of a contingent payment debt instrument is treated as ordinary loss to
the extent of the excess of the total interest accrued on the debt instrument to
the date of sale over the total amount of any negative adjustments previously
included in income. Any remaining loss is treated as capital loss.
Under such provisions, each holder of an IO Certificate which has
Contingent Principal will generally be required to accrue interest under the
"noncontingent bond method." Although the issuer intends to provide to holders
a projected schedule under the "noncontingent bond method," holders should
consult their own tax advisers regarding the application of the Contingent
Payment Regulations.
Administration Fee, Voluntary Advances and Subordinated Amount
The income received with respect to a Certificate generally includes
amounts not paid to the Certificateholder because they are used to pay the
Administration Fee. Subject to certain limitations on the deductibility by
individual Certificateholders of certain categories of expenses under Code
Section 67 and the reduction of certain deductible expenses for individual
Certificateholders under Code Section 68 (see "-- Qualification as a REMIC --
Pass-Through of Miscellaneous Itemized Deductions" above), each
Certificateholder may deduct its allocable share of the Administration Fee paid
to or retained by the Master Servicer (to the extent such fee constitutes
reasonable compensation for the services rendered by the Master Servicer) at
such times and in such manner as it would have been deducted under such
Certificateholder's tax accounting method had it actually received such amounts
and paid them to the Master Servicer. Payments of Voluntary Advances and
payments in respect of the Subordinated Amount, if any, to Certificateholders
should be treated as having the same character as the payments they replace.
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Sales of Certificates
Except as provided above with respect to accrued market discount (under "--
Taxation of Owners of P&I Certificates -- If Stripped Bond Rules Do Not Apply,"
above, and, in the case of banks and other financial institutions, except as
provided under Code Section 582(c)), any gain or loss, equal to the difference
between the amount realized on the sale and the adjusted basis of such
Certificate, recognized on the sale or exchange of a Certificate by an investor
who holds such Certificate as a capital asset, will be capital gain or loss.
The Federal income tax rates applicable to capital gains for taxpayers other
than individuals, estates, and trusts are currently the same as those applicable
to ordinary income. However, the maximum ordinary income tax rate for
individuals, estates, and trusts is generally 39.6%, whereas the maximum long-
term capital gains rate for such taxpayers is 20% for capital assets held for
more than 18 months, and 28% for capital assets held for more than 12 months and
not more than 18 months. Capital losses generally may be used by a corporate
taxpayer only to offset capital gains, and by an individual taxpayer only to the
extent of capital gains plus $3,000 of other income.
The adjusted basis of a Certificate will generally equal its cost,
increased by any income reported by the seller and reduced (but not below zero)
by any previously reported losses and by any distributions with respect to such
Certificate.
Purchasers of Certificates should be aware that, if income must be accrued
with respect to such a Certificate as if it were a separate instrument, it may
not be possible to determine whether the adjusted tax basis of the Certificate
will be recovered in full until all of the Mortgage Loans in the related Trust
Fund have been paid or otherwise discharged. Conversely, if income must be
accrued with respect to each such Certificateholder's undivided interest in each
Mortgage Loan in the related Trust Fund, it is likely that a portion of such
Certificateholder's adjusted tax basis will have to be allocated to each such
undivided interest. It then should be possible to determine whether the
adjusted tax basis allocable to an undivided interest in a Mortgage Loan in the
related Trust Fund has been recovered at the time the Mortgage Loan is paid or
discharged. Such an approach may result in the earlier recognition of any
losses attributable to such a Certificateholder's unrecovered adjusted tax basis
than if the Certificate were treated as a separate instrument. However, because
of the uncertainties involved and in the absence of substantial legal authority
to the contrary, the Master Servicer does not intend to allocate the adjusted
tax basis of such a Certificateholder in its Certificate to the undivided
interest in each Mortgage Loan represented by the Certificate nor to determine
and report whether any such allocable adjusted tax basis has been recovered at
the time a Mortgage Loan in the related Trust Fund is paid or discharged. Due
to the existence of the Subordinated Amount, the effect of such treatment by the
Master Servicer is not expected to be significant with respect to a P&I
Certificateholder.
Reporting
The Master Servicer will furnish to each holder of a P&I Certificate with
each distribution a statement setting forth the amount of such distribution
allocable to principal on the underlying Mortgage Loans and to interest thereon
at the related Pass-Through Rate. In addition, the Master Servicer will
furnish, within a reasonable time after the end of each calendar year, to each
holder of a Certificate who was such a holder at any time during such year,
information regarding the amount of servicing compensation received by the
Master Servicer and sub-servicers (if any) and such other customary factual
information as the Master Servicer deems necessary or is required by law to
enable holders of Certificates to prepare their tax returns. However, as long
as the only "Certificateholder" of record is CEDE & Co., as nominee for DTC,
Certificateholders and the IRS will receive tax and other information from DTC
Participants and indirect participants rather than the Master Servicer. (The
Master Servicer, however, will respond to requests for necessary information to
enable DTC Participants, indirect participants and certain other persons to
complete their reports.)
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Because the particular applications of the general method for computing
accrued income are varied and complex and involve factual as well as legal
uncertainties, the extent to which income will be recognized in advance of the
receipt of cash under the original issue discount rules is uncertain. Additional
guidance is required from the Internal Revenue Service or other legal authority
before it is possible to determine definitely the proper methods for accruing
income on the Certificates. In the absence of additional guidance from the
Internal Revenue Service or other legal authority, the Master Servicer intends
to compute and report accrued income on the Certificates for tax purposes in a
manner that it believes to be consistent with the principles of the Code and the
OID Regulations described above. Because of the uncertainties discussed above,
there can be no assurance that the method adopted by the Master Servicer for
reporting to holders of Certificates will coincide with that ultimately adopted
in final Treasury Regulations. Accordingly, holders of Certificates should
consult their tax advisors regarding the method for reporting the amounts
received or accrued with respect to the Certificates. The Trustee intends in
reporting information relating to original issue discount to Certificateholders
of record (which, in the case of Certificates registered to CEDE & Co., as
nominee of DTC, shall be distributed to Certificate Owners by DTC Participants
and indirect participants of DTC) to provide such information on an aggregate
pool-wide basis. Although there are provisions in the OID Regulations that
suggest that the computation of original issue discount on such a basis is
either appropriate or required, it is possible that investors may be required to
compute original issue discount on a Mortgage Loan by Mortgage Loan basis taking
account of an allocation of their basis in the Certificates among the interests
in the various Mortgage Loans represented by such Certificates according to
their respective fair market values. Investors should be aware that it may not
be possible to reconstruct after the fact sufficient Mortgage Loan by Mortgage
Loan information should the Internal Revenue Service require computation on that
basis. See "-- Sales of Certificates" above.
Backup Withholding
In general, the rules described in "-- Qualification as a REMIC -- Backup
Withholding" above, will also apply to Certificates.
Foreign Investors
In general, the discussion with respect to Regular Certificates in "--
Qualification as a REMIC -- Foreign Investors" above, applies to Certificates.
STATE TAX CONSIDERATIONS
In addition to the Federal income tax consequences described in "Certain
Federal Income Tax Considerations" above, potential investors should consider
the state income tax consequences of the acquisition, ownership, and disposition
of the Certificates. State income tax law may differ substantially from the
corresponding federal law, and this discussion does not purport to describe any
aspect of the income tax laws of any state. Therefore, potential investors
should consult their own tax advisors with respect to the various tax
consequences of investments in the Certificates.
ERISA CONSIDERATIONS
The Employee Retirement Income Security Act of 1974, as amended ("ERISA")
imposes requirements on employee benefit plans (and on certain other retirement
plans and arrangements, including individual retirement accounts and annuities,
Keogh plans and collective investment funds and separate accounts in which such
plans, accounts or arrangements are invested) (collectively "Plans") subject to
ERISA and on persons who are fiduciaries with respect to such Plans. Generally,
ERISA applies to investments made by Plans. Among other things, ERISA requires
that the assets of Plans be held in trust and that the trustee, or other duly
authorized fiduciary, have exclusive authority and
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discretion to manage and control the assets of such Plans. ERISA also imposes
certain duties on persons who are fiduciaries of Plans. Under ERISA, any person
who exercises any authority or control respecting the management or disposition
of the assets of a Plan is considered to be a fiduciary of such Plan (subject to
certain exceptions not here relevant). Certain employee benefit plans, such as
governmental plans (as defined in ERISA Section 3(32)) and, if no election has
been made under Section 410(d) of the Code, church plans (as defined in ERISA
Section 3(33)), are not subject to ERISA requirements. Accordingly, assets of
such plans may be invested in Certificates without regard to the ERISA
considerations described herein, subject to the provisions of applicable state
law. Any such plan which is qualified and exempt from taxation under Code
Sections 401(a) and 501(a), however, is subject to the prohibited transaction
rules set forth in Code Section 503.
On November 13, 1986, the United States Department of Labor (the "DOL")
issued a final regulation concerning the definition of what constitutes the
assets of a Plan. (29 C.F.R. (S) 2510.3-101.) Under this regulation, the
underlying assets and properties of corporations, partnerships and certain other
entities in which a Plan makes an "equity" investment could be deemed for
purposes of ERISA to be assets of the investing Plan in certain circumstances.
However, the regulation provides that, generally, the assets of an entity in
which a Plan invests will not be deemed for purposes of ERISA to be assets of
such Plan if the equity interest acquired by the investing Plan is a publicly-
offered security. A publicly-offered security, as defined in the regulation, is
a security that is widely held, freely transferable and registered under the
Exchange Act. The related Prospectus Supplement will indicate whether the
Certificates constitute publicly-offered securities for the purpose of this
exception.
In addition to the imposition of general fiduciary standards of investment
prudence and diversification, ERISA prohibits a broad range of transactions
involving Plan assets and persons ("Parties in Interest") having certain
specified relationships to a Plan and imposes additional prohibitions where
Parties in Interest are fiduciaries with respect to such Plan. For example, an
investment in the Certificates by a Plan to which the Depositor, the Master
Servicer or Trustee is a Party in Interest would constitute a prohibited
transaction unless an exemption is available. In addition, because the Mortgage
Loans may be deemed Plan assets of each Plan that purchases Certificates, an
investment in the Certificates by a Plan might be a prohibited transaction if
any of the mortgagors is a Party in Interest to the Plan unless an exemption
applies.
In Prohibited Transaction Exemption 83-1 ("PTE 83-1"), which amended
Prohibited Transaction Exemption 81-7, the DOL exempted from ERISA's prohibited
transaction rules certain transactions relating to the operation of residential
mortgage pool investment trusts and the purchase, sale and holding of "mortgage
pool pass-through certificates" (as defined below) in the initial issuance of
such certificates. PTE 83-1 permits, subject to certain conditions, transactions
which might otherwise be prohibited between Plans and Parties in Interest with
respect to those Plans related to the origination, maintenance and termination
of mortgage pools consisting of mortgage loans secured by first or second
mortgages or deeds of trust on "single-family residential property" (as defined
below), and the acquisition and holding of certain mortgage pool pass-through
certificates representing an interest in such mortgage pools by Plans. If the
general conditions (discussed below) of PTE 83-1 are satisfied, investments by a
Plan in Certificates will be exempt from the prohibitions of ERISA Sections
406(a) and 407 (relating generally to transactions with Parties in Interest who
are not fiduciaries) if the Plan purchases the Certificates at no more than fair
market value, and will be exempt from the prohibitions of ERISA Sections
406(b)(1) and (2) (relating generally to transactions with fiduciaries) if, in
addition, the purchase is approved by an independent fiduciary, no sales
commission is paid to the pool sponsor, the Plan does not purchase more than 25%
of all Certificates, and at least 50% of the Certificates are purchased by
persons independent of the pool sponsor or pool trustee.
A "mortgage pool pass-through certificate" for the purpose of PTE 83-1 is
defined as a certificate representing a beneficial undivided fractional interest
in a mortgage pool and entitling the holder of such
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certificate to pass-through payments of principal and interest from the pooled
mortgage loans, less any fees retained by the pool sponsor. Certain Classes of
Certificates may, if specified in the related Prospectus Supplement, not qualify
as mortgage pool pass-through certificates as so defined, and therefore PTE 83-1
may not be applicable with respect to such Classes of Certificates, including:
(i) Classes of Certificates, such as Subordinated Certificates, entitled to
receive payments of interest and principal on the Mortgage Loans only after
payments to other Classes or after the occurrence of certain specified events;
(ii) Classes of Certificates that evidence the beneficial ownership in a Trust
Fund divided into Mortgage Loan Groups; (iii) Classes of Certificates that
evidence beneficial ownership of a specified percentage of interest payments
only or principal payments only, or a notional amount of either principal or
interest payments; and (iv) Classes of Certificates that evidence an interest in
a Pool organized as a REMIC. In addition, PTE 83-1 applies only where the
mortgage pool is limited to single-family residential property. PTE 83-1 defines
"single-family residential property" as non-farm property comprising one to four
dwelling units, and condominiums. Therefore, PTE 83-1 may not be available for
Classes of Certificates representing a beneficial interest in a mortgage pool
which includes: (i) multifamily mortgage loans; or (ii) loans secured by shares
issued by a cooperative housing association.
PTE 83-1 sets forth three general conditions which must be satisfied for
any transaction to be eligible for exemption: (i) the maintenance of a system
of insurance or other protection for the pooled mortgage loans and property
securing such loans, and for indemnifying Certificateholders against reductions
in pass-through payments due to property damage or defaults in loan payments in
an amount not less than the greater of one percent of the aggregate principal
balance of all covered pooled mortgage loans or the principal balance of the
largest covered pooled mortgage loan; (ii) the existence of a pool trustee who
is not an affiliate of the pool sponsor; and (iii) a limitation on the amount of
the payment retained by the pool sponsor, together with other funds inuring to
its benefit, to not more than adequate consideration for selling the mortgage
loans plus reasonable compensation for services provided by the pool sponsor to
the Pool. Certain Series or Classes of Certificates may be protected though a
subordination of other Classes of Certificates, a subordination by shifting of
interests, a reserve fund or other form of credit enhancement described in the
related Prospectus Supplement. In the absence of a ruling that the system of
insurance or other protection with respect to a Series or Class of Certificates
satisfies the first general condition referred to above, there can be no
assurance that these features will be so viewed by the DOL. In addition, such
subordination or other form of credit enhancement maintained with respect to a
Series or Class of Certificates will not satisfy the first general condition
referred to above unless it is maintained in an amount not less than the greater
of one percent of the aggregate principal balance of the Mortgage Loans or the
principal balance of the largest Mortgage Loan. With respect to the second
general condition referred to above, the Trustee will not be affiliated with the
Depositor. There can be no assurance that the third general condition will be
satisfied with respect to the Certificates.
One or more exemptions may be available, however, with respect to certain
transactions to which PTE 83-1 is not applicable, depending in part upon the
type of Plan fiduciary making the decision to acquire a Certificate and the
circumstances under which such decision is made, including but not limited to:
Prohibited Transaction Exemption 90-1, regarding investments by insurance
company pooled separate accounts; Prohibited Transaction Exemption 91-38,
regarding investments by bank collective investment funds; Prohibited
Transaction Exemption 84-14, regarding transactions effected by a "qualified
professional asset manager," or Prohibited Transaction Exemption 95-60,
regarding investments by insurance company general account. However, even if
the conditions specified in one or more of these exemptions are met, the scope
of the relief provided by these exemptions might not cover all of the
transactions involved.
The DOL has issued individual exemptions to a number of firms that may
serve as underwriter for a particular Series of Certificates (collectively
referred to as the "Underwriter Exemption") which
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apply to certain sales and servicing of "certificates" that are obligations of a
"trust" with respect to which such firm is the placement agent or underwriter,
manager or co-manager of an underwriting syndicate. The Underwriter Exemption
provides relief which is generally similar to that provided by PTE 83-1, but is
broader in several respects. The related Prospectus Supplement will indicate
whether the particular underwriter has been granted an Underwriter Exemption.
The Underwriter Exemption contains several requirements, some which differ
from those in PTE 83-1. The Underwriter Exemption contains an expanded
definition of "certificate" which includes an interest which entitles the holder
to pass-through payments of principal, interest and/or other payments and a
certificate denominated as debt that represents an interest in a REMIC. The
Underwriter Exemption contains an expanded definition of "trust", which may
include obligations secured by shares issued by a cooperative housing
association and loans secured by multi-family residential and commercial real
property, as well as loans secured by single-family residential real property.
In addition, the Underwriter Exemption does not require the loans, the property
securing the loans or the Certificate holders to be covered by a system of
Insurance. The definition of "trust," however, does not include any investment
pool unless, inter alia, (i) the Investment pool consists only of assets of the
type which have been included in other investment pools, (ii) certificates
evidencing interests in such other investment pools have been purchased by
investors other than Plans for at least one year prior to the Plan's acquisition
of certificates pursuant to the Underwriter Exemption, and (iii) certificates in
such other investment pools have been rated in one of the three highest generic
rating categories of the four credit rating agencies noted below. The general
conditions applicable to the Underwriter Exemption include: (i) the acquisition
of the certificates by a Plan must be on terms (including the price for the
certificates) that are at least as favorable to the Plan as they would be in an
arm's length transaction with an unrelated party; (ii) the rights and interests
evidenced by the certificates must not be "subordinated" to the rights and
interests evidenced by other certificates of the same trust; (iii) certificates
acquired by a Plan must have received a rating at the time of their acquisition
that it is in one of the three highest generic rating categories of Standard &
Poor's Corporation, Moody's Investors Service, Inc., Duff & Phelps Inc. or
Fitch Investors Service, Inc.; (iv) the pool trustee must not be an affiliate of
the pool sponsor, nor an affiliate of the underwriter, the pool servicer, any
obligor with respect to mortgage loans included in the trust constituting more
than five percent of the aggregate unamortized principal balance of the assets
in the trust, or any affiliate of such entities; and (v) any Plan investing in
the certificates must be an "accredited investor" as defined in Rule 501(a)(1)
of Regulation D of the Securities and Exchange Commission under the Securities
Act.
It is not clear whether the exemptions referenced above apply to
participant directed plans as described in Section 404(c) of ERISA or plans that
are subject to Section 4975 of the Code but that are not subject to Title I of
ERISA, such as certain Keogh plans and certain individual retirement accounts.
Any Plan fiduciary which proposes to cause a Plan to purchase Certificates
should consult with its counsel concerning the impact of ERISA and the Code, the
applicability of an exemption, and the potential consequences in the specific
circumstances, prior to making such investment. Moreover, each Plan fiduciary
should determine whether under the general fiduciary standards of investment
procedure and diversification an investment in the Certificates is appropriate
for the Plan, taking into account the overall investment policy of the Plan and
the composition of the Plan's investment portfolio.
PLAN OF DISTRIBUTION
The Depositor may sell the Certificates in any of three ways: (i) through
underwriters or dealers; (ii) directly to a limited number of purchasers or to a
single purchaser, or (iii) through agents. The Prospectus Supplement relating
to a Series of Certificates will set forth the terms of the offering of such
Series of Certificates including the name or names of any underwriters, dealers
or agents, the purchase
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price of such Certificates and the proceeds to the Depositor from such sale, any
underwriting discounts and other items constituting underwriters' compensation
and any discounts and commissions allowed or paid to dealers. Any initial public
offering prices and any discounts or concessions allowed or reallowed or paid to
dealers may be changed from time to time.
If so specified in the Prospectus Supplement relating to a Series of
Certificates, the Depositor or any affiliate thereof may purchase or retain some
or all of one or more Classes of Certificates of such Series. Such purchaser
may thereafter from time to time offer and sell, pursuant to this Prospectus,
some or all of such Certificates so purchased directly, through one or more
underwriters to be designated at the time of the offering of such Certificates
or through broker-dealers acting as agent and/or principal. Such offering may be
restricted in the manner specified in the related Prospectus Supplement. Such
transactions may be effected at market prices prevailing at the time of sale, at
negotiated prices or at fixed prices. In addition, the Depositor or an
affiliate of the Depositor may pledge Certificates retained or purchased by the
Depositor in connection with borrowings or use them in repurchase transactions.
If any Certificates of any Series are sold through underwriters, the
Prospectus Supplement relating thereto will describe the nature of the
obligation of the underwriters to purchase such Certificates. The Certificates
may be offered to the public either through underwriting syndicates represented
by one or more managing underwriters or directly by one or more underwriting
firms acting alone. The underwriter or underwriters with respect to a
particular underwritten offering of Certificates will be named in the Prospectus
Supplement relating to such offering, and, if an underwriting syndicate is used,
the managing underwriter or underwriters will be set forth on the cover of the
related Prospectus Supplement. Unless otherwise set forth in a Prospectus
Supplement, the obligation of the underwriters to purchase any Certificates of
the related Series will be subject to certain conditions precedent, and the
underwriters will be obligated to purchase all of such Certificates if any are
purchased.
Underwriters and agents who participate in the distribution of a Series of
Certificates may be entitled under agreements which may be entered into by the
Depositor to indemnification by the Depositor against certain liabilities,
including liabilities under the Securities Act, as amended, or to contribution
with respect to payments which the underwriters or agents may be required to
make in respect thereof.
The Prospectus Supplement with respect to any Series of Certificates
offered other than through underwriters will contain information regarding the
nature of such offering and any agreements to be entered into between the
Depositor and dealers for the Certificates of such Series.
Certain affiliates of the Depositor, including ABN AMRO 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. (S) 24
(Seventh), subject in each case to such regulations as the applicable federal
authority may prescribe.
There may be other restrictions on the ability of certain investors,
including depository institutions, either to purchase Certificates or to
purchase Certificates representing more than a specified percentage of the
investor's assets. Investors should review any applicable or proposed rules,
regulations and guidelines and consult their own legal advisors in determining
whether and to what extent the Certificates constitute legal investments for
such investors.
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Securities that do not constitute "mortgage-related securities" under SMMEA
will require registration, qualification or an exemption under applicable state
securities laws to meet requirements for legal investments.
LEGAL MATTERS
The legality of the Certificates of each Series, including certain Federal
income tax consequences with respect thereto, will be passed upon for the
Depositor by Mayer, Brown & Platt, Chicago, Illinois and, as to certain matters
relating to corporate law, Kirk P. Flores, Esq., in-house counsel to the
Depositor and the Master Servicer.
RATING
It is a condition to the issuance of the Certificates offered by means of
this Prospectus and the related Prospectus Supplement that they shall have
received a rating of not less than Investment Grade by the Rating Agency or
Agencies identified in such Prospectus Supplement.
Ratings on mortgage pass-through certificates address the likelihood of
receipt by certificateholders of all distributions of payments required pursuant
to the Agreement pursuant to which the certificates are issued on the underlying
mortgage loans. These ratings address the structural, legal and issuer tax-
related aspects associated with such certificates, the nature of the underlying
mortgage loans and the credit quality of the guarantor, if any. Ratings on
mortgage pass-through certificates do not represent any assessment of the
likelihood of principal prepayments by mortgagors or of the degree by which such
prepayments might differ from those originally anticipated. As a result,
certificateholders might suffer a lower than anticipated yield, and, in
addition, holders of stripped pass-through certificates in extreme cases might
fail to recoup their underlying investments.
A rating is not a recommendation to buy, sell or hold securities and may be
subject to revision or withdrawal at any time by the assigning Rating Agency.
Each rating should be evaluated independently of similar ratings on different
securities.
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INDEX OF SIGNIFICANT DEFINITIONS
Set forth below is a list of certain of the more significant terms used
in this Prospectus and the pages on which the definitions of such terms may be
found herein.
<TABLE>
<CAPTION>
<S> <C>
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
</TABLE>
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<TABLE>
<S> <C>
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
</TABLE>
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<TABLE>
<S> <C>
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
</TABLE>
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<TABLE>
<S> <C>
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
Retained Yield...........................................................11, 63
Rules........................................................................53
SAIF.........................................................................24
Scheduled Amortization Date..............................................48, 49
Securities Act................................................................4
Senior Certificates........................................................1, 9
Sequential Pay Certificates..............................................39, 49
Series........................................................................1
</TABLE>
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<TABLE>
<S> <C>
Servicers....................................................................61
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
</TABLE>
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<PAGE>
TABLE OF CONTENTS
-----------------
<TABLE>
<CAPTION>
<S> <C>
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
</TABLE>
112
<PAGE>
<TABLE>
<S> <C>
DESCRIPTION OF THE CERTIFICATES..............................................38
General ...........................................................38
Assignment of Mortgage Loans........................................41
General ..................................................41
Representations and Warranties......................................42
Forward Commitments: Pre-Funding Account............................44
Payments on Mortgage Loans..........................................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
Retained Yield, 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
</TABLE>
113
<PAGE>
<TABLE>
<S> <C>
"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
</TABLE>
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================================================================================
No person has been authorized to give any information or to make any
representations other than those contained in this Prospectus Supplement or the
Prospectus and, if given or made, such information or representations must not
be relied upon as having been authorized. This Prospectus Supplement and the
Prospectus do not constitute an offer to sell or the solicitation of an offer to
buy any securities other than the securities described in this Prospectus
Supplement or an offer to sell or the solicitation of an offer to buy such
securities in any circumstances in which such offer or solicitation is unlawful.
Neither the delivery of this Prospectus Supplement or the Prospectus nor any
sale made hereunder or thereunder shall, under any circumstances, create any
implication that the information contained herein or therein is correct as of
any time subsequent to the date of such information.
_____________
TABLE OF CONTENTS
PROSPECTUS SUPPLEMENT
<TABLE>
<CAPTION>
Page
----
<S> <C>
Summary............................... S-4
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
</TABLE>
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$
(approximate)
ABN AMRO MORTGAGE CORPORATION
Seller [and Master Servicer]
Mortgage Pass-Through
Certificates, Class ___,
Series 199_- _
______________
PROSPECTUS SUPPLEMENT
______________
[Underwriter]
===========================================
<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.
+++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
[ALTERNATE COVER]
SUBJECT TO COMPLETION, DATED ________ ___, 199_
PROSPECTUS SUPPLEMENT
(TO PROSPECTUS DATED __________ __, 1997)
$___________
ABN AMRO MORTGAGE CORPORATION
DEPOSITOR
MORTGAGE PASS-THROUGH CERTIFICATES,
CLASS ___, SERIES 199__-___
_______________________________________________
The Series 199__-___ Mortgage Pass-Through Certificates will consist of ___
class[es] of Senior Certificates (the Class A-___, Class A- ___ and Class A-___
Certificates, respectively, and collectively the "Class A Certificates"), ___
class[es] of Subordinate Certificates (the Class B-___ and Class B-___
Certificates, respectively, and collectively the "Class B Certificates") and ___
class[es] of Class R Certificates (the "Residual Certificates" and along with
the Class A and Class B Certificates, collectively, the "Certificates" or the
"Series 199_ - _ Certificates"). [Only the Class A-___, A-___ and A-___
Certificates are offered hereby.] The Class A Certificates and the Class B
Certificates will represent interests in a pool (the "Mortgage Pool") of
[adjustable] [fixed] rate one- to four-unit residential mortgage loans (the
"Mortgage Loans") originated or acquired by [LaSalle Home Mortgage Corporation
("LaSalle") and Standard Federal Bank ("Standard Federal"), each an affiliate of
the Depositor] [and] [names of other Qualified Lenders] and certain other
property related to the Mortgage Pool held in trust for the benefit of the
Certificateholders. The servicing of the Mortgage Loans will be performed by
various servicers identified herein (each, a "Servicer"), and will be supervised
by [LaSalle] [and] [name of other or additional Master Servicer] (in such
capacity, individually and collectively, the "Master Servicer"). [The
Certificates will be credit enhanced by [Special Hazard Insurance] [a Letter of
Credit] [subordination]]. See "Description of the Certificates -- [Letters of
Credit] [Insurance] [Subordination of Class B Certificates]" herein.
(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.
_______________________
This Prospectus Supplement and the related Prospectus may be used by ABN AMRO
Incorporated, an affiliate of the Depositor, in connection with market making
transactions in the Certificates. ABN AMRO Incorporated may act as principal or
agent in such transactions. Such sales will be made at prices related to
prevailing market prices at the time of sale. Certain information in this
Prospectus Supplement will be updated from time to time as described in
"Incorporation of Certain Information by Reference."
_______________________
ABN AMRO INCORPORATED
THE DATE OF THIS PROSPECTUS SUPPLEMENT IS _______________, 199__
<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 MARCH ___, 1997
[ALTERNATE COVER]
ABN AMRO MORTGAGE CORPORATION
DEPOSITOR
MORTGAGE PASS-THROUGH CERTIFICATES,
(Issuable in Series)
--------------------
ABN AMRO Mortgage Corporation (the "Depositor") may sell, from time to time on
terms to be determined at the time of sale, one or more series (each a "Series")
of Mortgage Pass-Through Certificates (the "Certificates") evidencing beneficial
ownership interests in assets deposited into a trust (a "Trust Fund") by the
Depositor pursuant to a Pooling and Servicing Agreement (the "Agreement")
executed by the Depositor, the Trustee and the Master Servicer for each Series.
Each Trust Fund will consist of separate pools (the "Pools") of mortgage assets
("Mortgage Assets"), which may include adjustable or fixed rate, conventional,
one-to-four-unit residential first mortgage loans, including loans secured by
shares in cooperative corporations ("Mortgage Loans"), certificates backed by
mortgage loans ("Mortgage Certificates") or any combination of the foregoing and
other assets to be held by each Trust Fund in connection with the Mortgage Loans
and Mortgage Certificates, including any insurance policies, reserve funds,
accounts, letters of credit or other credit enhancements specified in the
related Prospectus Supplement. The Mortgage Loans will have been originated or
purchased by one or more qualified mortgage lenders as described herein (a
"Qualified Lender") and sold to the Depositor by such Qualified Lender or
another seller (in such capacity, a "Mortgage Asset Seller"). The Qualified
Lenders and Mortgage Asset Sellers may include affiliates of the Depositor, and
certain of the mortgage loans underlying the Mortgage Certificates may have been
originated or purchased by affiliates of the Depositor. The Prospectus
Supplement for a Series will name the entity or entities, which may include an
affiliate of the Depositor, which will act directly or through one or more other
qualified mortgage loan servicers, as master servicer (individually and
collectively, the "Master Servicer") of the Mortgage Loans for such Series. The
Pass-Through Rate or Rates with respect to each Series of Certificates and
specific information regarding the Mortgage Assets comprising each Pool will be
set forth in the related Prospectus Supplement.
Each Series of Certificates will consist of one or more Classes of
Certificates, which may include one or more senior Classes of Certificates and
one or more subordinate Classes of Certificates (respectively, the "Senior
Certificates" and the "Subordinate Certificates"). A Class of Certificates of a
Series may be divided into two or more Classes representing interests in
specified percentages of principal or interest, or both, in the Mortgage Assets
comprising the related Pool, as set forth in the related Prospectus Supplement.
Certain Series or Classes of Certificates may be covered by one or more forms of
credit enhancement, in each case as described in the related Prospectus
Supplement.
The obligations of the Master Servicer with respect to the Certificates will
be limited to its contractual servicing obligations, supervision of other
Servicers, if any, and the obligation, if the amount available for distribution
to holders of Certificates evidencing interests in the related Pool on any
Distribution Date is less than the amount due them, to advance cash to such
Certificateholders to the extent the Master Servicer determines such advances
are recoverable from future payments and collections on the Mortgage Assets or
otherwise. See "Description of the Certificates -- Advances and Limitations
Thereon" herein.
(Continued on next page)
______________________________
SEE "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.
______________________________
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.
ABN AMRO MORTGAGE CORPORATION
THE DATE OF THIS PROSPECTUS IS _________, 1997
<PAGE>
[ALTERNATE PAGE]
PLAN OF DISTRIBUTION
This Prospectus is to be used by ABN AMRO Incorporated ("AAI"), an affiliate
of the Depositor and Master Servicer, in connection with offers and sales
related to market-making transactions in the Certificates in which AAI acts as
principal. AAI may also act as agent in such transactions. [AAI is a
broker/dealer and a member of the national Association of Securities Dealers,
Inc. and the Securities Investor Protection Corporation. Sales will be made at
prices related to the prevailing prices at the time of sale. AAI is not a bank
or thrift, is a subsidiary of ABN AMRO Bank N.V. and an entity separate from any
affiliate of the Depositor, and is solely responsible for its contractual
obligations and commitments.]
<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
<TABLE>
<CAPTION>
Page
----
<S> <C>
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-38
ERISA Considerations...................S-38
Use of Proceeds........................S-38
Underwriting...........................S-38
Legal Matters..........................S-39
Rating.................................S-39
Index of Significant Definitions.......S-41
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
Yield Considerations................... 32
Maturity Considerations................ 35
Description of the Certificates........ 38
Credit Enhancements.................... 64
Certain Legal Aspects of the
Mortgage Loans....................... 67
Certain Federal Income Tax
Consequences........................... 75
State Tax Considerations............... 96
ERISA Considerations................... 96
Plan of Distribution................... 99
Legal Investment....................... 101
Legal Matters.......................... 102
Rating................................. 102
Annex.................................. 103
Index of Significant Definitions....... 107
</TABLE>
===========================================
===========================================
[ALTERNATE BACK COVER]
$
(approximate)
ABN AMRO MORTGAGE
CORPORATION
Seller [and Master Servicer]
Mortgage Pass-Through
Certificates, Class ___,
Series 199_- _
______________
PROSPECTUS SUPPLEMENT
______________
ABN AMRO INCORPORATED
===========================================
<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.
<TABLE>
<S> <C>
SEC Registration Fee................................. $ *
Blue Sky Fees and Expenses........................... *
Legal Fees and Expenses.............................. *
Accounting Fees and Expenses......................... *
Trustee's Fees and Expenses (including counsel fees). *
Printing and Engraving Fees.......................... *
Rating Agency Fees................................... *
Miscellaneous........................................ *
-----
Total............................................. $ *
</TABLE>
______________________
* 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.
The Registrant hereby undertakes:
II-2
<PAGE>
1. For purposes of determining any liability under the Securities Act of
1933, the information omitted from the form of prospectus filed as part of the
Registration Statement in reliance upon Rule 430A and contained in the form of
prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4) or 497(h)
under the Securities Act shall be deemed to be part of the Registration
Statement as of the time it was declared effective; and
2. For the purposes of determining any liability under the Securities Act of
1933, each post-effective amendment that contains a form of prospectus shall be
deemed to be a new Registration Statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
(d) Undertakings in connection with incorporation by reference of certain
filings under the Securities Exchange Act of 1934.
The Registrant hereby undertakes that, for purposes of determining any
liability under the Securities Act of 1933, each filing of the Registrant's
annual report pursuant to Section 13(a) or Section 15(d) of the Securities
Exchange Act of 1934 that is incorporated by reference in the Registration
Statement shall be deemed to be a new registration statement relating to the
securities offered therein, and the offering of such securities at that time
shall be deemed to be the initial bona fide offering thereof.
II-3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-3 and has duly caused this 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 /s/Stewart W. Fleming
----------------------------------
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)
<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
- -
<PAGE>
$______________________________
ABN AMRO MORTGAGE CORPORATION
MORTGAGE PASS-THROUGH
CERTIFICATES, CLASS A-__ and CLASS A-__
SERIES [199__]
FORM OF UNDERWRITING AGREEMENT
------------------------------
_____________, 199__
c/o __________________________
__________________________
__________________________
Dear Sirs:
1. ABN AMRO Mortgage Corporation, a Delaware corporation (the "Company"),
proposes to issue and sell certificates entitled "Mortgage Pass-Through
Certificates, Class A-__, Series 199__-__" [Initial Pass-Through Rate (subject
to Adjustment)] (the "Class A-__ Certificates") and certificates entitled
"Mortgage Pass-Through Certificates, Class A-_, Series 199__-__" [Initial Pass-
Through Rate (subject to Adjustment)] (the "Class A-_ Certificates" and,
together with the Class A-__ Certificates, the "Class A Certificates") to you
[acting as representative of the] [as] underwriters (the "Underwriters"). The
Class A Certificates will evidence fractional undivided interests in a pool (the
"Pool") of mortgage loans (the "Mortgage Loans") and mortgage certificates (the
"Mortgage Certificates"). The Pool consists of Mortgage Loans with principal
balances aggregating approximately $___________ as of the close of business on
__________ 199__ (the "Cut-off Date") and the Class A Certificates in the
aggregate represent a ___% fractional undivided interest in the Pool equal to
approximately $___________ of the aggregate principal balance of the Mortgage
Loans as of the Cut-off Date. Simultaneously with the sale of the Class A
Certificates to the Underwriters, the Company will sell and transfer to the
Trustee referred to below the Mortgage Loans and other property related thereto
as described in the Pooling and Servicing Agreement (as defined herein)
(collectively, the "Trust Fund") [and shall sell and transfer to a separate
trust (the "Reserve Fund") the Initial Deposit and the right to certain
additional amounts to be contributed to the Reserve Fund pursuant to the terms
of the Pooling and Servicing Agreement.] The Underwriters intend to purchase
pursuant to the terms and
<PAGE>
conditions hereof the Class [A] Certificates evidencing an interest in the Trust
Fund [and the Reserve Fund] and agree that the Class A Certificates do not
represent an interest in or debt obligation of the Company. Simultaneously with
the issuance and sale of the Class [A] Certificates as contemplated herein the
Company will issue certificates entitled "Mortgage Pass-Through Certificates,
Class B-_, Series 199__-__ [Initial Pass-Through Rate (subject to Adjustment)]
(the "Class B-_ Certificates") and certificates entitled "Mortgage Pass-Through
Certificates, Class B-_, Series 199__-__ [Initial Pass-Through Rate (subject to
Adjustment)] (the "Class B-__ Certificates" and, together with the Class B-_
Certificates, the "Class B Certificates" and the Class B Certificates, together
with the Class A Certificates, the "Certificates") evidencing an undivided
interest in the Pool of Mortgage Loans, payments in respect of which are, to the
extent specified in the Pooling and Servicing Agreement, subordinated to the
rights of the holders of the Class A Certificates. The Class B Certificates in
the aggregate represent a __% fractional undivided interest in the Pool equal to
approximately $_____________ of the aggregate principal balance of the Mortgage
Loans as of the Cut-off Date. The Certificates are to be issued pursuant to a
pooling and servicing agreement (the "Pooling and Servicing Agreement") to be
dated as of __________, 199__ between the Company, as Depositor, [LaSalle Home
Mortgage Corporation], as Master Servicer (the "Master Servicer") and, [LaSalle
National Bank], as Trustee (the "Trustee"), in denominations of $____________
and integral multiples of $_____________ in excess thereof [and, if necessary,
one odd denomination Class A Certificate]. Capitalized terms used herein and not
otherwise defined shall have the meanings ascribed thereto in the Pooling and
Servicing Agreement.
2. The Company represents and warrants to, and agrees with, each of the
Underwriters that:
(a) A registration statement [and Amendment No.___] (No. 333-42127),
including a prospectus, relating to the Certificates and additional series of
mortgage pass-through certificates and the offering thereof from time to time in
accordance with Rule 415 under the Securities Act of 1933, as amended (the
"Act"), has been filed with the Securities and Exchange Commission (the
"Commission") and delivered to each Underwriter and has become effective. Such
registration statement as amended [by Amendment No.___] thereto at the time
when it became effective is hereinafter referred to as the "Registration
Statement," and such prospectus constituting a part thereof, and as amended
through the date hereof, is hereinafter referred to as the "Shelf Prospectus";
the supplement to the Shelf Prospectus dated _______________ relating to the
offering of the Certificates is hereinafter referred to as the "Prospectus
Supplement"; the Shelf Prospectus as supplemented by the Prospectus Supplement
is hereinafter referred to as the "Prospectus"; and any supplement to the Shelf
Prospectus prepared with respect to the offering after the date hereof of other
series of certificates under the Registration Statement shall not be deemed to
have supplemented the Prospectus.
(b) When the Registration Statement and any amendments thereto became
effective, the Registration Statement and the Shelf Prospectus conformed in all
material respects to the requirements of the Act and the rules and regulations
of the Commission, and
2
<PAGE>
neither of such documents included or on the Closing Date referred to below will
include any untrue statement of a material fact or omitted or at any time
through the Closing Date will omit to state any material fact required to be
stated therein or necessary to make the statements therein not misleading,
except that the foregoing does not apply to statements or omissions in either of
such documents based upon written information furnished to the Company by you
specifically for use therein.
(c) The Company is a corporation duly organized, validly existing and
in good standing under the laws of the State of Delaware with full corporate
power and authority to own its properties and conduct its business as presently
conducted by it, and to enter into and perform its obligations under this
Agreement, the Pooling and Servicing Agreement and the Certificates and is duly
qualified as a foreign corporation in good standing in all other jurisdictions
in which its activities as depositor of the Mortgage Loans requires such
qualification.
(d) This Agreement has been duly authorized, executed and delivered by
the Company, and the Pooling and Servicing Agreement will, at the Closing Date,
have been duly authorized, executed and delivered by the Company, and assuming
due authorization, execution and delivery of this Agreement by the Underwriters,
this Agreement constitutes and the Pooling and Servicing Agreement when duly
authorized, executed and delivered by the Trustee will constitute a valid and
legally binding agreement of the Company enforceable against the Company in
accordance with its terms, subject, as to enforcement, to bankruptcy,
insolvency, reorganization or other similar laws of general applicability
relating to or affecting creditors' rights generally and to general equity
principles and except to the extent that the indemnification or waiver
provisions of this Agreement may be unenforceable under applicable law.
(e) The Certificates will conform in all material respects to the
descriptions thereof contained in the Registration Statement and the Prospectus
and the Certificates will be duly and validly authorized and, when duly and
validly executed by the Trustee and delivered in accordance with the Pooling and
Servicing Agreement and, in the case of the Class [A] Certificates, delivered to
and paid for by the Underwriters as provided herein, will be validly issued and
outstanding and entitled to the benefits of the Pooling and Servicing Agreement.
(f) The Class [A] Certificates will, when issued pursuant to the
Pooling and Servicing Agreement, be "mortgage related securities" as such term
is defined in Section 3(a) (41) of the Securities Exchange Act of 1934, as
amended (the "Exchange Act").
[(g) Immediately upon transfer of the Initial Deposit to the Trustee
and execution of the Pooling and Servicing Agreement, the Reserve Fund will be
an express trust established by the Company in accordance with the Pooling and
Servicing Agreement and a UCC-1 financing statement in respect of the Initial
Deposit and the Reserve Fund naming the Company as debtor and the Trustee for
the benefit of the holders of the Certificates as secured party has been or on
the Closing Date will have been filed in the office of the Secretary of
3
<PAGE>
State of the State of [___________________] and, upon the purchase by you of the
Class [A] Certificates in the manner contemplated by this Agreement, the Trustee
for the benefit of the holders of the Certificates will on the date thereof have
a perfected security interest of first priority under the [________________]
Uniform Commercial Code ("UCC") in the Reserve Fund.]
(h) The issuance, delivery, sale, purchase or retention of the
Certificates by the Company, the consummation of any other of the transactions
herein contemplated, and the fulfillment of the terms of the Certificates, the
Pooling and Servicing Agreement or this Agreement, will not conflict with or
result in the breach of any of the terms or provisions of the charter or by-laws
of the Company, and the Company is not in breach or violation of or in default
(nor has an event occurred which with notice or lapse of time or both would
constitute a default) under the terms of (i) any indenture, mortgage, deed of
trust, loan agreement or other material agreement or instrument to which the
Company is a party or by which the Company or its property is bound or to which
any of the property or assets of the Company is subject, or (ii) any law,
decree, order, rule or regulation applicable to the Company of any court or
supervisory, regulatory, administrative or governmental agency, body or
authority, or arbitrator having jurisdiction over the Company or its properties,
the default in or the breach or violation of which would have a material adverse
effect on the Company or the ability of the Company to perform its obligations
under the Pooling and Servicing Agreement or the Certificates nor will the
consummation of any other of the transactions herein contemplated, nor the
fulfillment of the terms of the Certificates, the Pooling and Servicing
Agreement or this Agreement result in such a breach, violation or default which
would have such a materially adverse effect.
(i) No consent, approval, authorization, order, registration or
qualification of or with any United States or Illinois court or governmental
agency or body, including the Commission, is required for the solicitation of
offers to purchase Certificates and the issue and sale of the Certificates or
the consummation by the Company of the transactions contemplated by this
Agreement or the Pooling and Servicing Agreement, except such consents,
approvals, authorizations, orders, registrations or qualifications as may be
required under state securities or Blue Sky laws, or state banking laws (other
than those of the State of Illinois), in connection with the purchase of the
Class [A] Certificates by the Underwriters.
(j) Under generally accepted accounting principles, the Company will
report its transfer of the Mortgage Loans to the Trustee, on behalf of the
Certificateholders, pursuant hereto, as a sale of the interest in the Mortgage
Loans represented by the Class [A] Certificates. [The Company also will so
report the transfer in all financial statements and reports filed with
governmental entities.] For federal income tax purposes, the Company will treat
the transfer of the Mortgage Loans to the Trustee as a sale of the interest in
the Mortgage Loans represented by the Class [A] Certificates and an exchange of
the remaining interest in the Mortgage Loans for the Class B Certificates.
4
<PAGE>
(k) There are no actions, proceedings or investigations pending
against the Company, or to the knowledge of the Company, threatened against the
Company, before any court, administrative agency or other tribunal (i) asserting
the invalidity of this Agreement, the Pooling and Servicing Agreement or the
Certificates, (ii) seeking to prevent the issuance of the Certificates or the
consummation of any of the transactions contemplated by this Agreement or the
Pooling and Servicing Agreement, or (iii) which might materially and adversely
affect the performance by the Company of its obligations under, or the validity
or enforceability of, this Agreement, the Pooling and Servicing Agreement or the
Certificates.
(l) Except as otherwise previously disclosed to you in writing, or
otherwise disclosed in public documents prepared by the Company, there has not
been any material adverse change or development involving a prospective material
adverse change in the business, financial condition, properties, prospects,
results of operations or assets of the Company [since ________________ 199__]
[other than as disclosed in the Prospectus].
[(m) The Pooling and Servicing Agreement has been duly authorized,
executed and delivered by the Company and constitutes valid and legally binding
agreement of the Company enforceable against Company in accordance with its
terms, subject, as to enforcement, to bankruptcy, insolvency, reorganization and
other similar laws of general applicability relating to or affecting creditors'
rights and to general equity principles [or the rights of creditors of federal
savings bank deposit accounts of which are insured by the FSLIC (as defined
below)] and except to the extent that the indemnification or waiver provisions
of the Pooling and Servicing Agreement may be unenforceable under applicable
law).]
[(n) At the time of Delivery, any [Pool Insurance and any Special
Hazard Insurance Policy] described in the Prospectus will have been duly and
validly authorized, executed and delivered by, and will constitute legal, valid
and binding obligations of, [the Pool Insurer and the Special Hazard Insurer],
as the case may be.]
[(o) The [Trust Fund], as more fully described in the Pooling and
Servicing Agreement, will constitute a real estate mortgage investment conduit
("REMIC") within the meaning of Section 860D(a) of the Internal Revenue Code of
1986, as amended (the "Code") and the Regular Certificates will be treated for
federal income tax purposes as regular interests in a REMIC within the meaning
of Section 860G(a)(1) of the Code.]
(p) Any taxes, fees or other governmental charges that are assessed
and due in connection with the execution, delivery and issuance of this
Agreement, the Pooling and Servicing Agreement and the Class [A] Certificates
have been paid at or prior to the Closing Date.
(q) The Trust Fund is not required to be registered under the
provisions of the Investment Company Act of 1940, as amended.
5
<PAGE>
Any certificate signed by the Chairman of the Board, the President or a
Vice President or the Secretary of the Company and delivered to you or counsel
for the Underwriters pursuant to this Agreement shall be deemed a representation
and a warranty by the Company as to the matters covered thereby.
3. On the basis of the representations, warranties and agreements herein
contained, but subject to the terms and conditions herein set forth, the Company
agrees to sell to the Underwriter[s], and the Underwriter[s] agree[s] [severally
and not jointly] to purchase from the Company, [all of the] [Class [A]
Certificates evidencing the respective principal balances of the Mortgage Loans
on the Cut-off Date set forth below opposite the names of the Underwriters] at
the applicable purchase prices of (a) such principal balances, plus (b) accrued
interest on the Class [A] Certificates at the initial Pass-Through Rate set
forth on the cover page of the Prospectus from _______________, 199__ to the
Closing Date.
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Approximate
Principal
Amount of Purchase
Class [A] Price to
[Underwriters Certificates Underwriters Class
- ---------------- ------------ ------------ -----
</TABLE>
_________________]
The Company will deliver such Class [A] Certificates to [you] [for the
accounts of the Underwriters] at the office of __________ or its agent in [New
York, New York] against payment of the purchase price by check or wire transfer
of immediately available Federal Funds to the Company, at 10:00 a.m., Chicago
time, on ____________ 199__, or at such other time and date not later than seven
full Business Days thereafter as you and the Company determine, such time and
date being herein referred to as the "Closing Date." The Certificates so to be
delivered will be in [definitive fully registered form] [definitive form
registered in the name of Cede & Co., as nominee of The Depositary Trust
Company, and] in such denominations and registered in such names as you request
(not less than two full Business Days prior to the Closing Date) [, and will be
made available for checking and packaging at the above office of
_____________________ or its agent at least 24 hours prior to the Closing Date].
4. After the execution of this Agreement the Underwriters propose to
offer the Certificates for sale to the public upon the terms and conditions as
set forth in the Prospectus.
5. The Company agrees with the several Underwriters that:
(a) Immediately following the execution of this Agreement, the Company
will prepare the Prospectus Supplement setting forth the principal amount of
Certificates
6
<PAGE>
covered thereby and the terms thereof not otherwise specified in Shelf
Prospectus, the initial public offering price at which the Certificates are to
be purchased by the Underwriter[s] from the Company, the selling concessions and
reallowance, if any, and such other information as the Underwriter[s] and the
Company deem appropriate in connection with the offering of the Certificates,
but the Company will not file any amendments to the Registration Statement as in
effect with respect to the Certificates, or any amendments or supplements to the
Prospectus, unless it shall first have delivered copies of such amendments or
supplements to the Underwriter[s]. The Company will immediately advise you by
telephone, confirming such advice in writing, (i) when notice is received from
the Commission that any post-effective amendment to the Registration Statement
has become or will become effective, (ii) a request by the Commission for
amending or supplementing or for additional information, and (iii) of any order
or communication suspending or preventing, or threatening to suspend or prevent,
the offer and sale of the Certificates or of any proceedings or examinations
that may lead to such an order or communication, whether by or of the Commission
or any authority administering any state securities or blue sky laws, as soon as
the Company is advised thereof, and will use its best efforts to prevent the
issuance of any such order or communication and to obtain as soon as possible
its lifting if issued.
(b) If, at any time when a prospectus relating to the Certificates is
required to be delivered under the Act, any event occurs as a result of which
the Prospectus as then amended or supplemented would include an untrue statement
of a material fact or omit to state any material fact necessary to make the
statements therein, in the light of the circumstances under which they were
made, not misleading, or if it is necessary at any time to amend the Prospectus
to comply with the Act, the Company will promptly prepare and file with the
Commission an amendment or supplement which will correct such statement or
omission or an amendment which will effect such compliance. In case the
Underwriters are required to deliver a prospectus nine months or more after the
effective date of the Registration Statement, the Company will, upon the
Underwriters' request, furnish such Underwriters with reasonable quantities of
prospectuses complying with Section 10(a)(3) of the Act. The Underwriters agree
to use the Prospectus, as amended and supplemented from time to time, in lieu of
the Prospectus theretofore in effect.
(c) The Company will furnish to you copies of the Registration
Statement (two of which will be signed and will include all exhibits), each
related preliminary prospectus, the Prospectus and all amendments and
supplements to such documents, in each case as soon as available and in such
quantities as you reasonably request.
(d) The Company will cooperate, when and if requested by you, in the
qualification of the Certificates for sale and determination of their
eligibility for investment under the laws of such jurisdictions as you designate
and will continue such qualifications in effect so long as required for the
distribution of the Certificates; provided, however, that the Company shall not
be required to qualify to do business in any jurisdiction where it is not now so
qualified or to take any action which would subject it to general or unlimited
service of process in any jurisdiction where it is not now so subject.
7
<PAGE>
(e) So long as the Certificates are outstanding, the Company will
furnish to you, upon request, (i) as soon as available, copies of the annual
independent public accountants' servicing report furnished to the Trustee
pursuant to Section 3.11 of the Pooling and Servicing Agreement and copies of
each report of the Company regarding the Certificates filed with the Commission
under the Exchange Act or mailed to the holders of the Certificates, and (ii)
from time to time, such other information concerning the Certificates as you may
reasonably request.
(f) Commencing on the date hereof and continuing through the Closing
Date, the Company will not, without your prior written consent, offer, sell or
contract to sell, or announce the offering of, in a public transaction, any
other series of Certificates to be issued under the Registration Statement
representing interests with similar terms to be sold [principally to
[institutional] [retail] investors] [for a period of __ [business] days].
6. The Company covenants and agrees with the Underwriters that the
Company will pay all expenses incident to the performance of its obligations
under this Agreement and will reimburse the Underwriters for any out-of-pocket
expenses (including fees and disbursements of their counsel) incurred by them in
connection with qualification of the Certificates for sale and determination of
their eligibility for investment under the laws of such jurisdictions as you may
reasonably designate and the printing of memoranda relating thereto, for any
fees charged by such investment rating agencies as are approved by the Company
for the rating of the Certificates and, to the extent previously agreed upon
with you, for expenses incurred in distributing preliminary prospectuses and the
Prospectus (including any amendments and supplements thereto) to the
Underwriters.
7. The obligations of the several Underwriters to purchase and pay for
the Certificates will be subject to the accuracy in all material respects of the
representations and warranties on the part of the Company herein, to the
accuracy in all material respects of the statements of the Company's officers
made pursuant to the provisions hereof, to the performance by the Company in all
material respects of its obligations hereunder and to the following additional
conditions precedent:
(a) On or prior to the date hereof and on the Closing Date, the
Underwriters shall have received a letter, dated the date hereof and the Closing
Date, of [insert name of independent accountants], in form and substance
previously agreed upon by you.
(b) The Registration Statement shall have become effective and all
actions required to be taken and all filings required to be made by the Company
under the Act prior to the sale of the Certificates shall have been duly taken
or made; and prior to the Closing Date, no stop order suspending the
effectiveness of the Registration Statement shall have been issued and no
proceedings for that purpose shall have been instituted, or to the knowledge of
the Company or you, shall be contemplated by the Commission.
8
<PAGE>
(c) Subsequent to the execution and delivery of this Agreement and
prior to the Closing Date, there shall have not occurred any of the following:
(i) any suspension or limitation of trading in securities generally on the New
York Stock Exchange, or any setting of minimum prices for trading on such
exchange; (ii) a general moratorium on commercial banking activities in New York
declared by either Federal, New York or Illinois authorities; or (iii) any
outbreak or escalation of major hostilities in which the United States is
involved, any declaration of war by Congress or any other substantial national
or international calamity or emergency if, in the judgment of the Underwriters,
the effect of any such outbreak, escalation, declaration, calamity or emergency
makes it impractical or inadvisable to proceed with the completion of the sale
of and payment for the Certificates.
(d) The representations and warranties of the Company contained in
Section 2 hereof and, to the extent that they are not limited by their express
terms, those in Section 2.3 of the Pooling and Servicing Agreement shall be true
and correct on and as of the Closing Date with the same effect as though such
representations and warranties had been made on the Closing Date, and the
Company shall have delivered to you a certificate, dated the Closing Date, of
the President, a Vice President or a Secretary to the effect that each signer of
such certificate has carefully examined this Agreement, the Pooling and
Servicing Agreement and the Prospectus and that to the best of his knowledge:
(i) the representations and warranties of the Company in this Agreement and, to
the extent that they are not limited by their express terms, those in Section
2.03 of the Pooling and Servicing Agreement are true and correct in all material
respects at and as of the Closing Date, with the same effect as if made at the
Closing Date, (ii) the Company has complied with all the agreements and
satisfied all the conditions on its part to be performed or satisfied at or
prior to the Closing Date, and (iii) nothing has come to his attention that
would lead him to believe that the Prospectus contains any untrue statement of
a material fact or omits to state any material fact necessary in order to make
the statements therein, in the light of the circumstances under which they were
made, not misleading.
[(e) You shall have received from _____________, [in-house] counsel of
the Company [or any of its Affiliates], an opinion dated the Closing Date and
satisfactory in form and substance to the Underwriters and counsel to the
Underwriters to the effect that:
(i) The Company has been duly organized and is validly existing
and in good standing under the laws of the State of Delaware and has full
corporate power and authority to own its properties and conduct its
business as presently conducted by it and to enter into and perform its
obligations under this Agreement and the Certificates, and is duly
qualified to do business as a foreign corporation in all jurisdictions in
which its activities under the Pooling and Servicing Agreement requires
such qualification.
(ii) This Agreement has been duly and validly authorized,
executed and delivered by the Company.
9
<PAGE>
(iii) The Pooling and Servicing Agreement has been duly and
validly authorized, executed and delivered by the Company and assuming due
authorization, execution and delivery by the Trustee and the Master
Servicer, constitutes a valid and binding agreement of the Company
enforceable against the Company in accordance with its terms, except as the
enforceability thereof may be limited by bankruptcy, insolvency,
reorganization or other laws affecting enforcement of creditors' rights
generally or the rights of creditors of federal savings banks deposit
accounts of which are insured by the Federal Savings and Loan Insurance
Corporation (the "FSLIC") and except that no opinion need be expressed as
to the availability of equitable remedies whether brought at law or in
equity.
(iv) Neither the issuance and sale of the Certificates, nor the
fulfillment of the terms of the Certificates, the Pooling and Servicing
Agreement or this Agreement will result in a breach of the charter or by-
laws of the Company or result in a material breach or violation of any
statute, order or regulation or order known to such counsel presently
applicable to the Company.
(v) To the best knowledge of such counsel, after due inquiry,
neither the issuance, delivery, sale, purchase or retention of the
Certificates by the Company, nor the consummation of any other of the
transactions herein contemplated, nor the fulfillment of the terms of the
Certificates, the Pooling and Servicing Agreement or this Agreement, will
conflict with or result in the breach of any term or provision of the
charter or by-laws of the Company, and the Company is not in breach or
violation of or in default (nor has an event occurred which with notice or
lapse of time or both would constitute a default) under the terms of (i)
any indenture, contract, lease, mortgage, deed of trust, note, agreement or
other evidence of indebtedness or other agreement, obligation or instrument
to which the Company is a party or by which it or its property is bound or
affected, or (ii) any law, decree, order, rule or regulation applicable to
the Company of any court or supervisory, regulatory, administrative or
governmental agency, body or authority, or arbitrator having jurisdiction
over the Company or its properties, the default in or the breach or
violation of which would have a material adverse effect on the Company or
the ability of the Company to perform its obligations under the Pooling and
Servicing Agreement or the Certificates nor will the consummation of any
other of the transactions herein contemplated, nor the fulfillment of the
terms of the Certificates, the Pooling and Servicing Agreement or this
Agreement result in such a breach, violation or default which would have
such a materially adverse effect.
(vi) To the best knowledge of such counsel, after due inquiry,
there are no actions, proceedings or investigations pending against the
Company, or threatened against the Company, before any court,
administrative agency or other tribunal (A) asserting the invalidity of
this Agreement, the Pooling and Servicing Agreement or the Certificates,
(B) seeking to prevent the issuance of the Certificates or the consummation
of any of the transactions contemplated by this Agreement or the
10
<PAGE>
Pooling and Servicing Agreement, or (C) which might materially and
adversely affect the performance by the Company of its obligations under,
or the validity or enforceability of, this Agreement, the Pooling and
Servicing Agreement or the Certificates.
[(f) You shall have received from __________, [in-house] counsel of
the Master Servicer [or any of its Affiliates], an opinion dated the Closing
Date and satisfactory in form and substance to the Underwriters and counsel to
the Underwriters to the effect that:
(i) The Master Servicer has been duly incorporated and is validly
existing in good standing under the laws of the jurisdiction of its
incorporation and is duly qualified to do business as a foreign corporation
and is in good standing under the laws of each jurisdiction in which the
performance under its Pooling and Servicing Agreement would require such
qualification; the Master Servicer holds all material licenses,
certificates and permits from all governmental authorities necessary for
the conduct of its business as described in the Prospectus; and the Master
Servicer has the corporate power and authority to own its properties and
conduct its business as described in the Prospectus.
(ii) The Pooling and Servicing Agreement has been duly
authorized, executed and delivered by the Master Servicer and, assuming due
authorization, execution and delivery by the Trustee, constitutes a legal,
valid and binding instrument enforceable against the Master Servicer in
accordance with its terms (except as enforceability may be limited by
applicable bankruptcy, reorganization, insolvency, moratorium or other
similar laws relating to or affecting creditors' rights generally from time
to time in effect or the rights of creditors of federal savings banks
deposit accounts of which are insured by the Federal Savings and Loan
Insurance Corporation (the "FSLIC") and except that no opinion need be
expressed as to the availability of equitable remedies whether brought at
law or in equity).
(g) You shall have received from Mayer, Brown & Platt, counsel for the
Company, an opinion, dated the Closing Date and in form satisfactory to the
Underwriters and counsel to the Underwriters, to the effect that:
(i) The Certificates have been duly and validly authorized by the
Company and, when the Certificates have been duly and validly executed and
delivered by the Trustee as specified in the Pooling and Servicing
Agreement and when the Class [A] Certificates have been delivered to and
paid for by the Underwriters pursuant to this Agreement, the Certificates
will be validly issued and outstanding and entitled to the benefits of the
Pooling and Servicing Agreement.
(ii) No consent, approval, authorization, order, registration or
qualification of or with any federal court or federal supervisory,
regulatory, administrative or governmental agency, body or authority is
required under federal law
11
<PAGE>
in connection with the transactions contemplated in this Agreement, except
such as have been given or received or except as to any requirement under
the securities or blue sky laws of any jurisdiction in connection with the
underwriting of the Class [A] Certificates.
(iii) Assuming that the Class [A] Certificates shall be rated at
the time of issuance in one of the two highest rating categories by a
nationally recognized statistical rating organization, such Class [A]
Certificates at the time of issuance will be "mortgage related securities"
as such term is defined in Section 3(a)(41) of the Exchange Act.
(iv) To the best knowledge of such counsel, after due inquiry,
neither the execution and delivery of this Agreement or the Pooling and
Servicing Agreement, the issuance or sale of the Certificates nor the
transfer of the Mortgage Loans to the Trustee or the consummation of any
other of the transactions contemplated therein nor the fulfillment of the
terms thereof will violate any federal law, decree, order, rule or
regulation presently applicable to the Company of any court or supervisory,
regulatory, administrative or governmental agency, body or authority or
arbitrator having jurisdiction over the Company, or its properties, the
violation of which would have a material adverse effect on the Certificates
or the Company and its subsidiaries taken as a whole.
(v) The Registration Statement has become effective under the
Act, and, to the best knowledge of such counsel, no stop order suspending
the effectiveness of the Registration Statement has been issued and no
proceedings for that purpose have been instituted or are pending or
contemplated under the Act, and the Registration Statement and the
Prospectus, and each amendment or supplement thereto relating to the
Certificates, as of their respective effective or issue dates, complied as
to form in all material respects with the requirements of the Act and the
rules and regulations under the Act.
(vi) The statements in the Shelf Prospectus as amended, modified
or supplemented in the Prospectus Supplement under the heading "Description
of the Certificates," insofar as they constitute summaries of certain
provisions of the Certificates and the Pooling and Servicing Agreement,
summarize fairly such provisions.
(vii) The statements in the Shelf Prospectus as amended, modified
or supplemented in the Prospectus Supplement under the heading "Certain
Legal Aspects of the Mortgage Loans," "ERISA Considerations" and "Certain
Federal Income Tax Consequences," insofar as they describe federal statutes
and regulations, have been prepared or reviewed by such counsel, and such
statements fairly summarize such statutes and regulations.
12
<PAGE>
(viii) The Pooling and Servicing Agreement is not required to be
qualified under the Trust Indenture Act of 1939, as now in effect, and the
Trust Fund created by the Pooling and Servicing Agreement is not required
to be registered under the Investment Company Act of 1940, as amended.
[(ix) The [Trust Fund], as more fully described in the Pooling
and Servicing Agreement, will constitute a REMIC within the meaning of
Section 860D(a) of the Internal Revenue Code of 1986, as amended (the
"Code") and the Regular Certificates will be treated for federal income tax
purposes as regular interests in a REMIC within the meaning of Section
860G(a)(1) of the Code.]
(h) You shall have received from ______________________________,
counsel for the Underwriter[s] such opinion or opinions, dated the Closing Date
for such Certificates, with respect to the organization of the Company, the
validity of the Certificates, the Registration Statement, the Prospectus, the
Pooling and Servicing Agreement and other related matters as you may reasonably
require, and the Company shall have furnished to such counsel such documents as
they may reasonably request for the purpose of enabling them to pass upon such
matters.
[(i) You shall have received from Mayer, Brown & Platt a letter dated
the Closing Date stating that nothing has come to their attention which leads
them to believe that:
(a) the Registration Statement at the time it became effective
(except as to the financial statements and notes thereto and related
schedules and other financial and statistical data included therein,
as to which such counsel need make no comment) contained an untrue
statement of a material fact or omitted to state a material fact
required to be stated therein or necessary to make the statements
therein not misleading, or (b) the Prospectus as of the date thereof
or as of the Closing Date (except as to the financial statements and
notes thereto and related schedules and other financial and
statistical data included therein, as to which such counsel need make
no comment) contained an untrue statement of a material fact or
omitted to state a material fact necessary to make the statements
therein, in the light of the circumstance under which they were made,
not misleading.]
(j) You shall have received from Mayer, Brown & Platt, counsel for the
Company, an opinion, dated the Closing Date and satisfactory in form and
substance to the Underwriters and counsel to the Underwriters, to the effect
that the Trustee will have for the benefit of the Class [A] Certificateholders a
valid and perfected security interest in the [Initial Deposit and the Reserve
Fund] of the first priority under the UCC and no other action or filing need be
taken in order to perfect such interest, which may be satisfied pursuant to
paragraph (k) of this Section 7 below.
13
<PAGE>
[(k) To the extent Mortgage Pool information is to be supplied
pursuant to a Form 8-K, you shall have received on the Closing Date a letter
dated the Closing Date of [insert name of independent accountants], in the form
and substance previously agreed upon by you.]
[(l) The Reserve Fund shall have been established by the Company with
the Trustee and the Initial Deposit shall have been made therein as contemplated
by the Pooling and Servicing Agreement.]
(m) The Class [A] Certificates shall have been rated [[one of the two
highest rating categories] by Moody's Investors Service and [one of the two
highest rating categories] by Standard & Poor's Corporation].
(n) All proceedings in connection with the transactions contemplated
by this Agreement and all documents incident hereto shall be satisfactory in
form and substance to you and your counsel, and you and your counsel shall have
received such information, certificates and documents as you or they may
reasonably request.
(o) The Trustee shall have furnished the Underwriters and their
counsel an opinion of counsel for the Trustee dated the Closing Date, in a form
satisfactory to the Underwriters and their counsel, to the effect that:
(i) The Pooling and Servicing Agreement has been duly authorized,
executed and delivered by the Trustee and constitutes a valid and binding
obligation of the Trustee, enforceable in accordance with its terms,
subject to applicable bankruptcy, reorganization, insolvency, moratorium
and other laws affecting the rights of creditors generally and to general
principles of equity (regardless of whether the enforcement of such
remedies is considered in a proceeding in equity or at law).
(ii) The Trustee has full power, authority and legal right to
execute and deliver and to perform and observe the provisions of the
Pooling and Servicing Agreement and to carry out the transactions
contemplated in the Pooling and Servicing Agreement.
(iii) To the best of such counsel's knowledge, there are no
actions, proceedings or investigations pending or threatened against or
affecting the Trustee before or by any court, arbitrator, administrative
agency or other governmental authority that, if adversely decided, would
materially and adversely affect the Trustee's ability to carry out the
transactions contemplated in the Pooling and Servicing Agreement.
(iv) No consent, approval or authorization of, or registration,
declaration or filing with, any court or government agency is required for
the
14
<PAGE>
execution, delivery or performance by the Trustee of the Pooling and
Servicing Agreement.
(v) The Certificates have been duly authenticated and delivered
by the Trustee.
8. (a) The Company will indemnify and hold harmless [each] [the]
Underwriter against any losses, claims, damages or liabilities, [joint or
several,] to which such Underwriter may become subject, under the Act or
otherwise, insofar as such losses, claims, damages or liabilities (or actions in
respect thereof) arise out of or are based upon any untrue statement or alleged
untrue statement of any material fact contained in the Registration Statement,
the Prospectus or any amendment or supplement thereto, or arise out of or are
based upon the omission or alleged omission to state therein a material fact
required to be stated therein or necessary to make the statements therein not
misleading, and will reimburse [each] [such] Underwriter for any legal or other
expenses reasonably incurred by such Underwriter in connection with
investigating or defending any such action or claim; provided, however, that the
Company shall not be liable in any such case to the extent that any such loss,
claim, damage or liability arises out of or is based upon an untrue statement or
alleged untrue statement or omission or alleged omission made in the
Registration Statement, the Prospectus or any amendment or supplement thereto in
reliance upon and in conformity with written information furnished to the
Company by any Underwriter specifically for use therein. The foregoing indemnity
with respect to any untrue statement contained in, or any omission from, the
Prospectus (or the Prospectus as amended or supplemented) shall not inure to the
benefit of any Underwriter from whom the person asserting any such loss,
liability, claim, damage or expense purchased any of the Certificates which are
the subject thereof if the Company delivers proof that such person did not
receive a copy of the Prospectus (or the Prospectus as amended or supplemented)
at or prior to the written confirmation of the sale of such Certificates to such
person.
(b) [Each] [The] Underwriter will indemnify and hold harmless the
Company against any losses, claims, damages or liabilities to which the Company
may become subject, under the Act or otherwise, insofar as such losses, claims,
damages or liabilities (or actions in respect thereof) arise out of or are based
upon an untrue statement or alleged untrue statement of a material fact
contained in the Registration Statement, the Prospectus or any amendment or
supplement thereto, or arise out of or are based upon the omission or the
alleged omission to state therein a material fact required to be stated therein
or necessary to make the statements therein not misleading, in each case to the
extent, but only to the extent, that such untrue statement or alleged untrue
statement or omission or alleged omission was made in the Registration
Statement, the Prospectus or any amendment or supplement thereto in reliance
upon and in conformity with written information furnished to the Company by such
Underwriter specifically for use therein; and will reimburse the Company for any
legal or other expenses reasonably incurred by the Company in connection with
investigating or defending any such action or claim.
15
<PAGE>
(c) Promptly after receipt by an indemnified party under subsection
(a) or (b) above of notice of the commencement of any action, such indemnified
party shall, if a claim in respect thereof is to be made against the
indemnifying party under such subsection, notify the indemnifying party in
writing of the commencement thereof; but the omission so to notify the
indemnifying party shall not relieve it from any liability which it may have to
any indemnified party otherwise than under such subsection. In case any such
action shall be brought against any indemnified party and it shall notify the
indemnifying party of the commencement thereof, the indemnifying party shall be
entitled to participate therein and, to the extent that it shall wish, jointly
with any other indemnifying party similarly notified, to assume the defense
thereof, with counsel satisfactory to such indemnified party (who shall not,
except with the consent of the indemnified party, be counsel to the indemnifying
party), and after notice from the indemnifying party to such indemnified party
of its election so to assume the defense thereof, the indemnifying party shall
not be liable to such indemnified party under such subsection for any legal
expenses of other counsel or any other expenses, in each case subsequently
incurred by such indemnified party, in connection with the defense thereof other
than reasonable costs of investigation.
(d) If the indemnification provided for in this Section 8 is
unavailable to or insufficient to hold harmless an indemnified party under
subsection (a) or (b) above in respect of any losses, claims, damages or
liabilities (or actions in respect thereof) referred to therein, then each
indemnifying party shall contribute to the amount paid or payable by such
indemnified party as a result of the losses, claims, damages or liabilities (or
actions in respect thereof) in such proportion as is appropriate to reflect the
relative benefits received by the Company on the one hand and the Underwriters
on the other from the offering of the Certificates to which such loss, claim,
damage or liability (or action in respect thereof) relates. If, however, the
allocation provided by the immediately preceding sentence is not permitted by
applicable law or if the indemnified party failed to give the notice required
under subsection (c) above, then each indemnifying party shall contribute to
such amount paid or payable by such indemnified party in such proportion as is
appropriate to reflect not only such relative benefits but also the relative
fault of the Company on the one hand and the Underwriters on the other in
connection with the statements or omissions which resulted in such losses,
claims, damages or liabilities (or actions in respect thereof), as well as any
other relevant equitable considerations. The relative benefits received by the
Company on the one hand and the Underwriters on the other shall be deemed to be
in the same proportion as the total net proceeds from such offering (before
deducting expenses) received by the Company bear to the total underwriting
discounts and commissions received by the Underwriters. The relative fault
shall be determined by reference to, among other things, whether the untrue or
alleged untrue statement of a material fact or the omission or alleged omission
to state a material fact relates to information supplied by the Company on the
one hand or the Underwriters on the other and the parties' relative intent,
knowledge, access to information and opportunity to correct or prevent such
statement or omission. The Company and the Underwriters agree that it would not
be just and equitable if contribution pursuant to this subsection (d) were
determined by pro rata allocation (even if the Underwriters were treated as one
entity for such purpose) or by any other method of allocation which does not
take
16
<PAGE>
account of the equitable considerations referred to above in this
subsection (d). The amount paid or payable by an indemnified party as a result
of the losses, claims, damages or liabilities (or actions in respect thereof)
referred to above in this subsection (d) shall be deemed to include any legal or
other expenses reasonably incurred by such indemnified party in connection with
investigating or defending any such action or claim. Notwithstanding the
provisions of this subsection (d), no Underwriter shall be required to
contribute any amount in excess of the amount by which the total price at which
the Certificates underwritten by it and distributed to the public were offered
to the public exceeds the amount of any damages which the Underwriters have
otherwise been required to pay by reason of such untrue or alleged untrue
statement or omission or alleged omission. No person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the Act) shall be
entitled to contribution from any person who was not guilty of such fraudulent
misrepresentation. The obligations of the Underwriters in this subsection (d)
to contribute are several in proportion to their respective underwriting
obligations with respect to such Certificates and not joint.
(e) The obligations of the Company under this Section 8 shall be in
addition to any liability which the Company may otherwise have and shall extend,
upon the same terms and conditions, to each person, if any, who controls any
Underwriter within the meaning of the Act; and the obligations of the
Underwriters under this Section 8 shall be in addition to any liability which
the Underwriters may otherwise have and shall extend, upon the same terms and
conditions, to each officer and director of the Company and to each person, if
any, who controls the Company within the meaning of the Act.
[9. (a) If any Underwriter shall default in its obligation to purchase
the Certificates which it has agreed to purchase hereunder, the non-defaulting
Underwriters may in their discretion arrange for themselves or another party or
other parties to purchase such Certificates on the terms contained herein. If
within thirty-six hours after such default by any Underwriter the non-defaulting
Underwriters do not arrange for the purchase of such Certificates, then the
Company shall be entitled to a further period of thirty-six hours within which
to procure another party or other parties satisfactory to the non-defaulting
Underwriters to purchase such Certificates on such terms. In the event that,
within the respective prescribed period, the non-defaulting Underwriters notify
the Company that they have so arranged for the purchase of such Certificates, or
the Company notifies the non-defaulting Underwriters that it has so arranged for
the purchase of such Certificates, the non-defaulting Underwriters or the
Company shall have the right to postpone the Closing Date of such Certificates
for a period of not more than seven days, in order to effect whatever changes
may thereby be made necessary in the Registration Statement or the Prospectus,
as amended or supplemented, or in any other documents or arrangements, and the
Company agrees to file promptly any amendments or supplements to the
Registration Statement or the Prospectus which in the opinion of the
Underwriters may thereby be made necessary. The term "Underwriter" as used in
this Agreement shall include any person substituted under this Section with like
effect as if such person had originally been a party to this Agreement with
respect to such Certificates.]
17
<PAGE>
(b) If, after giving effect to any arrangements for the purchase of
the Certificates of a defaulting Underwriter or Underwriters by the non-
defaulting Underwriters and the Company as provided in subsection (a) above, the
aggregate principal amount of such Certificates which remains unpurchased does
not exceed [one-eleventh] of the aggregate principal amount of all the
Certificates being sold hereunder, then the Company shall have the right to
require each non-defaulting Underwriter to purchase the principal amount of
Certificates which such Underwriter agreed to purchase hereunder and, in
addition, to require each non-defaulting Underwriter to purchase its pro rata
share (based on the principal amount of Certificates which such Underwriter
agreed to purchase hereunder) of Certificates of such defaulting Underwriter or
Underwriters for which such arrangements have not been made; but nothing herein
shall relieve a defaulting Underwriter from liability for its default.
(c) If, after giving effect to any arrangements for the purchase of
the Certificates of a defaulting Underwriter or Underwriters by the non-
defaulting Underwriters and the Company as provided in subsection (a) above, the
aggregate principal amount of Certificates which remains unpurchased exceeds
[one-eleventh] of the aggregate principal amount of all the Certificates being
sold hereunder, or if the Company shall not exercise the right described in
subsection (b) above to require non-defaulting Underwriters to purchase
Certificates of a defaulting Underwriter or Underwriters, then this Agreement
shall thereupon terminate, without liability on the part of any non-defaulting
Underwriter or the Company, except for the expenses to be borne by the Company
and the Underwriters as provided in Section 11 hereof and the indemnity and
contribution agreements in Section 8 hereof; but nothing herein shall relieve a
defaulting Underwriter from liability for its default.
10. The respective indemnities, agreements, representations, warranties
and other statements by the Company or its officers and of the several
Underwriters set forth in or made pursuant to this Agreement will remain in full
force and effect, and will survive delivery of and payment for the Certificates.
11. If for any reason the purchase of the Certificates by the Underwriters
is not consummated, the Company shall remain responsible for the expenses to be
paid or reimbursed by it pursuant to Section 6, and the respective obligations
of the Company and the Underwriters pursuant to Section 8 shall remain in
effect. If the purchase of the Certificates by the Underwriters is not
consummated for any reason other than because of a default by the Underwriters
under the circumstances contemplated in [Section 9 or a failure to satisfy the
conditions to closing by virtue of Section 7(e)], the Company will reimburse the
Underwriters for all out-of-pocket expenses (including fees and disbursements of
counsel) reasonably incurred by them in connection with the offering of the
Class [A] Certificates.
12. All communications hereunder will be in writing and, if sent to the
Underwriters, will be mailed, delivered or telegraphed and confirmed to you, c/o
_______________________ New York, New York______, or, if sent to the Company,
will be mailed, delivered or telegraphed and confirmed to it at ABN AMRO
Mortgage Corporation,
18
<PAGE>
181 West Madison Street, Suite 3250, Chicago, IL 60602 Attention: Maria Fregosi
- -- Director -- ABN AMRO Mortgage Operations.
13. This Agreement will inure to the benefit of and be binding upon the
parties hereto and their respective successors and the officers and directors
and controlling persons referred to in Section 8, and no other person will have
any right or obligation hereunder.
14. This Agreement shall be governed by, and construed in accordance with,
the laws of the State of Illinois.
15. Any action under this Agreement taken by you jointly or by
_______________ will be binding upon all Underwriters.
16. The Company authorizes the Underwriters, all members of any selling
group which may be formed in connection with the distribution of the
Certificates and all dealers to whom any of the Certificates may be sold by the
Underwriters or by members of any selling group, to use in connection with the
sale of the Certificates, the Prospectus, the Pooling and Servicing Agreement
and the Certificates referred to in this Agreement.
17. The Agreement may be executed in one or more counterparts, each of
which shall be deemed an original, but all of which together shall constitute
one and the same instrument.
19
<PAGE>
If the foregoing is in accordance with your understanding of our agreement,
kindly sign and return to us the enclosed duplicate hereof, whereupon it will
become a binding agreement between the Company and the several Underwriters in
accordance with its terms.
Very truly yours,
ABN AMRO MORTGAGE CORPORATION
By:_______________________________
Name:_____________________________
Title:______________________________
Accepted as of the date hereof:
_________________________
[For itself and on behalf of
the other Underwriters
identified in ______________.]
By:_______________________
Name:_____________________
Title:______________________
20
<PAGE>
Mortgage Loan Purchase Agreement
--------------------------------
Mortgage Loan Purchase Agreement (the "Agreement"), dated as of
---------
________ __, 1997, between [Standard Federal Bank](the "Seller") and ABN AMRO
------
Mortgage Corp.(the "Purchaser").
---------
Subject to the terms and conditions of this Agreement, the Seller
agrees from time to time to sell and the Purchaser agrees from time to time to
purchase certain mortgage loans (the "Mortgage Loans") as described herein and
--------------
as identified on the Mortgage Loan Schedule defined in Section 2 hereof [and the
---------
Seller agrees to retain servicing of the Mortgage Loans in accordance with an
agreement substantially in the form of the servicing agreement attached hereto
as Exhibit E].
---------
Now, therefore, in consideration of the premises and the mutual
agreements set forth herein, the parties agree as follows:
SECTION 1. Purchase and Sale of the Mortgage Loans.
---------------------------------------
(a) Pursuant to the terms hereof and upon the satisfaction of the
conditions set forth herein, the Seller agrees to sell and the Purchaser agrees
to purchase, Mortgage Loans having the general characteristics set forth in this
Agreement and specifically identified on the Mortgage Loan Schedule, for the
Purchase Price set forth below in Section 3(a) hereof and having an aggregate
------------
principal balance on and as of the date of each Mortgage Loan Schedule (each
such Date, a "Cut-Off Date") [of approximately $______________ after deduction
------------
of principal payments due on or before the Cut-Off Date (which amount may vary
plus or minus __% thereof), or such other aggregate principal balance as agreed
by the Purchaser and the Seller as evidenced by the actual aggregate principal
balance of the Mortgage Loans accepted by the Purchaser on Closing Date (as
defined below).]
(b) Subject to mutual agreement between the Purchaser and the Seller, the
closing for the purchase and sale of the Mortgage Loans shall take place no
later than once a week (each such date, a "Closing Date") [on _________, 1997
(the "Closing Date") at the office of Purchaser's counsel in Chicago, Illinois
or such other place as the parties shall agree].
SECTION 2. Mortgage Loan Schedule. Attached to this Agreement as Schedule
----------------------
1 is a listing of the Mortgage Loans evidenced by promissory notes, mortgage
notes or other evidence of indebtedness (the "Mortgage Notes") evidencing the
--------------
indebtedness of an obligor (the "Mortgagor") under the mortgages, deeds of trust
---------
or other instruments securing a Mortgage Loan (the "Mortgages") to be purchased
---------
by and delivered to the Purchaser on
<PAGE>
each [the] Closing Date (as such may be amended prior to each [the] Closing Date
by mutual agreement of the parties) (the "Mortgage Loan Schedule"). The
----------------------
"Mortgage Loan Schedule" as of the Closing Date shall refer to the Mortgage Loan
Schedule as delivered on the Cut-off Date related to such Mortgage Loan Schedule
by or on behalf of the Purchaser pursuant to the terms of this Agreement. The
Mortgage Loan Schedule shall contain as to each Mortgage Loan listed thereon, at
a minimum, the Mortgage Loan information indicated on Schedule 2 hereto.
----------
SECTION 3. Purchase Price.
--------------
(a) In exchange for the Mortgage Loans, on each [the] Closing Date, the
Purchaser shall transfer to the Seller [by wire in immediately available funds]
an amount equal to the purchase price (the "Purchase Price") equal to the
--------------
Purchase Price defined on the Mortgage Loan Schedule plus the applicable accrued
interest from the related Closing Date [or Cut-Off Date].
(b) The Purchaser shall be entitled to all scheduled payments of principal
and interest due with respect to the Mortgage Loans after the related Cut-Off
Date, and all other recoveries of principal and interest collected after the
related Cut-Off Date (other than in respect of principal and interest on the
Mortgage Loans due on or before the Cut-Off Date). The Seller shall be entitled
to all scheduled payments of principal and interest due with respect to the
Mortgage Loans on or before the Cut-Off Date, and all other recoveries of
principal and interest collected on or before the Cut-Off Date (other than in
respect of principal and interest on the Mortgage Loans due after the Cut-Off
Date). The Principal Balance of each Mortgage Loan as of the Cut-Off Date is
determined after deduction of payments of principal due on or before the Cut-Off
Date whether or not collected. Therefore, payments of scheduled principal and
interest prepaid for a date due following the Cut-Off Date shall not be deducted
from the Principal Balance as of the Cut-Off Date but such prepaid amounts shall
belong to and be promptly remitted to the Purchaser.
SECTION 4. Examination of Mortgage Files.
-----------------------------
Prior to the Closing Date, the Seller will have made files for each
Mortgage Loan, that consist at least of the documents listed on Schedule 3
----------
attached hereto (with respect to each Mortgage Loan, a "Mortgage File", and
collectively, the "Mortgage Files"), available to the Purchaser or its agents,
--------------
for examination at the Seller's offices or such other location as shall
otherwise be agreed upon by the Purchaser and the Seller. The Purchaser may
purchase all or part of the Mortgage Loans with or without conducting any
partial or complete examination. The fact that the Purchaser or its agents have
conducted or have
-2-
<PAGE>
failed to conduct any partial or complete examination of the Mortgage Files
shall not affect the Purchaser's rights under this Agreement, including, but not
limited to, the rights to demand repurchase, substitution or other relief as
provided in this Agreement.
SECTION 5. Transfer of Mortgage Loans; Possession of Mortgage Files.
--------------------------------------------------------
(a) On each [the] Closing Date, subject to the satisfaction of the terms
and conditions hereof the Seller shall sell, transfer, assign, set over and
otherwise convey to the Purchaser, without recourse, but subject to the terms of
this Agreement, all right, title and interest of the Seller in and to the
Mortgage Loans and all proceeds thereof, wherever located, including without
limitation, all amounts in respect of principal and interest received or
receivable with respect to Mortgage Loan payments due after the Cut-Off Date
(and including scheduled payments of principal and interest due after the Cut-
Off Date but received by the Seller on or before the Cut-Off Date, but not
including payments of principal and interest due on the Mortgage Loans on or
before the Cut-Off Date), together with the proceeds of any related mortgage
insurance policies. Such transfer shall be made directly to the Purchaser in
accordance with the letter delivered to the Seller by the Purchaser attached
hereto as Exhibit A (the "Instruction Letter"). The Seller's records will
--------- ------------------
accurately reflect the sale of each Mortgage Loan to the Purchaser.
(b) The ownership of each Mortgage Loan and the related Mortgage Note, the
Mortgage and the contents of the related Mortgage File shall be, upon
satisfaction of subsection 5(a) hereof, vested in the Purchaser and the
---------------
ownership of all records and documents with respect to such Mortgage Loan
prepared by or which come into the possession of the Seller shall immediately
vest in the Purchaser and shall be retained and maintained by the Seller at the
will and for the benefit of the Purchaser in a custodial capacity only. The
Seller shall deliver to the Purchaser or its agent in accordance with the
instructions set forth in Exhibit A, simultaneously with the execution and
---------
delivery of this Agreement or prior to the Closing Date, all of the documents
pertaining to each Mortgage Loan.
(c) The transfer of the Mortgage Loans as described herein shall be
absolute and is intended by the parties to be a sale. In the event that a court
deems the conveyance set forth herein not to constitute a sale, the Seller shall
have granted to the Purchaser a first priority security interest in the Mortgage
Loans and in the proceeds thereof of any kind or nature whatsoever, and in the
proceeds of any related insurance policies, subject to the satisfaction or
waiver of the conditions
-3-
<PAGE>
set forth in Section 11 hereof, and shall take all steps necessary prior to the
----------
Closing Date to perfect such security interest in the Purchaser.
SECTION 6. Books and Records.
-----------------
On each [the] Closing Date, following the sale of the Mortgage Loans to the
Purchaser, title to each Mortgage and the related Mortgage Note shall be
transferred to the Purchaser or its assignee in accordance with this Agreement.
All rights arising out of the Mortgage Loans after the Cut-Off Date including,
but not limited to, any and all funds received on or in connection with a
Mortgage Loan and due after the Cut-Off Date shall be received and held by the
Seller in a custodial capacity for the benefit of the Purchaser or its assignee
as the owner of the Mortgage Loans in accordance herewith.
SECTION 7. Further Actions; Financing Statements.
-------------------------------------
(a) In furtherance of the provisions of Section 5(c) hereof, the Seller
------------
agrees to take or cause to be taken such further actions to execute, deliver and
file or cause to be executed, delivered and filed, such further documents and
instruments (including, without limitation, any UCC financing statements) as may
be necessary, or as the Purchaser may reasonably request, in order to perfect
and maintain the security interest created pursuant to said section and to
otherwise fully effectuate the purposes, terms and conditions of this Agreement,
and the Purchaser shall cooperate in any such action.
(b) The Seller shall: (i) promptly execute, deliver, and file any financing
statements, amendments, continuation statements, assignments, certificates and
other documents with respect to such security interest as may be necessary to
enable the Purchaser to perfect or to maintain the perfection of such security
interest, each in form and substance satisfactory to the Purchaser; and the
Seller hereby grants to the Purchaser, subject to the satisfaction or waiver of
the conditions set forth in Section 11 hereof, the right, at the Purchaser's
----------
option, to file any or all such financing statements, amendments, continuation
statements, assignments, certificates and other documents pursuant to the UCC
and otherwise without its signature and hereby irrevocably appoints the
Purchaser, subject to the satisfaction or waiver of the conditions set forth in
Section 11 hereof, as its attorney-in-fact to execute, deliver and file any such
- ----------
financing statements, amendments, continuation statements, assignments,
certificates and other documents in the Seller's name and to perform all other
acts which the Purchaser deems appropriate to perfect or to maintain the
perfection of the security interest; and (ii) notify the Purchaser within five
(5) days after the occurrence of any of the following: (A) any change
-4-
<PAGE>
in the Seller's corporate name or any trade name; (B) any change in the Seller's
location of its chief executive office or principal place of business; and (C)
any merger or consolidation or other change in Seller's identity or material
change in its corporate structure.
SECTION 8. Representations, Warranties and Agreements of Seller.
----------------------------------------------------
(a) The Seller hereby represents and warrants to the Purchaser as of each
[the] Closing Date (or such other date as is specified in the related
representation or warranty) as follows:
(i) The Seller has been duly created and is validly existing as a
[corporation] under the laws of the State of [ ];
(ii) The execution and delivery of this Agreement by the Seller and
its performance of and compliance with the terms of this Agreement will not
violate the Seller's corporate charter or by-laws or will not conflict with
or result in a breach of any of the terms or provisions of, or constitute a
default under, any indenture, mortgage, deed of trust, loan agreement or
other material agreement or instrument to which the Seller is a party or by
which the Seller or to which any of the property or assets of the Seller is
subject;
(iii) This Agreement, assuming due authorization, execution and
delivery by the Purchaser, constitutes a valid and legally binding
obligation of the Seller, enforceable against the Seller in accordance with
its terms, subject, as to enforcement, to bankruptcy, insolvency,
reorganization and other similar laws of general applicability relating to
or affecting creditors' rights and to general equity principles, regardless
of whether such enforcement is considered in a proceeding in equity or at
law;
(iv) The Seller is not in default with respect to any order or
decree of any court or any order, regulation or demand of any federal,
state, municipal or governmental agency, which the Seller default might
have consequences that would materially and adversely affect the condition
(financial or other) or operations of the Seller or its properties or might
have consequences that would affect its performance hereunder;
(v) No litigation is pending or, to the best of the Seller's
knowledge, threatened against the Seller which would prohibit its entering
into this Agreement or performing its obligations under this Agreement;
-5-
<PAGE>
(vi) The Seller is an approved conventional seller/servicer for FNMA
or FHLMC in good standing;
(vii) The consummation of the transactions contemplated by this
Agreement are in the ordinary course of business of the Seller, and the
transfer, assignment and conveyance of the Mortgage Notes and the Mortgages
by the Seller pursuant to this Agreement is not subject to the bulk
transfer or any similar statutory provisions in effect in the State of
Illinois;
(viii) With respect to each Mortgage Loan:
(a) that the information set forth in the Mortgage Loan
Schedule appearing as an exhibit to this Agreement is true and correct
in all material respects at the date or dates respecting which such
information is furnished as specified therein;
(b) the Seller 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;
(c) no payment of principal of or interest on or in respect of
any Mortgage Loan is [30] days or more past due from the Due Date of
such Mortgage Loan;
(d) as of the date of the transfer of the Mortgage Loans to the
Purchaser, there is no valid offset, defense or counterclaim to any
Mortgage Note or Mortgage;
(e) there is no proceeding pending or threatened for the total
or partial condemnation of any of the real property, together with any
improvements thereto, securing the indebtedness of the Mortgagor under
the related Mortgage Loan (the "Mortgaged Property") and the Mortgaged
Property is free of material damage and is in good repair and neither
the Mortgaged Property nor any improvement located on or being part of
the Mortgaged Property is in violation of any applicable zoning law or
regulation;
(f) 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,
-6-
<PAGE>
and each Mortgage Loan was not usurious at the time of origination;
(g) all taxes, governmental assessments and insurance
premiums previously due and owing with respect to the Mortgaged
Property have been paid;
(h) that each Mortgage Note and the related Mortgage are
genuine and each is the legal, valid and binding obligation of the
maker thereof, enforceable in accordance with its terms except as such
enforcement may be limited by bankruptcy, insolvency, reorganization
or other similar laws affecting the enforcement of creditors' rights
generally and by general equity principles (regardless of whether such
enforcement is considered in a proceeding in equity or at law); all
parties to the Mortgage Note and the Mortgage had legal capacity to
execute the Mortgage Note and the Mortgage; and each Mortgage Note and
Mortgage have been duly and properly executed by the Mortgagor;
(i) that each Mortgage is a valid and enforceable first lien
on the property securing the related Mortgage Note, and that each
Mortgage Loan is covered by an ALTA mortgagee title insurance policy
or other form of policy or insurance generally acceptable to FNMA or
FHLMC, issued by, and is a valid and binding obligation of, a title
insurer acceptable to FNMA or FHLMC insuring the originator, its
successor and assigns, as to the lien of the Mortgage in the original
principal amount of the Mortgage Loan subject only to (a) the lien of
current real property taxes and assessments not yet due and payable,
(b) covenants, conditions and restrictions, rights of way, easements
and other matters of public record as of the date of recording of such
Mortgage acceptable to mortgage lending institutions in the area in
which the Mortgaged Property is located or specifically referred to in
the appraisal performed in connection with the origination of the
related Mortgage Loan and (c) such other matters to which like
properties are commonly subject which do not individually, or in the
aggregate, materially interfere with the benefits of the security
intended to be provided by the Mortgage;
(j) neither the Seller 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
-7-
<PAGE>
whole or in part from the lien of the Mortgage; or executed any
instrument of release, cancellation, modification or satisfaction;
(k) that each Mortgaged Property consists of a fee simple
estate, a leasehold estate condominium form of ownership in real
property or a share interest in a cooperative corporation in the case
of a Co-op Loan;
(l) [no more than __% of the Mortgage Loans consist of
[Mortgage Loans with [Limited Mortgage Documentation];]
(m) [no more than __% of the Mortgage Loans consist of [Buy-
down Mortgage Loans;]
(n) [no more than __% of the Mortgage Loans consist of
Mortgage Loans that accrue Deferred Interest;]
(o) the condominium projects that include the condominiums
that are the subject of any condominium loan or Co-op Loan are
generally acceptable to FNMA or FHLMC;
(p) no foreclosure action is threatened or has been
commenced (except for the filing of any notice of default) with
respect to the Mortgage Loan; and except for payment delinquencies not
in excess of [__] days, there is no default, breach, violation or
event of acceleration existing under the Mortgage or the related
Mortgage Note and no event which, with the passage of time or with
notice and the expiration of any grace or cure period, would
constitute a default, breach, violation or event of acceleration; and
the Depositor has not waived any default, breach, violation or event
of acceleration;
(q) each Mortgage Loan which can be converted from an
adjustable rate Mortgage Loan to a fixed rate Mortgage Loan gives the
Mortgagor the right at one or more times during the term of such
Mortgage Loan to elect to convert from one interest rate to another.
In the event of a conversion, the new rate of interest is determined
pursuant to the terms of the Mortgage Loan itself, which terms are
intended to approximate a market rate of interest for newly originated
mortgages at the time of conversion;
-8-
<PAGE>
(r) that each Mortgage Loan is in one of the forms contained
in Exhibit __ and each provision of the Mortgage Note, including,
without limitation, the interest rate and payment amount adjustments
of the Mortgage Note, are in conformity with and are being serviced in
conformity with Exhibit __;
(s) that based upon a representation by each Mortgagor at
the time of origination or assumption of the applicable Mortgage Loan,
____% of the Mortgage Loans measured by Principal Balance were to be
secured by a primary, owner-occupied residence and no more than ____%
of the Mortgage Loans measured by Principal Balance secured by non-
owner-occupied residences;
(t) that an appraisal of each Mortgaged Property was
conducted at the time of origination of the related Mortgage Loan, and
that each such appraisal was conducted in accordance with FNMA or
FHLMC criteria, on FNMA or FHLMC forms and comparables on at least
three properties were obtained;
(u) that no Mortgage Loan had a Loan-to-Value Ratio at
origination in excess of 125%;
(v) the Mortgage Loans were not selected in a manner to
adversely affect the interests of the Purchaser and the Seller knows
of no conditions which reasonably would cause it to expect any
Mortgage Loan to become delinquent or otherwise lose value;
(w) each Mortgage Loan was either (A) originated directly by
or closed in the name of either: (i) a savings and loan association,
savings bank, commercial bank, credit union, insurance company, or
similar institution which is supervised and examined by a federal or
state authority or (ii) a mortgagee approved by the Secretary of
Housing and Urban Development pursuant to Sections 203 and 211 of the
National Housing Act or (B) originated or underwritten by an entity
employing underwriting standards consistent with the underwriting
standards of an institution as described in subclause (A)(i) or
(A)(ii) above; and
(x) [each Mortgage Loan is a "qualified mortgage" within the
meaning of Section 860G of the Internal Revenue Code of 1986.]
It is understood and agreed that the representations and warranties
set forth in this
-9-
<PAGE>
Section 8 shall survive the sale of the Mortgage Loans to the Purchaser and
---------
shall inure to the benefit of the Purchaser, notwithstanding any
restrictive or qualified endorsement on any Mortgage Note or Assignment of
Mortgage or the examination of any Mortgage File.
Upon discovery by either the Seller, the Purchaser or its designees of
a breach of any of the foregoing representations or warranties of the
Seller which materially and adversely affects (1) the value of any of the
Mortgage Loans actually delivered or (2) the interests of the Purchaser
therein, the party discovering such breach shall give prompt written notice
to the other. Within [thirty] [30] days of its discovery or its receipt of
notice of any such breach of a representation or warranty, the Seller
shall, with respect to the Mortgage Loan(s) to which such breach relates,
(i) cure such breach in all material respects (except for a breach of that
portion of the representation and warranty relating to any casualty from
the presence of hazardous waste or hazardous substances), (ii) repurchase
such Mortgage Loan or Mortgage Loans (or any property acquired in respect
thereof) from the Purchaser at the Purchase Price, or (iii) within the
[thirty] [30]-day period following the Closing Date substitute another
mortgage loan for such Mortgage Loan. Such substitute mortgage loan shall
on the date of substitution, (i) have a principal balance not in excess of
the principal balance of the defective Mortgage Loan, (ii) be accruing
interest at a rate of interest at least equal to that of the defected
Mortgage Loan, (iii) have a remaining term to stated maturity not greater
than, and not more than two years less than, that of the Mortgage Loan so
substituted, (iv) have an original loan-to-value ratio not higher than that
of the Mortgage Loan so substituted current loan-to-value ratio not higher
than ___%, and (v) comply with all the representations and warranties
relating to Mortgage Loans set forth herein, as of the date of substitution
(such mortgage loan being referred to herein as a "Qualifying Substitute
---------------------
Mortgage Loan")]. Except as set forth in Section 13 hereof, it is
------------- ----------
understood and agreed that the obligations of the Seller set forth in this
Section 8 to cure, substitute for or repurchase a defective Mortgage Loan
---------
constitute the sole remedies of the Purchaser respecting a breach of the
foregoing representations and warranties.
The Purchaser, upon receipt by it of the full amount of the Purchase
Price for a Mortgage Loan that is substituted, or upon receipt of the
Mortgage File
-10-
<PAGE>
for a Qualifying Substitute Mortgage Loan for a Mortgage Loan that is
substituted, shall release or cause to be released and reassign to the
Seller the related Mortgage File for the Mortgage Loan that is substituted
and shall execute and deliver such instruments of transfer or assignment,
in each case without recourse, representation, or warranty, as shall be
necessary to vest in the Seller or its designee or assignee title to any
such substituted Mortgage Loan released pursuant hereto, free and clear of
all security interests, liens and other encumbrances created by this
Agreement, which instruments shall be prepared by the Seller at its expense
and shall be reasonably acceptable to the Purchaser, and the Purchaser
shall have no further responsibility with respect to the Mortgage File
relating to such Mortgage Loan that is substituted.
Any cause of action against the Seller or relating to or arising out
of the breach of any representations and warranties made in this Section 8
---------
shall accrue as to any Mortgage Loan upon (i) discovery of such breach by
the Purchaser or notice thereof by the Seller to the Purchaser, (ii)
failure by the Seller to cure such breach, repurchase such Mortgage Loan or
substitute a Qualifying Substitute Mortgage Loan as specified above, and
(iii) demand upon the Seller by the Purchaser for all amounts payable in
respect of such Mortgage Loan.
SECTION 9. Representations, Warranties and Agreements of Purchaser.
-------------------------------------------------------
(a) The Purchaser hereby represents and warrants to the Seller, as of the
date hereof (or such other date as is specified in the related representation or
warranty) as follows:
(i) The Purchaser is a [corporation] duly formed and validly existing
under the laws of the State of Delaware;
(ii) The execution and delivery of this Agreement by the Purchaser and
its performance of and compliance with the terms of this Agreement will not
violate the Purchaser's corporate charter or by-laws or constitute a
default (or an event which, with notice or lapse of time, or both, would
constitute a default) under, or result in the breach of, any material
contract, agreement or other instrument to which the Seller is a party or
which may be applicable to the Seller or any of its assets;
(iii) This Agreement, assuming due authorization, execution and
delivery by the Seller, constitutes a valid,
-11-
<PAGE>
legal and binding obligation of the Purchaser, enforceable against it in
accordance with the terms hereof subject to applicable bankruptcy,
insolvency, reorganization, moratorium and other laws affecting the
enforcement of creditors' rights generally and to general principles of
equity, regardless of whether such enforcement is considered in a
proceeding in equity or at law;
(iv) The Purchaser is not in default with respect to any order or
decree of any court or any order, regulation or demand of any federal,
state, municipal or governmental agency, which default might have
consequences that would materially and adversely affect the condition
(financial or other) or operations of the Purchaser or its properties or
might have consequences that would affect its performance hereunder; and
(v) No litigation is pending or, to the best of the Purchaser's
knowledge, threatened against the Purchaser which would prohibit its
entering into this Agreement or performing its obligations under this
Agreement;
SECTION 10. Purchaser's Conditions to Closing. The obligations of the
---------------------------------
Purchaser under this Agreement shall be subject to the satisfaction, on or prior
to the Closing Date, of the following conditions:
(a) The obligations of the Seller required to be performed by it on
or prior to the Closing Date pursuant to the terms of this Agreement shall have
been duly performed and complied with and all of the representations and
warranties of the Seller under this Agreement shall be true and correct as of
the date hereof and as of the Closing Date, and no event shall have occurred
which, with notice or the passage of time, or both, would constitute a default
under this Agreement, and the Purchaser shall have received a certificate to
that effect signed by an Authorized Officer (as defined below) of the Seller.
(b) The Purchaser shall have received, or the Purchaser's attorney
shall have received in escrow, all of the following closing documents, in such
forms as are agreed upon and acceptable to the Purchaser, duly executed by all
signatories other than the Purchaser, as required pursuant to the respective
terms thereof:
(i) An assignment or assignments of each Mortgage Loan to the
Purchaser substantially in the form attached hereto as Exhibit B with
---------
such changes as are required to adapt the assignment to the proper
form in the jurisdiction where the related Mortgage Property
-12-
<PAGE>
is located, and each original Mortgage Note, duly endorsed originally
or by facsimile, without recourse, to the Purchaser, in each case in
accordance with the instructions set forth in Exhibit A attached
---------
hereto, which assignment or assignments and Mortgage Note shall be
delivered to and held by the Purchaser or its agent on behalf of the
Purchaser;
(ii) The Mortgage Loan Schedule prepared by Purchaser dated as
of the related Closing Date and attached hereto;
(iii) A certificate signed by an officer, which officer may be
either a vice president, an assistant vice president or assistant
secretary (an "Authorized Officer"), dated as of the Closing Date,
------------------
substantially in the form attached hereto as Exhibit C to the parties
---------
hereto, and attached thereto the resolutions of the Seller authorizing
the transactions contemplated by this Agreement, together with copies
of the charter, by-laws and a Good Standing Certificate as of a recent
date with respect to the Seller;
(iv) An opinion of Seller's counsel in substantially the form
attached hereto as Exhibit D-1 and D-2;
----------- ---
(v) A security release certification, in a form acceptable to
the Purchaser, executed by the appropriate mortgagee or secured party,
if any of the Mortgage Loans have at any time been subject to any
security interest, pledge or hypothecation for the benefit of such
person[; and]
(vi) A certificate or other evidence of merger or change of
name, signed or stamped by the applicable regulatory authority, if any
of the Mortgage Loans were acquired by the Seller by merger or
acquired or originated by the Seller while conducting business under a
name other than its present name; and
(vii) A servicing agreement substantially in the form attached
hereto as Exhibit E executed by the Seller;
---------
(c) The Seller will furnish to the Purchaser such other certificates
of its officers or others and such other documents to evidence fulfillment of
the conditions set forth in this Agreement as the Purchaser and its attorney may
reasonably request.
-13-
<PAGE>
SECTION 11. Seller's Conditions to Closing. The obligations of the
------------------------------
Seller under this Agreement shall be subject to the satisfaction, on or prior to
the Closing Date, of the following conditions:
(a) The obligations of the Purchaser required to be performed by it on
or prior to the Closing Date pursuant to the terms of this Agreement shall have
been duly performed and complied with and all of the representations and
warranties of the Purchaser under this Agreement shall be true and correct as of
the date hereof and as of the Closing Date, and no event shall have occurred
which, with notice or the passage of time, or both, would constitute a default
under this Agreement, and the Seller shall have received a certificate to that
effect signed by an Authorized Officer of the Seller.
(b) The Seller shall have received, or the Seller's attorney shall
have received in escrow, all of the following closing documents, in such forms
as are agreed upon and acceptable to the Seller, duly executed by all
signatories other than the Seller as required pursuant to the respective terms
thereof:
(i) A certificate signed by an Authorized Officer dated as of
the Closing Date, in the form acceptable to the parties hereto, and
attached thereto the resolutions of the Purchaser authorizing the
transactions contemplated by this Agreement, together with copies of
the Articles of Association and by-laws as of a recent date with
respect to the Purchaser;
(ii) An opinion of Purchaser's counsel in a form acceptable to
the parties hereto;
(c) The Purchaser will furnish to the Seller such other certificates
of its officers or others and such other documents to evidence fulfillment of
the conditions set forth in this Agreement as the Seller and its attorney may
reasonably request.
SECTION 12. Indemnification.
---------------
(a) The Seller agrees to indemnify and hold harmless the Purchaser
against any and all losses, claims, expenses, damages or liabilities to which
Purchaser may become subject, insofar as such losses, claims, expenses, damages
or liabilities (or actions in respect thereof) arise out of or are based upon
any representation or warranty made by the Seller in Section 8 hereof on which
---------
Purchaser has relied, being, or alleged to be, untrue or incorrect. This
indemnity will be in addition to any liability which the Seller may otherwise
have.
-14-
<PAGE>
(b) The Purchaser agrees to indemnify and hold harmless the Seller
solely in its capacity as seller of the Mortgage Loans against any and all
losses, claims, expenses, damages or liabilities to which the Seller may become
subject, insofar as such losses, claims, expenses, damages or liabilities (or
actions in respect thereof) arise out of or are based upon any representation or
warranty made by the Purchaser in Section 9 hereof on which the Seller has
---------
relied, being, or alleged to be, untrue or incorrect (notwithstanding the
Purchaser's lack of knowledge with respect to the substance of any
representation or warranty to which Section 9 applies which is made to the best
---------
of the Purchaser's knowledge). This indemnity will be in addition to any
liability which the Purchaser may otherwise have.
(c) Promptly after receipt by either the Purchasers or the Seller of
notice of the commencement of any action or proceeding in any way relating to or
arising from this Agreement, such party will notify the other party of the
commencement thereof; but the omission so to notify the party from whom
indemnification is sought (the "Indemnifying Party") will not relieve the
------------------
Indemnifying Party from any liability which it may have to the party seeking
indemnification (the "Indemnified Party") except to the extent that the
-----------------
Indemnifying Party is adversely affected by the lack of notice. In case any
such action is brought against the Indemnified Party, and it notifies the
Indemnifying Party of the commencement thereof, the Indemnifying Party will be
entitled to participate in the defense (with the consent of the Indemnified
Party which shall not be unreasonably withheld) of such action at the
Indemnifying Party's expense.
SECTION 13. Notices. All demands, notices and communications
-------
hereunder shall be in writing and shall be deemed to have been duly given if
mailed, by registered or certified mail, return receipt requested, or, if by
other means, when received by the other party. Notices to the Seller shall be
directed to _____________________, ______________________,
________________________, Attention: _______________, _____________________ with
a copy to the general counsel of the Seller of the same address; and notices to
the Purchaser shall be directed to ABN AMRO Mortgage Corporation, 181 West
Madison Street, Suite 3250, Chicago, Illinois 60602, Attention: Maria Fregosi -
Director - ABN AMRO Mortgage Operations; or such other addresses as may
hereafter be furnished to the other party by like notice.
SECTION 14. Termination. This Agreement may be terminated (i) by the
-----------
mutual consent of the parties hereto, or (ii) by the Purchaser if the conditions
to the Purchaser's obligations to closing set forth under Section 10 hereof are
----------
not
-15-
<PAGE>
fulfilled as and when required to be fulfilled or (iii) by the Seller if the
Purchaser's obligations under Section 11 hereof are not fulfilled as and when
----------
required. In the event of a termination pursuant to Section 14(ii), the Seller
--------------
agrees that it will pay the out-of-pocket fees and expenses of the Purchaser in
connection with the transactions contemplated by this Agreement and in the event
of a termination pursuant to Section 14(iii), the Purchaser agrees that it will
---------------
pay the out-of-pocket fees and expenses of the Seller in connection with the
transactions contemplated by this Agreement.
SECTION 15. Representations, Warranties and Agreements to Survive
-----------------------------------------------------
Delivery. All representations, warranties and agreements contained in this
- --------
Agreement, or in certificates of officers of the Seller and the Purchaser
submitted pursuant hereto, shall remain operative and in full force and effect
and shall survive transfer and sale of the Mortgage Loans to the Purchaser.
SECTION 16. Severability. If any provision of this Agreement shall be
------------
prohibited or invalid under applicable law, the Agreement shall be ineffective
only to such extent, without invalidating the remainder of this Agreement.
SECTION 17. Counterparts. This Agreement may be executed in any
------------
number of counterparts, each of which shall be an original, but both of which
together shall constitute one and the same agreement.
SECTION 18. Governing Law. This Agreement shall be deemed to have
-------------
been made in the State of Illinois and shall be interpreted in accordance with
the laws of such state without regard to the principles of conflicts of law of
such state.
SECTION 19. Further Assurances. The Seller and the Purchaser agree to
------------------
execute and deliver such instruments and take such actions as the other party
may, from time to time, reasonably request in order to effectuate the purpose
and to carry out the terms of this Agreement.
SECTION 20. Successors and Assigns. This Agreement shall be binding
----------------------
upon and inure to the benefit of and be enforceable by the Seller and the
Purchaser and their permitted successors and assigns. The Seller acknowledges
and agrees that the Purchaser may assign its rights under this Agreement. Any
person into which the Seller may be merged or consolidated (or any person
resulting from any merger or consolidation involving the Seller), or any person
succeeding to the business of the Seller shall be considered the "successor" of
the Seller hereunder. Except as provided in the two preceding sentences, this
Agreement cannot be assigned, pledged or hypothecated by any
-16-
<PAGE>
party hereto without the written consent of the other party to this Agreement.
Notwithstanding anything to the contrary in this Section 20, the parties hereto
----------
agree that the Purchaser has the right to assign its rights and interest in, to
and under Section 8 hereof.
---------
SECTION 21. Amendments. No term or provision of this Agreement may be
----------
waived or modified unless such waiver or modification is in writing and signed
by a duly authorized officer of the party against whom such waiver or
modification is sought to be enforced.
-17-
<PAGE>
IN WITNESS WHEREOF, the Seller and the Purchaser have caused their
names to be signed hereto by their respective duly authorized officers as of the
date first above written.
[Seller Name],
as Seller
By:___________________________
Name:_________________________
Title:________________________
ABN AMRO Mortgage Corporation,
as Purchaser
By:___________________________
Name:_________________________
Title:________________________
-18-
<PAGE>
SCHEDULE 1
MORTGAGE LOAN SCHEDULE
----------------------
<PAGE>
SCHEDULE 2
MORTGAGE LOAN SCHEDULE INFORMATION
----------------------------------
Each Mortgage Loan shall be identified by at least the following
details, among others, relating to each Mortgage Loan:
(i) the loan number of the Mortgage Loan and name of the related
Mortgagor;
(ii) the street address of the Mortgaged Property;
(iii) the initial mortgage rate;
(v) the original term and maturity date of the related Mortgage Note;
(vi) the original principal balance;
(vii) the first payment date;
(viii) the monthly payment in effect as of the Cut-Off Date;
(ix) the date of the last paid installment of interest;
(x) the unpaid principal balance as of the Cut-Off Date;
(xi) the loan-to-value ratio at origination and as of the Cut-Off
Date;
(xii) the type of property;
(xiii) the nature of occupancy at origination;
(xiv) the county in which Mortgaged Property is located;
(xv) the Purchase Price of the Mortgage Loan;
(xvi) the documentation type of the loan; and
(xvii) the Closing Date.
<PAGE>
SCHEDULE 3
MORTGAGE FILE INFORMATION
-------------------------
Each Mortgage File shall include at least the following documents,
among others, with respect to each Mortgage Loan transferred and assigned from
the Seller to the Purchaser, or its agent:
(i) the original Mortgage Loan Schedule;
(ii) the original Mortgage Note bearing all intervening endorsements
endorsed, "Pay to the order of ABN AMRO Mortgage Corporation, 181
West Madison Street, Suite 3250, Chicago, Illinois 60602, without
recourse" and signed in the name of the Seller by an Authorized
Officer showing an unbroken chain of title from the originator
thereof to the person endorsing;
(iii) the original Mortgage with evidence of recording thereon, and if
the Mortgage was executed pursuant to a power of attorney, a
certified true copy of the power of attorney certified by the
recorder's office, with evidence of recording thereon, or
certified by a title insurance company or escrow company to be a
true copy thereof; provided that if such original Mortgage or
--------
power of attorney cannot be delivered with evidence of recording
thereon on or prior to the Closing Date because of a delay caused
by the public recording office where such original Mortgage has
been delivered for recordation or because such original Mortgage
has been lost, the Seller shall deliver or cause to be delivered
to the Purchaser a true and correct copy of such Mortgage,
together with (a) in the case of a delay caused by the public
recording office, a certificate signed by an Authorized Officer of
the Seller stating that such original Mortgage has been dispatched
to the appropriate public recording official for recordation or
(b) in the case of an original Mortgage that has been lost, a
certificate by the appropriate county recording office where such
Mortgage is recorded or from a title insurance company or escrow
company indicating that such original was lost and the copy of the
original mortgage is a true and correct copy;
<PAGE>
(iv) the originals of any and all instruments that modify the terms and
conditions of the Mortgage Note, including but not limited to
modification, consolidation, extension and assumption agreements
including any adjustable rate mortgage (ARM) rider, if any;
(v) the originals of all required intervening assignments, if any with
evidence of recording thereon, and if such Assignment was executed
pursuant to a power of attorney, a certified true copy of the
power of attorney certified by the recorder's office, with
evidence of recording thereon, or certified by a title insurance
company or escrow company to be a true copy thereof; provided that
--------
if such original Assignment or power of attorney cannot be
delivered with evidence of recording thereon on or prior to the
Closing Date because of a delay caused by the public recording
office where such original Assignment has been delivered for
recordation or because such original Assignment has been lost, the
Seller shall deliver or cause to be delivered to the Purchaser a
true and correct copy of such Assignment, together with (a) in the
case of a delay caused by the public recording office, a
certificate signed by an Authorized Officer of the Seller stating
that such original Assignment has been dispatched to the
appropriate public recording official for recordation or (b) in
the case of an original Assignment that has been lost, a
certificate by the appropriate county recording office where such
Assignment is recorded or from a title insurance company or escrow
company indicating that such original was lost and the copy of the
original assignment is a true and correct copy;
(vi) the original mortgage policy of title insurance (including, if
applicable, the endorsement relating to the negative amortization
of the Mortgage Loans) or in the event such original title policy
is unavailable, [any one of an original title binder, an original
preliminary title report or] an original title commitment or a
copy thereof certified by the title company with the original
policy of title insurance to follow within 180 days of the Closing
Date;
(vii) the original mortgage insurance certificate for conventional and
FHA Mortgages, and the original
-2-
<PAGE>
loan guaranty certificate for VA Mortgages, if any;
(viii) hazard insurance certificates and copies of the Hazard Insurance
Policy and, if applicable, flood insurance policy; and
(ix) any and all other documents, opinions and certificates executed
and/or delivered by the related Mortgagor and/or its counsel in
connection with the origination of such Mortgage Loan specifically
including the [Mortgage Loan Commitment, Regulation 7 Truth-in-
Lending Statement and other legal statements, Appraisal and
Survey].
-3-
<PAGE>
EXHIBIT A
---------
INSTRUCTION LETTER
ABN AMRO Mortgage Corporation
181 West Madison Street, Suite 3250
Chicago, Illinois 60602
________ __, 1997
___________________________
___________________________
___________________________
Dear Ladies and Gentleman:
Pursuant to the Mortgage Loan Purchase Agreement dated as of _________ __,
1997(the "Purchase Agreement") between you and us, we have agreed to purchase
------------------
from you certain Mortgage Loans. All capitalized terms used herein and not
otherwise defined shall have the meanings set forth in the Purchase Agreement.
In order to facilitate these transactions, and for the purpose of
convenience only, we hereby authorize and direct you to:
Action Due Date
1. Endorse mortgage notes to: one week prior to funding
"Pay to the order of
ABN AMRO Mortgage Corporation
181 West Madison Street,
Suite 3250
Chicago, IL 60602,
without recourse"
2. Assign mortgages in one week prior to funding
recordable form to:
"ABN AMRO Mortgage Corporation
181 West Madison Street,
Suite 3250
Chicago, IL 60602"
3. Deliver to the Purchaser or its two business days after funding
agent all Mortgage Loan documents
pertaining to each loan
<PAGE>
4. Deliver to the Purchaser's servicer one week prior to Servicing
all Mortgage Loan servicing transfer date
documents pertaining to each loan
5. Provide lost mortgage note one week prior to funding
affidavits, certified copies of all
missing mortgages, and certified
recorded copies of missing
intervening assignments
6. Mortgage Loan Schedule generated by one day prior to funding
Purchaser and agreed to by Seller
Sincerely,
ABN AMRO Mortgage Corporation
By: ______________________________
Name:______________________________
Title:_____________________________
-2-
<PAGE>
EXHIBIT B
---------
ASSIGNMENT
----------
__________________________, ________________________ [INSERT IDENTIFYING
DESCRIPTION] (the "Seller"), in exchange for $__________ in hand paid and other
------
good and valuable consideration, hereby grants, bargains, sells, assigns,
transfers, conveys, and sets over to ABN AMRO Mortgage Corporation, a Delaware
corporation (the "Purchaser"), all of the Seller's right, title, and interest
---------
in, to, and under the mortgage loans listed on Schedule 1 attached hereto, the
----------
mortgage notes evidencing or relating to such mortgage loans, all mortgages,
trust deeds, title insurance policies, property insurance polices, chattel
paper, loan guaranties, loan accounts, surveys, instruments, certificates, and
other documents whatsoever evidencing or relating to such mortgage notes and
mortgage loans, and all books, ledgers, books of account, records, writings,
data bases, information, and computer software (and all documentation therefor
or relating thereto, and all licenses relating to or covering such computer
software and/or documentation), and all other property, rights, title, and
interests whatsoever relating to, used, or useful in connection with, or
evidencing, embodying, incorporating, or referring to, any of the foregoing (the
"Mortgages"). The Seller warrants to the Purchaser that the Seller is the owner
---------
of the Mortgages, subject to no liens, claims, or encumbrances.
<PAGE>
Dated: _____________, 1997 [SELLER NAME]
By:_____________________________
Title:_______________________
ACKNOWLEDGED ON _________, 1997
ABN AMRO Mortgage Corporation
By:___________________________
Title:_____________________
-2-
<PAGE>
STATE OF ____________ )
)
COUNTY OF ___________ )
I, ______________, a Notary Public in and for the said County and State, do
hereby certify that ____________, personally known to me to be the same person
whose name is subscribed to the foregoing instrument as _______________ of
__________________, appeared before me this day in person and, being first
sworn, acknowledged that he signed and delivered the said instrument as his own
free and voluntary act, and as the free and voluntary act of said corporation as
the ___________ of ____________, a ____________, for the uses and purposes
therein set forth and that he was duly authorized to execute the said instrument
by the __________________ of said _________________.
Given under my hand and seal, this ____ day of ____________, 1997.
__________________________________
Notary Public
My commission expires:____________
<PAGE>
EXHIBIT C
---------
OFFICER'S CERTIFICATE
[Insert Seller Name]
I, _________________, hereby certify that I am the duly elected Senior Vice
President and Assistant Secretary of ________________ ("_______________"), a
[insert description], and further certify as follows:
1. Attached hereto as Exhibit "A" is a true and correct copy of the
-----------
charter of ___________. There has been no amendment or other document
filed affecting the charter of ___________ since _______________, and no
such amendment has been authorized.
2. Attached hereto as Exhibit "B" is a true and correct copy of the
-----------
by-laws of _____________ as in full force and effect since ______________.
3. No proceedings looking toward merger, consolida tion,
liquidation, or dissolution of __________ are pending or contemplated.
4. Each person who, as an officer or representative of ____________,
signed (a) the Purchase Agreement, and (b) any other document delivered
pursuant thereto or on the date hereof in connection with the Mortgage Loan
Purchase Agreement dated ________, between __________, as seller, and ABN
AMRO Mortgage Corporation, as Purchaser (the Purchase Agreement") was, at
------------------
the respective times of such signing and delivery, and is as of the date
hereof duly elected or appointed, qualified and acting as such officer or
representative, and the signatures of such persons appearing on such
documents are their genuine signatures.
5. Attached hereto as Exhibit "C" is a true and correct copy of
-----------
resolutions adopted on ____________ by the Board of Directors of
____________ with respect to the authorization of ___________ to take such
actions and enter into such agreements as are necessary to enter into the
Purchase Agreement; said resolutions have not been amended, modified,
annulled or revoked and are in full force and effect.
<PAGE>
6. Attached hereto as Exhibit "D" is a Good Standing Certificate
-----------
issued by the _____________ Secretary of State's office as of ___________,
199_.
7. ___________ has performed all obligations and satisfied all
conditions on its part to be performed or satisfied under the Purchase
Agreement on or prior to the Closing Date and no event has occurred which,
with notice or passage of time, or both, would constitute a default under
the Purchase Agreement.
All capitalized terms used herein and not otherwise defined shall have the
meanings set forth in the Purchase Agreement.
IN WITNESS WHEREOF, I have hereunto signed my name.
Dated: ______________, 1997
___________________________
By:________________________
Title:_____________________
-2-
<PAGE>
I, ___________________, Secretary of ____________________, a [insert
description], hereby certify that _________________ is the duly elected,
qualified and acting Senior Vice President and Assistant Secretary of
____________________ and that the signature appearing on the preceding page is
her genuine signature.
IN WITNESS WHEREOF, I have hereunto signed my name.
Dated:_________________, 1997
______________________________
By:___________________________
Title: Secretary
-3-
<PAGE>
[Opinion to be revised in accordance with
general counsel's form of opinion letter]
Exhibit D-1
-----------
[Opinion of Seller's In-house Counsel
pursuant to Section 10(b)(iv)]
-----------------
_______________, 1997
ABN AMRO Mortgage Corporation
181 West Madison Street, Suite 3250
Chicago, Illinois 60602
Re: ABN AMRO Mortgage Corporation Purchase of Mortgage Loans
--------------------------------------------------------
Ladies and Gentlemen:
As General Counsel to ___________________, a _____________ ("Seller"), I
------
and attorneys working under my supervision have acted as counsel to
_____________ in connection with the sale of Mortgage Loans by _____________ to
ABN AMRO Mortgage Corporation (the "Purchaser") pursuant to a Mortgage Loan
---------
Purchase Agreement, dated as of _________________, 1997 (the "Purchase
--------
Agreement"), between the Purchaser and Seller. This opinion is being delivered
- ---------
to the Purchaser pursuant to Section 10(b)(iv) of the Purchase Agreement. All
-----------------
capitalized terms not otherwise defined herein have the meanings given them in
the Purchase Agreement.
In rendering the opinions set forth below, we have examined and relied upon
originals or copies, certified or otherwise identified to our satisfaction, of
the charter and by-laws of Seller, the Purchase Agreement and such corporate
records, agreements or other instruments of Seller, and such certificates,
records and other documents, agreements and instruments, including, among other
things, certain documents delivered on the Closing Date, as we have deemed
necessary and proper as the basis for our opinions. In connection with such
examination, we have assumed the genuineness of all signatures, the authenticity
of all documents, agreements and instruments submitted to us as originals, the
conformity to original documents, agreements and instruments of all documents,
agreements and instruments submitted to us as copies or specimens, the
authenticity of the originals of such documents, agreements and instruments
submitted to us as copies or specimens, the conformity to executed original
documents of all documents submitted to us in draft and the
<PAGE>
ABN AMRO Mortgage Corp.
____________, 1997
Page 2
accuracy of the matters set forth in the documents we reviewed. We have also
assumed that all documents, agreements and instruments have been duly
authorized, executed and delivered by all parties thereto. As to any facts
material to such opinions that we did not independently establish or verify, we
have relied upon statements and representations of officers and other
representatives of Seller as we have deemed necessary and proper as the basis
for our opinions, including, among other things, the representations and
warranties of Seller in the Purchase Agreement.
Based upon the foregoing, I am of the opinion that:
1. Seller is a [__________________________________], duly organized,
validly existing and in good standing under the laws of the State of Illinois
and either is not required to be qualified to do business under the laws of any
states where such qualification is necessary to transact the business
contemplated by the Purchase Agreement, or is qualified to do business under the
laws of any states where such qualification is necessary to transact the
business contemplated by the Purchase Agreement, or the State of
_________________], and Seller is duly authorized and has full corporate power
and authority to transact the business contemplated by the Purchase Agreement.
2. The Purchase Agreement has been duly authorized, executed and
delivered by Seller and is a legal, valid and binding obligation of and is
enforceable against Seller in accordance with its terms, except that the
enforceability thereof may be subject to (A) bankruptcy, insolvency,
receivership, conservatorship, reorganization, moratorium or other laws, now or
hereafter in effect, relating to creditors' rights generally or the right of
creditors of [federal savings banks], (B) general principles of equity
(regardless of whether enforcement is sought in a proceeding in equity or at
law) and (C) limitations of public policy under applicable securities laws as to
rights of indemnity and contribution under the Purchase Agreement.
3. No consent, approval, authorization or order of any court or
supervisory, regulatory, administrative or governmental agency or body is
required for the execution, delivery and performance by Seller of or compliance
by Seller with the Purchase Agreement, the sale of the Mortgage Loans or the
consummation of the transactions contemplated by the Purchase Agreement.
<PAGE>
ABN AMRO Mortgage Corp.
____________, 1997
Page 3
4. Neither the execution and delivery by _____________ of the Purchase
Agreement, nor the consummation by ______________ of the transactions
contemplated therein, nor the compliance by Seller with the provisions thereof,
will conflict with or result in a breach of any of the terms, conditions or
provisions of Seller's charter or by-laws or board or shareholder's resolutions,
or any agreement or instrument to which Seller is now a party or by which it is
bound, or constitute a default or result in an acceleration under any of the
foregoing, or result in the violation of any law, rule, regulation, order,
judgment or decree to which Seller or its property is subject, which, in any of
the above cases, would materially and adversely affect Seller's ability to
perform its obligations under the Purchase Agreement.
5. There is not an action, suit, proceeding or investigation pending, or,
to the best of my knowledge, threatened against Seller which, either in any one
instance or in the aggregate, would draw into question the validity of the
Purchase Agreement or the Mortgage Loans or of any action taken or to be taken
in connection with the obligations of Seller contemplated therein, or which
would be likely to materially impair the ability of Seller to perform under the
terms of the Purchase Agreement.
The Opinions expressed herein are limited to matters of federal and
_____________ law and do not purport to cover any matters as to which laws of
any other jurisdiction are applicable. Except as expressly provided herein,
this opinion is being furnished to you solely for your benefit in connection
with the purchase of the Mortgage Loans, and it is not to be used, circulated,
quoted or otherwise referred to for any purpose without my express written
consent.
Sincerely,
___________________________
By:
Title: General Counsel
<PAGE>
Exhibit D-2
-----------
[Opinion of Seller's Outside Counsel
pursuant to Section 10(b)(iv)]
-----------------
_______________, 1997
ABN AMRO Mortgage Corporation
181 West Madison Street, Suite 3250
Chicago, Illinois 60602
Re: ABN AMRO Mortgage Corporation Purchase of Mortgage Loans
--------------------------------------------------------
Ladies and Gentlemen:
We have acted as special counsel to ____________________, a
___________________ ("Seller"), in connection with the sale of Mortgage Loans by
------
Seller to ABN AMRO Mortgage Corporation (the "Purchaser") pursuant to a Mortgage
---------
Loan Purchase Agreement, dated as of __________, 1997 (the "Purchase
--------
Agreement"), between the Purchaser and Seller. This letter is being delivered
- ---------
to the Purchaser pursuant to Section 10(b)(iv) of the Purchase Agreement. All
-----------------
capitalized terms not otherwise defined herein have the meanings given them in
the Purchase Agreement.
In rendering the opinions set forth below, we have examined and relied upon
copies, certified or otherwise identified to our satisfaction, of the Purchase
Agreement, the form of Assignment of Mortgage attached as Exhibit A hereto, the
---------
form of endorsement of the Mortgage Notes set forth in Exhibit A of the Purchase
---------
Agreement (the "Mortgage Note Endorsement"), and such certificates, records and
-------------------------
other documents, agreements and instruments, including, among other things, the
documents and opinions delivered on the Closing Date, as we have deemed
necessary as the basis for our opinions. In connection with such examination,
we have assumed the genuineness of all signatures, the authenticity of all
documents, agreements and instruments submitted to us as originals, the
conformity to original documents, agreements and instruments of all documents,
agreements and instruments submitted to us as copies or specimens and the
authenticity of the originals of such documents, agreements and instruments
submitted to us as copies or specimens. We have also assumed that all
documents, agreements and instruments have been duly authorized, executed and
delivered, and the terms and provisions thereof will be complied with, by all
parties thereto. As to any facts material to such
<PAGE>
ABN AMRO Mortgage Corp.
____________, 1997
Page 2
opinions that we did not independently establish or verify, we have relied upon
certificates of officers of Seller and the representations and warranties of
Seller in the Purchase Agreement.
In rendering the opinions below we do not express any opinion concerning
the laws of any jurisdiction other than the substantive laws of the State of
__________ and the federal laws of the United States of America. We have not
examined the Mortgage Notes, the Mortgages, the Assignments of Mortgages, the
Mortgage Note Endorsements or any other instruments, agreements or other
documents in any Mortgage File (collectively, "Mortgage Documents") and we
------------------
express no opinion as to the conformity of any such Mortgage Document to the
requirements of the Purchase Agreement.
For purposes of this letter, we have assumed that (i) each Mortgage Note
and each Mortgage was appropriately prepared and duly executed and delivered by
the related Mortgagor, each Mortgage was appropriately recorded in the
applicable jurisdiction, and any intervening endorsement of any Mortgage Note,
and any intervening assignment of any Mortgage and recording thereof which was
required in order to transfer to Seller ownership of the related Mortgage Loan,
was obtained and completed; (ii) the amount of the consideration to be paid by
the Purchaser to Seller for the Mortgage Loans constitutes value reasonably
equivalent to the value of the Mortgage Loans; (iii) Seller is not selling the
Mortgage Loans with any intent to hinder, delay or defraud any of its creditors;
(iv) neither Seller nor the Purchaser has been or will be a party to any fraud
or illegality affecting any of the Mortgage Loans; (v) no fraud or mistake on
the part of any party to the Agreement or any other agreement in connection with
the transactions contemplated thereby has occurred or will occur; (vi) no party
to the Purchase Agreement or any other agreement in connection with the
transactions contemplated thereby has taken or will take any action which is
unreasonable, arbitrary or capricious, or which is not taken in good faith or in
a commercially reasonable manner, affecting the Mortgage Loans in connection
with the transactions contemplated thereby; and (vii) the Trustee is not an
affiliate of Seller.
<PAGE>
ABN AMRO Mortgage Corp.
____________, 1997
Page 3
Based upon the foregoing, we are of the opinion that:
1. The form of the Mortgage Note Endorsement, if properly incorporated on
a Mortgage Note and duly executed and delivered together with such Mortgage Note
against payment therefor, is sufficient to transfer the ownership of such
Mortgage Note to the transferee thereof.
2. The form of the Assignment of Mortgage, if duly executed, acknowledged
and delivered, is sufficient to assign the beneficial interest under each
Mortgage, if such Mortgage is properly described therein, to the transferee
thereof.
3. The sale of a Mortgage encumbering real estate located in
________________ will be effected under the laws of the State of
____________________ upon the last to occur of (a) the endorsement on the
original of the related Mortgage Note by (or at the direction of or otherwise
upon due authorization from) the transferor, as the owner of such Mortgage Note,
and delivery of same to the transferee, (b) the delivery of the original of such
Mortgage to the transferee, and (c) the due execution, acknowledgment and
delivery of the Assignment of Mortgage to the transferee by (or at the direction
or otherwise upon due authorization from) the transferor, as the owner and
record holder of such Mortgage, in favor of the transferee, contemporaneously
with the delivery of the original of the related Mortgage Notes.
We are furnishing this letter to you solely for your benefit. This letter
is not to be used, circulated, quoted or otherwise referred to for any other
purpose except as anticipated on the Closing Date.
Very truly yours,
[INSERT NAME OF FIRM]
By:___________________________
<PAGE>
EXHIBIT E
---------
Servicing and Custodial Agreement
<PAGE>
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
equivalent consideration. We have also assumed that 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 provisions of the Agreement. In addition, we have assumed
<PAGE>
ABN AMRO Mortgage Corp.
February _, 1998
Page 2
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, it constitutes, in all material respects, a fair
and accurate summary of such Federal income tax consequences under present
Federal income tax law. 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 _, 1998
Page 3
We hereby consent to the filing of this letter as an exhibit to the
Registration Statement and to the references to this firm under the heading
"Legal Matters" in the Prospectus Supplement and in "Legal Matters" in the
Prospectus forming a part of the Registration Statement, without admitting that
we are "experts" within the meaning of the Act or the rules and regulations of
the Commission issued thereunder, with respect to any part of the Registration
Statement, including this exhibit.
Very truly yours,
MAYER, BROWN & PLATT
MBP:DC
